A big month for the US outbound investment regime: first penalty and proposed COINS Act rules 

Background

Since its rollout on January 2, 2025, the US Outbound Investment Security Program (OISP), also known as the outbound investment regime, has become a critical consideration for US investors and multinational financial institutions with business aspirations in China. The OISP prohibits, or requires notification of, certain investments by US persons in Chinese companies (including in Hong Kong and Macau) that work on semiconductors, artificial intelligence (AI) and quantum technologies. The current rules are set out in 31 C.F.R. Part 850.

In December 2025, Congress enacted the Comprehensive Outbound Investment National Security Act (COINS Act) as part of the National Defense Authorization Act for Fiscal Year 2026. The COINS Act places the program on a statutory footing and gives the US Department of the Treasury (Treasury) 450 days, until March 13, 2027, to issue implementing rules.

October 2026 has been a significant month for the regime, with Treasury’s first enforcement action and its long-awaited proposed rule implementing the COINS Act.

First enforcement action

On October 7, 2026, Treasury announced its first civil penalty under the OISP. Treasury had imposed a USD 200,000 penalty in July 2026 on Amidi, LLC, a US investor, for failing to notify Treasury of an investment of approximately USD 92,478 made in April 2025 by its controlled Chinese fund subsidiary in a Chinese embodied AI company.

Treasury found the deal itself, through its “regular and ongoing compliance and market monitoring efforts.” Amidi did not self-disclose. The target was Shanghai Qiongche Intelligent Technology Company Limited (Noematrix), a private Chinese developer of AI, robotics and embodied intelligence. Amidi is the parent of the business known as Plug and Play Tech Center. Treasury treated the deal as notifiable, not prohibited.

Treasury has not said why Amidi failed to notify. Nor has it explained how it set the penalty or published any response from Amidi. The fund, not the US parent, made the investment, about three and a half months after the regime took effect. It is not apparent what compliance steps, if any, Amidi took over its subsidiary’s deal. In our view, the most likely gap lay in group oversight: Amidi may not have tracked or screened what its foreign fund invested in.

Three lessons follow. First, size offers no protection: the penalty exceeds twice the value of the investment, and the maximum is the greater of about USD 377,700 or twice the transaction value. Second, the rules reach through to subsidiaries: a US parent must notify deals by its controlled foreign entities. Third, Treasury is watching the market and does not wait for filings or disclosures.

This first penalty marks a turning point. Until now, the regime had rules on paper but no track record of enforcement. Treasury has now shown three things: it monitors the market itself, it will pursue small deals, and it will impose penalties that exceed the investment. With that precedent set, Treasury can point to a real case when it questions investors, and investors can no longer treat a missed filing as a low risk. We expect Treasury to bring more cases, and to expect more of investors’ compliance programs, as the regime expands under the COINS Act.

Overview of the proposed rule

On October 22, 2026, Treasury released its proposed rule implementing the COINS Act, the next big step for the regime. The proposal sets out how the expanded program would work and addresses various comments we had previously shared with Treasury colleagues. The new rules would sit in a new 31 C.F.R. Part 851, rather than amending the current rules, and would carry over existing definitions and concepts where consistent with the COINS Act. They would not apply retroactively. Part 850 will continue to apply until the final rule takes effect. Comments are invited until December 7, 2026, and Treasury aims to publish the final rule by the March 13, 2027 deadline.

The core provisions of the proposal are as follows.

More countries

Besides China (including Hong Kong and Macau), the regime would also cover Cuba, Iran, North Korea and Russia. Venezuela is named in the COINS Act but, according to Treasury, is not currently covered because the Maduro regime no longer exists.

New and expanded sectors

The COINS Act and the proposal together make critical changes to the remit of the regime. They add three new sectors and widen two existing ones.

New sectors

• Supercomputing: the current prohibition on supercomputers would continue. High-bandwidth, low-latency interconnects, the links that let chips and data centers scale up, would become notifiable.
• Hypersonics: investment in hypersonic vehicles, propulsion systems, heat-resistant materials, test facilities and digital twin technology would be prohibited. Sensors, guidance and control systems, testing software and other dual-use materials would be notifiable. The definition covers civilian as well as military systems, and may include systems for spaceflight.
• Biotechnology: a prohibited sector, with no notification tier. It would cover using biological systems to make pharmaceutical compounds (including vaccines, cell and gene therapies and antibodies), biofuels, toxins and novel materials. It would also cover brain-computer interfaces, biomanufacturing equipment, biological sequencing, bioinformatics tools and lab automation. Treasury accepts the scope is broad and asks whether to narrow it to advanced or frontier technologies.

Expanded sectors

• Semiconductors: the prohibition would extend to photonic integrated circuits (including optical components, co-packaged optics and silicon photonics integration), radiation-hardened chips, certain compound semiconductor chips, high-bandwidth memory and further categories of advanced chips. Any other chip activity would still need notification.
• Quantum: the prohibition would extend to developing quantum algorithms and applications.

The proposal also widens what counts as “developing” a technology. A company would develop a technology where it works through or with affiliates, or provides high-level oversight, direction, approval, conceptual input or strategic planning before serial production. Parent and holding companies may therefore fall within scope even where a subsidiary does the technical work.

Prohibiting AI (SI) system investments

Following a recent Executive Order, AI is now referred to as “super intelligence (SI) systems.” More significantly, covered investments in companies developing any SI system would be prohibited outright. The current approach, which distinguishes between prohibited and notifiable AI by reference to computing power and end uses, would fall away, as would the AI notification category. Treasury explains that no single threshold now reliably separates higher-risk models from others.

The definition of an SI system is broad and would capture generative AI, AI agents and AI-enabled robots and autonomous systems. Using an off-the-shelf third-party AI tool purely for internal, non-commercial purposes would not, on its own, count as development.

More US Government lists

As now, activity that would otherwise only be notifiable becomes prohibited where the target is on certain US Government lists (such as the Entity List or the SDN List). The proposal adds the Department of War’s Section 1260H list of Chinese military companies and the BIOSECURE Act list of biotechnology companies of concern.

The proposal would also look beyond the target itself. The prohibition would apply where any affiliate or subsidiary of the target appears on one of these lists, even if the target does not. Treasury wants to stop listed companies from setting up clean subsidiaries to do deals they could not do themselves. Investors will therefore need to screen the whole group, not just the investee.

Key exceptions

Critically, the proposal keeps exceptions for:

• publicly traded securities, wherever listed (the proposal does not address when a listing takes effect for this purpose, but says Treasury’s existing guidance on this exception would likely be re-issued);
• ETFs, mutual funds and other registered investment company securities; and
• limited partner commitments of up to USD 2 million (or where binding contractual assurances are obtained).

The proposal adds new exceptions for bank lending, underwriting and other ancillary financial services. This exception would cover underwriting services, including the temporary acquisition of equity in a covered foreign person solely to facilitate the underwriting.

Notifications, feedback and penalties

Notification would still be due within 30 days after closing (or within 30 days of later learning that a transaction was covered), with records to be kept for ten years. For the first time, anyone with a direct financial interest in an actual or planned transaction could ask Treasury for non-binding feedback on whether it would be prohibited. Treasury could reply in confidence, publish anonymized guidance or decline. The proposal also provides for a national interest exemption and a confidential channel for submitting information on covered companies.

Penalties would be civil only, up to the maximum under the International Emergency Economic Powers Act (IEEPA), and Treasury could compel divestment of prohibited investments. Indirect and evasive structures would also be caught.

Practical Tips

The regime is here to stay and will widen. With no official list of covered companies, diligence stays with the market. The current Part 850 rules apply until the final rule takes effect, and comments are due by December 7, 2026.

HK IPO applicants

Applicants and their counsel should be prepared to:

• Assess early whether any group company works in a notifiable or prohibited technology, especially SI systems, advanced or photonic chips and biotechnology.
• Check whether any affiliate or subsidiary appears on a US Government list, which could make a deal prohibited.
• Carefully review underlying technological data, public capability statements (including on the applicant's website) and relevant subsidiary's impact.
• Prepare clear prospectus disclosure on the regime and its effect on US investors.
• Avoid giving US cornerstone or pre-IPO investors governance rights beyond standard minority protections.

Sponsors

The new underwriting exceptions help, but sponsors should still:

• Ensure the due diligence, analysis and prospectus review takes into account the expanded sectors, countries and lists.
• Keep any syndicate equity to what underwriting needs, with no separate principal investments by affiliates.
• Remind US-person staff that knowingly directing a covered deal can itself breach the rules.

US investors

The Amidi penalty shows Treasury expects US investors to control what their whole group invests in. They should:

• Extend compliance procedures to controlled foreign entities, including foreign funds.
• Review pipelines and existing investments, and keep records that show a “reasonable and diligent inquiry.”
• Take advice before joining an IPO or pre-IPO round, as timing and governance rights affect the listed securities exception.
• Seek independent legal advice and not only rely on the applicant's counsel opinion.
• Review pre-IPO corporate and ownership changes, especially if any US persons (owners) were involved.
• Self-disclose promptly if a missed filing comes to light.

We have advised over 50 applicants, sponsors, investors and individuals on the application and implications of the OISP regime and would be happy to use our expertise for your needs.

Authors: Alexander Dmitrenko, Office Managing Partner, Tokyo; Vicki Tang, Senior Associate, Tokyo; Songshen Shen, Junior Associate, Tokyo and Isabella Lynn, Trainee Solicitor, Tokyo.