Changes Coming to the Outbound Investment Security Program

The Outbound Investment Security Program will be codified and expanded under the Comprehensive Outbound Investment National Security (COINS) Act, which was recently passed by Congress as part of the Fiscal Year 2026 National Defense Authorization Act (NDAA). While the NDAA does not change the structure or focus of the current Outbound Investment Rule (OIR), it is expected the expand the rule's scope to additional foreign countries and companies, transactions, and sectors. Although some parts of the NDAA will take effect immediately when the law is signed by President Trump, others will be subject to implementing regulations to be issued by the U.S. Treasury Department within 450 days from the legislation's effective date. Until those regulations are issued, the existing OIR, originally created pursuant to E.O. 14105 under President Biden, will remain in effect.

Notable changes to the OIR in the NDAA include the following:

• Additional "Countries of Concern" - The OIR currently applies only to China (including Hong Kong and Macau). The NDAA provides a definition of "country of concern" - which does not require a rulemaking to take effect - that includes Cuba, Iran, North Korea, Russia, and Venezuela (under the government of Nicolas Maduro), in addition to China. This expanded country list may not have a material effect at this time since U.S. investment in these countries is largely restricted under OFAC sanctions.
  
  
• Expanded Definition of "Covered Foreign Person" - The current definition of "covered foreign person" under the OIR includes persons of a country of concern that engage in a covered activity, as well as any person that, directly or indirectly, (i) holds a board seat, voting or equity interests, or the power to direct the management of a covered foreign person, or (ii) derives more than 50% of certain financial metrics (e.g., revenue, income, and expenses) from a covered foreign person. The NDAA alters this definition, subject to Treasury rulemaking, to include (i) members of the Chinese Communist Party or political leadership of a country of concern, (ii) persons "subject to the direction or control" of a country of concern, and (iii) entities owned in the aggregate, directly or indirectly, 50% or more, by a country of concern. The enlarged universe of covered foreign persons may require U.S. investors to conduct further due diligence on target investments' ownership.
  
  
• Potentially Enlarged Scope of Prohibited and Notifiable Transactions - The draft NDAA defines "covered national security transactions" to include roughly the same list of dealings currently defined as "covered transactions" under the OIR. However, the text of the NDAA leaves room for Treasury rulemaking in the definition of "covered national security transactions," which could lead to an expansion or change in the types of transactions that are prohibited or notifiable under the OIR.
  
  
• Expanding Exceptions to "Covered Transactions" - The NDAA spells out exceptions to covered transactions, subject to Treasury rulemaking, for certain transactions that currently lack safe harbor under the OIR. In addition to the existing exceptions under the OIR, the NDAA excepts: (i) transactions determined, in Treasury's discretion, to be de minimis' (ii) certain ancillary transactions by financial institutions; and (iii) transactions secondary to covered transactions, which would include underwriting services.
  
  
• New Covered Industry Sectors - Currently, the regulations of the OIR are applicable to entities operating in the artificial intelligence, quantum computing, and semiconductor sectors. The NDAA expands the scope of the OIR to include high-performance computing and supercomputing and hypersonic systems. However, the list of covered technologies is subject to change in the future pursuant to Treasury rulemaking.

The NDAA also contains provisions that are not currently part of the OIR, including a feedback and guidance process and requirements for Treasury and Presidential reporting to Congress. These provisions include the following:

• Treasury will establish through regulation a process allowing parties to seek non-binding, confidential feedback and anonymized public guidance. If this advisory process is able to provide timely feedback, it may be useful to U.S. investors navigating numerous uncertainties in the OIR.
  
  
• Treasury may, but is not required to, create a public database of covered foreign persons engaged in prohibited transactions and notifiable transactions. If this database is created, it is not required to be comprehensive, which may limit its utility to U.S. investors.
  
  
• Treasury will be required to deliver a report to Congress within 18 months (and annually thereafter) detailing all enforcement actions and notifications to date, including those under the existing OIR. Treasury will also evaluate the effectiveness of the program in its current form.
  
  
• The President will be authorized under the International Emergency Economic Powers Act (IEEPA) to impose economic sanctions on any person determined to be a covered foreign person under the OIR. Further, the President will be required to submit a report to Congress confirming whether any person on the Non-SDN Chinese Military-Industrial Complex Companies List is a covered foreign person.

While the structure of the OIR largely remains the same, the NDAA's codification of the OIR may lead to substantive expansions of the current program. The specific changes will mostly be determined by regulation, and the Trump administration had already contemplated revisiting the OIR regulations under its America First Investment Policy. U.S. investors should be aware of these changes and monitor the upcoming rulemaking process. In particular, the NDAA and implementing regulations may require changes in due diligence and negotiation of transaction agreements to ensure compliance with the OIR.

This communication is for general information only. It is not intended, nor should it be relied upon, as legal advice. In some jurisdictions, this may be considered attorney advertising. Please refer to the firm's data policy page for further information.