COINS Act to Increase Oversight of AI, Semiconductors and Other Outbound Tech Investments

Pillsbury partner Matthew Rabinowitz told Military.com that the COINS Act is effectively the inverse of the Committee on Foreign Investment in the United States, or CFIUS, in which the Treasury regulates foreign investments in U.S. business and real estate companies for security threats.

“There was already, through executive order, a set of regulations by the Treasury Department that sets forth prohibited notifiable transactions if you're a U.S. person making an investment in, let's say, a Chinese AI company,” Rabinowitz said. “Now, this law codifies those regulations as they have a statutory underpinning and requires (the) Treasury to implement further regulations that will slightly modify and slightly expand the scope of what's currently in place.

“This is building upon what's already in place via regulation to both prohibit or require filings with the Treasury for U.S. persons investing in certain types of companies overseas. This is more recent territory, this is pretty new.”

Rabinowitz said the etymology of the COINS Act began from a standpoint of the U.S. wanting to better protect itself security-wise, which equates to identifying foreign interests that could be acquiring U.S. businesses or investing in them and getting access to their technology.

“You start thinking about the flip side of that: ‘OK, that's great, but what about U.S. companies, investment funds or PE (private equity) or other sort of brain power that's being used—like thinking about China, Chinese AI, Chinese semiconductors, in a way that furthers those sectors in a way that could harm U.S. national security interests,” he said.

The U.S. has made strides of where it was and where it is now relating to quelling national security concerns of domestic and foreign investments, with a push from Congress to align regulations that Rabinowitz said are “closely aligned” to the initial statute.

The tech sector is “widely impacted” from previous and now more current, stringent regulations notably due to the ubiquitous presence of AI technologies, he said.

Rabinowitz said that developing an AI system, for example, is a covered activity and depends on factors like computing power or training of AI models—with outcomes showing them being either prohibited under law, or notifiable via properly filed notices to the Treasury.

“It depends on what the audience is if you're talking about the investment community,” he added. “Or, because the rules cover joint ventures—a U.S. technology company that wants to partner with a Chinese, Russian technology company, can they do that? They're going to have to think about investment regulations and how it applies. 

“For U.S. tech entrepreneurs who are serving on boards of companies, that might be directing investment decisions in matters to them on an individual basis that they need to comply with the rules in connection with boards they serve on or other businesses they have aside from their own sort of core U.S. business.”

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