On October 22, 2026, the US Department of the Treasury (Treasury) issued a notice of proposed rulemaking (NPRM) implementing the Comprehensive Outbound Investment National Security (COINS) Act, enacted on December 18, 2025. The proposed regulations would significantly broaden the Outbound Investment Security Program (Outbound Program), which took effect on January 2, 2025, and currently prohibits, or requires notification of, certain investments by US persons and their controlled foreign entities in “covered foreign persons.” Covered foreign persons are certain individuals and entities with a nexus to a country of concern that engage in specified activities involving semiconductors and microelectronics, artificial intelligence (AI), and quantum computing.
The existing Outbound Program regulations at 31 C.F.R. Part 850, issued under Executive Order 14105, will continue to govern until the final rule takes effect. Treasury has not yet set that date. Comments on the NPRM are due on December 7, 2026.
Unlike the current Outbound Program, which prohibits or requires notification of a narrow set of AI-related transactions, the proposed regulations would prohibit any covered national security transaction involving a covered foreign person engaged in the “development of any [Super Intelligence (SI)] system” (the proposed rule uses the term “SI system” in place of “AI system”).The NPRM notes that pursuant to Executive Order 14434, issued on September 29, 2026, executive departments and agencies were directed to use “Super Intelligence” and “SI” in place of “Artificial Intelligence” and “AI” in certain documents. The proposed regulations would eliminate the existing training-compute thresholds, end-use criteria, and notifiable tier. Subject to limited exceptions, Treasury would prohibit nearly all covered investments in covered foreign persons that develop any SI system.
Treasury cited rapid advances in SI capabilities, and the absence of any single compute threshold that reliably identifies advanced models, as grounds for an expansive prohibition. The proposed definition of “SI system” expressly includes any data system, software, hardware, application, tool, or utility that operates using an SI system, including SI agent harnesses and embodied or physical SI, such as SI-enabled industrial robots, humanoid and quadruped robots, other mobile robots, autonomous vehicles, and unmanned systems. The proposed rule would also treat use of a third-party SI system as “development” of an SI system when that use enhances or extends the capability of the third-party system. As under the existing regulations, using an off-the-shelf SI system strictly for internal, non-commercial purposes (including customizing, configuring, or fine-tuning a third-party model for internal, non-commercial use) would not constitute “development” of an SI system.
Treasury relied on its COINS Act authority to add sectors beyond those that the statute lists and proposes biotechnology as a new prohibited technology sector. The prohibition would reach entities engaged in the (1) development, engineering, or use of a biological system to modify, enhance, produce, or control certain export-controlled agents or toxins, energetic materials, functional materials, pharmaceutical compounds, and biofuels; (2) development or production of brain-computer interfaces; (3) development, construction, or production of biomanufacturing equipment; and (4) development or production of certain biological sequencing technology, flow cytometers and cell sorters, mass spectrometry instruments, bioinformatics tools, and hardware, robotics, or software for automated scientific discovery or experimentation, including laboratory automation or cloud lab infrastructure.
Biotechnology would have no notifiable tier. Separately, the proposed rule would expand the government lists that convert an otherwise notifiable transaction into a prohibited one. In addition to the lists Part 850 already references, such as the Entity List, the proposed rule would add the Department of Defense’shttps://www.whitehouse.gov/presidential-actions/2025/09/restoring-the-united-states-department-of-war/. Section 1260H list of Chinese military companies and the Office of Management and Budget’s BIOSECURE Act list of biotechnology companies of concern. The prohibition would also apply where an affiliate or a subsidiary of the covered foreign person appears on one of these lists.
Life sciences investors should expect the biotechnology prohibition to reach equity stakes, convertible financings, and joint ventures with country-of-concern drug developers, contract manufacturers, and life sciences tool companies. Licensing and fee-for-service arrangements without an equity component generally would fall outside the covered transaction categories, unless structured to evade the rule.
Treasury specifically seeks comment on this new sector. Acknowledging that the restrictions could create significant public health risks or harm US businesses, Treasury asks, among other questions, whether it should narrow “pharmaceutical compounds” and covered equipment to advanced or frontier technologies.
The proposed regulations would expand coverage in two existing sectors: semiconductors and quantum information technologies. The proposed rule would extend the semiconductor prohibitions to additional integrated circuits (ICs), including radiation-hardened ICs and photonic ICs, and to high-bandwidth memory with a memory bandwidth density exceeding 2 gigabytes per second per square millimeter (aligning with ECCN 3A090). IC activity not otherwise prohibited would remain notifiable, and the development or production of certain equipment used in IC design, fabrication, or packaging would become notifiable. The proposed rule would also retain the existing quantum prohibitions and add the development of quantum algorithms and applications. The preamble notes this new provision would be subject to an end-use limitation, though the text of the proposed regulation does not currently include this constraint.
As the COINS Act directs, the proposed regulations would add two new technology sectors in addition to biotechnology: (1) high-performance computing and supercomputing, and (2) hypersonic systems. For high-performance computing, the proposed rule would carry forward the existing prohibition on developing, installing, selling, or producing supercomputers above specified compute thresholds (100 or more double-precision petaflops or 200 or more single-precision petaflops within 41,600 cubic feet or less), but it would expand that prohibition to include components designed to enable those capabilities. It would also treat as notifiable the development or production of high-bandwidth, low-latency interconnects for high-performance computing, including interconnects for system-on-chip, system-in-package, scale-up networks, or scale-out networks that the rule does not otherwise prohibit.
The proposed rule defines a hypersonic system as a vehicle or weapon delivery system capable of sustained atmospheric or very low Earth orbit flight at Mach 5 or greater, and the definition reaches both military and civilian systems. The prohibition would cover the development or production of hypersonic systems, propulsion systems capable of enabling hypersonic flight, and hypersonic fuels and propellants, as well as certain materials designed or intended for hypersonic systems, facilities capable of testing a hypersonic system, and related digital twin and digital thread technology. The proposed rule would also require notification of the development or production of certain technologies capable of use in a hypersonic system or its components that it does not otherwise prohibit, including sensor, guidance, navigation, and control equipment, software, and materials.
The proposed regulations would retire the term “person of a country of concern” and fold its substance into an expanded “covered foreign person” definition based on a person’s relationship with a country of concern. The definition would add any entity subject to the “direction or control” of a country of concern government or certain individuals or entities tied to a country of concern, meaning that the relevant person has the power, directly or indirectly, to direct or cause the direction of the entity’s management or policies (whether through ownership of voting securities, by contract, or otherwise). The definition would retain the 50% ownership test from the “person of a country of concern” definition and clarify that voting interests, board voting power, or equity interests can satisfy it. The definition also would preserve the existing 50% test for revenue, net income, operating expenses, or capital expenditures.
Although the proposed rule removes the technology element from the “covered foreign person” definition, the definitions of “prohibited transaction” and “notifiable transaction” would preserve the substance of the existing approach. Under those definitions, a covered national security transaction would be prohibited or notifiable if the relevant covered foreign person either (1) engages in a prohibited or notifiable technology or (2) meets the 50% financial test because of its relationship to one or more covered foreign persons that engage in a prohibited or notifiable technology. In applying the financial test, the proposed rule would continue to disregard amounts below $50,000 when calculating the financial thresholds attributable to a covered foreign person. The proposed rule’s changes to certain definitions, however, could result in more holding company vehicles being deemed to engage in a prohibited or notifiable technology directly. These changes could limit the ability of certain investors and holding companies to rely on the 50% financial test.
The proposed rule would revise certain defined terms in ways that widen its reach. The definition of “develop” would expand to include activities undertaken through or in collaboration with affiliates (a newly defined term) and the provision of high-level oversight, direction, approval, conceptual input, or strategic planning in connection with any stage before serial production. As a result, the proposed rule could capture activities that fall outside the existing definition. For example, an entity could “develop” an SI system by working through affiliates or by providing high-level oversight or conceptual input into planned activities.
The proposed regulations would also broaden the definition of “principal place of business.” The current regulations define that term as the primary location where an entity’s management directs, controls, or coordinates its activities, or, for an investment fund, where the general partner, managing member, or equivalent primarily directs, controls, or coordinates the fund’s activities. The proposed definition would keep both tests and add two more: the location of an entity’s headquarters and the location where it conducts its main business activities.
The proposed rule also notes that an entity may have more than one principal place of business. Treasury offers the example of a company incorporated and headquartered in the United States whose chief executive officer resides in, and primarily manages the business from, a country of concern; that company would have a principal place of business in both places. As a result, Treasury could deem more offshore entities to have a principal place of business in a country of concern.
The proposed rule would add two new exceptions: (1) transactions secondary to a covered national security transaction, which cover certain routine services and commercial activity around a transaction; and (2) ancillary transactions involving a covered foreign person that a “financial institution,” as defined in 31 U.S.C. § 5312, undertakes.
The secondary transaction exception covers contractual arrangements (other than those for technology transfer or technical knowledge transfer), the procurement of material inputs (such as raw materials), bank lending, payment processing, underwriting services (including the temporary acquisition of an equity interest solely to facilitate underwriting), debt rating, prime brokerage, global custody, and equity research. The ancillary transaction exception for financial institutions covers payment services, underwriting services (including the temporary acquisition of equity in a covered foreign person solely to facilitate underwriting), credit rating services, and other services ordinarily incident to providing financial services on behalf of a covered foreign person.
Both exceptions expressly cover underwriting services, including the temporary acquisition of equity to facilitate underwriting. If Treasury adopts these provisions, a US person bank’s underwriting of an initial public offering by a covered foreign person, including one engaged in a prohibited technology, would not be a covered national security transaction, provided the bank acquires the equity temporarily and for the sole purpose of facilitating the underwriting. The proposed rule does not define “temporary” or “for the sole purpose,” leaving open the treatment of unsold allotments, stabilization positions, and over-allotment (greenshoe) shares. Banks may wish to use the comment process to seek clarity on holding periods, stabilization activities, and the treatment of affiliated broker-dealers and asset managers.
Treasury has requested comments on whether the secondary transaction exceptions are duplicative of the ancillary transaction exceptions, including the exception for underwriting services.
The proposed regulations would retain the exceptions for publicly traded securities, securities issued by registered investment companies, and limited partner investments of $2 million or less or subject to a binding contractual assurance. The proposed rule would not carry over the existing exception for business development companies, although Treasury requests comment on whether to restore it. The derivatives exception would continue to cover derivatives of excepted securities but would drop the existing carve-out for derivatives that confer the right to acquire equity or assets of a covered foreign person, and Treasury asks whether that change would create a loophole.
The intracompany exception would cover only intracompany transfers of funds, meaning the provision of cash or credit by a US person parent to a controlled foreign entity to support operations outside the covered technologies or to maintain covered operations that predate the final rule’s effective date, and Treasury seeks comment on whether to further define “maintain operations.” A new de minimis exception would exempt from the notification requirement (but not the prohibition) transactions that, in the aggregate across the preceding 12 months, do not exceed $50,000 in value.
The proposed regulations would also add a new exception for any ordinary or administrative business transaction. That concept is not defined, and Treasury notes that most such transactions would already fall within the ancillary or secondary transaction exceptions or would not be covered national security transactions at all.
Cuba, Iran, North Korea, and Russia would join the People’s Republic of China (including Hong Kong and Macau) as countries of concern. The COINS Act also lists Venezuela under the Maduro regime, but Treasury concludes that Venezuela does not meet the definition because that regime no longer exists. The United States recognized Delcy Rodríguez as Venezuela’s head of state on March 5, 2026. Treasury cautions, however, that the proposed rule could still reach certain investments involving Venezuelan entities.
A person with a direct financial interest in an actual (not hypothetical) transaction could ask Treasury for non-binding feedback on whether the transaction is prohibited. The requester must provide all relevant and material information, including binding transaction documents. Treasury may respond with anonymized public guidance or confidential written feedback, or it may decline to respond.
Violators could face civil penalties up to the greater of $250,000 or twice the transaction value, and Treasury could compel divestment of prohibited transactions. Under the proposed voluntary self-disclosure process, a disclosing party would need to propose mitigation of any harms associated with the violation. The proposed rule does not carry over the criminal penalties available under the current regime, although general criminal statutes, such as the prohibition on false statements to the government, would still apply.
Treasury proposes a new Part 851 in Title 31 of the Code of Federal Regulations because Part 850 will continue to govern activities between January 2, 2025, and the final rule’s effective date. The NPRM would also add a new § 850.105 to set those applicability dates. Many provisions of the proposed rule mirror Part 850, but the NPRM also proposes a number of substantive and technical expansions.
Treasury poses specific questions on several topics and encourages public feedback. Comments are due on December 7, 2026, and Treasury will make all comments public, including any personally identifiable or confidential business information they contain.
Latham & Watkins will continue to monitor and report on this development.
For more information on the Outbound Program, please see this Latham Client Alert.
For more information on the COINS Act, please see this Latham Client Alert.
The authors would like to thank Matt Chopp for his contribution to this Client Alert.