by Brad Dragoon

An adapted version was published on: Irregular Warfare Initiative

Restrictions on foreign investment, sanctions, embargoes, tariffs, and export controls function together as economic statecraft to shape the behavior, capabilities, and strategic options of adversaries. They work by constraining access to capital, markets, technologies, and supply chains that are essential for economic growth and military modernization.

The latest regulatory program introduced to control investment outflows is the Outbound Investment Security Program (OISP). The OISP places restrictions on investments by U.S. persons in certain advanced technologies within the markets of perceived adversaries. Outbound investment controls such as the OISP reflect a decades-long shift in how governments view private capital flows as instruments of national security.

The OISP and the COINS Act

In January 2025, the OISP took effect under the direction of the Secretary of the Treasury. The program was established following the signing of Executive Order (EO) 14105 and is now being further codified into law in the Comprehensive Outbound Investment National Security Act of 2025 (COINS Act), part of the 2026 National Defense Authorization Act.

EO 14105 and the COINS Act were issued in response to the national security threat posed by the technological advancement of key adversaries and seek to restrict U.S. outbound investment in certain sensitive technologies in designated “Countries of Concern.” Initially, EO 14105 listed only China and its administrative regions of Hong Kong and Macao as being of concern. The list has since expanded to include Cuba, Iran, North Korea, Russia, and Venezuela.

The OISP is intended, in part, to function as an inverse tool to the Committee on Foreign Investment in the United States (CFIUS). Whereas CFIUS protects domestic markets from adversarial investment by vetting incoming capital, the OISP seeks to restrict outbound U.S. capital from contributing to the technological advancement of certain countries of concern.

The COINS Act requires U.S. persons to submit a notification if they, or an entity they control, engage in a “covered national security transaction.” This broad designation covers an array of financial transactions, including equity and asset acquisitions, debt arrangements, joint ventures, and investments in limited partnerships. The COINS Act also lists five categories of sensitive technologies where investments would be subject to notification and potential prohibition:

• Semiconductors and microelectronics
• Quantum information technologies
• Artificial intelligence
• High-performance computing and supercomputing
• Hypersonic systems

The current OISP framework seeks to balance the development of technologies critical to the global economy with the need to protect these technologies from potential dual use in military or intelligence-gathering applications by states that are, or may become, hostile to U.S. and allied interests. These priorities are supported in part by investment-focused programs, such as the U.S. Department of War’s Office of Strategic Capital (OSC) and North Atlantic Treaty Organization’s (NATO) Defense Innovation Accelerator for the North Atlantic (DIANA) and Innovation Fund. Together, these programs invest in strategic dual-use technologies while helping ensure that resulting advancements remain within the defense ecosystems of the United States and the broader North Atlantic alliance.  

While these initiatives represent a supportive—and largely passive—approach to shaping technological development, the underwriting of investments by defense departments represents a more passive form of “geoeconomics,” defined as “the pursuit of hegemonic influence…using economic leverage—trade and financial relationships—to change the economic or political behavior of other actors in the world.” In contrast, restrictions on outbound capital, such as the OISP, constitute a more active projection of economic power and send a clear message about current national priorities. Although these measures are less commonly employed than targeted sanctions or oversight of domestic investment, restrictions on outbound capital flows have long been part of the United States’ geoeconomic toolkit and reflect evolving foreign policy concerns.

Initial attempts to restrict outbound capital

While economic sanctions have been used to project power since at least the Peloponnesian War (see Megarian Decree), the United States can trace its history of restricting outbound investment to the First World War. Six months after the United States declared war on Germany, Congress passed the Trading with the Enemy Act of 1917 (TWEA). The TWEA gave the president power to restrict trade between the United States and other countries in times of war. In terms of restricting outbound capital flows, the TWEA “gave the [p]resident power to regulate or prohibit transactions in foreign exchange and currency, and transfers of credit or property with any foreign country or the resident of any foreign country during war.” Notably, the act defined “residence and the place of doing business rather than nationality…as the measure of enemy status.” The key concept understood by wartime policy makers was that nationals of any nation, including those of the United States and its allies, “may be used as tools” by the enemy as long as they “are within the territory controlled by the enemy.”

World War I (WWI) marked the first time that the United States was involved in a war with another great power since 1812 (the Spanish-American War is not an exception, as Spain had ceased to be a great power well before 1898). Because this conflict represented a new kind of global conflict, policymakers viewed the TWEA as a novel economic tool designed to weaken German economic capacity in tandem with traditional military strategy. In addition to preventing goods and financing from advancing German war efforts, the TWEA was directed toward perceived “enemies” on the home front. German chemical and pharmaceutical manufacturers, viewed as militarily strategic industries, held subsidiaries and intellectual property in the United States at the turn of the 20th century. The factories and businesses of German nationals and German-based multinational corporations, such as Bayer, were seized by the Office of Alien Property Custodian, a body established under the TWEA to enable the United States to assume control of enemy-owned property within the country.

Following the end of WWI, multiple allied nations carried significant wartime debts from financial support provided by the United States during the conflict. As the economic recession began to engulf the United States and Europe in the 1930s, many of these allies defaulted on their debts. In response, Congress passed the Johnson Debt Default Act (Johnson Act) in April 1934, barring borrowing nations from negotiating any further loans until their outstanding debts were repaid in full. This law explicitly restricted private outbound capital by prohibiting the “extension of private long-term credits to any foreign entities in default of debt owing only to the United States Government.” In retrospect, many now view this action as reducing global liquidity and worsening the worldwide economic downturn. At the outset of World War II (WWII), the Johnson Act prevented both the U.S. government and private banks from providing loans to allied European nations—primarily England and France—and the legislation was only circumvented by the passage of the Lend-Lease Act in 1941.

While the Johnson Act was initially intended to enforce wartime debts, its application was extended after WWII as a geoeconomic tool to prohibit the issuance of private credit to the Soviet Union and other communist states. Following the war, Congress amended the act to exclude from its scope any nations that joined the Bretton Woods system as members of the World Bank or International Monetary Fund (IMF). By 1960, the law continued to effectively ban outbound capital flows to the USSR, Czechoslovakia, Hungary, Romania, and Poland, as these nations were not members of the World Bank or IMF and still owed outstanding war debts from WWI. The USSR, Czechoslovakia, and Poland also owed debts from Lend-Lease aid provided during WWII. Notably, the Johnson Act did not prohibit the U.S. government from issuing debt to nations in default and applied solely to private capital, even when those states also defaulted on loans from U.S. private lenders.   

Following the Second World War, the policy of containment became a central foreign policy priority, and the United States began exercising various economic levers to stem the global spread of communism. In addition to enforcing the Johnson Act to hinder flows of outbound private capital to communist states, the Truman Administration enacted geoeconomic-focused legislation, including the Export Control Act of 1949.

Outbound controls during the Cold War era

In ways mirroring the objectives of the OISP and the COINS Act, the Export Controls Act of 1949—described as “the first comprehensive system of export controls ever adopted by the Congress in peace time” sought to prevent advanced technologies from reaching newly emerging communist adversaries. The act granted the president authority to regulate and prohibit “the financing, transporting, and other servicing of exports,” including “technical data,” that could affect national security. Policymakers “perceived it to be in America’s national security interests to deny the benefits of international economic exchange to the Soviet Union, Eastern Europe, and China” and encountered limited opposition domestically, including “acquiescence from the business community.” However, the effectiveness of these controls and the overall efforts of the embargo relied heavily on cooperation from U.S. allies. This cooperation was initially effective, as “Western allies reluctantly participated in the broader embargo effort to retain their access to much-needed U.S. economic assistance.” By the mid-1950s, however, as allies recovered from the war, the United States’ ability to use aid to compel compliance with trade restrictions diminished.  

The Export Control Act, which expired in 1969, was replaced a decade later by the Export Administration Act. A consensus view had developed that the Export Control Act “failed to achieve its purpose” and that communist states such as the USSR and the People’s Republic of China “forged ahead with programs of economic and military development…while merely divert[ing] Soviet and Chinese purchases from the U.S. to other countries following a less restrictive policy.”

Détente with China and other communist states shifted U.S. strategic focus. As such, new priorities were reflected in orders restricting the outbound flows of capital. On January 1, 1968, President Lyndon B. Johnson issued EO 11386, imposing restrictions on certain capital transfers abroad. The order applied to U.S. persons owning a 10% or greater interest in foreign business ventures and prohibited the transfer of capital to or within a foreign country. It also required individuals with such ownership stakes to repatriate foreign earnings, bank deposits, and short-term financial assets. Rather than addressing threats from global adversaries, these restrictions were enacted to combat a significant deficit in the U.S. balance of payments, estimated at between $3.5 billion and $4 billion. Nations considered critical to global economic growth and maintaining positive relations with the United States—including Canada, Japan, Australia, and key oil-exporting states—were exempted from these outbound restrictions.

Modernization and contemporary use of outbound investment security

As the Cold War began to thaw, new threats to global security emerged—posed by both rogue states and non-state actors. It became clear that these risks would require an economic approach, given the post-war evolution of the global financial system. Building on earlier legislation, including the TWEA and the Export Control Act, Congress passed the International Emergency Powers Act (IEEPA) to provide the president with the authority “to exercise an array of economic powers to deal with any unusual and extraordinary threat” to the national security, foreign policy, or economy of the United States.

Since its enactment in 1977, the IEEPA has served as one of the primary geoeconomic tools used to support U.S. national security and foreign policy objectives. Over the decades, at least 18 executive orders have been issued under its authority, prohibiting investments in certain jurisdictions as well as transactions involving state-owned entities and non-state actors. These measures responded to a range of perceived threats and sought to exert economic pressure on post-revolutionary Iran, the Sandinista government in Nicaragua, Apartheid South Africa, Marxist rebels in Angola, the regime of Muammar Gaddafi, individuals who support terrorism, and transnational criminal organizations.

One of the most recent uses of the IEEPA to craft global economic policy is the establishment of the OISP in 2023. What distinguishes EO 14105 from earlier executive orders issued under the IEEPA is its broader scope and mandate. Most previous national emergencies declared under the IEEPA restricted outbound capital to specific nations, groups, or industries within a state. For example, outbound capital restrictions were imposed on Lebanon in 2007, following the Syrian assassination of Rafic Hariri, and on North Korea in 2008, after the country conducted successful nuclear tests. In contrast, the OISP—and subsequently the COINS Act—imposes far-reaching restrictions on a wide range of advanced technologies across multiple jurisdictions, with both the list of technologies and the covered jurisdictions likely to expand as regulatory guidance is issued and national security needs shift.

In response to the OISP and the COINS Act, U.S. investors will need greater visibility into their global investments, particularly those involving advanced technologies abroad. As these new laws and regulations become formalized, investors will be required to conduct thorough due diligence on international partners and potential end users of technologies developed by the ventures they fund. The OISP will have significant implications for strategic investment planning and risk management, and understanding all potential connections to sensitive advanced technologies and countries of concern will be critical to avoiding disruptions in investment strategy. Firms such as HKA can help investors navigate complex, rapidly evolving regulatory frameworks, such as the OISP, by performing transactional due diligence and conducting risk assessments of investment strategies to ensure compliance.

Despite certain unique aspects, the OISP is part of a long history—spanning more than a century—of geoeconomic tactics used to restrict capital flows from the United States to advance foreign policy objectives and hinder the economic and military development of perceived adversaries. Although employed as a modern instrument of geoeconomics, the OISP is rooted in a longstanding tradition of using financial levers to shape foreign policy objectives. Over time, the United States has continually refined its ability to weaponize capital against perceived threats. As the line between commercial technology and military application continues to overlap, outbound investment restrictions remain a central component of economic and legal statecraft and an increasingly essential mechanism for limiting the economic and military advancements of adversaries.

---

About the author

Brad Dragoon is a Certified Anti-Money Laundering Specialist and Certified Fraud Examiner with more than 15 years of experience in global sanctions, financial crimes investigation, and business intelligence. He holds an MBA from the Fuqua School of Business at Duke University and a BA in International Studies from the School of International Service at American University.

This article presents views, thoughts or opinions that are provided for general information purposes only. It does not represent the views of, or constitute advice of any form (legal, professional or otherwise) from, HKA or any of its affiliates. While HKA takes reasonable care to ensure the accuracy of its contents at the time of publication, the article does not deal with all aspects of the referenced subject matter and may not be relied upon as a substitute for professional judgement or independent analysis. Accordingly, neither HKA nor the author accepts liability for any use of, or reliance on, the information presented in the article. This article is protected by copyright © 2026 HKA Global, LLC/© 2026 HKA Global Ltd. All rights reserved.