FY 2026 NDAA Includes New Statutory Framework for Outbound Investment Restrictions

In summary, the Outbound Investment Regulations establish a program under which (1) U.S. persons will be required to notify the Department of Treasury of certain categories of investments (defined as “covered transactions”) undertaken by U.S. persons in identified sectors with a nexus to countries of concern (currently China, Hong Kong and Macau) and (2) “covered transactions” undertaken by U.S. persons in identified sectors that pose a particularly acute threat to national security will be prohibited.

The COINS Act of 2025
The COINS Act requires the U.S. Treasury Secretary to implement regulations that require U.S. persons to submit a notification if they, or their controlled foreign entity, knowingly engage in specified “covered national security transactions” in a “prohibited” technology or a “notifiable” technology. The COINS Act also authorizes, but does not require, the Treasury Secretary to prohibit U.S. persons from knowingly engaging in “covered national security transactions” in “prohibited” technology. Treasury has 450 days to issue new or amended regulations.

“Covered national security transactions” are broadly defined to include the following:

• Acquisitions of equity or contingent equity in covered foreign person;
• Debt arrangements to a covered foreign person that provide a U.S. person financial or governance rights;
• Convertible debt in a covered foreign person;
• Entrance into a joint venture with a covered foreign person;
• Asset acquisitions or greenfield projects that are intended to result in the establishment of a covered foreign person or the engagement of a person of a country of concern in a prohibited or notifiable technology;
• Knowingly directing what would be a covered national security transaction if it was carried out by a U.S. person; and
• The acquisition of a limited partner or equivalent interest in a pooled investment fund (e.g., VC fund, private equity, fund of funds, etc.) that the U.S. person has knowledge at the time of the acquisition intends to invest in a covered foreign person.

The Act includes certain exceptions not included in the Outbound Investment Regulations. Examples of such exceptions include:

• Certain de minimis transactions;
• Ancillary transactions undertaken by financial institutions (e.g., underwriting services, payment processing, credit rating);
• Secondary transactions, including:

-  Certain contractual arrangements or the procurement of material inputs for any covered national security transaction;

-  Payment processing;

-  Clearing services;

-  Underwriting services;

-  Debt rating services; and

-  Prime brokerage.

The COINS Act also carries over certain exceptions available under the Outbound Investment Regulations, such as purchases of publicly traded securities of a covered investment on a registered exchange, as well as certain limited partner investments in pooled investment vehicles, full buy outs of interests held by covered foreign persons, certain national interest transactions and certain intracompany transactions.

The definition of “covered foreign persons” in the Act expands the definition of this term in the Outbound Investment Regulations to include foreign persons “subject to the direction or control” of an entity that is located in, or is associated with the political leadership of, a country of concern or is a member of the Central Committee of the Chinese Communist Party (CCP). The definition of “covered foreign person” includes foreign person “subject to the direction or control” of, or owned 50% or more by, an entity described by the above or a country of concern. However, the COINS Act would replace the current 50% rule for “covered foreign persons” based on 50% of revenue, net income, capital expenditure or operating expenditure with a 50% rule that applies jurisdiction to persons owned 50% or more, directly or indirectly, by a covered foreign person.

“Countries of concern” include China (including Hong Kong and Macau), Cuba, Iran, North Korea, Russia and Venezuela. This is a geographical expansion to the existing outbound investment restriction framework, which only covers investments involving China (including Hong Kong and Macau).

Covered Technologies
“Prohibited” and “notifiable” technologies will ultimately be defined by regulation, but the statute requires Treasury to anchor its regulations for both categories in the following sectors:

• Semiconductor technology and microelectronics (only “advanced” semiconductor technology and microelectronics are in the Prohibited category)
• Artificial intelligence systems
• Quantum information technologies
• High-performance computing and supercomputing
• Hypersonic systems

Notably, high-performance computing and hypersonic systems are not covered by the current outbound investment rule. Additionally, Treasury would be authorized to define additional categories of technology that “enable military, surveillance, or cyber-enabled capabilities.” We have included a chart below that compares the notifiable and prohibited sectors against the current Outbound Investment Regulations.

Changes from Existing Regulations
The COINS Act framework is similar to the Outbound Investment Regulations, but it applies to a broader array of countries and technologies and provides for changes to the scope of the program. The Act expands the definition of “covered foreign persons” to include foreign persons “subject to the direction or control” of an entity that is located in, or is associated with, the political leadership of a country of concern or is a member of the Central Committee of the CCP.  The Act adds high-performance computing and hypersonic systems as categories of prohibited and notifiable technology. Also, as reviewed above, the Act includes certain exceptions not provided in the Outbound Investment Regulations.

In addition, the COINS Act mandates that Treasury institute a process for persons to request non-binding feedback on a confidential basis, or as anonymized guidance to the public, as to whether a transaction would constitute a covered national security transaction in a prohibited technology. The Act also requires Treasury to, in coordination with the U.S. Commerce Department, establish a database that “identifies covered foreign persons that are either engaged in a prohibited technology or a notifiable technology pursuant to this title,” along with a modification process that includes a mechanism for petitioning for removal from the database. These comprise new features of the outbound investment program, which could assist companies and investors with compliance with the restrictions under the program.

Discretionary Sanctions Authority 
Finally, the COINS Act authorizes the President to impose discretionary sanctions on “any foreign person determined to be a covered foreign person.” The sanctions would be implemented under the International Emergency Economic Powers Act (IEEPA) authorities rather than a new standalone sanctions authority. The President may use these authorities “to the extent necessary to prohibit any United States person from investing in or purchasing significant amounts of equity or debt instruments of a [covered foreign person].”

The definition of “covered foreign person” for the purposes of the sanctions provision is similar to the definition applicable to the investment restriction provisions, except that it adds that the person must have knowingly engaged in significant operations in the defense and related materiel sector or the surveillance technology sector of the economy of China (including Hong Kong and Macau). Any sanctions imposed would likely only prohibit investment in the sanctioned entities, similar to existing restrictions on entities listed in the Section 1260H “Chinese military companies” list administered by the U.S. Defense Department.

Looking Ahead
The COINS Act represents Congress’s most significant step to date toward codifying and expanding U.S. outbound investment controls. The Act will be in place for seven years after enactment unless reauthorized by Congress.

As noted above, Treasury has 450 days to issue implementing regulations. Congress has instructed Treasury to issue “low-burden” regulations intended to balance protecting national security with minimizing cost and complexity of compliance, adopting least burdensome alternatives, and prioritizing transparency and stakeholder involvement. Companies with existing or planned investments in sensitive technology sectors should closely monitor Treasury’s forthcoming rulemaking and opportunities to participate in the processes and begin assessing how the expanded definitions of covered foreign persons, covered technologies and covered transactions may affect future deal structures and compliance obligations. Early diligence and internal coordination will be critical as Treasury moves to implement this new statutory framework over the coming year.

Prohibited and Notifiable Transactions under Current Outbound Investment Regulations and Prohibited and Notifiable Technology under COINS Act (by Sector)