Overview
On October 22, 2026, the U.S. Department of the Treasury issued a notice of proposed rulemaking (NPRM) to implement Subtitle C of the Comprehensive Outbound Investment National Security Act (COINS Act). As discussed in our prior post, the Act codifies and expands the Outbound Investment Security Program (OISP), which currently restricts certain U.S. person investments involving entities linked to China. Among other key changes, the proposal would substantially broaden restrictions on investments involving artificial intelligence (AI) and add biotechnology, potentially affecting a wide range of commercial technology and life sciences businesses. Comments on the proposed rule are due December 7, 2026.
The NPRM would establish new regulations at 31 C.F.R. Part 851. The existing Part 850 rules remain in force until the final rule becomes effective and would continue to govern activities during the interim period. The new rules would apply only prospectively, but they would reach follow-on investments made after the effective date, other than those made under binding, uncalled capital commitments entered into earlier.
Expanded Technology Coverage
AI systems. The proposal would prohibit covered investments involving covered foreign persons that develop any AI system, removing the current distinctions based on training compute and specified end uses. It would eliminate the separate notification category for AI, such that all covered AI-related transactions would be prohibited. The NPRM uses the term “super intelligence” (SI) in place of AI, but the definition extends broadly to applications, hardware, and tools that operate in whole or in part using such AI systems, expressly including AI-enabled robots, autonomous vehicles, and unmanned systems, among others.
This expansion could reach developers of commercial applications built on third-party models: as proposed, a company “develops” an SI system when it enhances or extends a third-party model’s capabilities (e.g., an agentic harness). A developer need not train its own underlying model to fall within the proposed prohibition. However, use of off-the-shelf third-party systems strictly for internal, non-commercial purposes, including certain customization or fine-tuning, would not constitute development solely on that basis. The current rules capture the use of certain third-party models, but only where the covered foreign person is engaged in development, including “substantial modification,” of the underlying model. Therefore, this change, if implemented, would mark a material expansion of the rules.
Biotechnology. Under the NPRM, Treasury would exercise its authority to add technology sectors beyond those specified in the Act. The NPRM’s investment prohibitions would cover activities involving the development, engineering, or use of biological systems to produce pharmaceutical compounds, biofuels, and certain other materials. Pharmaceutical compounds expressly include small molecules, vaccines, and cell and gene therapies. Coverage also would extend to brain-computer interfaces, certain biomanufacturing equipment, sequencing technologies, bioinformatics tools, and laboratory automation. There would be no separate notification category for biotechnology.
These provisions could potentially affect conventional drug development and commercial research platforms. Treasury acknowledges potential public health and business consequences and specifically requests comment on whether pharmaceutical compounds and equipment should be more narrowly scoped to advanced or frontier technologies.
Other technologies.
- Semiconductors: The NPRM also would expand semiconductor prohibitions to include certain radiation-hardened integrated circuits, photonic integrated circuits (including optical components and co-packaged optics), and high-bandwidth memory.
- Quantum: The NPRM would extend quantum restrictions to additional software, algorithms, and applications.
- Supercomputers: For high-performance computing and supercomputing, it would expand coverage of enabling components and add a notification requirement for certain interconnects.
- Hypersonic Technology: New hypersonic technology provisions would prohibit investments involving specified systems (including civilian and spaceflight systems), propulsion technologies (including rocket-based propulsion), materials, and testing facilities, while requiring notification for certain sensors, software, and other enabling technologies.
Covered Entities and Transaction Structures
The proposed country list would add Cuba, Iran, North Korea, and Russia in addition to the presently listed China (including Hong Kong and Macau). It also incorporates the Act’s reference to Venezuela under the Maduro regime; Treasury explains that Venezuela does not currently meet that definition because Maduro is no longer in power.
The “covered foreign person” definition would include a foreign person that is a citizen or permanent resident of a country of concern (and not a U.S. citizen or permanent resident); an entity that is incorporated in, has a principal place of business in, or is organized under the laws of a country of concern; an individual member of the political leadership of a country of concern; the government of a country of concern or any person acting for or on behalf such a government; or an entity that is directly or indirectly majority-owned or “subject to the direction or control” of any individuals or entities in any of the aforementioned categories. The NPRM would also define a covered foreign person to include an entity that holds a voting interest, board seat, or equity interest in one or more covered foreign persons where more than 50 percent of one of several key financial metrics of the entity is attributable to such covered foreign person or persons.
According to the NPRM, an entity would be “subject to the direction or control” of another person where that person “has the power, directly or indirectly, to direct or cause the direction of the management or policies of the subject entity (whether through the ownership of voting securities, by contract, or otherwise).” This is a broad and amorphous definition, which could present challenges for industry. The definition is substantially similar to that used in the inbound context under the Committee on Foreign Investment in the United States (CFIUS) rules. Parties frequently disagree with CFIUS over whether a transaction gives rise to control in the CFIUS context, suggesting this standard could present compliance challenges for industry. Notably, the current OISP rules do not include a direction or control standard.
An entity’s principal place of business also would include both its headquarters and, separately, the location of its main business activities. This could capture, for example, companies that have relocated outside China but continue to operate there.
An otherwise notifiable transaction also would be prohibited if the covered foreign person or any affiliate or subsidiary appears on specified U.S. government lists, which would now include the Section 1260H list of Chinese military companies and the biotechnology companies of concern list under the BIOSECURE Act, among others. Investors would also need to examine licensing collaborations involving equity or joint venture elements, and fund investments that indirectly involve covered businesses. Treasury clarifies that a joint venture would not need to involve formation of a new entity to fall within the ambit of the rules.
The proposal also would reach U.S. companies’ own operations. For example, establishing or expanding activities in a country of concern to engage in a prohibited technology activity, or entering a joint venture with a covered foreign person to do so, would be prohibited.
Additional Obligations for U.S. Persons
U.S. citizens and lawful permanent residents working at foreign organizations could face additional obligations, as well. The current OISP rules prohibit U.S. persons from “knowingly directing” transactions by non-U.S. entities that would be prohibited if engaged in by a U.S. person. The NPRM would implement the COINS Act’s extension of “knowingly directing” to transactions that would be notifiable if undertaken by a U.S. person. Therefore, U.S. persons must submit notifications if the U.S. person knowingly undertakes a notifiable transaction or if a controlled foreign entity of the U.S. person knowingly undertakes a transaction that would be notifiable if undertaken by a U.S. person.
In addition, U.S. persons would remain responsible for taking all reasonable steps to prevent prohibited transactions by their controlled foreign entities. The proposal would expressly make the foreign entity’s own knowledge relevant to notification obligations, including knowledge acquired after a transaction. U.S. parents and fund managers should assess how information about foreign affiliates’ investments reaches their entity’s personnel responsible for compliance.
Exceptions and Other Relief
The NPRM would preserve exceptions for qualifying publicly traded securities and securities issued by SEC-registered investment companies, but would drop the current exception for business development companies (pursuant to the Investment Company Act). Certain limited partner investments in non-U.S. funds would remain excepted where committed capital does not exceed $2 million, aggregated across a fund’s investment and co-investment vehicles, or specified contractual assurances are obtained. These exceptions remain subject to restrictions on governance rights beyond standard minority shareholder protections, and the limited partner exception would not cover every form of indirect fund investment.
New exceptions would address specified services, including bank lending, payment processing, and underwriting, although their boundaries remain open for comment. A separate $50,000 de minimis exception would apply only to otherwise notifiable (but not prohibited) transactions, subject to aggregation over the preceding 12 months for the relevant covered foreign person or joint venture.
The NPRM would also implement a statutory carveout for underwriting services including “the temporary acquisition of an equity interest for the sole purpose of facilitating underwriting services.” This exclusion addresses a longstanding area of concern and uncertainty for industry under the current OISP rules.
Treasury retains the authority to issue case-specific national interest exemptions, with factors such as U.S. supply chains, defense-production requirements, public-health needs, technological leadership, and national-security consequences among the proposed considerations for such exemptions.
New Treasury Feedback Mechanism
Treasury also proposes a process for parties with a direct financial interest in an actual prospective transaction to request feedback on whether it would be prohibited. Material terms would need to be reflected in a binding written agreement or other binding document. Treasury could decline to respond, and any feedback would be nonbinding and would not provide an authorization or exemption. Investors would remain responsible for assessing coverage through reasonable and diligent inquiry.
Violations
Violations could draw civil penalties equivalent to the greater of an inflation-adjusted $250,000 or twice the transaction value, and Treasury could compel divestment of prohibited transactions. Unlike Part 850, the proposal omits criminal penalties, which Treasury indicates are not contemplated in the statutory text. The NPRM also creates a pathway for submission of voluntary self-disclosures, which may be treated as a mitigating factor in the event of a violation.
Issues for Industry Comment
Affected companies and investors should consider whether submission of a comment may be prudent. Treasury implemented a number of material changes to the current OISP rules based on industry comments received during the prior rulemaking process. Written comments must be received by December 7, 2026.
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For additional information regarding the NPRM or assistance preparing and submitting comments, please contact a member of Steptoe’s National Security & Cross-Border Transactions team.
