Treasury Issues First Outbound Investment Penalty: What You Need to Know

For the first time, the Department of Treasury took civil action against a U.S. company for violating recently enacted outbound investment restrictions. These outbound investment restrictions, which cover some of the hottest industries for investment, including artificial intelligence, are something that all U.S. entities and persons, including those with foreign subsidiaries, require attention, due diligence, and engagement with regulators.

On October 7, 2026, the Department of the Treasury announced its first civil penalty under the Outbound Investment Security Program (OISP): a $200,000 penalty, imposed in July 2026, against Amidi, LLC. Amidi did not make the investment itself. Its subsidiary, a Chinese fund, invested approximately $92,478 in a Chinese embodied-AI company, and Amidi, as the U.S. parent, did not file the required notification with Treasury. Treasury identified the transaction through its own compliance and market monitoring.

The action carries three lessons: (1) The outbound rules reach U.S. parents for the investments of the foreign entities they control; (2) even small transactions can draw enforcement; (3) the Administration is increasingly focusing on private investors whose activity implicates national security, both inside (CFIUS) and outside our borders. With Congress having codified and expanded OISP through the COINS Act, U.S. investors, and particularly those with foreign subsidiaries or funds active in China, should treat outbound investment compliance as a core diligence item.

This alert is intended for in-house counsel, executives, and others involved in cross-border investment and acquisitions.

Background: the OISP and the COINS Act

The Outbound Investment Security Program (OISP), codified at 31 C.F.R. Part 850, took effect on January 2, 2025. It prohibits certain transactions, and requires notification to Treasury of others, when U.S. persons invest in entities in or connected to China, Hong Kong, or Macau that are engaged in semiconductors and microelectronics, quantum information technologies, or artificial intelligence. U.S. persons must also notify Treasury of covered investments by the foreign entities they control, and take reasonable steps to prevent those entities from making prohibited ones. The program addresses concerns that U.S. capital, and the intangible benefits that often come with it, could advance sensitive technologies in countries of concern.

Covered transactions include equity and contingent equity acquisitions, certain convertible debt financings, greenfield and brownfield investments, joint ventures, and certain limited partner investments in non-U.S. funds. Whether a transaction is prohibited, notifiable, or outside the rules depends on the target’s specific technology and its intended use.

The Comprehensive Outbound Investment National Security (COINS) Act, signed into law in December 2025, codifies the program. Once implemented, it will expand the countries of concern to include Cuba, Iran, North Korea, Russia, and Venezuela, and add high-performance computing and supercomputing and hypersonic systems to the covered sectors. The COINS Act is not yet in effect. Treasury must issue implementing regulations by March 2027, and the current rules remain in force until then.

Why this action matters

This action, combined with stepped up enforcement activity by CFIUS, shows that the Administration is stepping up focus and resources to regulate private investment in areas it believes impact national security. Investors should expect continued action by Treasury under OISP and the COINS Act. The COINS Act authorized $150 million annually for Treasury for the following two fiscal years to administer the act, far more than is budgeted for CFIUS.

This action also shows that no transaction is too small to come under regulatory scrutiny – this one was just $92,478. Relevant parties should be aware that the fine amount can rise to twice the amount of the transaction that was the basis of the violation.  And that criminal penalties are possible for willful violations of the rules with up to twenty years’ imprisonment. Violators may also face forced divestment, just as can be ordered through CFIUS.

The risk is greatest where U.S. parents have limited visibility into the investment activity of their foreign subsidiaries and funds, and in AI, where the line between notifiable, prohibited, and uncovered activity can turn on a target’s intended end uses and the computing power used to train its models.While knowledge is required for a violation, investors cannot get around it by turning a blind eye because Treasury will assess whether an investor should have had knowledge, including whether there was a reason to know, of the fact(s) leading to a violation. 

Best Practices for Moving Forward

• Treasury is watching the market, not waiting for filings. The program’s first case came from Treasury’s own monitoring. Investors should assume that deals announced in Chinese media, startup databases or portfolio pages can be cross-checked against notification records.
• Discovering a problem after closing starts a 30-day clock. A U.S. person that learns after a deal closes that it was a covered transaction must notify Treasury within 30 calendar days. Investors with possible exposure from past deals are generally better served by investigating and self-reporting than by waiting for Treasury to find the issue first.
• No transaction is too small. Direct investments have no minimum dollar threshold, and the exceptions that exist, such as certain small LP commitments and publicly traded securities, are narrow.
• Controlled foreign entities create U.S. liability. Groups that run offshore funds, accelerators, corporate venture arms or local investment vehicles in China carry the filing obligation at the top of the structure.
• “Embodied AI” and robotics are squarely in scope. Treasury highlighted Noematrix’s AI, robotics and embodied intelligence work. Investors should not assume robotics or hardware-adjacent startups fall outside the AI category.
• Not every China-related deal is covered. Whether a transaction is prohibited, notifiable or outside the rules depends on both the type of transaction and the target’s specific technology and its intended use. Careful diligence can confirm that a deal is permissible, not only flag risk.
• Mitigation is earned before a violation is found. Treasury evaluates aggravating and mitigating factors under its Enforcement Overview and Guidance, including whether the party had a compliance program and whether it voluntarily self-disclosed. Treasury has also publicized a tips line, which raises the risk that a counterparty, employee, or competitor reports a missed filing first.
• The rulemaking is an opportunity to shape the rules. Treasury must issue regulations implementing the COINS Act by March 2027, and the proposed rule will be open to public comment. Investors with exposure in covered sectors or jurisdictions should consider submitting comments.
• The list of covered technologies can grow. Under the COINS Act, Treasury can add new technology categories, and it must periodically reassess the current AI compute threshold. Investors should monitor these changes and engage with Treasury where their sectors are affected.
• Use the new guidance process once it exists. The COINS Act directs Treasury to create a process for non-binding feedback, given confidentially or as anonymized public guidance. Once it’s available, investors with close calls should consider asking Treasury about a deal before closing it rather than defending it afterward.

How We Can Help

Our International Trade / National Security team advises private equity and venture funds, corporate investors, accelerators and family offices on outbound investment compliance from deal sourcing through closing. We can help you:

• Outbound Compliance Health Check. A fixed-scope review of your 2025–2026 transactions and fund structure that identifies filing gaps and controlled-foreign-entity exposure, with a prioritized remediation plan.
• Voluntary self-disclosure strategy. Assessment of whether and how to disclose, and preparation of the submission to Treasury.
• Deal-by-deal analysis and filings. Rapid scoping memos on whether a transaction is notifiable, prohibited or excepted, and preparation of Outbound Notification System filings.
• Program design and documentation. Screening questionnaires, policies, approval workflows and model LPA, side letter and deal-document provisions.
• COINS readiness and advocacy. Exposure mapping for the new countries and sectors, and drafting of comments on Treasury’s proposed rules.
• Training. Practical sessions for investment, BD and offshore teams.

Questions? Let’s talk. To schedule a complimentary 30-minute outbound exposure consultation, contact Sam Bean or Kripa Upadhyay.

This communication is not intended to create or constitute, nor does it create or constitute, an attorney-client or any other legal relationship. No statement in this communication constitutes legal advice nor should any communication herein be construed, relied upon, or interpreted as legal advice. This communication is for general information purposes only regarding recent legal developments of interest, and is not a substitute for legal counsel on any subject matter. No reader should act or refrain from acting on the basis of any information included herein without seeking appropriate legal advice on the particular facts and circumstances affecting that reader. For more information, visit www.buchalter.com.