Highlights
U.S. expands its outbound investment rules (OIR) to cover biotechnology and expands coverage of advanced integrated circuits.
Artificial Intelligence (AI) thresholds and end-use tests are exchanged for a broader prohibition on investments involving development of any “super intelligence.”
Certain exceptions for public securities and qualifying investment funds remain in the regulations. New exceptions include a $50,000 de minimis exception (from notification only), bank lending, and underwriting.
Treasury offers a new procedure where parties can request non-binding feedback on whether a deal is prohibited, and anyone can confidentially submit information about covered foreign persons.
Only civil penalties are contemplated, and criminal penalty language is dropped from the regulations. Civil penalties go up to the IEEPA maximum: the greater of $250,000 (inflation-adjusted) or twice the transaction value. Treasury can also compel divestment.
What the Proposed Part 851 Outbound Investment Rule Would Change
On Oct. 26, Treasury published its long-awaited proposed OIR that would replace the current Outbound Investment Security Program (OISP) (31 C.F.R. Part 850) with a new Part 851 to implement the Comprehensive Outbound Investment National Security Act (COINS Act), which was enacted on Dec. 18, 2025. The COINS Act added hypersonic systems and expanded high-performance and advanced integrated circuits to the original notifiable or prohibited technology categories of semiconductors and microelectronics, quantum information technologies, high-performance computing and supercomputing, and AI. The new draft OIR regulations add biotechnology and expand AI to include all “super intelligence” (SI) system development into a prohibited category. The COINS Act expanded the countries of concern beyond China (including Hong Kong and Macau) to include Cuba, Iran, North Korea, Russia, and Venezuela under the Maduro regime. The rules are a proposal only; comments are due Dec. 7, 2026, and nothing takes effect until a final rule sets an effective date.
Background: From Executive Order 14105 to the COINS Act
The Executive Order. Executive Order 14105 (Aug. 9, 2023) started the Outbound Investment Rule program, which targeted China, Hong Kong, and Macau in three technology areas — semiconductors and microelectronics, quantum information technology, and AI sectors.
The current rules. Treasury's Part 850 rules took effect Jan. 2, 2025. In about 21 months, Treasury received roughly 100 notifications and issued answers to more than 50 Frequently Asked Questions (FAQs).
The statute. Congress enacted the COINS Act on Dec. 18, 2025, as part of the FY26 NDAA. It codified the program and gave the Secretary authority to add technologies.
Treasury's approach. Where the statute allows, the proposal reuses Part 850 concepts so that the market works with familiar definitions.
Notification or prohibition. As expected, U.S. entities would be required to notify the Treasury Department about certain transactions, while others would be banned.
Summary of Key Provisions & Changes
The following is a summary of the key provisions and changes of the new OIR.
Who is covered
Proposed rule: U.S. persons are covered. A U.S. person must also take “all reasonable steps” to prevent prohibited transactions by its controlled foreign entities.
Knowledge standard
Proposed rule: Knowledge means actual knowledge, “knowledge of relevant facts or circumstance,” “possesses an awareness of a high probability” that the transaction could occur, or reason to know. A new diligence factor asks whether the investor considered information or assessments Treasury had provided or through “reasonable diligence.”
Covered foreign person
Proposed rule: The definition tracks Part 850's “person of a country of concern,” including 50% ownership and control tests. Holding entities also qualify if more than 50% of their revenue, net income, CapEx or OpEx comes from such persons.
Covered transactions
Proposed rule: Covered transactions include equity and contingent equity, equity-like debt, joint ventures, and conversions (now subject to a knowledge requirement). They also include greenfield investments, “knowingly directing” (now extended to notifiable deals), and LP interests in non-U.S. funds.
Prohibited technologies
Proposed rule:
- Semiconductors: the current prohibitions remain and expand to radiation-hardened and photonic ICs and to high-bandwidth memory above 2 GB/s/mm².
- AI (or SI) Ban: any SI system.
- Quantum: now also algorithms and applications.
- Supercomputers.
- Hypersonics: systems, propulsion, materials and test facilities.
- Biotech: bio-derived compounds (including pharmaceuticals and biofuels), specified biological system activities involving pharmaceutical compounds and their delivery mechanisms, certain agents and toxins, novel functional materials, biomanufacturing, and bioengineering of certain compounds. Brain-computer interfaces, specified biomanufacturing equipment, sequencing, certain bioinformatics tools, and automated scientific discovery or laboratory systems.
Listed entities
Proposed rule: Notifiable technology becomes prohibited if the target, or any of its affiliates or subsidiaries, is on certain U.S. government lists. The Defense Department’s Chinese military companies list and the Office of Management & Budget’s BIOSECURE Act list of Biotechnology Companies of Concern are new additions for due diligence of entities.
Notifiable technologies
Proposed rule: Non-prohibited IC activity, high-bandwidth/low-latency HPC interconnects, and hypersonic sensors, software, and materials.
Notifications
Proposed rule: Due within 30 days of closing, or 30 days after learning post-closing facts. Required content is expanded, and records must be kept for 10 years.
Exceptions
Proposed rule:
- Publicly traded securities and registered funds.
- Limited Partnership (LP) commitments of $2M or less, or covered by a binding contractual assurance.
- Full buyouts of all covered foreign person holders.
- Intracompany transfers and pre-existing binding capital commitments.
- $50,000 de minimis (notifiable deals only).
- Secondary and ancillary financial services.
- The public-securities, fund, LP, and derivatives exceptions are lost if the investor gets governance rights beyond standard minority protections.
Exemptions
Proposed rule: A national interest exemption is available, possibly subject to binding conditions. Authorized intelligence activities are also exempt.
Non-binding feedback
Proposed rule: Available only to a party with a direct financial interest in an actual, prospective deal whose material terms are in a binding document. The feedback binds neither Treasury nor any court.
Treasury’s First Outbound Investment Civil Penalty: Lessons for Investors
Treasury’s recent enforcement action demonstrates the important need to conduct diligence for pending transaction deals with countries of concern in relevant technologies — semiconductors, quantum, hypersonics, AI or SI, and biotechnology. Treasury’s first civil penalty under the OISP was announced on Oct.7, 2026, and the numbers are striking: a $200,000 penalty for an investment of roughly $90,000. The case involves Amidi, the parent company of Silicon Valley startup accelerator Plug and Play Tech Center, which failed to notify Treasury of an investment in a Chinese artificial intelligence company. The violation was that Amidi’s controlled Chinese fund failed to submit a required notification for the investment of more than $90,000 made in April 2025 into Shanghai Qiongche Intelligent Technology Co., Ltd. (Noematrix), a Chinese embodied AI and robotics firm. Treasury found this transaction through its regular compliance and market monitoring, rather than a voluntary disclosure.
Treasury operates a dedicated tips line at [email protected] for reporting potential violations.
Open Questions: Superintelligence, Biotechnology and Treasury Feedback Requests
Will Treasury’s new advisory opinion procedure of “consult with us,” while a positive development, be useful?
When does AI implementation become development of an SI system?
For biotechnology, are ordinary life sciences activities covered?
How to Prepare: Compliance Steps Before Comment Deadline
Diligence on AI targets. Expect SI to be a hard stop. Diligence questions should ask whether a target “develops” any SI system at all, including agentic layers built on third-party models. Purely internal, non-commercial use of off-the-shelf SI is carved out.
Biotech and pharma exposure. The biotech prohibition is broad. Pharmaceutical compounds, biofuels and sequencing tools are covered. Treasury is specifically asking for comments on narrowing it, so affected clients should consider commenting by Dec. 7, 2026.
Deal documents. Update representations, warranties, and diligence questionnaires. Treasury weighs these, along with database checks and warning signs, when judging whether a “reasonable and diligent inquiry” was made.
Funds. LPs should review commitment size (the $2M threshold) and side-letter assurances. Managers should note that investment advisers count as “parents.”
Governance rights. Board seats or veto rights beyond standard minority protections take an otherwise excepted investment out of the exception.
Compliance programs. U.S. parents should document agreements, training, internal controls, and audit testing for their controlled foreign entities.
Transition planning. Pre-effective-date binding capital commitments would be excepted under the new rule, but they may still be covered under Part 850. Debt or contingent equity acquired before the effective date falls outside the new conversion prong.
Other uses of the new procedures. Feedback requests will only be useful for signed, specific deals. Treasury does not plan to publish a list of covered foreign persons for now.
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