Treasury Issues First-Ever Enforcement Penalty Under Outbound Investment Security Program

On October 7, 2026, the US Department of the Treasury (Treasury) announced that it had issued its first civil penalty under the Outbound Investment Security Program (Outbound Program) in July 2026. Treasury assessed a $200,000 civil penalty (Penalty) against Amidi, LLC (Amidi) for failing to submit a required notification to Treasury of an investment by its controlled foreign subsidiary into Shanghai Qiongche Intelligent Technology Company Limited (Noematrix), a privately held Chinese company involved in artificial intelligence, robotics, and embodied intelligence. On April 19, 2025, Amidi’s subsidiary, a Chinese fund, invested $92,478 in Noematrix without providing a notification of the transaction to Treasury. Treasury highlighted that it identified the transaction as “part of its regular and ongoing compliance and market monitoring efforts.”

Key Takeaways

• Treasury’s active enforcement posture. The Penalty is the first-ever enforcement action under the Outbound Program, signaling that Treasury’s Outbound Program is exercising its enforcement authorities. For US investors, Treasury’s action underscores the importance of conducting proper diligence for transactions that could be within the scope of the Outbound Program regulations, as it is a knowledge-based regime.
• The Penalty is more than twice the amount of investment. The size of the Penalty ($200,000), which is more than twice the size of the investment ($92,478), suggests that Treasury is serious about enforcing compliance with the Outbound Program and deterring future conduct. Although Treasury did not impose the maximum penalty authorized ($377,700 or twice the value of the transaction, whichever is greater), imposition of the Penalty at a time when Treasury is developing new regulations under the Comprehensive Outbound Investment National Security Act of 2025 (COINS Act) (discussed below) signals that Treasury is balancing and prioritizing both existing program enforcement and the development of new regulations.
• Carefully monitor controlled foreign entities. The Penalty reinforces for US investors that proper diligence includes monitoring the activities of their controlled foreign entities. The Outbound Program makes US persons responsible for the activities of their controlled foreign entities.
• Sending a message of deterrence. The fact that Treasury issued a press release regarding this Penalty is clearly intended to send a message to investors that Treasury is actively monitoring cross-border investments for potential Outbound Program violations and will take enforcement actions where it deems appropriate. As Treasury highlighted in announcing the Penalty, the violation was discovered through its own monitoring efforts, rather than a voluntary self-disclosure.

The Outbound Investment Security Program

The Outbound Program, which took effect on January 2, 2025, following the issuance of regulations at 31 C.F.R. Part 850 to implement Executive Order 14105, prohibits — or, alternatively, requires notification of — certain investments by “U.S. persons” or their controlled foreign entities in “covered foreign persons,” which are defined as certain individuals or entities associated with a country of concern — currently only the People’s Republic of China (including Hong Kong and Macau) — that are engaged in activities involving semiconductors and microelectronics, quantum information technologies, or artificial intelligence. The Outbound Program regulations authorize Treasury to issue civil and criminal penalties for violations. For more information on the Outbound Program, see this Latham Client Alert.

The Outbound Program has been codified in statute, and further regulatory changes are expected in the near future. On December 18, 2025, President Trump signed into law the FY 2026 National Defense Authorization Act (NDAA), which included the COINS Act. The COINS Act preserves the core elements of the Outbound Program while broadening its scope to include more technologies, including high-performance computing and supercomputing, as well as hypersonic systems.

The COINS Act also expands the geographic scope of the Outbound Program to include investments by US persons in Cuba, Iran, North Korea, Russia, and Venezuela under the Maduro regime. The COINS Act requires Treasury to promulgate new or amended regulations for the Outbound Program by March 2027, and Treasury is expected to issue draft regulations pursuant to the COINS Act in the coming weeks or months. The current Outbound Program regulations remain in effect until the new regulations are promulgated. For more information on the COINS Act, see this Latham Client Alert.

The authors would like to thank Matt Chopp for his contribution to this Client Alert.