On Monday, SenseTime, a shining startup in China's burgeoning AI industry, announced it would put its $767 million public offering on hold in light of recent U.S. sanctions.

Last Friday, the U.S. Department of Treasury added the AI and facial recognition firm to a growing list of companies with alleged ties to China's military-industrial complex.

Specifically, the Treasury Department cited the use of SenseTime's technology in the alleged repression of Muslim minorities in the country's Xinjiang province.

"It [SenseTime] has developed facial recognition programs that can determine a target's ethnicity, with a particular focus on identifying ethnic Uyghurs," said the department. The U.S. has labeled China's effort to assimilate Muslim minorities in the country's west as "genocide and crimes against humanity."

By adding SenseTime to its NS-CMIC list, the Treasury Department is essentially blocking U.S. investors from buying or selling securities in the company.

Hitting the pause button on the deal allows for SenseTime's initial backers, including U.S.-based Qualcomm (QCOM  ) and Silver Lake, to reconsider their commitments.

Meanwhile, sources have told Reuters that SenseTime plans to relaunch its bid as early as next Monday.

"The [Treasury Department's] accusations are unfounded and reflect a fundamental misperception of our company," said SenseTime in a statement Saturday. "We regret to have been caught in the middle of geopolitical tension."

"As a software company committed to promoting sustainable, responsible, and ethical use of AI, we have complied with the applicable laws and regulations in relation to our business in all material respects in the jurisdictions where we conduct business," said SenseTime.

Nevertheless, even before last Friday's developments, SenseTime's public bid proved a hard sell for many investors. Concerns about the 2019 blacklisting of a Beijing-based subsidiary forced SenseTime to scale back its offering from $2 billion to $767 million.

In its prospectus, SenseTime said that trade restrictions would not apply so long as the blacklisted division remained "legally distinct" from the company proper.

Meanwhile, SenseTime finds itself in good company as it joins the likes of Huawei, ZTE, and many others on a U.S. trade restrictions list.

Megvil, a SenseTime rival, recently pulled out of its own IPO after being placed under nearly identical sanctions, with the image-recognition firm now looking to list on Shanghai's STAR Market.

President Joe Biden has identified technology as a critical front in U.S. competition with China, especially as the People's Republic intensifies its efforts to modernize its military with emergent technologies like AI.

According to Georgetown University's Center for Security and Emerging Technology, China's People's Liberation Army spends at least $1.6 billion each year on AI, and SenseTime happens to be a former member of China's AI national team.

In reference to SenseTime's connection with Beijing's alleged abuses of the Uyghur people, CNBC uncovered a 2019 patent filed by the company detailing an image retrieval system where the term Uyghur is mentioned explicitly as a search parameter.

A SenseTime spokesperson told CNBC that the reference was "regrettable" while pointing to its current code of ethics as a signal that it has since reformed.