Outbound Investment Security Program
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19 2. What constitutes a “reasonable and diligent inquiry,” as described in the discussion of the knowledge standard in 850.104? Answer: A “reasonable and diligent inquiry” refers to a U.S. person’s efforts to obtain relevant information about a transaction as part of a reasonable pre-transaction due diligence process, given that whether a transaction is a “covered transaction” depends, in part, on the knowledge a U.S. person had or could have had at the time of the transaction. Because each transaction is different, the Treasury Department will consider the totality of relevant facts and circumstances in assessing whether such an inquiry has been undertaken. Such assessment will consider, among other things, the specific factors set forth in section 850.104(c): (1) The inquiry a U.S. person has made regarding an investment target or other relevant transaction counterparty (such as a joint venture partner), including questions asked of the investment target or relevant counterparty, as of the time of the transaction; (2) The contractual representations or warranties the U.S. person has obtained or attempted to obtain from the investment target or other relevant transaction counterparty (such as a joint venture partner) with respect to the determination of a transaction's status as a covered transaction and status of an investment target or other relevant transaction counterparty (such as a joint venture partner) as a covered foreign person; (3) The efforts by the U.S. person as of the time of the transaction to obtain and consider available non-public information relevant to the determination of a transaction's status as a covered transaction and the status of an investment target or other relevant transaction counterparty (such as a joint venture partner) as a covered foreign person; (4) Available public information, the efforts undertaken by the U.S. person to obtain and consider such information, and the degree to which other information available to the U.S. “(7) The use of available public and commercial databases to identify and verify relevant information of an investment target or other relevant transaction counterparty (such as a joint venture partner).” 20 The “reasonable and diligent inquiry” framework is intended to apply to a variety of transactions rather than creating a prescriptive, one-size-fits-all requirement. Under this framework, a U.S. person can, following a “reasonable and diligent inquiry,” proceed with a transaction if at the time it does not have knowledge of relevant facts that would render the transaction a covered transaction. This would be true even if, for example, the investment target had been engaged in a covered activity at the time of the relevant transaction, but the U.S. person lacked knowledge or a reason to know about that covered activity following a “reasonable and diligent inquiry.” Released on December 13, 2024 3. What should a U.S. person do when information required to determine the applicability of the Outbound Rules is only within the possession of the investment target? What if a U.S. person is unable to obtain answers to diligence questions? Answer: The Treasury Department expects a U.S. person to make efforts to ascertain relevant information about a transaction as part of a reasonable pre-transaction due diligence process. The Treasury Department acknowledges that in certain instances, information required to assess whether a transaction is a covered transaction may be difficult to ascertain. In such circumstances, a U.S. person may wish to obtain representations or warranties from the relevant transaction counterparty regarding pertinent information such as the investment target or counterparty’s ownership, investments, and activities. While receipt of contractual representations or warranties—such as with respect to a transaction’s status as a covered transaction and the status of an investment target or other relevant transaction counterparty (such as a joint venture partner) as a covered foreign person—does not confer a safe harbor, such representations and warranties can provide, in the absence of other relevant information available to a U.S.