Treasury probes Benchmark Capital’s links to Chinese AI firm Manus

The U.S. Treasury Department‘s review of a $75 million investment in Manus AI reveals intensifying AI competition between the U.S. and China. This government scrutiny represents a significant escalation in tech nationalism as America seeks to prevent strategic AI capabilities from being developed in China through U.S. capital. The investigation tests the boundaries of recent investment restrictions and could set precedents for how cross-border AI deals are structured in an increasingly divided technological landscape.

The big picture: Treasury officials are examining whether Benchmark Capital’s investment in Manus AI violates restrictions under the Outbound Investment Security Program that went into effect earlier this year.

• The program, established by a 2023 Biden executive order, requires U.S. entities to notify the Treasury Department about investments in sensitive technologies like AI that could undermine American interests.
• Manus AI gained attention in March with an impressive demo showing its AI agent autonomously completing complex tasks, from research projects to creating mobile apps and websites.

Key details: Benchmark Capital reportedly received legal advice that the investment didn’t fall under outbound investment restrictions for two technical reasons.

• Lawyers concluded Manus AI is a “wrapper” company that builds products utilizing existing AI models rather than developing its own foundation models.
• The startup’s parent company, Butterfly Effect, is incorporated in the Cayman Islands with employees working in Singapore, Japan, and China, potentially placing it outside the definition of a Chinese company.

Why this matters: The U.S. is increasingly concerned about losing its AI leadership position to China, which is publishing more research papers and releasing powerful models like DeepSeek R1.

• When Manus released its demo in March, it was hailed as a “second DeepSeek moment,” referring to the earlier Chinese AI breakthrough that caused certain U.S. company stocks to plummet.
• The Treasury inquiry will test whether legal structures and technical distinctions around AI development can circumvent national security-focused investment restrictions.

Behind the numbers: Despite operating employees in multiple Asian countries, Manus reportedly stores all its data on cloud servers outside China operated by Western companies, according to a person familiar with the matter.