Under the current Outbound Investment Security Program (OISP) regulations (31 CFR Part 850), there are two tiers of restrictions: prohibited and notifiable. U.S. persons must notify Treasury of certain covered transactions involving persons of a country of concern (currently only China, including Hong Kong and Macau). Covered transactions that pose a particularly acute national security threat are prohibited.
- Key examples of prohibited transactions include investments in foreign entities developing technology relating to high-performance semiconductors and advanced semiconductor packaging, and AI models intended for military or intelligence end uses or surpassing certain performance thresholds.
- Covered notifiable transactions include investments in any semiconductor-related technology or AI system that do not fall in the “prohibited” category.
As we discuss here, Treasury’s first OISP penalty was issued earlier this month on October 7, 2026. It involved a $200,000 penalty for an unnotified investment of $92,478 made by a controlled foreign entity.
As we discuss here, the COINS Act codifies and builds upon Treasury’s existing OISP. Key areas of changes between OISP and the COINS Act include, among other things, the addition of sensitive technology sectors (including high-performance computing and supercomputing, hypersonic systems, and biotechnology), updates to technology sectors under OISP to include additional categories of prohibited covered transactions, new exceptions to covered transactions, creation of a process for certain parties to request non-binding feedback from Treasury, and a broader range of covered countries. We discuss these below.
Key Changes in the NPRM to OISP
These include, among others:
- Expanded technologies: The NPRM adds new technology sectors and includes additional categories of prohibited transactions within sectors that are part of the existing OISP program. Specifically:
A new prohibited biotechnology sector. Prohibited technologies would include:
- Certain export controlled agents or toxins;
- Energetic precursors or materials;
- Novel/high performance functional materials;
- Pharmaceutical compounds and delivery systems;
- Biofuels;
- Development or production of brain-computer interfaces;
- Development, construction or production of biomanufacturing equipment; and
- Other related technologies, hardware and software.
Semiconductor and quantum prohibitions are broader. Among other additions, restrictions would be added relating to:
- EUV and DUV lithography, photonic ICs and high-bandwidth memory;
- Electronic design automation software used for designing ICs or advanced packaging;
- Front-end fabrication equipment designed for volume fabrication of IC’s;
- Packaging of IC’s using advanced packaging techniques; and
- Design of IC’s that meet advanced technical parameters, as defined by Export Control Classification Number (ECCN) 3A090.a.
AI: Investments by U.S. persons into country of concern entities developing any AI (or “super intelligence” (SI)) systems would be prohibited, rather than notifiable. There would be no compute or end-use thresholds thus meaning that development of any SI system would be a prohibited technology. In the NPRM, Treasury noted that this proposed change is driven by the rapid development of model capabilities over the past two years. End uses have become more difficult to isolate, and there are no longer single measures or benchmarks which can accurately distinguish advanced models.
- Expanded definition of “develop”: Under OISP, “develop” helps determine whether the activities of a foreign company subject to the program (such as a company in a country of concern) with respect to a covered technology sector fall within a prohibited or notifiable category. The NPRM would expand the term to include activities engaged in through or in collaboration with affiliates; add the act of transforming blueprints, schema or other plans into a product; and include the provision of high-level or strategic oversight.
- Expansion of “knowledge” standard: In determining whether a U.S. person has complied with certain provisions of OSIP, OSIP includes a “knowledge” standard, which includes a reason to know. The NPRM expands the current standard to include whether the U.S. person appropriately considered information provided by Treasury prior to undertaking the transaction, and also apply the knowledge standard to knowledge of a controlled foreign entity.
- Countries: The rule adds Cuba, Iran, North Korea, Russia and Venezuela “under the Maduro regime.” Treasury notes that the Maduro regime no longer exists, and accordingly, we believe any application of the OISP to Venezuela-related investments is essentially non-effective.
- Covered foreign persons: Coverage would be based on a person’s tie to a country of concern. The definition adds entities “subject to the direction or control” of covered persons and keeps the existing 50% ownership and financial tests. This means that covered foreign persons could include entities outside of countries of concern that do not meet the 50% ownership threshold.
- Listed persons: Investments in otherwise notifiable transactions are prohibited where the target, or any of its affiliates or subsidiaries, appears on certain U.S. government lists. The Defense Department’s Section 1260H and BIOSECURE lists would be added.
- Transaction types and involvement: “Knowingly directing” a transaction would now apply to notifiable transactions, as well as prohibited ones.
- Exceptions: New exceptions include a $50,000 de minimis threshold (for notifiable transactions only), plus secondary and ancillary financial services. The exception for business development companies and part of the derivatives exception would be dropped.
- Compliance and enforcement: Notifications would require more detail on covered foreign persons, including: additional information regarding the target’s business and operations; disclosure of prior/current/future commercial arrangements with the target; and descriptions of any future investment opportunities in the target. Criminal penalties would be removed, while civil penalties and divestment remain. A new process would let parties with a direct financial interest in the subject transaction request non-binding feedback on whether the transaction is prohibited.
Implications and Next Steps
The NPRM would represent a meaningful expansion of the outbound investment regime. Most notably, the proposed blanket prohibition on AI development and the new biotechnology prohibitions could reach a wide range of transactions that are merely notifiable, or not covered at all, under the current regulations. The broader covered foreign person definition, expansion of list-based prohibitions, as well as the “knowledge” and “develop” standards, and extension of “knowingly directing” to notifiable transactions would also increase the diligence burden on U.S. investors, fund managers and companies with controlled foreign entities. At the same time, the new de minimis threshold, additional transaction exceptions and the non-binding feedback process may provide some relief and greater certainty for certain transactions.
Comments on the NPRM are due December 7, 2026. The current regulations remain in effect until the final rule takes effect. In the meantime, companies and investors should consider:
- Reviewing existing portfolios, deal pipelines and fund structures against the proposed countries, technologies and covered foreign person definition, with particular attention to AI, biotechnology, hypersonics and high-performance computing.
- Updating diligence questionnaires, contractual representations and side letter assurances to address the proposed scope, including the new list-based prohibitions and affiliate relationships.
- Assessing compliance policies and controls for controlled foreign entities and for U.S. persons who serve as officers or directors of non-U.S. entities.
- Evaluating whether to submit comments, particularly on the AI and biotechnology prohibitions, where Treasury has specifically requested input.