Rethinking Outbound Investment Compliance

This article is the fourth in a series examining how export controls and financial crime compliance frameworks are converging as a result of an evolving regulatory landscape. Throughout the series, the authors will provide practical insights for financial institutions now facing additional obligations as a result of overlapping compliance domains.

The U.S. government is focused on preventing adversarial nations from developing advanced, critical capabilities, as evidenced by the signing of the National Defense Authorization Act for Fiscal Year 2026 (“NDAA”), which includes $150 million for implementing updates to Outbound Investment Regulations.¹ In light of this goal, organizations should reassess and potentially redesign their investment and compliance frameworks, with a particular focus on due diligence protocols to sufficiently address outbound investment concerns.

Traditional inbound controls, centered on restricting foreign investment in U.S. businesses, are now complemented by outbound investment obligations, as the U.S. government curbs certain organizations and individuals from facilitating the development of advanced technologies, whether inadvertently or not. The new outbound controls close a perceived gap in the U.S. attempt to limit the development of advanced technologies by adversarial nations. Prior to the new outbound rules, export controls limited the type of products, technology, and equipment that could be shared abroad; and placed restrictions on certain activities of U.S. persons in assisting or supporting technological development in adversarial nations. Meanwhile, in-bound investment restrictions were aimed at curbing access to that same technology through foreign ownership. There was, however, never any restriction that prevented a U.S. person from financially supporting development abroad.

Through the Outbound Investment Security Program, the U.S. Treasury aims to “prohibit or require notification of certain types of outbound investments by United States persons into certain entities located in or subject to the jurisdiction of a country of concern” and across three vital areas: semiconductors, quantum computing, and AI.² U.S. persons are defined as U.S. citizens, lawful permanent residents, entities under U.S. law, and foreign branches of U.S. entities. The Treasury Department requires notification when investments involve sensitive but permissible technologies. The regulations prohibit transactions involving advanced technology capable of enhancing the military, intelligence, or cybersecurity capabilities of a country of concern.³

Consequences for noncompliance are significant. The maximum civil penalty for a violation is the greater of roughly $370,000 and twice the value of the transaction in question. The Secretary of the Treasury has the power to nullify, void, or otherwise compel the divestment of any prohibited transaction and the Department of Justice can bring criminal charges.⁴

The outbound investment rule is another method for securing the U.S. ecosystem by preventing certain nation states from obtaining funding from U.S. sources necessary to develop advanced technologies on their own. U.S. investors will need to overhaul investment strategies, due diligence frameworks, and risk management protocols to comply.

Regulatory Challenges

When “countries of concern” are obviously involved in a transaction, it’s easy to know what to do to comply with the law. But what about when they’re not? For example, a company based in a country of concern owns a percentage of a company in Germany, and your organization is a private equity firm based in the UK with a U.S. citizen as one of your principals. In this situation, how do you identify your investment as a prohibited transaction?

The number of moving pieces in a transactional environment create complexities that make compliance challenging. For example, the individuals making an investment, the banks conducting those transactions, and the private equity firms that might be investing in a fund or buying a company making an investment could all potentially be involved in a single deal.

The complexity is compounded by the likelihood that governments of the countries of concern intentionally make it difficult to find the information necessary to understand who is involved in the investment target. Without a strategic, expert-led strategy, organizations face an uphill battle in achieving compliance.

Building Enhanced Frameworks

A clear place for organizations to begin tackling the compliance challenge is to review their investments to identify if divestitures are needed. From there, they will need to establish enhanced due diligence procedures to truly understand the investments, who owns or controls those companies, and where funds are being directed. This should start with a pre-investment risk assessment methodology that evaluates target companies based on geographic exposure, ownership structure, and the purported nature of their business activities. Organizations will also need to conduct ongoing monitoring of the targets to identify facts suggesting the original analysis was inaccurate or has since changed.

Organizations should also design and implement internal compliance controls and integrate them into existing workflows, including rigorous documentation and reporting processes. Critical to this process is identifying gaps in talent, training, and organizational structure, as well as comprehensive training of the business and sales personnel on the red flags of potential risky investments. A unified compliance strategy is critical. That insight relies on consolidating data points across the organization to produce an accurate, complete picture of all transactions. Beyond the human element, organizations will likely need to invest in tools and systems capable of identifying and tracking ownership structures and potential exposure risks at scale and in real time.

The U.S. Treasury has 450 days from the signing of the NDAA to issue regulations, which is no later than March 13, 2027. Organizations have less than a year to reassess their investment and compliance frameworks ahead of forthcoming obligations.

How We Can Help

Navigating outbound investment compliance is a complex process. FTI Consulting can help with comprehensive support across every stage of the process. Our capabilities include the design and execution of tailored risk assessments; deep due diligence on higher risk investment targets; the design of target operating models and the policies and procedures necessary for compliance; employee and board-level training; and technology vendor selection and implementation.

Footnotes:

1: H.R. Rep. Comm. On Armed Servs., National Defense Authorization Act for Fiscal Year 2026 (Dec. 7, 2025)

2: Outbound Investment Security Program, U.S. Dep’t of the Treasury

3: U.S. Dep’t of the Treasury, “Outbound Investment Security Program: Frequently Asked Questions” (Dec. 23, 2025)

4: Id.