A brief history of outbound capital controls in the United States
Dating back to World War 1, the United States has confronted geopolitical adversaries with an evolving policy on capital controls, according to a recent thought piece from HKA partner Brad Dragoon.
Restrictions on foreign investment, sanctions, tariffs, and export controls are used to shape the strategic options of adversaries. Such policies prevent access to capital, markets, and technologies that can drive economic growth and military modernization.
The most recent regulatory program that restricts investment outflows is the Outbound Investment Security Program (OISP). It restricts investments by US persons in certain advanced technologies within the markets of perceived adversaries.
The OISP took effect in January 2025 and was established in the signing of executive order (EO) 14105 and is being further codified into law through the Comprehensive Outbound Investment National Security (Coins) Act.
EO 14105 and the Coins Act aim to limit the technological advancement of adversaries via the restriction of outbound investment into sensitive technologies. EO 14105 initially targeted China, but was later expanded to Cuba, Iran, North Korea, Russia, and Venezuela.
The Coins Act lists five categories where investment is subject to notification and potential prohibition: semiconductors, quantum information technologies, AI, supercomputing, and hypersonic systems.
Dragoon, a certified anti-money laundering specialist and certified fraud examiner, in the thought piece notes that restrictions on outbound capital are less commonly employed than targeted sanctions – but have long been a part of America’s policy toolkit.
Six month after entering the war, Congress passed the Trading with the Enemy Act (TWEA) of 1917 – giving the president power to restrict trade with other countries in times of war. The TWEA bestowed the ability to prohibit transactions in currency and transfers of credit or property with foreign countries or residents of foreign countries.
US policymakers saw TWEA as a way to weaken German economic capacity during WW1. In addition to preventing financing of the German war effort, TWEA was also used against German chemical and pharma manufacturers in the US. For example, Bayer factories were seized by the Office of Alien Property Custodian, a body established by TWEA.
Outbound investment controls evolved further during the Great Depression. In the early 1930s, various European countries defaulted on their war debts to the US, so in 1934 Congress passed the Johnson Debt Default Act. This law restricted private outbound capital by barring extension of private long-term credits to any foreign entities in default.
After WW2, the Johnson Act was used to prohibit issuance of private credit to the Soviet Union and other communist states. By 1960, the law continued to effectively ban outbound capital to Warsaw Pact states – as they still owed outstanding war debts from WW1 and were not members of the IMF or World Bank.
During the Cold War, the Export Controls Act of 1949 was passed to prevent advanced technologies form reaching communist adversaries. The act gave the president the power to prohibit financing, transporting, and other servicing of exports, including technical data, that could affect national security.
The act expired in 1969 and was replaced a decade later by the Export Administration Act. The Export Control Act was deemed ineffective because Soviet and Chinese purchases were merely diverted from the US to countries following a less restrictive policy.
Détente with China and other communist states shifted priorities and led to the EO 11386, which imposed restrictions on certain capital transfers abroad.
In 1977, Congress passed the International Emergency Powers Act (IEEPA), which gave the president an array of economic powers to deal with unusual or extraordinary threats to the national security or economy of the US.
Since its enactment, at least 18 executive orders have been made under the IEEPA’s authority – prohibiting investments in certain jurisdictions and transactions with state-owned entities. These measures have been used to exert pressure on Iran, the Sandinistas, Apartheid South Africa, and the regime of Muammar Gaddafi.
The most recent use of the IEEPA was the OISP in 2023. Under previous national emergencies declared under the IEEPA, outbound capital was restricted to specific nations, groups, or industries in a state. For example, in 2008 capital restrictions were imposed on North Korea after it conducted successful nuclear tests.
In contrast, OISP and the Coins Act impose far-reaching restrictions on a wide range of advanced technologies in multiple jurisdictions.
Dragoon writes that US investors need greater visibility into their investments in advanced technologies abroad because of the OISP and Coins Act – and that firms like HKA can help them. The risk and disputes consultancy helps investors navigate regulatory frameworks like the OISP by providing transactional due diligence and risk assessments of investment strategies to ensure compliance.
