Manus Capital's Dilemma: Chinese Roots Hard to Shake, Headquarters Relocated to Singapore and Layoffs After Silicon Valley Financing

Recently, Manus confirmed to multiple media outlets that the company is optimizing its domestic business team. Apart from more than 40 core technical staff being relocated to the Singapore headquarters, the rest have been laid off. In June, the "About Us" section on the Manus website changed its global headquarters to Singapore.

Manus, developed by the Chinese startup "Butterfly Effect," was officially launched in an invitation - only format in early March 2025. Its launch video demonstrated its AI agents performing complex tasks, from conducting research to autonomously building mobile applications and websites, which caught people's attention. This demonstration was hailed by the tech community as "the second DeepSeek moment."

However, just as DeepSeek was soon investigated and faced calls for a ban in the United States, in April 2025, Manus received a $75 million investment from Benchmark, one of Silicon Valley's top venture capital firms. Soon after, in May, it was investigated by the U.S. Treasury Department. The legal basis for this investigation is the "Outbound Investment Security Program" (OISP), which came into effect on January 2, 2025, and is also known as the "reverse CFIUS" program.

The new OISP regulations have been in place for six months, and the U.S. Treasury Department has been actively monitoring relevant transactions to prevent potential OISP violations. Does this mean that the U.S. has completely blocked investment channels to China? Through the example of Manus and the recent actions of the U.S. Treasury Department, let's re - examine the OISP system and its impact.

I. Interpreting OISP: The "High - Voltage Line" for U.S. Technology Investment in China

The "Outbound Investment Security Program" (OISP) prohibits certain "covered transactions" and specific "covered activities" involving "U.S. persons" and entities with specific associations with China (including Hong Kong and Macau), including work related to semiconductors, quantum computing, or certain artificial intelligence technologies. The regulation aims to prevent the transfer of intellectual property, proprietary technology, capital, or professional relationships of U.S. companies to entities located in these regions or entities owned or controlled by individuals located in these regions.

Violations of OISP can result in civil fines up to twice the value of the relevant transaction, and willful violations can be punished with a maximum of 20 years in prison. The Treasury Department can also declare any prohibited transaction void or otherwise force divestment.

Different from the Committee on Foreign Investment in the United States (CFIUS), OISP does not establish a screening and review mechanism for specific transactions. Instead, it outsources the main regulatory compliance burden to relevant U.S. investors or investment management professionals. In other words, the current form of OISP does not consider any pre - approval or case - by - case approval mechanism. Therefore, OISP imposes a broad "knowledge" standard on the parties. If a U.S. person not only actually knows the relevant facts or circumstances but also knows that the possibility of such facts existing is very high or has "reason to know," they are considered to know that notification or prohibition is necessary.

Overall, under OISP, U.S. entities must notify the Treasury Department of investments that may "accelerate and increase the success rate of sensitive technology development" because these investments may harm U.S. interests.

II. Stricter Enforcement: The U.S. Treasury Department Takes the Initiative, and the System Boundary May Expand

Shortly after taking office in January 2025, U.S. President Trump issued the "America First Trade Policy Memorandum." However, the Trump administration never made any modifications to OISP. Instead, it strengthened some provisions of OISP through its "America First Investment Policy" executive order. According to the executive order, the U.S. government may seek to expand the covered areas to include biotechnology, hypersonic technology, aerospace, and advanced manufacturing. The policy also proposes sanctions to "further discourage Americans from investing in China's military - industrial sector."

At the beginning of May, U.S. Treasury Secretary Scott Bessent was working with Congress to formulate "outbound investment" rules for China, which will clarify which investments are allowed and which are prohibited. Bessent discussed with U.S. lawmakers "the importance of setting up red or green zones (rather than yellow zones) for outbound investments." He also said that OISP is "an important national security tool for us to limit (China's) access to U.S. investment benefits."

As U.S. traders continue to seek outbound investments and joint ventures in the covered industries, "self - review" under OISP has become an important factor in due diligence and transaction structuring. At the beginning of May, the Treasury Department began to take the initiative in law enforcement and sent multiple investigation inquiries to U.S. investor clients suspected of participating in transactions involving the OISP system. This included sending emails to U.S. investors, requesting phone communication with the U.S. side or their lawyers. After the initial phone call, the Treasury Department will provide a preliminary list of questions via email, seeking information about the transaction to determine whether the parties have participated in a "covered transaction" that violates OISP.

One of the preliminary questions raised by the Treasury Department is to require the parties to the transaction to "describe how the applicability of the OISP system was considered during the investment due diligence process." Since the OISP regulations require the parties to conduct appropriate due diligence to determine whether the proposed transaction falls into the category of "notifiable" or "prohibited" under the OISP system.

In summary, the OISP system will continue to evolve in the next few months - either through new legislation, regulatory updates, or both. These changes may expand the scope of OISP to cover more technologies and industries (i.e., beyond the currently covered areas of semiconductors, quantum computing, and artificial intelligence).

III. The Manus Case: Benchmark's Compliance Dilemma in Investment and Criticism from Peers

Benchmark Capital is one of the most well - known venture capital firms in Silicon Valley, having made early investments in eBay, Twitter, Uber, and Snap. To avoid triggering OISP's ban, Benchmark consulted multiple U.S. law firms before investing in Manus. These law firms provided two types of reasons, believing that the investment would not be punished by OISP:

1. Since Manus does not develop its own AI model but instead fine - tunes existing models built by companies such as Anthropic and Alibaba, compared with the underlying technology innovation of DeepSeek, Manus is only a product innovation. Therefore, Munus has not enhanced China's AI capabilities, and the transaction should not trigger the latest U.S. outbound investment restrictions.

2. Strictly speaking, Manus is not a Chinese company. Its parent company, "Butterfly Effect," is incorporated in the Cayman Islands, with employees in the United States, Singapore, Japan, and China, and its data is stored on cloud servers operated by Western companies.

However, it is still hard to say whether the above two types of explanations can pass the review of the U.S. Treasury Department.

Firstly, the enforcement intensity of the U.S. Treasury Department's overseas investment rules is still largely untested, so the result is uncertain;

Secondly, there are still questions about the true nature of Manus' technology. Although Manus has not trained its own large - scale model, its co - founder and chief scientist, Ji Yichao, recently claimed that its AI agents have shown "emergent capabilities," suggesting possible progress in the field of AI reasoning;

Thirdly, although Manus has moved its headquarters to Singapore to meet formal compliance requirements, it is still hard to determine whether it can be considered a "non - Chinese company" because in many legal procedures, the United States still seems to treat TikTok and Shein, whose headquarters are in Singapore, as Chinese companies.

A Republican senator said that this transaction is equivalent to Benchmark helping the Chinese government and suggested that Congress take action.

In addition to legal challenges, Benchmark has also faced strong opposition and criticism in the Silicon Valley investment circle. Delian Asparouhov, a partner at Founders Fund, said, "I'm not saying that Benchmark's partners are assets of China... but they are definitely assets for China." "In 1972, we wouldn't have funded the Soviet space program, and in 2025, we shouldn't fund China's AI race. In my opinion, it's the same problem. It seems beyond logic." Josh Wolfe, co - founder of Lux Capital, posted that this investment "makes no sense."

IV. Compliance Path: Can a Joint - Venture Structure Avoid OISP Review?

So, how can Sino - U.S. enterprises cooperate to avoid falling under the OISP review? Sequoia Capital chose to separate from its Chinese branch. In addition, according to the research and practice of A&O Sherman Law Firm, OISP does not restrict joint ventures between U.S. entities (or foreign enterprises owned by U.S. owners) and Chinese - affiliated counterparties, even if these joint ventures are engaged in technology development similar to the regulated technologies.

Specifically, by focusing on the governance and ownership structure, investments and transactions can be structured to ensure that the joint venture is not classified as a "person of concern" and is therefore not subject to OISP.

This is the case even if one party to the joint venture is a Chinese entity or a "person from a country/region of concern." When structuring transactions and investments, (1) if any such counterparty holds less than 50% of the voting rights, board voting rights, or common stock in the joint venture and has limited governance or operational rights; and (2) if the management headquarters and registration location of the joint venture are in the United States or a neutral third country, the joint venture with a person from a country/region of concern can be exempt from OISP.

Therefore, even if the activities of the joint venture fall within the current list of covered activities of OISP, or if the list is expanded in the future to cover the joint venture's activities, it will still not fall under the scope of OISP. Parties interested in establishing a joint venture should consider the impact of the joint venture's governance and ownership structure on whether it is currently or will be subject to OISP in the future.

However, lawyers from the law firm also reminded that any partnership involving U.S. investment (but not including a full acquisition) must be carefully considered to ensure compliance with the program.

Conclusion

The U.S. Treasury Department's investigation into Benchmark Capital's investment in Manus AI highlights the growing tension between promoting technological innovation and protecting national security. Manus' series of "business optimization" actions also mark another flashpoint in the intensifying technological competition between China and the United States.

How U.S. regulators interpret Manus' activities - and whether they consider it to be advancing sensitive artificial intelligence capabilities - may set an important precedent for future outbound investment reviews.

Appendix I: How Can a Joint Venture Be Determined to Fall under the OISP Category? (A&O Sherman Law Firm)

• The joint venture has a "principal place of business" (i.e., the main location where the joint venture manages, controls, or coordinates its business activities) located in China, Hong Kong, or Macau.
• The joint venture's headquarters or registration location is in one of the countries of concern, or its organizational form complies with the laws of these countries.
• At least 50% of the voting interests, board voting rights, or equity of the joint venture, either individually or in aggregate, directly or indirectly, are held by any of the following:
• Chinese, Hong Kong, or Macau citizens or permanent residents who are not U.S. citizens or permanent residents
• Entities with a "principal place of business" in the above three regions
• Entities with headquarters in China, Hong Kong, or Macau
• Entities registered in or organized under the laws of China, Hong Kong, or Macau
• The governments of China, Hong Kong, or Macau (or any of their political subdivisions, political parties, agencies, or other institutions), or persons acting on their behalf or in their service; an entity in which the Chinese government, Hong Kong government, or Macau government, either individually or in aggregate, directly or indirectly holds 50% or more of the issued voting shares, board voting rights, or equity;
• An entity in which the Chinese government, Hong Kong government, or Macau government has the power to directly or influence its management and policy direction;
• An entity in which one or more of the above persons (either individually or in aggregate) directly or indirectly holds 50% or more of the issued voting shares.

Appendix II: OISP Rules Illustration - How a Transaction Is Determined to Be Prohibited or Require Notification (Skadden Law Firm)

This article is from the WeChat official account "Internet Law Review". Author: Internet Law Review. Republished by 36Kr with permission.