Retooled US outbound investment rules under the COINS Act are on the way

The US Department of the Treasury (the Treasury) has issued a Notice of Proposed Rulemaking (NPRM) to implement the Comprehensive Outbound Investment National Security Act (the COINS Act). As discussed in our January 2026 bulletin, the COINS Act codifies and expands the outbound investment rules adopted by Treasury in January 2025. In many respects, the NPRM previews continuity from the existing regime to the COINS Act rules, but several elements are new and, in some cases, unexpected. The new rules should be effective by March 2027.

What you need to know

• China, including Hong Kong and Macau, remains the key target of these investment restrictions.
• Biotechnology would be added as a covered technology, despite the fact that it is not referenced in the COINS Act.
• US persons will have a new notice obligation when individually, or as part of a group, they exercise authority to direct, decide on, or approve a foreign company’s transaction that would be notifiable if engaged in by a US person; importantly, this requirement will not extend to LP investments.

Key elements of the proposed rules

New countries of concern. As required by the COINS Act, the NPRM adds new “countries of concern”, namely Cuba, Iran, North Korea, and Russia. Although the COINS Act also identified Venezuela under the regime of Nicolas Maduro, the NPRM explains that Venezuela is no longer a country of concern due to Maduro’s removal.

The expanded scope will not be material to most investors because US sanctions have largely curtailed business with those countries. As such, China, including Hong Kong and Macau, remains the primary target of the COINS Act restrictions.

Expanded covered technologies and prohibitions. The NPRM adopts the new terms “prohibited technology” and “notifiable technology” to capture both existing and expanded sectors subject to the COINS Act rules. With respect to the existing covered sectors of semiconductors and microelectronics, quantum computing, and artificial intelligence—the latter now named “super intelligence” (SI) due to a recent executive order—the NRPM proposes to add further prohibitions and notification requirements.

Notably, the NPRM would eliminate notifiable transactions with respect to SI systems and instead broadly prohibit investment by US persons in any super intelligence (SI) system developed by a covered foreign person. The COINS Act rules, therefore, will effectively ban US investment in most Chinese AI companies.

As expected, the NPRM also introduces new prohibitions and notification requirements with respect to hypersonic systems, high-performance computing, and supercomputing.

Unexpectedly, the Treasury has exercised authority to add and define a technology that was not expressly identified by the COINS Act: biotechnology. The rules propose to prohibit investment in certain bio-derived materials or pharmaceutical compounds, brain-computer interfaces, biomanufacturing, biological design and sequencing, bioinformatics tools, and hardware or software for automated scientific discovery.

Broader range of covered foreign persons. The NPRM proposes to define a “covered foreign person” by largely carrying over the existing definition of a “person of a country of concern”. Additionally, a “covered foreign person” under the new rules will include entities that are subject to the direction or control of individuals and private companies, even when such persons do not have majority ownership. The NPRM specifies that “subject to the direction or control” means the power to direct or cause the direction of the management or policies of an entity, whether through the ownership of voting securities, by contract, or otherwise.

Limited new exceptions. The NPRM identifies several new exceptions, including for underwriting and bank lending. A new de minimis exception has also been introduced, but its $50,000 threshold is so low as to be practically irrelevant for nearly all investors.

Most investors must look to the existing exceptions that will carry over from the current outbound investment rules. Fund investors particularly can continue to rely on the rule that the acquisition of a limited partnership interest in a US fund will not constitute the indirect acquisition of an equity interest in a covered foreign person in which the fund invests. Investments in non-US funds will remain excepted transactions under the COINS Act rules when the limited partners obtains a binding contractual assurance that its capital in the fund will not be used to engaged in a prohibited or notifiable transaction if engaged in by a US person.

Important implications

Non-US investors

Although non-US investors are not directly subject to the existing outbound investment rules, many currently take steps to comply. They do so to ensure they are not causing or facilitating violations by their US offices, employees, and their own US equity holders.

For such non-US investors, the proposed COINS Act rules will require an assessment of the scope of changes to be implemented, particularly with respect to the covered technology changes. The proposed rules call for more robust diligence of target investments, as covered foreign persons will now include those entities under the “direction or control” of covered foreign individuals and companies. Non-US fund investors will also want to update their side letters to expressly address the COINS Act rules, and funds of funds should revisit documentation with, and obligations to, their US investors.

The addition of Cuba as a country of concern may have implications for Canadian investors due to the Foreign Extraterritorial Measures Act (FEMA). FEMA prohibits Canadian companies and individuals from complying with US legislation intended to prevent, impede, or reduce “trade or commerce” between Canada and Cuba. It is unsettled whether FEMA reaches prohibited and notifiable transactions under the COINS Act, so Canadian investors intending to comply with the proposed rules should assess whether doing so is consistent with Canadian law.

US persons directing transactions

Under the existing outbound rules, a US person may not knowingly direct a foreign entity to engage in a transaction that would be prohibited if engaged in by a US person. As with the existing outbound investment rules, the NPRM explains that knowingly directing a foreign company occurs when the US person individually, or as part of a group, exercises authority to direct, order, decide upon, or approve a transaction that the US person knows would be a covered national security transaction if engaged in by a US person.

The NPRM goes a step further than the existing regime because it would also require a US person to notify the Treasury in most instances when they direct a foreign person to engage in a transaction that would be notifiable if engaged in by a US person. That said, the NPRM makes clear that this new requirement will not apply to an acquisition of limited partnership interests.

Accordingly, foreign companies, funds, and pension plans should identify US persons in their decision-making chains and extend recusal policies to notifiable transactions and the new technology categories.

Next steps

Treasury is accepting public comments to the NRPM through December 7, 2026. The COINS Act requires Treasury to finalize the new rules by March 2027, and the existing outbound rules remain in effect during this time.

In the meantime, investors should review side letter templates and fund documents, recusal policies and diligence questionnaires, and assess existing and pipeline investments in the covered technologies, especially within the biotechnology sector.