Key Takeaways
- • On October 26, 2026, the U.S. Treasury published draft regulations implementing the COINS Act that would broaden restrictions on U.S. investments in China and other "countries of concern," including Cuba, Iran, North Korea, and Russia.
- • The draft would prohibit U.S. person investment in companies from designated countries that develop almost any kind of super intelligence (SI) system, including agents, regardless of end use or computational training level.
- • Biotechnology restrictions extend to pharmaceutical compound development and joint ventures, which could curtail common "NewCo" licensing structures where Chinese entities license IP to U.S. companies in exchange for equity.
- • Treasury is accepting public comments until December 7, 2026, and final regulations are expected to take effect around the end of Q1 2027; the draft could change materially before finalization.
- • Control thresholds would extend beyond the 50% ownership test, treating minority Chinese-owned entities as covered if a Chinese person can direct management, a change with broad implications for cross-border deal structuring.
Summary
The U.S. Department of the Treasury published draft regulations on October 26, 2026 implementing the Comprehensive Outbound Investment National Security Act of 2025 (COINS Act), passed by Congress in December 2025. According to a Sidley Austin client update, the proposal would substantially expand the Outbound Investment Security Program (OISP), which currently restricts or requires notification for certain U.S. investments in Chinese semiconductor, quantum, and AI companies. The mechanics of the OISP would remain largely unchanged, but the scope of restricted activity and the set of covered jurisdictions would widen considerably. The existing program targets China; the draft adds Cuba, Iran, North Korea, and Russia. Venezuela is also referenced under the Maduro regime, though Treasury states that regime no longer exists.
The most significant expansion concerns biotechnology. The draft would prohibit U.S. persons from investing in designated-country companies engaged in a broad set of activities, including biotechnology equipment and software, agents and toxins, novel materials, biofuels, and brain-computer interfaces. Sidley highlights the coverage of development or use of biological systems to produce or control pharmaceutical compounds, including small molecules, vaccines, cell and gene therapies, and monoclonal antibodies. The rules also bar U.S. persons from joint ventures in these areas, even without a new legal entity. Pure licensing with cash royalties is not covered, but contractual collaborations with shared contributions and profit-and-loss sharing could be. Sidley notes this could significantly curtail NewCo structures.
In super intelligence, the draft would prohibit investments in designated-country companies developing nearly any SI system, regardless of end use or training compute. Treasury's accompanying commentary states that "SI models have achieved notable performance gains through additional means other than the quantity of training compute," which Sidley reads as signaling concern with Chinese AI agents even when they are not frontier models.
Other changes include a control test extending beyond the existing 50% threshold, so minority Chinese-owned entities could be covered where a designated-country person can direct management; expanded semiconductor, hypersonic, supercomputing, and quantum prohibitions; extension of the "knowing direction" obligation to notifiable transactions, with a carve-out for limited partner investments in foreign funds; and new restricted-party triggers including the DoD 1260H list and the forthcoming BIOSECURE Act list. Treasury is also weighing a voluntary feedback mechanism, a possible database of covered persons, and a definition of the "maintaining operations" exception that could limit existing China operations to upkeep. Public comments close December 7, 2026, and the proposal remains a draft subject to change.
The most significant expansion concerns biotechnology. The draft would prohibit U.S. persons from investing in designated-country companies engaged in a broad set of activities, including biotechnology equipment and software, agents and toxins, novel materials, biofuels, and brain-computer interfaces. Sidley highlights the coverage of development or use of biological systems to produce or control pharmaceutical compounds, including small molecules, vaccines, cell and gene therapies, and monoclonal antibodies. The rules also bar U.S. persons from joint ventures in these areas, even without a new legal entity. Pure licensing with cash royalties is not covered, but contractual collaborations with shared contributions and profit-and-loss sharing could be. Sidley notes this could significantly curtail NewCo structures.
In super intelligence, the draft would prohibit investments in designated-country companies developing nearly any SI system, regardless of end use or training compute. Treasury's accompanying commentary states that "SI models have achieved notable performance gains through additional means other than the quantity of training compute," which Sidley reads as signaling concern with Chinese AI agents even when they are not frontier models.
Other changes include a control test extending beyond the existing 50% threshold, so minority Chinese-owned entities could be covered where a designated-country person can direct management; expanded semiconductor, hypersonic, supercomputing, and quantum prohibitions; extension of the "knowing direction" obligation to notifiable transactions, with a carve-out for limited partner investments in foreign funds; and new restricted-party triggers including the DoD 1260H list and the forthcoming BIOSECURE Act list. Treasury is also weighing a voluntary feedback mechanism, a possible database of covered persons, and a definition of the "maintaining operations" exception that could limit existing China operations to upkeep. Public comments close December 7, 2026, and the proposal remains a draft subject to change.
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