Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates

Treasury Proposes Modest Expansion of Outbound Investment Rules Under the COINS Act

Skadden Publication / National Security Dispatch

Michael E. Leiter Katie Clarke Brian J. Egan Tatiana O. Sullivan Dimitri Vallejo Megan Haines

Executive Summary

  • What’s new: A proposed U.S. Department of the Treasury rule would expand the department’s regulatory program for restricting outbound investments by U.S. persons to cover additional industries and countries.
  • Why it matters: While the proposed rule reflects a relatively modest expansion of the Treasury Department’s existing Outbound Investment Security Program, the rule would have its most significant impact on investments in AI and biotechnology companies in China.
  • What to do next: Investors and others with an interest in the rule may submit comments through December 7, 2026. The Treasury is seeking comments on its proposal to expand restrictions on investments in AI companies.

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On October 22, 2026, the U.S. Treasury Department issued a proposed rule implementing the Comprehensive Outbound Investment National Security (COINS) Act.

The proposed rule reflects a relatively modest expansion of the Treasury’s existing Outbound Investment Security Program (OISP) rule at 31 CFR Part 850; many of the key OISP definitions and concepts are incorporated into the proposed rule. Like the OISP, the proposed rule would require U.S. persons to notify the Treasury regarding certain investment transactions involving persons of countries of concern engaged in activities involving “notifiable” technologies. U.S. persons would be prohibited from investments in companies engaged in “prohibited” technology activities.

The proposed rule’s new restrictions related to biotechnology and expanded restrictions related to artificial intelligence reflect the most significant changes to the OISP.

The Treasury is accepting public comments on the proposed rule through December 7, 2026. The Treasury’s assistant secretary in charge of the OISP indicated an intent to publish the final version of the new rule in spring 2027, and the COINS Act requires regulations by March 13, 2027.

Technology Coverage

The proposed rule creates and expands several categories of prohibited or notifiable technologies. Restrictions would include:

  • Blanket prohibition on investments in companies developing AI models. The most far-reaching change to the proposed rule prohibits all work on the development of “super intelligence” (SI) systems regardless of the compute thresholds and end uses that currently determine whether an AI deal is prohibited, notifiable or outside the rules. The development of hardware or software that operates using a third-party SI system (e.g., SI-enabled robots, unmanned aerial vehicles, etc.) would also be considered prohibited technology if the hardware or software “enhances the capability” of the third-party system. This change, which is not mandated by the COINS Act, would significantly restrict technology investments currently notifiable or outside the scope of the OISP. The Treasury argues that advances in AI capabilities have made compute thresholds and end-use distinctions increasingly unreliable indicators of national security risk.
  • The introduction of investment restrictions on biotechnology and hypersonics. Biotechnologies — including biological systems, brain computer interfaces, biomanufacturing equipment, biological sequencing technologies and other specified products and technologies — would be considered prohibited technologies under the proposed rule for the first time. The impact of the rules would depend heavily on what is considered a “biological system,” and the proposed rule requests comments on an appropriate definition for this term. The development or production of hypersonic systems and related materials and technologies would be notifiable in some cases and prohibited in others.
  • Broader restrictions on semiconductors, microelectronics and quantum computing tools. The update would prohibit investment in high-bandwidth memory and quantum algorithms and applications. The development or production of additional types of integrated circuits, including photonic integrated circuits, would be prohibited. Additional semiconductor design, fabrication and packaging equipment would become notifiable.
  • Obligations to notify investments in high-performance computing interconnects. High-performance computing, now addressed only through the supercomputer prohibition, would also include notifiable interconnects.
  • Expanded definition of “development” activities. Many of the notifiable or prohibited technologies are triggered by the investment target’s work on “development” of the relevant technology. The proposed rule would expand the definition of “develop” to cover activity through or with affiliates, as well as “high-level oversight, direction, approval, conceptual input, or strategic planning” before serial production. This change is intended to extend coverage of the rule to companies only indirectly involved with covered technologies.

Other Changes

The proposed rule would also modestly expand other features of the OISP. Key changes include:

  • More countries of concern. As required by the COINS Act, Cuba, Iran, North Korea, Russia and Venezuela (under the Maduro regime) would join China (including Hong Kong and Macau) as countries for which investments and related transactions would be restricted. The inclusion of Venezuela should not result in new restrictions, as the Treasury notes that the Maduro regime “no longer exists.”
  • Wider “covered foreign person” net. An entity’s principal place of business would include where the entity “conducts its main business activities,” so a non-U.S. company incorporated and managed outside a country of concern could be covered if the company operates primarily in China. Diligence must look past headquarters and management to consider the locations of the target’s R&D, engineering, manufacturing and key personnel when assessing whether a person is a “covered foreign person.”
  • Extension of “knowingly directing” to notifiable deals. A U.S. person who “knowingly directs” a foreign person’s notifiable transaction would have to notify the Treasury; this requirement does not exist in the OISP and the existing recusal process for U.S. persons is maintained.
  • Additional restricted lists. Under the proposed rule and the OISP, any notifiable activity becomes prohibited if the target, or any of its affiliates or subsidiaries, appears on a specified U.S. government restricted-party list. While the OISP includes reference to numerous sanctions and export control lists, the proposed rule adds two new lists not tied to sanctions or export controls — a Section 1260H list of Chinese military companies and the BIOSECURE Act list. Inclusion of the expansive and highly discretionary Section 1260H list is particularly notable.
  • Expanded “joint venture” coverage. The proposed rule clarifies that a covered joint venture does not require the establishment of a new entity. This could have implications for codevelopment arrangements that adopt traditional features of a joint venture. Note that pending bipartisan bills (S.5316 and H.R. 9102) would impose further restrictions by bringing the licensing of certain prohibited technology within the scope of the outbound investment rule.
  • New exceptions. As mandated by the COINS Act, the proposed rule includes an exception for underwriting intended to facilitate IPO work by financial institutions. The proposed rule also adds a new $50,000 de minimis exception, aggregated over 12 months for notifiable covered transactions, as well as a number of other exceptions for financial services (bank lending, payment processing, debt rating, prime brokerage, global custody, equity research and similar and ancillary services from financial institutions). The updated rule would drop the exception for business development companies (BDCs), but broaden the exception for derivatives of otherwise excepted securities and fund interests. The Treasury is seeking comment on this change.
  • Nonbinding feedback mechanism. As required by the COINS Act, the proposed rule would establish procedures by which an eligible person may request nonbinding feedback from the Treasury Department regarding prohibited transactions. The proposed rule would allow the Treasury to decide not to respond to “frivolous” requests or requests that seek “general advisory views or policy guidance.”

Key Changes for Private Equity and Venture Capital Firms With China Exposure

  • China-managed funds and vehicle. A fund’s principal place of business would include where its GP directs it, so a non-U.S. fund or vehicle managed from China could itself be a covered foreign person. A U.S. investment adviser remains the “parent” of funds it advises, and the Treasury is considering extending parent status to certain sub-advisers and general managers.
  • Knowingly directing. U.S. officers, directors and investment committee members of non-U.S. companies or funds could trigger notification obligations for notifiable deals they direct, not just liability for prohibited ones. The recusal safe harbor (i.e., recusing from approvals, document review and negotiations) is retained, so companies should revisit recusal protocols.
  • LP and fund-of-funds exposure. The $2 million LP exception and binding contractual assurance alternative carry over, so companies will need to update side letters for the new sectors and terminology. The Treasury cautions that investing in a fund that already holds covered foreign person interests may be an indirect acquisition to which the LP exception does not apply. Secondaries and continuation-vehicle deals will need closer review.
  • Narrower exceptions. The exceptions for publicly traded, investment company, LP and derivatives entities would not apply where the investor obtains governance rights beyond standard minority protections. The buyout exception would require acquiring all covered foreign persons’ interests so the entity is no longer covered. The BDC exception is dropped, and the $50,000 de minimis exception would not apply to prohibited deals. Binding, uncalled commitments made before the final rule’s effective date are excepted, so their timing should be documented.

Next Steps

Companies should review the proposed rule against their planned business activities and consider submitting a comment to the Treasury by December 7, 2026, paying particular attention to the new and expanded technology coverage categories. Regulators have specifically invited comment on the scope of the SI and biotechnology prohibitions.

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws. 

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