U.S. Outbound Investment Goes Hypersonic: Congress Codifies and Expands the Outbound Regime

Overview

The NDAA, which includes the Act, signals a major shift in the U.S. approach to outbound investment and transforms the OISP from a temporary executive initiative into a permanent bipartisan statutory regime. Congress passed the NDAA on December 17, 2025, and the legislation is expected to be signed by the President.

2025 has been a busy year for the OISP, as the program launched on January 2, 2025, when Treasury’s final rule (“Final Rule”) restricting or requiring U.S. persons to report certain investments into covered foreign persons with respect to Chinese emerging technologies went into effect. Within a few weeks of the launch of the OISP, the Trump Administration published the “America First Investment Policy” (“AFIP”) as part of a national security policy memorandum (“NSPM”) and made clear its intention to expand the OISP thereunder. Our coverage of AFIP is available here. The Administration’s efforts remain underway and could meaningfully expand the sectors captured by the OISP and narrow existing exceptions relied on by the investment community. However, with the NDAA and Act, Congress struck first and expanded the existing OISP.

U.S. policymakers also appear aware that national security instruments are most effective when they are implemented together with allies. Efforts to develop equivalent outbound investment regimes appear to be gaining traction among U.S. allies. The developments of the OISP are worth monitoring for this reason as well, as they may preview changes in the approach of other countries to outbound investment in the coming years.

Current OISP

The current OISP is a focused regime. It is tailored to: (1) prohibit “U.S. persons” from engaging in certain transactions involving “covered foreign persons” engaged in a “covered activity,” and (2) require “U.S. persons” to notify Treasury of certain transactions involving “covered foreign persons” engaged in “covered activities,” primarily targeting investments in so-called “countries of concern,” with the goal of preventing these countries from advancing in the covered activities. 

We summarize a few OISP terms here to provide context on how the Act is expected to expand the OISP. Our prior coverage of the Final Rule provides further details and is available here. The term “U.S. person” is defined broadly to apply to U.S. citizens, lawful permanent residents, entities organized under U.S. laws, and any person in the United States, regardless of their location. A “covered foreign person” includes persons from a “country of concern” (previously, China, including Hong Kong and Macau) engaged in “covered activities,” and third parties with significant relationships to these persons. “Covered activities” include certain areas of activity in the artificial intelligence, semiconductor and microelectronics, and quantum computing sectors of the global economy. 

What Is Next

Once signed into law, Treasury will have 450 days from the enactment of the NDAA to promulgate new regulations. While these rules are unlikely to affect near-term deals, they could impact exit strategies for existing investments. We explore the ways in which the Act expands the OISP below.

Key Changes for the Investment Community

1. Broader Definition of Country of Concern
   The definition of “country of concern” will expand beyond China (including Hong Kong and Macau) to include Cuba, Iran, North Korea, Venezuela, and Russia. While current sanctions already restrict investments to varying degrees in these jurisdictions, the codification of restrictions applicable to these countries under the OISP framework means future changes in sanctions could make these provisions highly relevant to long-term investment strategies.
2. Regulatory Discretion on Technical Parameters
   The bill removes the detailed technical thresholds that previously determined whether a transaction was “prohibited” or “notifiable.” Treasury will now have broad authority to set these parameters through future rulemaking, which could significantly expand the scope of transactions covered by one or both categories.
3. Feedback and Disclosure Mechanisms
   Notably, the NDAA requires Treasury to establish mechanisms to provide confidential, non-binding feedback upon request on whether a contemplated investment transaction would be covered. The NDAA also provides a self-disclosure mechanism for violations and an opportunity to cure any transaction that violates the OISP. 
4. Sanctions Linked to OISP Violations
   The NDAA authorizes the President to impose discretionary sanctions on foreign persons designated as “covered foreign persons” under the OISP, leveraging powers under the International Emergency Economic Powers Act (“IEEPA”). It also calls for harmonization of U.S. sanctions lists across agencies, including potential alignment with the Non SDN-Chinese Military-Industrial Companies List and other lists, ensuring a supplementing rather than supplanting of existing tools. 
5. Public Database of Covered Foreign Persons Treasury is authorized (but not required) to create a Public Database of “Covered Foreign Persons” engaged in activities involving “prohibited” or "notifiable” technology. If it is created, Treasury is expected to provide a petition process for the removal or inclusion of a foreign person on the database and a mechanism for confidential evidence submission.
6. New Technology Category: Hypersonic Systems
   The NDAA adds “hypersonic systems” to the list of “prohibited” and “notifiable” technology alongside semiconductors, quantum computing, and artificial intelligence. Although the term is not yet defined in the statute, it generally refers to advanced weapons delivery systems that operate at high speeds—a critical area of global competition.
7. Exceptions
   The NDAA adds additional exceptions to what was provided in the Final Rule, including: (1) transactions Treasury determines to be de minimis; (2) categories Treasury determines to be in the national interest; (3) ancillary transactions taken by a financial institution; and (4) transactions “secondary” to a covered transaction including underwriting services such as the temporary acquisition of an equity interest for the sole purpose of facilitating underwriting services. We expect that Treasury will consider and provide additional guidance on further exceptions that are added to the OISP as it evaluates this new mandate from Congress.
8. Annual Reports to Congress
   Similar to the Congressional reporting required for the Committee on Foreign Investment in the United States (“CFIUS”), the Act requires Treasury together with the U.S. Department of Commerce (“Commerce”) to submit annual reports to Congress no later than 18 months after the enactment of the Act. If/when these reports are made public, they are expected to provide important insights for the investment community regarding Treasury’s administration of the OISP as well as how the investment community has interacted with the program.
9. Multilateral Engagement and Coordination on OISP
   The NDAA calls on Treasury, in coordination with the U.S. Department of State, Commerce, and other relevant agencies to work with allies and partners to establish: (1) protocols and procedures to improve the effectiveness of the OISP; (2) mechanisms for sharing information; and (3) similar mechanisms to thwart countries of concerns’ efforts to develop or acquire strategic technologies. Congress appears to recognize that the success of these investment restrictions will depend, in part, on how broadly they are adopted by U.S. allies.

Next Steps

The Act signals Congress’ intended approach to outbound investment security, including the future expansion of the U.S. regime as well as the desire to facilitate the development of a similar regime among U.S. allies. As Treasury initiates and progresses through its rulemaking process, the investment community will need to stay abreast of these evolving regulations to effectively navigate the changing landscape and align their investment strategies accordingly.

How We Can Assist

Dechert represents a wide range of clients with respect to the outbound investment regime, including industry associations, asset managers, investors, and major companies. In support of all our advice, we give counsel on strategies for identifying and addressing political and policy considerations that may arise. We provide comments to agencies in the development of the regulations, submit notifications to Treasury when transactions are notifiable, and support engagement with Treasury in connection with outreach pursuant to the OISP.