Outbound investment due diligence: the question that comes before the signature

Picture a term sheet for a stake in a young chip designer. The founders sit in two countries, the shares are held through a holding company, and the money is due to move at the end of the month.

On 22 October 2026 the US Treasury published a proposal that addresses one question in that file directly. Among the points it details is "the knowledge standard and expectations for a U.S. person to conduct a reasonable and diligent inquiry prior to undertaking a transaction".

What Treasury published

The proposal is a Notice of Proposed Rulemaking under the Comprehensive Outbound Investment Security (COINS) Act, which Congress passed as part of the Fiscal Year 2026 National Defense Authorization Act. In the release's words, the Act directs Treasury to issue regulations that "require United States persons to provide notification to Treasury regarding certain transactions involving covered foreign persons that are engaged in notifiable technologies", and that "prohibit United States persons from engaging in certain other transactions involving covered foreign persons that are engaged in prohibited technologies".

The Act names five sectors: semiconductors and microelectronics, artificial intelligence systems, quantum information technologies, high-performance computing and supercomputing, and hypersonic systems. Treasury proposes adding biotechnology.

It is a proposal. Treasury invites comments, and the release says the final regulations "will set an effective date for the program". Until then, nothing in it is in force.

The question inside the rule

How the rule's scope should be read is a question for counsel. The part this note is about is narrower, and it reaches well beyond one programme: a rule that turns on who the counterparty is turns, in practice, on what the file established before the money moved.

An inquiry made before a transaction has a date on it. It can be shown later, to someone who was not in the room. It cannot be rebuilt after the signature from what everyone remembers knowing.

What an inquiry before signing has to answer

• Who is the counterparty, as a legal entity? Not the brand on the pitch deck: the company that will issue the shares, and the one above it.
• Who owns and controls it, and where does the record stop? Registers answer to the depth their jurisdiction allows. A file should say where that depth ran out, rather than leave the reader to assume it did not.
• What does it actually make, and for whom? A company's description of itself is a claim. Its products, filings and customers are the record.
• What could the inquiry not establish? A gap stated before the decision belongs in a diligent inquiry; whether the inquiry is enough under any rule is for counsel. A gap found afterwards is a different conversation.

What this means for a clean result

A clean result is only as good as the questions behind it. A file that records what was checked, what was not, and what could not be verified tells a later reader whether "clean" meant the counterparty was examined, or only that nothing came back.

Our Counterparty Screen specimen shows how a screen records that, including the page that states what could not be verified. It is emailed on request: avihumarom.com/specimen

The proposal is not final. The order of work does not depend on it: the inquiry comes first, and the signature comes after it.

Source: US Department of the Treasury, "Treasury Issues Proposed Rule to Implement Comprehensive Outbound Investment National Security Act", press release sb0667, 22 October 2026, https://home.treasury.gov/news/press-releases/sb0667

Counterparty Screen, USD 495 per subject, 48 hours from confirmation: avihumarom.com/products/counterparty-screen

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