U.S. Law Will Widen Constraints On Outbound Investments

The Comprehensive Outbound Investment National Security Act of 2025 (the COINS Act)¹, incorporated within the annual U.S. national defense legislation enacted on December 18, 2025, puts into law an outbound investment security program that eventually will supersede and expand upon existing outbound investment rules implemented by the U.S. Treasury Department in January 2025.

What you need to know

• U.S. outbound investment restrictions, previously adopted pursuant to an Executive Order of former President Biden, are now formalized into U.S. federal law, but new regulations may not be effective until March 2027.
• In addition to China, Hong Kong, and Macau, the COINS Act defines a "country of concern" to include Russia, Cuba, Iran, North Korea, and Venezuela, the latter "under the regime of Nicolas Maduro".
• High-performance computing and supercomputing and hypersonic systems are new categories of technologies covered by the COINS Act, joining advanced semiconductors and microelectronics, artificial intelligence, and quantum information technologies.
• Canadian and other non-U.S. investors, particularly investment funds, will need to remain cognizant of the applicability of outbound investment restrictions to U.S. limited partners and co-investors.

Existing U.S. outbound investment security regime

U.S. President Joe Biden issued an Executive Order in August 2023 that declared a national emergency to address security threats from China, including Hong Kong and Macau, regarding its efforts to develop and exploit sensitive or advanced technologies or products critical for military, intelligence, surveillance, or cyber-enabled capabilities².

The Executive Order directed the U.S. Department of the Treasury to establish a program to prohibit, or in some instances require notification, of outbound investments by U.S. persons into certain entities (1) located in or subject to China's jurisdiction and certain other entities owned by persons associated with China, and (2) that are involved in at least one of three categories of sensitive technologies: semiconductors and microelectronics, quantum information technologies, or artificial intelligence.

The Treasury Department's Outbound Investment Security Program (the Outbound Rules) took effect on January 2, 2025³. Although not directly applicable to Canadian and other non-U.S. investors, issues relating to compliance with the Outbound Rules can arise in the context of indirect investments or control by U.S. persons. For example, the Outbound Rules prohibit a U.S. person from knowingly directing transactions by non-U.S. entities that the U.S. person knows at the time of the transaction would be prohibited if engaged in by the U.S. person. Therefore, Canadian and other non-U.S. investment firms with U.S. principals or significant investors should implement recusal policies to provide a "safe harbor" to such U.S. persons.

Additionally, the Outbound Rules expressly cover a U.S. person's acquisition of a limited partner or equivalent interest in a non-U.S. investment fund that the U.S. person "knows at the time of the acquisition likely will invest in a person of a country of concern that is in the semiconductors and microelectronics, quantum information technologies, or artificial intelligence sectors, and such fund undertakes a transaction that would be a covered transaction if undertaken by a U.S. person"⁴. That said, the Outbound Rules exempt a U.S. person's fund investment when it "has secured a binding contractual assurance that its capital in the fund will not be used to engage in a transaction that would be a prohibited transaction or notifiable transaction, as applicable, if engaged in by a U.S. person"⁵. As a result, non-U.S. funds and their U.S. investors can address the Outbound Rules in fund documentation or side letters by including such assurances or offering U.S. investors an "excuse right" not to participate in covered transactions.

The COINS Act changes key elements of U.S. outbound investment rules

As the product of a presidential Executive Order, the Outbound Rules do not have the effect of U.S. federal legislation. Keen to enact an outbound investment security law, Congress observed that restricting U.S. outbound investments in "dual-use strategic technologies that benefit a foreign adversary's military modernization efforts, surveillance states, and human rights abuses" is necessary to prevent harm to U.S. national security and foreign policy interests.

Four key changes, among others, to the U.S. outbound investment regime will take effect under the COINS Act:

1. The singular focus on China as a "country of concern" will expand to include Russia, Cuba, Iran, North Korea, and Venezuela, with the notable caveat that the COINS Act expressly adds Venezuela "under the regime of Nicolas Maduro". With the U.S.'s recent forcible removal of Maduro, it remains to be seen whether Venezuela continues to be categorized as a country of concern. The broader reach may also be blunted because the additional countries are already subject to comprehensive sanctions that significantly limit U.S. investments in those jurisdictions. That said, Canadian investors, specifically, should consider the potential interplay between the COINS Act's inclusion of Cuba and Canada's Foreign Extraterritorial Measures Act.
2. High-performance computing and supercomputing and hypersonic systems join the existing covered technologies of semiconductors and microelectronics, AI, and quantum information technology. The Treasury Department also can add new prohibited or notifiable technology categories in the future if those technologies "enable the military, intelligence, surveillance, or cyber-enabled capabilities of a country of concern".
3. "Covered foreign persons" under the COINS Act replaces the Outbound Rules' "person of a country of concern" to include members of the Chinese Communist Party, political leadership from a country of concern, and others "subject to the direction or control of" a country of concern. Although the new definition does not expressly apply to inpiduals, the implementing regulations will be important to understanding its ultimate scope.
4. A wider range of "covered national security transactions" will be captured in addition to traditional equity investments, such as contingent equity interests, loans or debts to covered persons, JVs, and property leases.

In many other respects, the COINS Act codifies existing terms of the Outbound Rules, including the provisions relating to U.S. persons' indirect investments. Accordingly, non-U.S. investment firms and funds, as well as their U.S. investors, are advised to monitor further COINS Act developments, particularly the Treasury Department's publication of proposed implementing regulations.

The Treasury Department has been directed to issue such regulations within 450 days of enactment, meaning new outbound investment rules may not take effect until March 2027. Until then, the Treasury Department advises that "parties should continue to act in full compliance" with the Outbound Rules. In the interim period before the new regulations are effective, investors can consider and prepare for the upcoming changes.

Footnotes

1. S.1071, National Defense Authorization Act for Fiscal Year 2026, Title LXXXV.

2. Executive Order 14105, "Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern" (Aug. 9, 2023).

3. See 31 CFR Part 850.

4. See 31 CFR 850.210(a)(6).

5. See 31 CFR 850.501(a)(1)(iii)(B).

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