In recent months, two U.S. agencies—specifically the Department of Commerce and the Department of the Treasury—have increasingly applied a legal standard originating from the Foreign Corrupt Practices Act (FCPA). This standard places the onus on U.S. companies not only to avoid violations they know about but also to act when there is a “high probability” of such breaches occurring.
The Bureau of Industry and Security (BIS) within the Commerce Department has emphasized this approach since mid-2024. It applies this framework not just to the firms directly involved in export activities, but also to financial institutions providing financing services. The underlying expectation is clear: due diligence in assessing risk must now encompass awareness of high probability scenarios, reflecting a marked shift in compliance expectations.
A similar rationale has guided the Treasury Department’s recent final rule on outbound investment. This rule regulates American investments in specific technologies and products within countries identified as national security concerns, including China. Transactions concerning semiconductors, quantum information technologies, and artificial intelligence are particularly targeted under this regulatory framework.
Under this rule, the scope of what constitutes “knowledge” now includes an awareness of a high probability of a fact or circumstance existing or likely to occur. The resulting compliance obligations are substantial: Companies must conduct a “reasonable and diligent inquiry” to ascertain whether their transactions might involve individuals or entities under this high-risk category.
The implications for compliance are significant. According to the Treasury, traditional contractual safeguards such as representations and warranties are inadequate by themselves to fulfill regulatory expectations. Instead, firms are urged to develop methodologies capable of defending the subjective judgments necessary when appraising risks under imperfect conditions. The practice of employing totality assessments of relevant facts—encompassing non-public and commercial database research, and an explicit conscientiousness towards “warning signs”—is now a legal necessity.
The recurrence of the high probability standard in the regulatory landscape underscores a broader governmental intention. It’s less about marking new territories of legal oversight and more about instilling a robust due diligence culture akin to what drove FCPA enforcement. This approach encourages preventive measures and compliance, deterring unauthorized transactions proactively rather than punitively.
This regulatory momentum is noteworthy within the context of outbound U.S. investments. U.S. legal and natural persons engaged in covered transactions must ensure compliance with these updated requirements by January 2, 2025, to avoid potential legal repercussions and protect their investment activities.
For detailed insights into how these rules apply and their broader implications, legal professionals are advised to review the discussion by Michael H. Huneke published on Bloomberg Law.