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    Home»Risk & Compliance»“Reasonable and Diligent Inquiry”: The Clause That Shifts Outbound Investment Risk Onto Investors
    Risk & Compliance

    “Reasonable and Diligent Inquiry”: The Clause That Shifts Outbound Investment Risk Onto Investors

    By Digital Trade OutlookOctober 30, 2026
    US Department of the Treasury seal
    Image: US Department of the Treasury seal

    The US Treasury’s 22 October proposed rule on outbound investment includes a list of technologies, a notification regime and a set of prohibitions. The line most likely to change investor behaviour is a single bullet: “The knowledge standard and expectations for a U.S. person to conduct a reasonable and diligent inquiry prior to undertaking a transaction.”

    That turns compliance from a question of avoiding prohibited deals into a question of proving you checked. An investor that does not know what its target does is no longer protected. It must show it investigated before signing.

    The Notice of Proposed Rulemaking implements the Comprehensive Outbound Investment Security (COINS) Act, included in the Fiscal Year 2026 National Defense Authorization Act. It updates the existing Outbound Investment Security Program. US persons must notify Treasury of certain transactions involving covered foreign persons engaged in “notifiable” technologies, and are prohibited from certain transactions involving “prohibited” technologies.

    The covered sectors are semiconductors and microelectronics, artificial intelligence systems, quantum information technologies, high performance computing and supercomputing, and hypersonic systems. The Secretary has also added biotechnology, using authority over technologies that enable military, intelligence, surveillance or cyber capabilities of a country of concern.

    Two parts of the scope widen the net. The requirements cover a US person “including any controlled foreign entities”, so an overseas subsidiary is caught as well as the parent. And adding biotechnology pulls in a sector whose investors have so far worked outside the semiconductor and AI restrictions.

    The release names no specific countries. It refers to “foreign adversaries” and “covered foreign persons”. Final regulations will come later and will set the effective date. Comments are due by the deadline in the official notice.

    Secretary Scott Bessent said the proposal “would strengthen the existing Outbound Investment Security Program to prevent our adversaries from using U.S. investment to develop critical technologies that threaten U.S. national security.” Christopher Pilkerton, Assistant Secretary of the Treasury for Investment Security, said: “The proposed regulations are designed to address risks that can arise when foreign adversaries try to benefit from U.S. investment in key technology sectors.”

    Digital Trade Outlook’s View: Ignorance Is No Longer a Defence

    The knowledge standard makes due diligence a legal duty, not just good practice. Large investors with compliance teams will absorb it. Smaller funds, corporate venture arms and biotech investors face new cost and slower deals. Foreign technology companies in covered sectors lose access to some US capital. Advisers who run diligence gain steady new work.

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    Image: US Department of the Treasury seal

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