The proposed rule would largely replace Part 850 with a new, standalone set of regulations at 31 C.F.R. Part 851 (“Part 851”), although Part 850 will remain in effect for transactions that took place during its effective period. The proposed Part 851 is broadly consistent with the existing framework but would make several significant changes. It would add five new countries of concern (Cuba, Iran, North Korea, Russia, and Venezuela under the Maduro regime); include hypersonic systems, high-performance computing, and biotechnology as covered sectors; convert all investment in artificial intelligence (renamed “super intelligence” or “SI”) development from a tiered system into an outright prohibition; and introduce new exceptions and procedural tools, including a $50,000 de minimis exception and a process for requesting non-binding feedback from Treasury.

Because the COINS Act does not apply retroactively, transactions completed prior to the effective date of the final rule implementing Part 851 would not be subject to these new restrictions or prohibitions. However, earlier transactions may remain subject to Part 850 if completed on or after January 2, 2025 (when Part 850 took effect).

Key takeaway: Investors and companies that already have Part 850 compliance programs should expect to update them—not replace them—and should re-screen pipelines and portfolios for the new countries, the new and expanded technology categories, and the narrowing of certain existing exceptions. Businesses that have not previously been affected, particularly in biotechnology, aerospace, and SI applications, should assess whether the proposed rule would apply to their investments. Importantly, Treasury is actively enforcing the OISP and recently issued its first-ever penalty under the existing Part 850.

Investors impacted by the proposed rule should consider providing comments on this draft regulatory framework for Treasury’s consideration prior to its implementation of the final rule.

Comment deadline:T reasury has requested written comments to the proposed rule, which are currently due December 7, 2026. The rule will not take effect until Treasury issues a final rule, which will set the effective date. Until then, only Part 850 remains in force.

Questions and Answers

Framework and Scope

Q: How would the Outbound Investment Security Program operate under the proposed rule?

A: The OISP regulates outbound investments by U.S. persons, not the activities of foreign companies themselves. Under the proposed rule, jurisdiction would be triggered when a U.S. person, directly or indirectly, undertakes a “covered national security transaction” (i.e., a specific type of transaction or investment) involving a “covered foreign person,” which is an entity with specified ties to a country of concern. Whether that transaction would be “prohibited” or “notifiable” depends upon the technology with which the foreign entity is involved: investments involving a “prohibited technology” may not proceed, while those involving a “notifiable technology” may proceed but must be reported to Treasury within 30 days after closing.

Before each deal, the U.S. person must therefore determine, based upon what it already knows or would know through a reasonable and diligent inquiry, whether the transaction would be prohibited, notifiable, excepted, or otherwise exempt (for example, through a national interest exemption), or whether it would fall outside OISP’s jurisdiction altogether. U.S. persons must also prevent their controlled foreign subsidiaries from undertaking prohibited transactions, must report those subsidiaries’ notifiable transactions, and must refrain from knowingly directing prohibited transactions and, under the proposed rule, knowingly directing notifiable transactions without the requisite filing.

Q: What is the difference between a “notifiable” and a “prohibited” transaction?

A: Under both the existing and proposed rules, covered investments fall into two categories: notifiable and prohibited transactions. A notifiable transaction is permitted, but the U.S. investor must file a notice with Treasury within 30 calendar days after closing.¹ A prohibited transaction may not be undertaken at all unless Treasury grants an exemption.²

Whether a transaction is notifiable or prohibited depends upon the types of activities engaged in by the foreign company. Part 850 covers semiconductors and microelectronics, supercomputers and quantum information technologies, and artificial intelligence systems. The proposal expands covered technologies to additionally include high-performance computing, hypersonic systems, and biotechnology, and certain activities that are notifiable today would become prohibited.

Attached sector-specific transaction matrices include a full breakdown of notifiable and prohibited technologies under the proposed rule, including whether such technologies are subject to prohibitions or notification requirements under Part 850.

Q: Which countries are covered under the proposed rule?

A: Part 850 covers only China, including Hong Kong and Macau.³ The proposed rule would add Cuba, Iran, North Korea, Russia, and “the Bolivarian Republic of Venezuela under the regime of Nicolás Maduro Moros.”⁴ Treasury notes that the Maduro regime no longer exists and that Venezuela therefore does not currently meet the definition, although it also cautions investors to examine Venezuela-related deals carefully because the proposed rule can reach companies outside a country of concern.

Q: What are “covered national security transactions” (i.e., what kinds of transactions are covered by the proposed rule)?

A: Consistent with current rules under Part 850, the proposal would cover transactions involving a U.S. person’s direct or indirect acquisition of equity or convertible interests; provision of certain loans or debt financing arrangements that carry equity-like rights; entrance into joint ventures; acquisition of greenfield investments (e.g., building or acquiring new operations in a country of concern); acquisition of certain limited partner investments in non-U.S. funds; and conversion of contingent interest.⁵ Under the proposed rule, these transactions are defined as “covered national security transactions.”

Q: Does the proposed rule cover companies on U.S. government restricted-party lists differently?

A: Yes. As under Part 850, an otherwise notifiable investment becomes prohibited if the foreign company is on certain U.S. government lists, such as the Commerce Department’s Entity List or Treasury’s Specially Designated and Blocked Persons (“SDN”) List.⁶ The proposal adds the Department of War’s list of Chinese Military Companies (also known as the “1260H List”) and the BIOSECURE Act list of biotechnology companies of concern. ⁷ It also seeks to prohibit such transactions where an affiliate or subsidiary of the foreign company is listed.⁸ Restricted-party screening should therefore cover the target’s entire corporate family.

Q: Does the proposed rule apply to deals already completed?

A: No. Part 851 would apply only from its effective date and would not be retroactive. Transactions completed before December 18, 2025 (the date the COINS Act was enacted) are expressly excepted from Part 851.⁹ However, Part 850 continues to govern activity between January 2, 2025, and the Part 851 effective date, and Treasury retains full authority to enforce Part 850 violations.

Who Is Covered

Q: Who must comply?

A: Consistent with the current regulations in Part 850, the proposed rule imposes investment prohibitions or notification requirements on “U.S. persons,” meaning U.S. citizens and green card holders wherever located, entities organized in the United States (including their foreign branches), and anyone physically in the United States.¹⁰

U.S. persons must also take “all reasonable steps” to prevent their controlled foreign subsidiaries from undertaking prohibited transactions,¹¹ and must file notices for notifiable transactions undertaken by those subsidiaries.¹² These core definitions are unchanged from Part 850.

However, the proposed rule expands the existing U.S. person obligation to also prohibit U.S. persons from “knowingly directing” a notifiable transaction without the requisite filing.¹³ Under Part 850, U.S. persons are currently only restricted from knowingly directing a prohibited transaction.¹⁴ This means that, under the proposed rule, U.S. officers, directors, and others with executive authority at non-U.S. entities would now have obligations even for permitted, notifiable deals. Under the proposed rule, a safe harbor remains available if the U.S. person recuses themselves from approvals, document review, and negotiations.

Q: Which foreign companies are “covered foreign persons”?

A: The proposal would define a covered foreign person based solely upon an entity’s ties to a country of concern, and then whether a transaction would be notifiable or prohibited separately depends upon the technology with which the entity is involved. Although this general structure does not, in and of itself, differ in substance from the existing framework, it is nevertheless distinct from Part 850’s formulation, which currently defines "a covered foreign person" as a “person of a country of concern” that engages in a "covered activity".

The proposed “covered foreign person” definition is comparable to Part 850’s definition of a “person of a country of concern”—covering, for example, a company organized, headquartered, or with its principal place of business in a country of concern, or a company owned 50 percent or more or otherwise controlled by such persons or by a country-of-concern government.¹⁵ However, Part 851 proposes two notable expansions:

• The proposal includes members of the Chinese Communist Party Central Committee and other political leadership;¹⁶ and
• The proposal would apply the “control test” to any covered person, not just government-linked entities.¹⁷

A company can also be covered if more than 50 percent of its revenue, net income, capital expenditures, or operating expenses come from covered foreign persons in which it has certain ownership or governance interests—a test that carries over from Part 850.¹⁸

Q: Could a U.S.-incorporated or third-country company be a covered foreign person?

A: Yes. In addition to the place its management directs, controls, or coordinates the business, as defined in Part 850, the proposed rule expands the definition of “principal place of business” to also include an entity’s headquarters and where its main business activities take place.¹⁹ Notably, an entity may have more than one principal place of business under the proposed rule. Treasury gives the example of a U.S.-incorporated and U.S.-headquartered company whose CEO manages the business from a country of concern, noting that the company would have a principal place of business in both places.

Exceptions and Exemptions

Q: Which existing exceptions carry over?

A: Most of the existing Part 850 exceptions remain, including investments in publicly traded securities, registered mutual funds and ETFs, small or contractually restricted limited partner investments, full buyouts of country-of-concern ownership, pre-existing binding capital commitments, certain syndicated loan defaults, and employee equity compensation.²⁰ Consistent with Part 850, the passive-investment exceptions are not available if the investor receives rights beyond standard minority shareholder protections.²¹

Q: Which exceptions are new?

A: The proposal adds several exceptions that are not in Part 850:²²

• A de minimis exception for notifiable transactions of $50,000 or less in the aggregate over 12 months. ²³
• “Secondary” transactions, such as ordinary commercial contracts (other than technology transfer), purchases of inputs, bank lending, payment processing, underwriting, prime brokerage, and custody services.²⁴
• “Ordinary or administrative business transactions,” which Treasury has left undefined at this time.²⁵
• “Ancillary” financial-institution services, such as payment processing, underwriting, and credit ratings provided to a covered foreign person.²⁶

Treasury invites comment on the scope of these new exceptions, including whether “bank lending” exempts banks from the loan category entirely and whether “ordinary or administrative business transactions” is superfluous.

Q: Are any existing exceptions being narrowed or eliminated?

A: Yes.

• The exception for investments in business development companies would be eliminated.²⁷
• The intracompany transfer exception would cover only “cash or credit” from a U.S. parent to its foreign subsidiary, rather than any transaction between them, and Treasury is seeking comments on how to define “maintaining” existing operations under this exception.²⁸
• The buyout exception would apply only to entities or assets located outside a country of concern.²⁹

Q: Can Treasury exempt a transaction in the national interest?

A:Yes. As under Part 850, a U.S. person may request a national interest exemption, which may carry binding conditions.³⁰ Under the proposal, however, the exemption would relieve only the prohibition—not the notification requirement—and Treasury would have to notify Congress within five business days of granting one.³¹

Compliance Obligations

Q: What level of diligence is expected?

A: Both the existing and proposed rules apply when a U.S. person “knows” relevant facts, which includes what would have been learned through a “reasonable and diligent inquiry.”³² However, the proposed rule would also apply the knowledge standard to the knowledge of a U.S. person’s foreign subsidiary.³³

In determining sufficiency of diligence, Treasury will continue to consider questions asked of the target, contractual representations, use of public and commercial databases, and any warning signs.³⁴ The proposal adds a new factor: whether the investor considered information Treasury itself provided, including any Treasury assessment that a target may be engaged in a covered technology.³⁵

Q: What must a notification contain?

A: Filings under the proposed rule would require substantially more information, including, for example, the identity and nationality of key personnel of the U.S. person involved in overseeing or collaborating with the investment target, fuller commercial rationale for the deal, how the opportunity was sourced, a negotiation timeline, copies of all transaction documents and side agreements, any commercial relationships with the target, and the target’s financial profile, customers, and suppliers.³⁶ Nevertheless, the 30-day filing deadlines, the 10-year record-retention requirement, and the obligation to correct material inaccuracies within 30 days remain consistent with Part 850.

Q: Can a company obtain advance guidance from Treasury?

A: The proposed rule provides a new opportunity for a party with a direct financial interest in an actual, prospective transaction to request non-binding feedback regarding whether that transaction would be prohibited.³⁷ Requests must be in writing, include the material deal documents, and be certified as complete.³⁸ Treasury may respond with confidential feedback or anonymized public guidance, or it could simply decline to respond at all.³⁹ Any feedback that is provided would not be binding and would not be a safe harbor, but good-faith reliance may be considered if issues later arise.⁴⁰

Q: Will Treasury publish a list of covered foreign persons?

A: Not at this time. Treasury is considering a public, non-exhaustive database, and the proposal creates a mechanism for anyone to submit confidential information about whether a foreign company is covered.⁴¹ Until such a list exists, however, investors remain entirely responsible for their own diligence.

Enforcement

Q: What are the penalties?

A:Civil penalties would remain at the maximum available under the International Emergency Economic Powers Act—currently the greater of approximately $377,700 or twice the value of the transaction.⁴² Treasury could also compel divestment of a prohibited investment.⁴³

Treasury is actively enforcing the current program under Part 850, imposing its first civil penalty in July 2026. Treasury announced on October 7, 2026, that it had fined Amidi, LLC $200,000 for failing to notify Treasury after Amidi’s controlled foreign entity (a non-U.S. subsidiary it controls—here, a Chinese fund) invested about $92,478 in Shanghai Qiongche Intelligent Technology Company Limited (“Noematrix”), a Chinese SI company developing SI-powered robots and embodied intelligence, on April 19, 2025. Treasury became aware of the transaction through its own monitoring, not through a voluntary self-disclosure. The enforcement action stressed Treasury’s commitment to continued enforcement and monitoring.

This penalty demonstrates that Treasury is evaluating even small deals made through foreign subsidiaries, and that a missed notification alone can draw a penalty more than twice the size of the investment.

Q: What changes for voluntary self-disclosures and anti-evasion provisions?

A: Under the proposed rule, a voluntary self-disclosure would need to include a proposal to remedy the harm—potentially including divestment or disgorgement of profits—along with a description of the company’s diligence and compliance program.⁴⁴

The proposed anti-evasion provision would cover any attempts to avoid any obligation under the rule, including notification, rather than only the prohibitions covered by the existing Part 850. Treasury also lists factors it may consider in determining whether a person has evaded the rule, such as whether a U.S. person effectively controls a non-U.S. investment vehicle, shares staff or branding, or has overlapping investors.

Conclusion

Treasury has invited public comments on many aspects of the proposed rule, including the prohibition on all SI development, the scope of the biotechnology categories, and how far the new exceptions reach, so there is a meaningful opportunity for affected businesses and investors to shape the final rule. We encourage companies to consider whether and how the proposal would affect their investments and operations and to submit comments before the December 7, 2026, deadline.

King & Spalding has a global footprint, substantial industry experience, and a deep bench of former trade and national security government officials. We are well positioned to assist companies in assessing the proposal’s impact, identifying issues that may warrant comment, and drafting and preparing such comments.