On Oct. 7, 2026, the U.S. Department of the Treasury announced its first penalty under the Outbound Investment Security Program (OISP), which took effect on Jan. 2, 2025. Executive Order (EO) 14105 directed Treasury to create the program, and Treasury implemented it through a final rule issued on Oct. 28, 2024. The rules prohibit, or require notification of, certain investments by U.S. persons in Chinese companies engaged in semiconductors and microelectronics, quantum information technologies, and artificial intelligence (AI).
The program’s rationale is national security. EO 14105 identifies these three technology sectors as critical to the next generation of military, intelligence, surveillance, and cyber-enabled capabilities. Treasury has stated that countries of concern exploit, or can exploit, certain U.S. outbound investments, including the intangible benefits that often accompany them and help companies succeed. Those benefits include managerial assistance, investment and talent networks, market access, and access to additional financing. The OISP is designed to keep U.S. capital and expertise from advancing these capabilities in a country of concern.
Congress has since codified and expanded the program. The Comprehensive Outbound Investment National Security (COINS) Act of 2025, enacted Dec. 18, 2025, as part of the National Defense Authorization Act for Fiscal Year 2026 (NDAA), adds Cuba, Iran, North Korea, Russia, and Venezuela (under the regime of Nicolás Maduro) as countries of concern and also adds hypersonics and high-performance computing to the covered technologies. On Oct. 22, 2026, Treasury proposed the regulations that would implement the act, and the proposal would also add biotechnology as a prohibited sector. Comments are due Dec. 7, 2026, and the act requires final regulations by March 13, 2027. Until the final rule takes effect, the existing rules remain in force.
The rules reach well beyond the defense sector. Venture funds, multinationals, and financial institutions that invest in Chinese technology companies, directly or through funds and subsidiaries, must determine whether each transaction is prohibited, notifiable, or outside the rules.
Understanding the Treasury's Outbound Investment Regulations
Unlike earlier restrictions tied to lists of named companies, such as the ban on U.S. investment in securities of Chinese Military-Industrial Complex Companies, the OISP applies by technology sector, and the COINS Act now gives it a statutory basis. EO Order 14105, issued in August 2023, draws its authority from the International Emergency Economic Powers Act (IEEPA).
Covered Transactions
“Covered transactions” include a wide range of indirect or direct investments, acquisitions, and certain financing arrangements by U.S. persons involving a “covered foreign person.” A “covered foreign person” is a “person of a country of concern” that engages in a covered activity in one of the three technology sectors. “Person of a country of concern” currently includes entities organized or headquartered in China (including Hong Kong and Macau) and entities in which such persons own 50% or more, individually or in the aggregate, though the COINS Act names several additional jurisdictions as countries of concern.
The definition of “U.S. person” covers entities organized under U.S. law (including their foreign branches), U.S. citizens and lawful permanent residents wherever they are located, and any individual (of any nationality) who is physically present in the United States. Foreign subsidiaries are not U.S. persons, but a U.S. parent must notify Treasury of any transaction by its controlled foreign entity that would be notifiable if a U.S. person undertook it, and must take all reasonable steps to prevent its controlled foreign entities from undertaking transactions that would be prohibited.
One System of Controls, Two Categories
The OISP sorts covered transactions into two categories:
Prohibited transactions: Transactions that U.S. persons may not undertake.
Notifiable transactions: Transactions that are permitted but must be reported to Treasury no later than 30 calendar days after completion.
Which category applies depends mostly on what the target company does. Investments in companies working on covered quantum technologies are prohibited. In semiconductors, investments in companies doing the most advanced work, such as chip design software or cutting-edge chips, are prohibited, while investments in companies doing other chip work are notifiable. In AI, investments are prohibited if the company builds systems meant for military, intelligence, or mass-surveillance use, or trains models above a very high computing-power threshold. They are notifiable if the company builds systems that could serve those uses, systems meant for uses such as cybersecurity or controlling robots, or models above a lower computing-power threshold. Any investment that would otherwise be notifiable is prohibited if the target is on certain U.S. government lists, such as the Entity List or the SDN List.
The AI split may not last. Treasury’s proposed COINS Act rule would prohibit covered investments in any covered foreign person that develops an AI system, eliminating the notifiable AI category. The proposal renames these “super intelligence (SI) systems” to follow EO 14434, which directs agencies to use that term in place of “AI.” Until a final rule takes effect, the current categories apply.
Who Is Impacted by New Outbound Investment Restrictions?
The current rules apply to investments in three technology sectors:
Semiconductors and microelectronics
Quantum information technologies
Certain AI systems
The rules currently name one country of concern: China, including Hong Kong and Macau. The COINS Act and Treasury’s proposed rule would expand both lists. Once a final rule takes effect, the countries of concern would also include Cuba, Iran, North Korea, Russia, and Venezuela under the regime of Nicolás Maduro, and the covered sectors would include hypersonic systems, high-performance computing and supercomputing, and biotechnology. Treasury has stated that Venezuela no longer meets the definition of a country of concern since the U.S. recognized a new head of state on March 5, 2026. Treasury cautioned, however, that investors should still check whether the proposed rule applies to investments in Venezuelan entities, because the rule can reach entities located outside a country of concern. A Venezuelan company that is majority-owned by, or subject to the direction or control of, persons of another country of concern, such as China or Russia, could still be a covered foreign person.
Implications for Businesses
Private equity and venture capital firms must review their deals, particularly existing investments in Chinese technology companies and funds that invest in covered sectors. A limited partner (LP) investment by a U.S. person in a non-U.S. pooled fund is excepted if it is $2 million or less in aggregate, or if the U.S. person has secured a binding contractual assurance that its capital will not be used for a covered transaction. An LP investment above $2 million without that assurance may be a covered transaction.
Multinational corporations with research and development centers, joint ventures, subsidiaries, or corporate development and mergers and acquisitions (M&A) teams in China that work in the covered sectors must assess their ongoing operations, including transactions by their controlled foreign entities.
Fund managers with investments in China’s technology sector must determine which holdings may be implicated. Indirect investments, including those made through intermediaries such as special purpose vehicles, are also covered when the U.S. person knows at the time that the capital is intended for a covered foreign person.
U.S. technology companies in the semiconductor, AI, and quantum sectors should monitor these rules even if they have no direct investment in China. Under the current rules, a target incorporated outside China can still be a covered foreign person if it engages in a covered activity and persons of a country of concern own 50% or more of it, or if it derives more than 50% of certain financial metrics from covered foreign persons in which it holds an interest. Treasury’s proposed rule keeps both tests and would add a control test: an entity subject to the direction or control of persons of a country of concern could be a covered foreign person even without majority ownership.
The Cost of Noncompliance
Businesses that violate the OISP may be required to divest prohibited investments and face civil penalties of up to the greater of twice the transaction value or $377,700 per violation, the inflation-adjusted figure Treasury set in January 2025. Willful violations can lead to criminal fines of up to $1 million and up to 20 years in prison.
Beyond financial penalties, companies face reputational damage, loss of enterprise value, and potential congressional scrutiny.
Treasury's First OISP Penalty
On Oct. 7, 2026, Treasury announced its first civil penalty under the OISP, issued in July 2026: $200,000 against Amidi, LLC for failing to notify Treasury of an investment made by its controlled foreign entity. On April 19, 2025, a Chinese fund that Amidi controls invested approximately $92,478 in Shanghai Qiongche Intelligent Technology Company Limited (Noematrix), a private Chinese developer of AI, robotics, and embodied intelligence.
Three details in the case matter for investors. First, Amidi did not make the investment itself; the notification obligation reached Amidi through a non-U.S. subsidiary. Second, the investment was small, and the current rules do not set a general de minimis threshold for notification. The penalty was more than double the value of the underlying investment. Third, Treasury found the transaction itself through its regular and ongoing compliance and market monitoring. Treasury has said it weighs the aggravating and mitigating factors in its Outbound Investment Security Program Enforcement Overview and Guidance when deciding whether to bring an enforcement action.
Navigating the Treasury’s Outbound Investment Security Program
The OISP operates differently from the Committee on Foreign Investment in the United States (CFIUS), which reviews inbound investment. The OISP has no pre-clearance process. Treasury’s proposed COINS Act rule would let a party with a direct financial interest in an actual transaction request nonbinding feedback on whether it is prohibited, but that feedback would not authorize the transaction. U.S. persons must ultimately determine on their own whether a transaction is prohibited (in which case it cannot proceed) or notifiable (in which case it must be reported through Treasury's online system).
The only exemption mechanism is narrow: the Treasury Secretary, in consultation with other agencies, may determine that a specific covered transaction is in the U.S. national interest. EO 14105 does not rely on case-by-case approvals, and Treasury does not publish a list of covered foreign persons. U.S. persons must assess each transaction themselves.
Compliance can include:
Evaluating counterparties for covered activities
Determining the nationality and business operations of affiliates
Documenting diligence steps taken
Monitoring investments after closing
Demonstrating reasonable knowledge of business investments
The Treasury Department enforces the program through investigations, information requests such as subpoenas, civil penalties, and court orders to prevent or unwind prohibited transactions. Given the breadth of the U.S. person definition and the absence of pre-clearance, an investor without an outbound investment compliance program may not learn that a transaction required notification until Treasury contacts it.
How Businesses Can Identify Exposure
To meet the new compliance requirements, companies should take immediate, proactive steps:1. Examine certain current and past investments
Inventory current investments, portfolio companies, and joint ventures, including those held through controlled foreign entities and fund subsidiaries, that involve Chinese companies in the covered technology sectors.2. Integrate OISP into pre-deal due diligence
Review investment decisions with an eye towards national security regulatory considerations. Assess not only what a company does today, but what its affiliates, subsidiaries, and partners are developing.3. Create internal escalation protocols
Train deal teams, legal, and compliance functions to identify red flags, and establish internal controls that escalate any transaction involving China and the covered technology sectors.4. Verify targets and their ownership
Check what a target says about its own subsidiaries and holdings against public and commercial databases, which Treasury lists among the factors it weighs in judging whether an investor conducted a reasonable and diligent inquiry.
5. Document, document, document
Build a defensible compliance program. Keep records of risk assessments, decision-making processes, and mitigation steps. The knowledge standard measures what an investor knew, or could have learned, at the time of the transaction, and those records are the evidence of it.
Having the right data is crucial — not just for regulatory defense, but for reducing exposure to risks that could severely damage a company’s brand and reputation.
What’s Next for U.S. Outbound Investment Policy?
The COINS Act makes outbound investment controls statutory and broader, and Treasury’s Oct. 22, 2026, proposed rule shows how far they may reach. The act authorizes Treasury to add technologies that enable the military, intelligence, surveillance, or cyber-enabled capabilities of a country of concern, and Treasury has used that authority to propose biotechnology as a prohibited sector. The proposal would also prohibit, rather than require notification of, any covered investment in an entity developing an AI system. Under it, an investment like the one in the Amidi case would likely be prohibited rather than notifiable. The proposal sets the act’s de minimis threshold at $50,000 in aggregate over the preceding 12 months, an exception that applies to notification only, not to prohibitions.
The February 2025 America First Investment Policy memorandum also named biotechnology, aerospace, and advanced manufacturing as candidates for new restrictions. Treasury’s proposed rule now adds biotechnology, while aerospace and advanced manufacturing do not appear as standalone sectors.
U.S. allies are moving more slowly. In January 2025, the European Commission recommended that EU member states review outbound investments by EU companies in semiconductors, AI, and quantum technologies. The U.K. has no dedicated outbound investment regime. In April 2024, the government said that only a “very small proportion” of outbound investments could pose national security risks, and it later clarified that its National Security and Investment Act 2021 (NSIA) powers can apply to outward direct investment where the acquired entity carries on activities in the U.K. or supplies goods or services to it.
Outbound Investment Compliance with Kharon
The OISP puts the diligence burden on the investor. Treasury does not publish a list of covered foreign persons, and it identified the Amidi transaction, worth less than $100,000, through its own market monitoring. Kharon's OISP data identifies entities worldwide operating in the technology categories covered by EO 14105, as well as entities majority-owned or controlled by them.
Pre-deal screening: Identify companies that may engage in covered semiconductor, quantum, or AI activities before a transaction closes.
Ownership review: Explore the ownership networks Kharon has mapped around a prospective investee in ClearView, including minority stakes and leadership connections.
Portfolio monitoring: Ingest GraphCast extracts of OISP data into existing screening and portfolio systems at a chosen cadence, or access data directly via an API integration.
Developing risk: Follow new research on covered sectors and countries in CoreStream ahead of Treasury’s final COINS Act regulations, due in March 2027.
Stay ahead of outbound investment enforcement and use Kharon to build an effective, defensible compliance program. Learn more about Kharon’s Outbound Investment solutions here.
