The Treasury Department published a proposed rule on Thursday that would remake how the government polices American money flowing into sensitive foreign technologies. The notice implements the Comprehensive Outbound Investment National Security Act, which Congress passed last December. It covers semiconductors, artificial intelligence, quantum computing, high-performance computing, hypersonics and, in an addition Treasury made on its own authority, biotechnology.
The headline is about China. The mechanics are about paperwork, and the paperwork lands on investors.
Treasury's proposal does not create a screening committee, a pre-clearance process or a public list of banned companies. It does not tell an investor in advance whether a specific deal is covered. It requires the investor to make that call, notify Treasury within 30 days after closing when the deal is notifiable, and stay out of prohibited transactions altogether. A party with a direct financial interest in a real transaction can ask Treasury for non-binding feedback, but the request must include all material information and Treasury may decline to answer.
That design is the story. The rule delegates the first legal judgment to the people with the least distance from the deal and the most incentive to read it narrowly.
The rule does not screen anything
The Treasury press release describes the proposal as an update to the existing Outbound Investment Security Program, which has been in place since 2025 under regulations at 31 C.F.R. Part 850. The COINS Act keeps that framework and adds statutory backing, new sectors and new countries.
What it does not add is an administrative gate. A U.S. person who is about to acquire equity in a Chinese AI company, lend convertible debt to a Chinese semiconductor firm, form a joint venture with one, or commit capital to a fund that does those things must determine whether the transaction is prohibited, notifiable or excepted. The rule defines "covered national security transaction" around the acquisition of equity or contingent equity, certain convertible or lender-rights debt, joint ventures, greenfield investments and corporate expansions, the conversion of contingent interests, a U.S. person's direction of a foreign person's transaction, and certain limited partner investments.
The notification is retroactive in timing, not in effect. It is due no later than 30 days after the transaction closes. If the investor learns after closing that the deal would have been covered had the facts been known, the clock starts when that knowledge arrives. Treasury gets a data stream, not a veto at the door.
The fact sheet says plainly that the program would not establish a transaction screening process. Treasury also says it does not intend to publish a database of covered foreign persons. Instead, it proposes a confidential channel for anyone to submit information about whether a foreign person is covered. The investor is expected to conduct a reasonable and diligent inquiry.
Five countries and six technologies
The countries of concern in the proposal are China, including Hong Kong and Macao, Cuba, Iran, North Korea and Russia. Venezuela appears in the statute because it names the Maduro government, but Treasury's fact sheet says that regime no longer exists. The United States recognized Delcy Rodriguez as head of state in March, so Venezuela does not meet the proposed definition. Investments there can still be covered if they involve a covered person elsewhere, which is the kind of detail the rule asks investors to sort out.
The technology list is broader than the old program. Semiconductors and microelectronics remain, with new prohibitions on radiation-hardened integrated circuits, photonic chips and high-bandwidth memory. Quantum computing, sensing and networking remain, with an expansion to algorithms and applications. High-performance computing and supercomputing become a named sector, with a notification requirement for high-bandwidth, low-latency interconnects. Hypersonic systems are added, including propulsion, materials and test facilities. Biotechnology is added, covering certain bio-derived compounds, brain-computer interfaces, biomanufacturing equipment, biological design and sequencing, bioinformatics tools and hardware or software for automated scientific discovery.
The artificial intelligence category comes with a vocabulary change that readers will see throughout the rule. An executive order issued on September 29, "Inaugurating the Era of Super Intelligence," directs agencies to use "Super Intelligence" and "SI" in place of "artificial intelligence" and "AI" in certain documents. The proposed rule follows that instruction and refers to "SI systems." The substance is the same technology. The label is now a term of art in a national security regulation.
The Hill reported that Treasury Secretary Scott Bessent framed the proposal as protecting national security while keeping the investment environment open. The notice is open for comment through December 7.
The numbers that decide the scope
Three thresholds do most of the work.
The first is $50,000. Transactions that do not exceed that amount in the aggregate over the preceding 12 months are excepted from the notification requirement. The exception is narrow. It applies to notification only, not to the ban on prohibited transactions, and it is measured across the year rather than per deal. A series of small commitments to the same venture can cross the line without any single check looking large.
The second is $2 million. A U.S. limited partner's investment in a non-U.S. venture capital fund, private equity fund, fund of funds or other pooled vehicle is excepted if the committed capital does not exceed $2 million, or if the investment is subject to a specific binding contractual assurance. Above that, the fund commitment can be a covered transaction. The exception also falls away where the investor has governance rights beyond standard minority shareholder protections.
The third is the 30-day notification window. It is a deadline for telling Treasury about a notifiable deal, not a grace period for a prohibited one.
The rest of the exceptions are familiar from the existing program and worth knowing because they define what the rule is not trying to reach. Publicly traded securities are excepted. So are investment company securities such as index funds, mutual funds and exchange-traded funds, derivatives of those securities, full buyouts of covered foreign persons outside a country of concern, certain intracompany transfers, pre-existing binding capital commitments, syndicated debt acquired on default, employment compensation and secondary transactions such as bank lending, payments processing and underwriting. Financial institutions get an ancillary-services exception for ordinary payments, clearing, underwriting and credit rating work.
The list is long because the rule is trying to separate portfolio capital from control capital. The line is not clean. A fund commitment below $2 million looks like portfolio investment. A co-investment alongside the fund, or a board seat, can change the analysis.
The knowledge standard is the enforcement mechanism
Because there is no screening list, the knowledge standard carries the weight. A U.S. person is subject to the rule if the person has actual knowledge that the relevant facts exist or are substantially certain to occur, is aware of a high probability that they exist or will occur, or could have possessed the information through a reasonable and diligent inquiry.
That last clause is the one compliance officers will litigate. It turns diligence into a legal element. The rule lists factors Treasury may consider in deciding whether an inquiry was reasonable, and it expects investors to ask counterparties what they do, where they are organized and who owns them. The proposed definition of a covered foreign person reaches further than a simple place of incorporation. It includes citizens and permanent residents of countries of concern, entities organized or principally based there, members of the Chinese Communist Party Central Committee or other political leadership of a country of concern, governments and their agents, and entities majority-owned or controlled by any of them. It also catches an entity that holds a voting interest, board seat or equity interest in a covered foreign person when more than 50 percent of one of several key financial metrics is attributable to that person.
The penalties are not new in kind, but they are severe in scale. Violations can draw civil penalties up to the maximum available under the International Emergency Economic Powers Act. Treasury can compel divestment of a prohibited transaction. A voluntary self-disclosure process exists and is credited in the agency's response, which is the usual signal that companies should come forward before someone else does.
What a fund investor has to prove
For venture and private equity firms, the practical question is whether their fund documents, side letters and co-investment rights give them enough control to turn a passive commitment into a covered transaction, and whether their diligence can support the conclusion that a portfolio company is not a covered foreign person engaged in a prohibited technology, not whether they invest in China.
The $2 million exception is smaller than it sounds for an institutional investor. A family office writing a $3 million check into a Cayman fund that backs Chinese AI companies is outside the exception unless it has a binding assurance. A fund of funds with a diversified book has to trace exposure through layers. A U.S. parent with a controlled foreign entity has obligations that follow the subsidiary, not just the parent's direct deals.
The rule also reaches a U.S. person who directs a foreign person's transaction that the U.S. person knows would be covered if done directly. That provision is aimed at structures that route decisions through an offshore entity while the American investor makes the call. It is the kind of language that makes organizational charts part of the compliance file.
Treasury says the program is not a ban on investment in countries of concern. The existing rules already prohibit certain semiconductor, quantum and AI deals, and the proposal expands those prohibitions rather than replacing them. The new notification duty is meant to give the government visibility into the deals that are not prohibited but still matter. Whether that visibility becomes a de facto pre-clearance regime depends on how Treasury uses the notifications and how aggressively it pursues the knowledge standard.
The comment window is the only chance to narrow it
The proposal will not take effect when the comment period closes. Treasury will review the comments, write a final rule and set an effective date in that final rule. The existing Part 850 regulations continue to apply to conduct between January 2, 2025 and the new effective date.
That sequence gives investors a window to shape definitions, but not to postpone preparation. The sectors are already named. The countries are already named. The notification architecture is already described. The main open questions are where the lines fall around fund commitments, what counts as a binding assurance, how the 50 percent attribution test works in practice and how much diligence Treasury will demand before it accepts an investor's conclusion.
The deeper question is whether a self-classification regime can work at the speed of private capital. Treasury is asking investors to make a national security judgment with incomplete information, then tell the government what they concluded after the money is invested. The rule's defenders would say that is the only workable model for a market this large. Its critics will point out that the investor who misreads the rule bears the penalty, and the deal is already done.
Either way, the first compliance test will be a fund's investment committee deciding whether it can document, before signing, that the target is not covered, not a Treasury enforcement action. The rule makes that memo the front line.
Primary sources
- U.S. Department of the Treasury, press release on the COINS Act proposed rule, October 22, 2026, and the fact sheet and FAQs for the NPRM.
- The Hill, coverage of the proposal, the covered countries and the threshold.
- Regulations.gov, the comment docket for the NPRM, with comments due December 7, 2026.