INTRODUCTION
On August 9, 2023, President Biden issued the Outbound Order declaring a national emergency to address the threat to the United States posed by certain countries of concern, which seek to develop and exploit sensitive or advanced technologies or products critical for military, intelligence, surveillance, or cyber-enabled capabilities. [1] The Outbound Order prohibits U.S businesses, operating in specific industries and sectors, from engaging in outbound investments. The Outbound Order identifies three categories of national security technologies and products for the program: semiconductors and microelectronics, quantum information technologies, and artificial intelligence. On December 18th, 2025, President Trump signed into law a new extension of the Comprehensive Outbound Investment National Security Act (COINS) codifies and expands the U.S. legal authority to regulate outbound investment — i.e., capital flowing out of the United States — to protect U.S. national security.
IN DEPTH
The final rule requires United States persons to provide notification to the U.S. Department of the Treasury regarding certain transactions involving persons of a country of concern that are engaged in activities involving certain national security technologies and products that may contribute to the threat to the national security of the United States. It also prohibits United States persons from engaging in certain other transactions involving persons of a “country of concern” that are engaged in activities involving certain other “national security technologies and products” that pose a particularly acute national security threat to the United States.[2]
Definition of Covered Foreign Person
Differently from the Outbound Investment Abroad Act (OIR), the COINS extends its list of countries of concern to include not only the People’s Republic of China (including Hong Kong and Macau) but also Russia, Iran, North Korea, Cuba and Venezuela.
In addition, the COINS defines “covered foreign persons” with specific, broader criteria than the previous “person of a country of concern” definition found in existing OIR. Under the COINS Act, a “covered foreign person” includes:
[1] https://home.treasury.gov/policy-issues/international/outbound-investment-program
[2] https://www.federalregister.gov/documents/2024/11/15/2024-25422/provisions-pertaining-to-us-investments-in-certain-national-security-technologies-and-products-in
(A) a person that is incorporated in, has a principal place of business in, or is organized under the laws of a country of concern.
(B) a person that is a member of the Central Committee of the Chinese Communist Party or is a member of the political leadership of a country of concern.
(C) a person that is subject to the direction or control of a country of concern, as defined by regulation, an entity described in subparagraph (A) or (B), or the state or the government of a country of concern (including any political subdivision, agency, or instrumentality thereof); or
(D) a person that is owned in the aggregate, directly or indirectly, 50 percent or more by a country of concern, an entity described in subparagraph (A) or (B), or the state or the government of a country of concern (including any political subdivision, agency, or instrumentality thereof).
The Due Diligence Requirements
U.S. businesses are now required to determine whether a prospective investment outside the U.S. would be a “covered transaction” requiring notification and/or approval under the COINS Act. U.S. persons are therefore required to exercise due diligence in determining whether the outbound transaction falls within the COINS Act.
U.S. businesses and their counsel should therefore exercise early diligence to determine, whether a proposed investment or transaction involves:
- Covered foreign persons
- Countries of concern
- Critical technologies
- Controlled industrial sectors
The exercise of an early due diligence requires the obligation for a U.S. person to make a “reasonable and diligent inquiry” regarding the outbound transaction. Under the proposed standard offered by Section 850.104 of the Provisions Pertaining to U.S. Investments in Certain National Security Technologies and Products in Countries of Concern “a U.S. person may have been assessed to have had knowledge if the U.S. person possessed actual knowledge that a fact or circumstance existed or was substantially certain to occur, if the U.S. person possessed an awareness of a high probability of a fact or circumstance’s existence or future occurrence, or if the U.S. person could have possessed such information through a “reasonable and diligent inquiry.” To provide clarity, the Proposed Rule listed factors that the Treasury Department would consider in assessing whether a U.S. person undertook a “reasonable and diligent inquiry.” Such factors reflect information that should have been ascertainable and/or contractual assurances that should have been obtainable through reasonable due diligence.
The Definition of Covered Transactions
IEEPA (50 U.S.C. 1701 et seq.) authorizes the President to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat. Nothing in FIRRMA limits the President’s authority under IEEPA. In essence, the President’s power under COINS empowers the executive branch (exercised primarily through the Treasury Secretary) to control U.S. outbound capital and expertise from bolstering the “countries of concern”. Under the COINS Act, covered transactions relevant to the U.S. national security involve:
- Semiconductors and microelectronics. Covered transactions related to electronic design automation software; certain fabrication and advanced packaging tools; the design, fabrication, or packaging of certain advanced integrated circuits; and supercomputers would have been prohibited. Covered transactions related to the design, fabrication, or packaging of integrated circuits not otherwise covered by the prohibited transaction definition would have been subject to the notification requirement.
- Quantum information technologies. Covered transactions related to the development of quantum computers and production of critical components; the development or production of certain quantum sensing platforms; and the development or production of quantum networking and quantum communication systems would have been prohibited.
- Artificial intelligence (AI) systems. Covered transactions related to the development of any AI system designed to be exclusively used for, or intended to be used for, certain end uses would have been prohibited. The Proposed Rule also included proposed alternatives for a prohibition on covered transactions related to the development of any AI system that was trained using a specified quantity of computing power and trained using a specified quantity of computing power using primarily biological sequence data. Covered transactions related to the development of any AI system not otherwise covered by the prohibited transaction definition, where such AI system was designed or intended to be used for certain end uses or was trained using a specified quantity of computing power (set below the levels in the prohibited transaction definition), would have been subject to the notification requirement.
CONCLUSIONS
Differently from the OIR, the COINS Act applies to a broader array of countries and technologies. The COINS Act expands the definition of “foreign person”, and “covered transactions”, representing a very important step toward the regulation of outbound investments for U.S. persons that operate in sensitive technology sectors. The COINS Act codifies and expands a national security program previously established by an executive order, giving it a more permanent and durable foundation. However, U.S. businesses may face increased compliance burdens to ensure their transactions do not fall under the prohibited or notifiable categories, particularly given the potentially broaden definition of covered foreign entities.
Note: Readers should not act upon this information without seeking advice from professional advisers.
AI Image article