U.S. adds biotech, hypersonics to China investment ban, extends rules to North Korea, Russia, Iran and Cuba

WASHINGTON

The U.S. Treasury Department on Oct. 22 (local time) released a notice of proposed rulemaking (NPRM) that sharply broadens rules prohibiting or requiring notification of U.S. persons' investments in advanced technology in China and other adversary countries. The rule implements the Comprehensive Outbound Investment National Security (COINS) Act, enacted last December. In addition to the existing semiconductors, artificial intelligence (AI) and quantum, the covered sectors now include supercomputing, hypersonics and biotechnology. Covered countries increased from one, China (including Hong Kong and Macau), to five with the addition of North Korea, Russia, Iran and Cuba. Treasury said it will accept comments through Dec. 7 and then issue a final rule setting an effective date.

Treasury expands covered sectors from semiconductors, AI and quantum to supercomputing, hypersonics and biotech

According to a Treasury press release, the proposed rule regulates U.S. persons' transactions with a "covered foreign person" in a country of concern along two tracks depending on the technology. Transactions involving "notifiable" technologies must be reported to Treasury, and transactions involving "prohibited" technologies may not be undertaken. The sectors specified in the COINS Act are five: semiconductors and microelectronics, AI, quantum information technologies, high-performance computing and supercomputing, and hypersonic systems. Treasury added biotechnology on top of these.

"Under President Trump's leadership, we are committed to putting America's national security first," Treasury Secretary Scott Bessent said. The proposed rule takes the form of amendments to the existing Outbound Investment Security Program (OISP).

Christopher Pilkerton, Treasury's assistant secretary for investment security, said the proposed rule is "designed to address risks that can arise when foreign adversaries try to benefit from U.S. investment."

Sector-by-sector details are in a fact sheet. For semiconductors, existing prohibitions on certain design software, manufacturing equipment, and advanced integrated circuits (ICs) and packaging are maintained. Radiation-hardened ICs, photonic integrated circuits and high-bandwidth memory (HBM), among others, are added to the prohibited list. IC-related activities that are not prohibited remain notifiable as they are now. For quantum, prohibitions on quantum computers and quantum sensing and networking are maintained, and investment in the development of algorithms and applications for quantum computing is also prohibited. For high-performance computing, the supercomputer prohibition is maintained while the advanced IC category is broadened, and high-bandwidth, low-latency interconnects are newly made notifiable.

Hypersonics is a newly added sector. Hypersonic systems themselves and certain propulsion systems, materials and test facilities are prohibited. Investments in sensors, control equipment, software and dual-use materials for hypersonic systems must be notified.

Biotech added at the secretary's discretion, with brain-computer interfaces among prohibited items

Biotechnology is not among the five sectors specified in the COINS Act. Treasury said in its press release that it added biotechnology under authority to designate additional technologies that enable military, intelligence, surveillance or cyber capabilities.

The biotechnology sector has only a prohibited list, with no notifiable category. Covered items are certain biologically derived materials, brain-computer interfaces, biomanufacturing, bioinformatics tools, and hardware and software for automated scientific discovery and experimentation.

In Section 2(j) of the "America First Investment Policy" memorandum signed on Feb. 21 last year, President Trump directed consideration of new or expanded restrictions on U.S. outbound investment in China in sectors such as "semiconductors, artificial intelligence, quantum, biotechnology, hypersonics" and aerospace. The same section also mentioned advanced manufacturing, directed energy and other areas linked to China's "military-civil fusion" strategy. As types of investment it listed private equity, venture capital, greenfield investments, corporate expansions and investments in publicly traded securities, and as funding sources it cited pension funds, university endowments and other limited partner (LP) investors.

The memorandum directly targeted China. Section 1 stated, "The PRC is also increasingly exploiting United States capital to develop and modernize its military, intelligence." The same section said China uses its military-civil fusion strategy to expand the size of its military-industrial complex and requires private companies and research institutions to assist military and intelligence activities.

AI renamed "superintelligence systems" and placed under prohibition without a notification track

AI rules became stricter. The proposed rule uses the term "super intelligence systems" in place of "AI systems" in the current regulations. According to the fact sheet, U.S. persons' investments are broadly prohibited where a company in a country of concern develops superintelligence systems, and the notification pathway that had been open for such transactions is eliminated.

The current regulations drew the line by computing power. According to Treasury's 2024 explanatory material on the final rule, AI systems trained using more than 10^25 operations were prohibited, and those above 10^23 operations were notifiable. Systems trained primarily on biological sequence data were prohibited above 10^24 operations.

Countries of concern expand from China to North Korea, Russia, Iran and Cuba

The countries of concern under the proposed rule are China (including Hong Kong and Macau), Cuba, Iran, North Korea and Russia. "Venezuela under the Maduro regime" also appears on the list of countries of concern, but the FAQ states, "That regime no longer exists," and says Venezuela does not fall within the definition of a country of concern. The FAQ noted that the United States recognized Delcy Rodríguez as head of state on March 5 this year. Treasury urged investors to confirm whether the rule applies to transactions with Venezuelan companies.

The scope of "covered foreign person" was also defined. It includes certain nationals or permanent residents of countries of concern, companies established in or primarily operating in countries of concern, certain members of the Central Committee of the Chinese Communist Party and political leaders, and governments of countries of concern and their agents. Companies majority-owned or controlled by such persons are also covered. Also included are companies in which a covered foreign person holds voting rights, board seats or equity and from which more than 50% of any one of several key financial metrics derives from that covered foreign person.

The current regulations originate in Executive Order 14105, issued on Aug. 9, 2023. Treasury issued a final rule on Oct. 28, 2024, which took effect on Jan. 2, 2025. At that time the covered sectors were three — semiconductors and microelectronics, quantum information technologies and AI — and the only countries of concern were China, Hong Kong and Macau. If the proposed rule is finalized, there will be six sectors and five countries of concern.

Notification within 30 days of a transaction; prohibited deals can face divestment orders

Transactions covered by the rule are acquisitions of equity or contingent equity, convertible debt and loans with certain rights attached, joint ventures, conversions of contingent equity, greenfield investments and business expansions, directing transactions by foreign persons, and certain LP investments in non-U.S. pooled investment funds. The press release said U.S. persons' obligations extend to foreign entities controlled by U.S. persons.

The notification deadline is 30 days after a transaction is completed. If a U.S. person learns only after completion that a transaction was covered, notification is due within 30 days of acquiring that knowledge.

The knowledge standard is broad. The rule applies if a U.S. person actually knew a fact, was substantially certain of it, was aware of a high probability of it, or could have known it through a reasonable and diligent inquiry.

Violations can result in civil penalties up to the maximum set by the International Emergency Economic Powers Act (IEEPA). Divestment can be ordered for transactions involving prohibited technologies. Treasury takes voluntary self-disclosure into account in determining its response. There is also a procedure for requesting an exemption from the prohibition on national interest grounds.

Treasury does not plan to publish a list of covered foreign persons. Instead, it will accept confidential tips, and U.S. persons must conduct their own reasonable and diligent inquiry. The fact sheet also listed factors Treasury will use in assessing whether an inquiry was reasonable and diligent.

Small deals of $50,000 or less, listed shares and funds are excepted

Exceptions were also spelled out. Publicly traded securities and investment company securities such as index funds, mutual funds and exchange-traded funds (ETFs) are excluded. LP investments are excepted if the committed amount is $2 million or less or if binding contractual assurances have been obtained. The $2 million threshold is the same as in the current regulations.

Transactions totaling $50,000 or less on a cumulative 12-month basis are exempt only from the notification requirement. The fact sheet specifies that this exception applies only to the notification requirement. Transactions involving prohibited technologies may not be undertaken even if small.

Other exceptions include employee stock compensation and option exercises; derivatives of covered publicly traded securities, investment company securities and LP investments; certain intracompany transfers to controlled foreign entities; acquisitions of syndicated loan interests upon default; ancillary financial services; fulfillment of binding uncalled capital commitments entered into before the final rule takes effect; buyouts of all covered foreign person interests in assets located outside countries of concern; and bank lending, payment processing and underwriting. Transactions completed before Dec. 18 last year are also not covered, though some are subject to the current regulations. Exceptions are limited if management participation rights beyond standard minority shareholder protections are attached.

According to the FAQ, the rule does not prevent U.S. nationals from working at companies that receive or make investments. Technology licensing, consulting and procurement contracts are generally excepted, but contracts that transfer technology or technical know-how are not. Even excepted contracts become a problem if intended to evade the rule.

Treasury moves on enforcement, disclosing first penalty of $200,000 this month

On Oct. 7, about two weeks before announcing the proposed rule, Treasury disclosed its first civil penalty under the current regulations. The target was Amidi LLC, the parent company of the organization that operates "Plug and Play Tech Center." The penalty, $200,000, was imposed in July this year.

According to Treasury, a Chinese fund owned by Amidi invested approximately $92,478 on April 19 last year in Noematrix (Shanghai Qiongche Intelligent Technology), a Shanghai AI and robotics company. Noematrix is a Chinese private company that develops AI, robotics and embodied intelligence. Amidi did not notify Treasury of this investment by its controlled foreign entity. Treasury said it identified the transaction through routine compliance and market monitoring.

Secretary Bessent said the penalty announcement "underscores Treasury's commitment to" protecting national security through investment security measures. Assistant Secretary Pilkerton said the program is "an important tool aimed at addressing the advancement of key technologies," adding, "We will continue to ensure that investors comply with the requirements established under the program."

The COINS Act was enacted on Dec. 18 last year as part of the National Defense Authorization Act (NDAA) for fiscal year 2026. Until the final rule takes effect, the current regulations (31 C.F.R. Part 850), applied since Jan. 2, 2025, remain in force. Comments are accepted through the federal e-rulemaking portal (regulations.gov). Treasury accepts tips on violations at a dedicated email address (Outbound.Tips@treasury.gov).

House China committee pushes to write biotech curbs into law

John Moolenaar, chair of the House Select Committee on Strategic Competition between the United States and the Chinese Communist Party (China committee), welcomed the biotech rule in a statement on Oct. 23. Moolenaar said the measure is "an important step towards ensuring the medicines the American people rely on are researched, developed, and made in America." "We cannot afford for American companies to boost China's biotech industry," Moolenaar said, adding, "The Trump Administration is making it clear that biotechnology is a national security issue." Moolenaar called the decision a victory for the bipartisan coalition of lawmakers that passed the COINS Act last year.

Moolenaar urged Congress to pass the bipartisan "Biotech Investment National Security Act" to write the same restrictions into law. Moolenaar and Rep. Debbie Dingell introduced the bill in the House in June. In the Senate, Sens. Elissa Slotkin (D-Mich.) and Pete Ricketts (R-Neb.) introduced a bill with the same aim on Aug. 6.

According to an announcement from Slotkin's office, the Senate bill adds biotechnology, including the development of drugs and biologics, to the sectors covered by the COINS Act. It subjects U.S. pharmaceutical companies' licensing agreements, joint ventures and equity investments with Chinese covered foreign persons to Treasury review. Treasury, in consultation with relevant agencies, must issue implementing regulations within one year of enactment. The secretary of defense must assess within 60 days whether U.S. capital flowing into Chinese biotechnology harms national security and military readiness. "We cannot allow Communist China to obtain the resources it needs to threaten our way of life," Ricketts said. "But right now, China is eating our lunch in this field," Slotkin said.

Sources (KST)

• U.S. Treasury Department press release · 2026-10-22 (local) · Treasury Issues Proposed Rule to Implement Comprehensive Outbound Investment National Security Act · https://home.treasury.gov/news/press-releases/sb0667/
• U.S. Treasury Department fact sheet and FAQ · 2026-10-22 (local) · Fact Sheet and FAQs: COINS Act NPRM · https://home.treasury.gov/system/files/206/Fact-Sheet-FAQs-COINS-Act-NPRM.pdf
• U.S. Treasury Department · accessed 2026-10-24 · Outbound Investment Security Program · https://home.treasury.gov/policy-issues/international/outbound-investment-program
• U.S. Treasury Department press release · 2026-10-07 (local) · Treasury Announces Enforcement Penalty for Violation of Outbound Program · https://home.treasury.gov/news/press-releases/sb0652/
• U.S. Treasury Department · accessed 2026-10-24 · Outbound Investment Security Program Enforcement · https://home.treasury.gov/policy-issues/international/outbound-investment-program/enforcement
• U.S. Treasury Department press release · 2024-10-28 (local) · Treasury Issues Regulations to Implement Executive Order Addressing U.S. Investments in Certain National Security Technologies and Products in Countries of Concern · https://home.treasury.gov/news/press-releases/jy2687
• U.S. Treasury Department · 2024-10-28 (local) · Additional Information on the Final Rule · https://home.treasury.gov/system/files/206/TreasuryOutboundFinalRuleAdditionalInformation_0.pdf
• The White House · 2025-02-21 (local) · America First Investment Policy · https://www.whitehouse.gov/presidential-actions/2025/02/america-first-investment-policy/
• House Select Committee on Strategic Competition between the United States and the Chinese Communist Party · 2026-10-23 (local) · Moolenaar: New Biotech Investment Rules Help Stop CCP Takeover of Medicine Supply Chains · https://chinaselectcommittee.house.gov/media/press-releases/moolenaar-new-biotech-investment-rules-help-stop-ccp-takeover-of-medicine-supply-chains
• Office of Sen. Elissa Slotkin · 2026-08-06 (local) · Slotkin, Ricketts Introduce Bipartisan Legislation to Keep Biotech Industry in America, Not China · https://www.slotkin.senate.gov/?p=3132