Background
The U.S. Department of the Treasury (Treasury) issued a Notice of Proposed Rulemaking (NPRM) on October 22, 2026, that would implement Subtitle C of the Comprehensive Outbound Investment National Security (COINS) Act.[1] The COINS Act provides the statutory basis for the Secretary of the Treasury to 1) require United States persons to notify Treasury about certain transactions involving covered foreign persons that are engaged in notifiable technologies, and 2) prohibit United States persons from engaging in certain transactions involving foreign persons and prohibited technologies. The regulations will live alongside the Part 850 regulations as a separate and independent Part 851.[2] Treasury makes an efficiency argument that establishing a new Part 851 alongside Part 850 is the “most administrable approach.”
Key Takeaways
- The NPRM would significantly broaden outbound investment restrictions by adding sweeping biotechnology prohibitions and converting most Super Intelligence investment activity into a prohibited category rather than a notifiable one.
- The NPRM would expand scoping criteria for who is covered, including reaching additional entities based on direction and control concepts, as well as a broadened view of “principal place of business” tied to where main business activities occur.
- The NPRM provides practical relief for underwriters by permitting the temporary acquisition of equity in connection with underwriting services for an IPO.
- The NPRM would materially increase compliance burdens, including expanded notification data requirements and additional notification obligations in certain scenarios involving U.S. persons and non-U.S. investors.
- The proposed rule is not yet effective. Comments are due by December 7, 2026. Treasury indicates that the current part 850 regulations remain in effect in the interim.
Outbound Program Expansion
The proposed regulations in the NPRM expand Treasury’s jurisdiction in several key ways.
The NPRM proposes expanding the list of covered countries beyond the People’s Republic of China (including Hong Kong and Macau) to include Cuba, Iran, North Korea, Russia, and Venezuela (under the Maduro regime which the NPRM notes no longer exists). The NPRM notes that on March 5, 2026, the United States recognized Delcy Rodríguez as the Venezuelan head of state. Her government is not included in the list of covered countries.
The NPRM also introduces some new processes for parties to communicate with Treasury when parties are unsure of whether a transaction they are engaged in might draw the ire of the Outbound program. These communication channels include confidential non-binding feedback, anonymized public guidance for potentially prohibited transactions, and a mechanism for the public to submit confidential evidence regarding whether a foreign person is a covered foreign person engaged in prohibited or notifiable technology. Treasury also notes the discretionary possibility of a public database of covered foreign persons.
To Whom does the Outbound NPRM apply?
U.S. Persons, Controlled Foreign Entities, and Covered Transaction Categories
Treasury’s fact sheet states that the NPRM would place obligations on U.S. persons and would include obligations applicable to their controlled foreign entities.It defines U.S. person to include U.S. citizens and lawful permanent residents, U.S.-organized entities (including foreign branches), and any person in the United States.It defines a controlled foreign entity as a non-U.S. entity of which a U.S. person is a parent (another specially defined term).
The NPRM fact sheet identifies the following covered national security transaction categories to include: acquisitions of equity or contingent equity interests, certain debt financing with equity-like rights, joint ventures, conversions of contingent equity, greenfield investments or expansions, direction of certain transactions by foreign persons, and certain limited partner investments in non-U.S. pooled investment funds.
Covered Foreign Persons and Ownership-Adjacency Rules
Treasury proposes a “covered foreign person” definition that includes certain individuals that are citizens or permanent residents of a country of concern, entities incorporated in or organized under the laws of a country of concern (or with a principal place of business there), certain political leadership (particularly noting the Central Committee of the Chinese Communist Party), governments of a country of concern, and entities that are majority owned, directly or indirectly, or subject to direction or control by such persons. Treasury also proposes an additional, percentage-based prong capturing an entity that holds voting interests, voting powers, or contractual powers relating to a covered foreign person that engages in notifiable or prohibited technology, where more than 50 percent of annual revenue or other financial metrics are attributable to such covered foreign persons (subject to a $50,000 floor). Treasury includes rules for using audited financial statements or other substitutes and exchange rate conversion based on Treasury-published rates to determine if the transaction is prohibited.
In addition, Treasury would broaden the “principal place of business” concept to include where an entity’s main business activities occur, which increases the need for diligence into management location, control relationships, and where operations are principally conducted.
What New Technology does the NPRM cover?
AI to SI
Executive Order 14434 requires executive departments and agencies to use “Super Intelligence” and “SI” in place of “Artificial Intelligence” and “AI” in certain documents.[3] Beyond the terminology change, the Outbound NPRM argues that the prior methodology of the Outbound Investment Security Program’s coverage based on quantity of computing power for training, designed end uses, and intended end uses no longer suffices. Instead, because over the past two years SI models have made substantial leaps in performance capabilities other than simply the quantity of training compute, prohibited technology is proposed to be defined as the “development of any SI systems.”
The NPRM defines SI system along the same lines as the current part 850 definition of AI system, except it adds “generate content” to the definition and lists various examples at the end that are expressly included in its scope.
This expansive definition of SI supposedly removes the guesswork around a U.S. person ascertaining the technical capabilities or thresholds of an SI system being developed by a covered foreign person, which is what was required under the Part 850 regulations. This is to say, if you are investing in a transaction with a covered foreign person concerning SI, you should seek counsel on navigating the new regulatory minefield.
Biotechnology
Biotechnology is considered a prohibited technology in the NPRM, which describes the category as the development, engineering, or use of biological systems (or components) to modify, enhance, produce, or control specified categories of agents or toxins, energetic materials, pharmaceutical compounds and delivery mechanisms, and biofuels. Treasury also proposes to treat as prohibited the development or production of brain-computer interfaces and the development, construction, or production of certain biomanufacturing equipment identified by specific Export Control Classification Numbers, plus certain related technology or equipment.
Hypersonic Systems
Hypersonic Systems are a new category of prohibited technology.This includes development or production of a hypersonic system, development or production of propulsion systems capable of enabling hypersonic flight (including ramjets and scramjets), and fuels or propellants for hypersonic propulsion systems, as well as certain materials designed for, or intended to be used for, a hypersonic system and specialized infrastructure or facilities capable of testing a hypersonic system. Treasury also proposes to treat as prohibited the development of digital twin technology for modeling and simulation of, monitoring, or optimizing a hypersonic system, and digital thread technology that collects, manages, or represents data flows related to a hypersonic system.
What is a notifiable technology?
Treasury proposes to define “notifiable technology” using activity-based definitions that include design, fabrication, development or production, and packaging of integrated circuits that do not meet prohibited technology thresholds, development or production of certain equipment designed or intended for integrated circuit design, fabrication, or packaging, development or production of high-bandwidth, low-latency interconnects for high-performance computing, and development or production of specified categories of technologies or metals, alloys, composites, ceramics, coatings, and other materials capable of use in or for a hypersonic system or its components, including sensor, guidance, navigation, or control equipment or systems and certain software and materials that are not otherwise prohibited.
Precise definitions of notifiable technology can be found on page 67,423 of the NPRM located here.
What is a prohibited technology?
The NPRM defines prohibited technology at length to include both activity-based definitions as well as:
- Semiconductor software and manufacturing equipment;
- Advanced chips and memory;
- Super Intelligence systems;
- Quantum technologies;
- Supercomputers;
- Hypersonic technologies;
- Biological systems and bio-derived products;
- Biotechnology equipment and tools;
- Otherwise notifiable technologies involving designated parties where the relevant covered foreign person or joint venture, or an affiliate or subsidiary, meets specified U.S. restricted-party criteria.
How do I communicate with Treasury about these transactions?
Notification, Post-Transaction Knowledge Notices, Notice Options, and the Knowledge Standard
The NPRM states that a U.S. person would be required to notify Treasury when it knowingly undertakes a notifiable transaction, when a controlled foreign entity knowingly undertakes a transaction that would be notifiable if undertaken by a U.S. person, and when a U.S. person learns after completion that a transaction would have been a covered national security transaction if the U.S. person had known certain facts or circumstances at the time of the transaction.
“Knowledge” of a fact or circumstance includes: actual knowledge that it exists or is substantially certain to occur, awareness of a high probability of its existence or future occurrence, or reason to know of its existence. Treasury will assess whether a U.S. person had knowledge based on information the U.S. person had or could have had through a reasonable and diligent inquiry, and it further states that failure to conduct such an inquiry by the time of the transaction may result in Treasury assessing that the U.S. person had reason to know of facts or circumstances that would cause the transaction to be a covered national security transaction in a notifiable technology or a prohibited technology.
Treasury proposes electronic filing procedures and timing rules under which notifications for notifiable transactions must be filed no later than 30 calendar days after the completion date, and notifications based on post-transaction knowledge must be filed no later than 30 calendar days after acquiring the relevant knowledge. Treasury also proposes the ability to file prior to completion, coupled with an update obligation if information materially changes, and Treasury states it may contact filers with questions or document requests, with responses treated as part of the notification and subject to the certification requirement.
But there must be some exceptions? What are they?
The NPRM outlines an excepted transaction framework that excludes the following transaction types from Outbound capture:
- an investment by a U.S. person in a security that trades on an exchange or the over-the-counter market in any jurisdiction;
- an investment in a security issued by a registered investment company such as an index fund, mutual fund, or exchange traded fund;
- a limited partner or equivalent investment in a non-U.S. pooled investment fund where committed capital does not exceed $2 million;
- where the investor has a binding contractual assurance that its capital will not be used to engage in a prohibited transaction or notifiable transaction;
- derivatives of covered securities within the specified categories.
The NPRM also includes exceptions that cover categories of activity framed as secondary transactions, including:
- underwriting services (including temporary acquisition of an equity interest solely to facilitate underwriting);
- bank lending, and processing, clearing, or sending of payments by a bank;
- and a related category of ancillary transactions undertaken by a financial institution, again including underwriting services within the specified scope.
There is also a special “national interest exemption” process under which the Secretary, in coordination with specified agencies, may determine a covered national security transaction is in the national interest of the United States and exempt it from specified provisions. This exemption can be made following a request by a U.S. person or on behalf of a controlled foreign entity.
What are the Penalties? And what happens if I want to voluntarily disclose?
The NPRM proposes a civil penalties framework referencing Title VIII and International Emergency Economic Powers Act (IEEPA)-based penalty amounts. Additionally, the NPRM proposes that the Secretary of the Treasury have the power to compel divestment of a covered national security transaction in a prohibited technology, along with related administrative collection and referral provisions.
Finally, the NPRM would strengthen Treasury’s anti-evasion posture, including the ability to address actions taken to evade or avoid the rules (and conspiracies and attemps). Treasury indicates it may consider practical indicia of evasion such as de facto control over non-U.S. vehicles, shared personnel, services, facilities, branding, commingled funds, overlapping investors, and shared beneficial ownership or rights to proceeds.
Any person that has engaged in conduct that may constitute a violation of the proposed regulations may submit a voluntary self-disclosure of that conduct to Treasury once finalized. Treasury will consider the submission and timeliness in its penalty assessment, if any.
If finalized, the NPRM would significantly expand the reach of the Outbound Investment Security Program. Parties should reassess pending deals and consider commenting on proposed revisions or points of contention by December 7th, 2026.
*Matthew Floyd is a law clerk in the firm's Washington, D.C. office.
FOOTNOTES
[1] U.S. Dep’t of Treasury, Fact Sheet: Treasury Department Issues Notice of Proposed Rulemaking on Implementation of the Comprehensive Outbound Investment National Security (COINS) Act, 1 (2026).
[2] Outbound Investment Security Program Regulations, 91 Fed. Reg. 67,396, 67,420 (issued Oct. 22, 2026) (to be codified at 31 C.F.R. pts. 850–851).
[3] Executive Order 14434 (91 Fed. Reg. 63,129).