The Rise of Outbound Investment Screening: The U.S. and EU Initiate Measures

In Short

The Development: On January 15, 2025, the European Commission ("EC") published a Recommendation ("EU Recommendation") urging European Union Member States to start reviewing outbound investments outside of the EU in three strategic sectors: semiconductors, artificial intelligence ("AI"), and quantum technologies. Just days earlier, on January 2, 2025, the Final Rule establishing a new U.S. Outbound Investment Security Program ("OISP") also went into effect, prohibiting investments that pose an acute national security threat and requiring notification to the U.S. Treasury for other U.S. outbound investments in mainland China, Hong Kong, and Macau in these same strategic sectors.

The Context: Protecting economic security and more broadly national security interests in certain highly strategic and rapidly evolving technological sectors has emerged as a priority for both the EU and the United States. 

Looking Ahead: The EU Recommendation urges EU Member States to review outbound investments made in all three key technologies by EU investors in third countries. Although non-binding, the EU Recommendation signals potential future legislative changes, which could lead to new reporting requirements. However, with respect to the United States, as the OISP is already in effect, targeted U.S. outbound investments are already subject to certain prohibitions and reporting requirements.

Four Key Takeaways

1. The EU Recommendation urges EU Member States to assess outbound investments in critical sectors, namely semiconductors, AI, and quantum technologies, to safeguard economic security.

2. EU Member States are asked to review transactions (dating back to 2021) by July 2025 and submit a final report by June 2026, addressing any identified risks and implementation progress. This may come with subjecting parties to voluntary or mandatory filings of information on transactions.

3. The U.S. OISP prohibits or requires notification of certain outbound U.S. investments relating to mainland China, Hong Kong, and Macau in these same strategic technology sectors. As the U.S. OISP went into effect on January 2, 2025, under the Final Rule, covered U.S. persons must already comply with its transaction prohibitions and notification requirements.

4. The continuous expansion of investment screening regimes is intended to safeguard important national security risks. It will add complexity, administrative burdens, and uncertainty to investment activity.