II 118th CONGRESS 1st Session S. 2678 IN THE SENATE OF THE UNITED STATES July 27, 2023 Mr. Cornyn (for himself and Mr. Casey ) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To provide for an investment screening mechanism relating to covered sectors.

1. Short title This Act may be cited as the Outbound Investment Transparency Act of 2023 . 2. Protection of covered sectors The Defense Production Act of 1950 ( 50 U.S.C. 4501 et seq. ) is amended by adding at the end the following: VIII Protection of covered sectors 801. Definitions In this title: (1) Appropriate congressional committees The term appropriate congressional committees means— (A) the Committee on Armed Services, the Committee on Finance, the Committee on Banking, Housing, and Urban Affairs, the Select Committee on Intelligence, and the Committee on Foreign Relations of the Senate; and (B) the Committee on Armed Services, the Committee on Ways and Means, the Committee on Financial Services, the Permanent Select Committee on Intelligence, and the Committee on Foreign Affairs of the House of Representatives. (2) Country of concern The term country of concern means, subject to such regulations as may be prescribed in accordance with section 806, a country specified in section 4872(d)(2) of title 10, United States Code. (3) Covered activity (A) In general Subject to such regulations as may be prescribed in accordance with section 806, and except as provided in subparagraph (B), the term covered activity means any activity engaged in by a United States person in a related to a covered sector that involves— (i) an acquisition by such United States person of an equity interest or contingent equity interest, or monetary capital contribution, in a covered foreign entity, directly or indirectly, by contractual commitment or otherwise, with the goal of generating income or gain; (ii) an arrangement for an interest held by such United States person in the short- or long-term debt obligations of a covered foreign entity that includes governance rights that are characteristic of an equity investment, management, or other important rights, as defined in regulations prescribed in accordance with section 806; (iii) the establishment of a wholly owned subsidiary in a country of concern, such as a greenfield investment, for the purpose of production, design, testing, manufacturing, fabrication, or development related to one or more covered sectors; (iv) the establishment by such United States person of a joint venture in a country of concern or with a covered foreign entity for the purpose of production, design, testing, manufacturing, fabrication, or research involving one or more covered sectors, or other contractual or other commitments involving a covered foreign entity to jointly research and develop new innovation, including through the transfer of capital or intellectual property or other business proprietary information; or (v) the acquisition by a United States person with a covered foreign entity of— (I) operational cooperation, such as through supply or support arrangements; (II) the right to board representation (as an observer, even if limited, or as a member) or an executive role (as may be defined through regulation) in a covered foreign entity; (III) the ability to direct or influence such operational decisions as may be defined through such regulations; (IV) formal governance representation in any operating affiliate, like a portfolio company, of a covered foreign entity; or (V) a new relationship to share or provide business services, such as but not limited to financial services, marketing services, maintenance, or assembly functions, related to a covered sectors. (B) Exceptions The term covered activity does not include— (i) any transaction the value of which the Secretary of the Treasury determines is de minimis, as defined in regulations prescribed in accordance with section 806; (ii) any category of transactions that the Secretary determines is in the national interest of the United States, as may be defined in regulations prescribed in accordance with section 806; or (iii) any ordinary or administrative business transaction as may be defined in such regulations. (4) Covered foreign entity (A) In general Subject to regulations prescribed in accordance with section 806, and except as provided in subparagraph (B), the term covered foreign entity means— (i) any entity that is incorporated in, has a principal place of business in, or is organized under the laws of a country of concern; (ii) any entity the equity securities of which are primarily traded in the ordinary course of business on one or more exchanges in a country of concern; (iii) any entity in which any entity described in subclause (i) or (ii) holds, individually or in the aggregate, directly or indirectly, an ownership interest of greater than 50 percent; or (iv) any other entity that is not a United States person and that meets such criteria as may be specified by the Secretary of the Treasury in such regulations. (B) Exception The term covered foreign entity does not include any entity described in subparagraph (A) that can demonstrate that a majority of the equity interest in the entity is ultimately owned by— (i) nationals of the United States; or (ii) nationals of such countries (other than countries of concern) as are identified for purposes of this subparagraph pursuant to regulations prescribed in accordance with section 806. (5) covered sectors Subject to regulations prescribed in accordance with section 806, the term covered sectors includes sectors within the following areas, as specified in such regulations: (A) Advanced semiconductors and microelectronics. (B) Artificial intelligence. (C) Quantum information science and technology. (D) Hypersonics. (E) Satellite-based communications. (F) Networked laser scanning systems with dual-use applications. (6) Party The term party , with respect to an activity, has the meaning given that term in regulations prescribed in accordance with section 806. (7) United States The term United States means the several States, the District of Columbia, and any territory or possession of the United States. (8) United States person The term United States person means— (A) an individual who is a citizen or national of the United States or an alien lawfully admitted for permanent residence in the United States; and (B) any corporation, partnership, or other entity organized under the laws of the United States or the laws of any jurisdiction within the United States. 802. Administration of United States investment notification (a) In general The President shall delegate the authorities and functions under this title to the Secretary of the Treasury. (b) Coordination In carrying out the duties of the Secretary under this title, the Secretary shall— (1) coordinate with the Secretary of Commerce; and (2) consult with the United States Trade Representative, the Secretary of Defense, the Secretary of State, and the Director of National Intelligence. 803. Mandatory notification of covered activities (a) Mandatory notification (1) In general Subject to regulations prescribed in accordance with section 806, beginning on the date that is 90 days after such regulations take effect, a United States person that plans to engage in a covered activity shall— (A) if such covered activity is not a secured transaction, submit to the Secretary of the Treasury a complete written notification of the activity not later than 14 days before the anticipated completion date of the activity; and (B) if such covered activity is a secured transaction, submit to the Secretary of the Treasury a complete written notification of the activity not later than 14 days after the completion date of the activity. (2) Circulation of notification (A) In general The Secretary shall, upon receipt of a notification under paragraph (1), promptly inspect the notification for completeness. (B) Incomplete notifications If a notification submitted under paragraph (1) is incomplete, the Secretary shall promptly inform the United States person that submits the notification that the notification is not complete and provide an explanation of relevant material respects in which the notification is not complete. (3) Identification of non-notified activity The Secretary shall establish a process to identify covered activity for which— (A) a notification is not submitted to the Secretary under paragraph (1); and (B) information is reasonably available. (b) Confidentiality of information (1) In general Except as provided in paragraph (2), any information or documentary material filed with the Secretary of the Treasury pursuant to this section shall be exempt from disclosure under section 552 of title 5, United States Code, and no such information or documentary material may be made public by any government agency or Member of Congress. (2) Exceptions The exemption from disclosure provided by paragraph (1) shall not prevent the disclosure of the following: (A) Information relevant to any administrative or judicial action or proceeding. (B) Information provided to Congress or any of the appropriate congressional committees. (C) Information important to the national security analysis or actions of the President to any domestic governmental entity, or to any foreign governmental entity of an ally or partner of the United States, under the direction and authorization of the President or the Secretary, only to the extent necessary for national security purposes, and subject to appropriate confidentiality and classification requirements. (D) Information that the parties have consented to be disclosed to third parties. 804. Reporting requirements (a) In general Not later than 360 days after the date on which the regulations prescribed under section 806 take effect, and not less frequently than annually thereafter, the Secretary of the Treasury shall submit to the appropriate congressional committees a report that— (1) lists all notifications submitted under section 803(a) during the year preceding submission of the report and includes, with respect to each such notification— (A) basic information on each party to the covered activity with respect to which the notification was submitted; and (B) the nature of the covered activity that was the subject to the notification, including the elements of the covered activity that necessitated a notification; (2) includes a summary of those notifications, disaggregated by sector, by covered activity, and by country of concern; (3) provides additional context and information regarding trends in the sectors, the types of covered activities, and the countries involved in those notifications; (4) includes a description of the national security risks associated with— (A) the covered activities with respect to which those notifications were submitted; or (B) categories of such activities; and (5) assesses the overall impact of those notifications, including recommendations for— (A) expanding existing Federal programs to support the production or supply of covered sectors in the United States, including the potential of existing authorities to address any related national security concerns; (B) investments needed to enhance covered sectors and reduce dependence on countries of concern regarding those sectors; and (C) the continuation, expansion, or modification of the implementation and administration of this title, including recommendations with respect to whether the definition of country of concern under section 801(2) should be amended to add or remove countries. (b) Form of report Each report required by this section shall be submitted in unclassified form, but may include a classified annex. (c) Testimony required Not later than one year after the date of enactment of this title, and annually thereafter, the Secretary of the Treasury and the Secretary of Commerce shall each provide to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives testimony with respect to the national security threats relating to investments by the United States persons in countries of concern and broader international capital flows. 805. Penalties and enforcement (a) Penalties with respect to unlawful acts Subject to regulations prescribed in accordance with section 806, it shall be unlawful— (1) to fail to submit a notification under subsection (a) of section 803 with respect to a covered activity or to submit other information as required by the Secretary of the Treasury; or (2) to make a material misstatement or to omit a material fact in any information submitted to the Secretary under this title. (b) Enforcement The President may direct the Attorney General to seek appropriate relief in the district courts of the United States, in order to implement and enforce this title. 806. Requirement for regulations (a) In general Not later than 360 days after the date of the enactment of this title, the Secretary of the Treasury shall finalize regulations to carry out this title. (b) Elements Regulations prescribed to carry out this title shall include specific examples of the types of— (1) activities that will be considered to be covered activities; and (2) the specific sectors and subsectors that may be considered to be covered sectors. (c) Requirements for certain regulations The Secretary of the Treasury shall prescribe regulations further defining the terms used in this title, including covered activity , covered foreign entity , and party , in accordance with subchapter II of chapter 5 and chapter 7 of title 5 (commonly known as the Administrative Procedure Act ). (d) Public participation in rulemaking The provisions of section 709 shall apply to any regulations issued under this title. (e) Low-Burden regulations In prescribing regulations under this section, the Secretary of the Treasury shall structure the regulations— (1) to minimize the cost and complexity of compliance for affected parties; (2) to ensure the benefits of the regulations outweigh their costs; (3) to adopt the least burdensome alternative that achieves regulatory objectives; (4) to prioritize transparency and stakeholder involvement in the process of prescribing the regulations; and (5) to regularly review and streamline existing regulations to reduce redundancy and complexity. 807. Multilateral engagement and coordination (a) In general The President shall delegate the authorities and functions under this section to the Secretary of State. (b) Authorities The Secretary of State, in coordination with the Secretary of the Treasury, the Secretary of Commerce, the United States Trade Representative, and the Director of National Intelligence, shall— (1) conduct bilateral and multilateral engagement with the governments of countries that are allies and partners of the United States to ensure coordination of protocols and procedures with respect to covered activities with countries of concern and covered foreign entities; and (2) upon adoption of protocols and procedures described in paragraph (1), work with those governments to establish mechanisms for sharing information, including trends, with respect to such activities. (c) Strategy for development of outbound investment screening mechanisms The Secretary of State, in coordination with the Secretary of the Treasury and in consultation with the Attorney General, shall— (1) develop a strategy to work with countries that are allies and partners of the United States to develop mechanisms comparable to this title for the notification of covered activities; and (2) provide technical assistance to those countries with respect to the development of those mechanisms. (d) Report Not later than 90 days after the development of the strategy required by subsection (b), and annually thereafter for a period of 5 years, the Secretary of State shall submit to the appropriate congressional committees a report that includes the strategy, the status of implementing the strategy, and a description of any impediments to the establishment of mechanisms comparable to this title by allies and partners. 808. Authorization of appropriations (a) In general There are authorized to be appropriated such sums as may be necessary to carry out this title, including to provide outreach to industry and persons affected by this title. (b) Hiring authority The head of any agency designated as a lead agency under section 802(b) may appoint, without regard to the provisions of sections 3309 through 3318 of title 5, United States Code, not more than 25 candidates directly to positions in the competitive service (as defined in section 2102 of that title) in that agency. The primary responsibility of individuals in positions authorized under the preceding sentence shall be to administer this title. 809. Rule of construction with respect to free and fair commerce Nothing in this title may be construed to restrain or deter foreign investment in the United States, United States investment abroad, or trade in goods or services, if such investment and trade do not pose a risk to the national security of the United States. .