Why It Matters
U.S. investors and companies that put money into artificial intelligence, semiconductors, quantum computing, hypersonic systems, high-performance computing, or biotechnology firms in six countries would face new federal notification requirements or outright deal bans under a rule Treasury proposed Monday.
The proposal would expand the existing outbound investment program from three technology sectors and one country of concern to six sectors and six countries. Treasury says the rule implements the Comprehensive Outbound Investment National Security (COINS) Act, enacted December 18, 2025, as part of the National Defense Authorization Act for Fiscal Year 2026, which added Title VIII to the Defense Production Act of 1950. Secretary Scott Bessent described the proposal as strengthening the program while providing investors clarity and an opportunity to comment, according to a Treasury press release.
The Broader Context
China's Foreign Ministry spokesperson Mao Ning criticized the biotechnology coverage, saying that expanding national-security concepts and restricting trade and investment "serve no one's interests," and said China would monitor developments and take measures to safeguard its interests, according to the Associated Press. Craig Singleton, a senior fellow at the Foundation for Defense of Democracies, told the AP that the proposal signals Washington is tracking where U.S. capital flows and recognizes that investment can accelerate military-relevant capabilities.
Today, 31 C.F.R. Part 850 covers only the People's Republic of China, including Hong Kong and Macau, across three technology sectors, and allows for both civil and criminal penalties. The proposed rule would create a new 31 C.F.R. Part 851 to implement the COINS Act framework; because Title VIII includes only civil penalty language, criminal penalties would be removed, though civil penalties up to the maximum set by the International Emergency Economic Powers Act and compelled divestment would remain. Part 850 would not be repealed; it would remain in force for activities occurring between January 2, 2025, and the effective date of any final rule.
Countries of concern under the proposed rule would include the People's Republic of China, Cuba, Iran, North Korea, Russia, and Venezuela. A citizen "may not engage in a prohibited transaction unless an exemption for that transaction has been granted" under Sec. 851.502 or the transaction qualifies for the exemption under Sec. 851.503, and it must "take all reasonable steps to prohibit and prevent any transaction by its controlled foreign entity" that would be prohibited if engaged in by an American. The proposal also extends the concept of "knowingly directing" a transaction, which under Part 850 applied only to prohibited transactions, to notifiable transactions as well.
The Bottom Line
Treasury estimates the program would cover approximately 150 different U.S.-based investors engaging in roughly 200 potentially covered transactions annually, figures the agency derived by doubling averages from PitchBook data to account for undercounting. Combining the high-end Section IV.B estimates for rule understanding, diligence and recordkeeping, and notifications yields $5,860,000 in annual compliance costs. Treasury certifies the rule would not have a significant economic impact on a substantial number of small entities, stating that the transactions involved are more likely to involve sophisticated investors managing substantial capital.
The proposed rule would also create a non-binding feedback process under which a person with a direct financial interest in an actual transaction may request confidential guidance from Treasury on whether it would be prohibited; any response would be explicitly non-binding and would not constitute an authorization or waiver. Morgan Lewis noted the proposal would also affect non-U.S. funds with U.S. capital and U.S. personnel directing foreign investments.
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