Treasury Proposes Expanded Outbound Investment Rules: What the COINS Act NPRM Means After the First Penalty

By: Kripa Upadhyay and Sam Bean

Two weeks after announcing its first outbound investment penalty, Treasury has proposed the rules that will replace the current program. On October 22, 2026, Treasury issued a Notice of Proposed Rulemaking (NPRM) implementing the Comprehensive Outbound Investment National Security (COINS) Act. Public comments are due December 7, 2026.

In our October 12 alert, we described Treasury’s $200,000 penalty against Amidi, LLC for failing to notify Treasury of a roughly $92,478 investment by its Chinese fund subsidiary in an embodied-AI company. We noted that COINS Act rulemaking was coming and that investors should be ready to comment. That rulemaking is now here, and it raises the stakes considerably.

Under the proposed rule, an AI investment like Amidi’s would no longer be a missed filing. It would be a prohibited transaction. The NPRM also adds four countries of concern, three new technology sectors (including biotechnology), a sharper knowledge standard, and a long-awaited process for getting Treasury’s views before closing.

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

What Treasury Proposed

The NPRM is a 137-page proposed rule, scheduled for Federal Register publication on October 26, 2026. It would implement Subtitle C of the COINS Act, enacted in December 2025 as part of the FY2026 National Defense Authorization Act. Treasury’s press release and fact sheet describe it as building on, not replacing, the framework investors already know under 31 C.F.R. Part 850.

Three timing points matter:

• Nothing changes yet. The NPRM does not itself take effect. The final rule will set the effective date.
• The current rules still apply. Part 850 continues to govern transactions from January 2, 2025 until the final rule takes effect. The Amidi-type obligations remain fully enforceable today.
• Comments close December 7, 2026. Anyone may comment through regulations.gov, with attribution or anonymously. Treasury has asked specifically for input on the scope of covered transactions, key definitions, notification requirements, and the penalty and enforcement process.

Key Changes from the Current Program

The proposed rule widens the program on every axis: more countries, more sectors, more prohibitions, and a clearer duty to investigate.

Countries. Treasury’s FAQ says Venezuela does not currently qualify, because the United States recognized a new head of state on March 5, 2026. Treasury still cautions investors to check Venezuela deals carefully.

Sectors. The proposals go well beyond adding headings:

• Semiconductors: the prohibition expands to radiation-hardened ICs, photonic ICs, high-bandwidth memory, and more advanced ICs. Other IC activity remains notifiable.
• Quantum: the prohibition extends to quantum computing algorithms and applications.
• High-performance computing: supercomputers stay prohibited; high-bandwidth, low-latency interconnects become notifiable.
• Hypersonics: prohibitions on hypersonic systems, propulsion, certain materials, and test facilities; notification for sensors, controls, software, and dual-use materials.
• Biotechnology: a new prohibition covering certain bio-derived compounds, brain-computer interfaces, biomanufacturing equipment, biological design and sequencing, bioinformatics tools, and automated scientific discovery hardware and software.

Covered foreign persons. Coverage reaches entities organized or headquartered in a country of concern, their nationals, government and party officials, and entities they own or control. It also reaches holding entities that derive more than 50% of key financial metrics from covered foreign persons, which captures offshore structures.

Exceptions. Familiar exceptions remain for publicly traded securities, investment company securities, derivatives, full buyouts of covered foreign person interests, intracompany transfers, and pre-existing binding capital commitments. The LP exception stays at $2 million in committed capital or a binding contractual assurance. New exceptions cover bank lending, underwriting, syndicated debt, employee equity compensation, and certain secondary and ancillary financial services. Several exceptions fall away if the U.S. investor receives governance rights beyond standard minority protections.

No screening list. Treasury does not plan to publish a list of covered foreign persons. The burden of a reasonable and diligent inquiry stays with the investor.

The practical lesson from our first alert still holds, with higher stakes. Groups running offshore funds, accelerators, or corporate venture arms that touch AI in China should assume those deals will need a hard stop, not a filing, once the final rule takes effect.

What to Do Now

Investors should treat the next six weeks as a window to clean up the past, map exposure under the new rules, and shape the final text.

• Comply with today’s rules first. Part 850 remains in force, and Treasury has shown it will enforce it. Any 2025–2026 filing gaps should be addressed now, since the 30-day clock and self-disclosure credit apply under current law.
• Inventory AI and robotics exposure in China. Deals now notifiable could become prohibited. Identify pipeline and portfolio companies that develop AI or embodied-intelligence systems, and plan around the final rule’s effective date.
• Map the new countries and sectors. Russia, Iran, Cuba, and North Korea exposure, and biotech, hypersonics, and HPC targets, may now fall in scope. Biotech and life sciences investors that never considered outbound rules should look closely.
• Lock in binding commitments. The proposed exception for pre-existing binding, uncalled capital commitments rewards documenting commitments before the effective date. Review fund documents and side letters accordingly.
• Review governance rights. Board seats or rights beyond standard minority protections can knock a deal out of an exception. Revisit term sheets with that in mind.
• Strengthen diligence records. With no Treasury screening list, a documented reasonable and diligent inquiry is the main defense. Build the NPRM’s factors into questionnaires and approval workflows.
• Comment by December 7, 2026. Definitions of SI systems, biotechnology scope, the de minimis limit, and the knowledge standard all merit input. These definitions may be subject to litigation under the Administrative Procedures Act because of the dollar figures at issue. Courts generally won’t reverse an agency on a ground the agency never had a chance to consider. Comments may be submitted anonymously.

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. We can help you:

• NPRM impact assessment. A focused review of your portfolio, pipeline, and fund structure against the proposed countries, sectors, and SI prohibition.
• Comment letters. Drafting and filing comments, individually or through coalitions, before the December 7 deadline.
• Outbound Compliance Health Check. A fixed-scope review of 2025–2026 transactions to find and fix filing gaps under the current rules.
• Voluntary self-disclosure strategy. Assessing whether and how to disclose, and preparing the submission.
• Deal documents and diligence programs. Updating questionnaires, approval workflows, LPA and side letter provisions, and capital commitment documentation for the transition.
• Training. Practical sessions for investment, BD, and offshore teams on what is changing.

Questions? Let’s talk. To schedule a complimentary 30-minute consultation on the proposed rule, contact Kripa Upadhyay or Sam Bean

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.