Treasury Department Issues Proposed Rules to Further Restrict U.S. Outbound Investment

The Trump Administration has taken further steps to restrict certain U.S. outbound investments on national security grounds. The U.S. Department of the Treasury has issued a Notice of Proposed Rulemaking (NPRM) with new regulations to implement the Comprehensive Outbound Investment National Security Act of 2025 (COINS Act) designed to further restrict outbound U.S. investment in sensitive technologies and industries. The proposed rules would expand, in several notable ways, the existing Outbound Investment Security Program (OISP), which was implemented at the end of the Biden Administration in January 2025. Among the most significant changes are an expansion of the technological sectors covered by the rule to include high-performance computing and supercomputing, hypersonic systems, and biotechnology, as well as a broadening of restrictions that apply to robotics companies that rely on artificial intelligence in their products. Public comments on the NPRM are due by December 7, 2026, and the COINS Act requires the final rules to be implemented by March 13, 2027.

Key Takeaways

• Expanded Technology Coverage. The proposed rules would expand outbound investment restrictions to include high-performance computing, hypersonic systems, biotechnology, and a broader range of AI-enabled robotics and autonomous systems.
• Broader Geographic Scope. The rules would expand the list of countries of concern beyond China to include Cuba, Iran, North Korea, and Russia.
• New Compliance Requirements and Exceptions. The NPRM would broaden restrictions on U.S. persons directing covered transactions and introduce new exceptions, including for certain underwriting activities.
• Key Deadlines. Public comments are due December 7, 2026, with final regulations required by March 13, 2027. U.S. investors that assess the potential impact on existing and planned transactions and believe the rules merit revisions or clarifications thus have the opportunity to weigh in.

Background

The OISP was first implemented in January 2025 by the Biden Administration pursuant to an Executive Order under the authority of the International Emergency Economic Powers Act, which declared a national emergency stemming from the threat to the United States posed by China (including Hong Kong and Macau) seeking to develop and exploit sensitive technologies and products for military, intelligence, surveillance, or cyber-enabled capabilities. See our prior alert - Biden Administration Implements New Outbound Investment Security Program. 

As part of the FY 2026 National Defense Authorization Act, Congress enacted and President Trump signed into law the COINS Act, which provides statutory authorization for the OISP and mandates certain changes to the scope of the OISP regulations. See our prior alert - New Law Refines Scope of Outbound Investment Security Program.

Among other changes, the COINS Act expanded the countries of concern beyond China to include Cuba, Iran, North Korea, Russia, and Venezuela under the Maduro regime (which is no longer applicable). Economic sanctions currently prohibit or restrict U.S. investment in these countries, but in the event there is sanctions relief, the COINS Act (and the proposed rules, if adopted) would still impose restrictions on transactions that fall within its scope. 

In addition to the previous technologies of concern identified by the Biden Administration rule—semiconductor technology and microelectronics, AI systems, and quantum information technologies—the COINS Act identifies two additional sectors of concern: high-performance computing and supercomputing, and hypersonic systems. The COINS Act also gives the Secretary of the Treasury the authority to add and define other technological areas that enable the military, intelligence, surveillance, or cyber-enabled capabilities of the specific countries of concern under the Act.

Covered national security transactions, including acquisitions of equity interests, certain loan and debt financing transactions, and certain greenfield investments or corporate expansions, are either prohibited outright, or require notification to the Treasury Department. The Treasury Department is also permitted, though not required, to provide anonymized, non-binding feedback regarding whether a particular transaction would be prohibited under the OISP.

Penalties for violation of the COINS Act include civil penalties and divestiture of an investment made in violation of the rules.

What’s New in the NPRM

The NPRM is the first proposed regulatory action taken pursuant to the COINS Act. While the proposed rules keep many features of the current OISP in place, and some of the proposals are simple changes to nomenclature (e.g., replacing “Artificial Intelligence” with “Superintelligence”), the NPRM would make several significant changes.

• New Technological Sectors: As contemplated by the COINS Act, the proposed rules would expand the scope of the OISP’s coverage to include transactions in the fields of high-performance computing and supercomputing, and hypersonic systems.
  
  Additionally, the Treasury Department proposed to add biotechnology as a covered sector. The proposed rules would prohibit U.S. persons from engaging in covered transactions related to certain bio-derived compounds or materials; pharmaceutical compounds (e.g., small molecules, polymers, vaccines, blood and blood components, allergenics, cell and gene therapies, and monoclonal antibodies or other recombinant therapeutic proteins), as well as their delivery systems; biofuels (i.e., fuels made or derived from bio-based feedstock); brain computer interfaces; biomanufacturing equipment and facilities; biotechnology or equipment involved in biological design; bioinformatics tools; and hardware or software for automatic scientific discovery or experimentation.
  
  In addition, while the AI/Superintelligence sector was already covered in the OISP, the NPRM’s proposed definition of “SI System” would expand the scope of the rule applicable to the robotics sector from notifiable transactions related to companies that develop AI systems that control robotic systems to prohibited transactions related to any data system, software, hardware, application, tool, or utility that operates in whole or in part using an SI System, including “SI-enabled: industrial robots, bipedal or humanoid robots, quadruped robots, other mobile robots, autonomous vehicles, and unmanned systems.”

• Knowledge Standard: Under the current OISP, if a U.S. person working at any non-U.S. company knowingly directs a covered transaction, the rules only apply when the transaction is prohibited. The NPRM broadens the scope to apply the rules to U.S. persons working at a non-U.S. company that knowingly direct covered national security transactions in both the prohibited and notifiable categories.
  
  Additionally, the NPRM provides that, in determining whether a U.S. person engaging in any covered national security transaction had knowledge of the relevant facts underlying a prohibited or notifiable transaction, the Treasury Department will evaluate “Whether the U.S. person appropriately considered any information made available by the Department of the Treasury prior to the completion of the transaction, including any assessments by the Department of the Treasury that the relevant covered foreign person may be engaged in a notifiable technology or a prohibited technology.”

• Newly Excepted Transactions: In addition to the existing OISP exceptions to covered transactions—including for publicly traded securities, derivatives, intracompany transfer of funds to controlled foreign affiliates, and buyouts of country of concern ownership—the NPRM would except certain additional transactions previously within scope of the OISP’s prohibition/notification requirements. Most notably, the proposed rules would except transactions secondary to a covered transaction, including underwriting services that involve the temporary acquisition of equity, such as during an IPO.

• Expansion of Countries of Concern: Consistent with the COINS Act, the proposed rules broaden the scope of countries of concern from China (including Hong Kong and Macau) to also cover Cuba, Iran, North Korea, and Russia. While the statute also provides for coverage of Venezuela under the Maduro regime, the Treasury Department has now taken the view that because the Maduro regime is no longer in power, Venezuela no longer meets the NPRM’s definition of a country of concern.

Implications

The proposed rules have the potential to significantly expand the scope of restrictions on U.S. outbound investment activity, particularly in the biotechnology and robotics sectors in China. However, they are not yet final, and it is possible they may be narrowed in response to comments, particularly from stakeholders in the biotechnology industry. The Treasury Department must also address an open question identified in the NPRM related to the intracompany transfer exception and the activities that would allow U.S. persons to “maintain operations,” which may have a significant impact on U.S. persons that have or that direct existing operations in the identified sectors in China.

U.S. persons with current investments, or considering investments or other transactions, in China or with Chinese counterparties—particularly in the biotechnology and robotics sectors—that assess the potential impact of the NPRM’s proposed rules on their plans and have the opportunity to engage in the rulemaking process as the final regulations are developed and the full scope of the revised OISP comes into focus.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. David Ribner, an O’Melveny partner licensed to practice law in the District of Columbia and New York; Greta Nightingale, an O’Melveny partner licensed to practice law in the District of Columbia; David Makarechian, an O’Melveny partner licensed to practice law in California; and Alexander N. Ely, an O’Melveny counsel licensed to practice law in the District of Columbia, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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