Global Arbitration, Trade and Advocacy Update

U.S. Treasury Proposes Sweeping Limits on U.S. Investments in “Countries of Concern”: Biotechnology, Super Intelligence, and More

October 28, 2026

On October 26, 2026, the U.S. Department of the Treasury (Treasury) published draft regulations that would impose broad new restrictions on U.S. investments in China and other “countries of concern.” New restrictions in the biotechnology or artificial intelligence systems (renamed super intelligence or SI) sectors are especially significant. We review the key highlights below.

Background

Under the current Outbound Investment Security Program (OISP), certain investments made by U.S. persons or their subsidiaries, or otherwise directed by U.S. persons, in certain Chinese technology companies are either prohibited or require notification to Treasury. The existing OISP focuses on investments in Chinese companies that design, develop, or produce certain semiconductor, quantum, and AI technologies. In December 2025, the U.S. Congress passed the Comprehensive Outbound Investment National Security Act of 2025 (COINS Act), which requires certain expansions and other revisions of the OISP. Previous Sidley Updates addressed the existing OISP regulations, important clarifications to those rules, and the COINS Act.

Treasury published new draft regulations implementing the COINS Act on October 26, 2026. Separately, Treasury issued a press release and fact sheet. The mechanics of the OISP would remain largely unchanged. However, the proposal includes sweeping new prohibitions on U.S. person investment in companies in China, and in other “countries of concern,” that develop biotechnology or SI systems. The draft regulations include several other key departures from the existing OISP.

We highlight some of the key elements of the draft regulations below. The appendix to this Update lists the full set of technologies the proposed regulations would cover.

Scope and Timing

The proposal is only a draft, and the final regulations may be different. Treasury is accepting public comments until December 7, 2026. The final regulations will likely take effect at the end of the first quarter of 2027. The regulations are extremely broad and will significantly hamper cross-border investment into the designated countries. Interested parties can use the public comment period to request clarifications or narrowing of the scope of the proposed regulations.

The current OISP regulations target China. The proposed regulations expand the restrictions to also cover Cuba, Iran, North Korea, and Russia. (The proposed regulations also cover Venezuela “under the regime of Nicolás Maduro Moros,” but Treasury clarifies that this regime no longer exists.) The existing OISP will continue to apply until the new regulations enter into force.

New Restrictions on Biotechnology Investments

Restrictions on U.S. investment in biotechnology companies: The proposed regulations prohibit U.S. persons from investing in companies from the designated countries that engage in certain biotechnology-related activities. The list of activities is broad, covering investments in companies that develop certain kinds of biotechnology equipment and software, agents and toxins, novel materials, biofuels, and brain computer interfaces. Probably the most significant expansion in the sector is the proposed coverage of investments in companies engaged in the “development, engineering, or use of a biological system — or any component of a biological system — to modify, enhance, produce, or control any … pharmaceutical compound, including, small molecules, polymers, vaccines, blood and blood components, allergenics, cell and gene therapies, and monoclonal antibodies or other recombinant therapeutic proteins, as well as their delivery mechanisms.”

Impact on “NewCos” and other forms of collaboration: The proposed regulations are not limited to restricting direct investments. They also prohibit U.S. persons from entering into joint ventures with companies to engage in the designated biotech-related activities. As a result, the new regulations could significantly curtail the use of common “NewCo” structures, in which Chinese entities license intellectual property to a U.S. company in exchange for equity. In addition, while the regulations do not define “joint venture,” they make clear that a joint venture need not involve the establishment of a new entity. While pure licensing with cash royalties is not covered, contractual collaborations would be prohibited to the extent they have characteristics of joint ventures (contributions from each side and a sharing of profits and losses).

Super Intelligence

Restrictions on investments in Chinese SI companies: The current OISP regulations restrict investments in any Chinese company that develops AI systems that meet certain computational training thresholds or that are developed for certain end uses. The draft regulations would prohibit investments in companies from designated countries that develop almost any kind of SI system (including agents), regardless of end use or level of computational training. In comments accompanying the rule, Treasury states that “SI models have achieved notable performance gains through additional means other than the quantity of training compute,” suggesting that Treasury has concerns with Chinese AI agents and other systems, even if they are not themselves frontier models.

Existing Exceptions Continue to Apply

The exceptions available under the existing OISP would continue to apply, including, for example, exceptions for publicly traded securities when the investor does not obtain rights that go beyond standard minority shareholder protections.

Other Highlights

The proposed regulations feature several other changes. We list some of the highlights below.

Control: Under the existing OISP, an entity would be considered a person of a country of concern if another person of a country of concern holds in aggregate, directly or indirectly, at least 50% of the voting interest, voting power, or equity interest of such entity. A control test for below the 50% threshold is only used if a Chinese government entity possesses the power to direct or cause the direction of the management and policies of such entity. The proposed regulations would treat any person or entity under the direct or indirect direction or control of a person from a country of concern (whether a government entity or a private entity) as a covered foreign person. Thus, even if an entity is minority Chinese owned, it may still be deemed to be a covered foreign person if a Chinese investor can direct or control the management of the entity.
Semiconductors: The proposed regulations expand the prohibited category for semiconductor-related activities to cover both older semiconductor production technology and chips made from a wider variety of materials. See appendix.
Hypersonics and supercomputing: The proposed regulations extend prohibitions to certain activities in the hypersonic systems and supercomputing sectors. See appendix.
Quantum: The proposed regulations maintain the existing prohibition on the development of quantum computers and production of certain components and expand it to include the development of related software, algorithms, and applications. See appendix.
The “knowing direction” obligation: The current regulations prevent U.S. persons from “knowingly directing” non-U.S. persons to undertake transactions that would be prohibited for a U.S. person to undertake themselves. The proposed rules extend parallel obligations to notifiable transactions. In other words, a U.S. person would need to notify Treasury when they knowingly direct a non-U.S. person to undertake a transaction in the notifiable category. However, the new regulations also clarify that this “knowing direction” obligation does not apply when a U.S. person directs a non-U.S. entity to make a limited partner investment in a foreign fund.
Restricted party lists: The existing regulations provide that otherwise-notifiable investments become prohibited when a covered person is the subject or target of certain list-based restrictions, such as restrictions arising under Treasury’s List of Specially Designated Nationals and Blocked Persons or the U.S. Department of Commerce’s Entity List. The proposed regulations would extend prohibitions to any case where a covered person’s “affiliates” or “subsidiaries” are the subject or target of these restrictions. They also add two new lists: the U.S. Department of Defense List of Chinese Military Companies Under Section 1260H of the National Defense Authorization Act for Fiscal Year 2021 and the forthcoming list of Biotechnology Companies of Concern under the BIOSECURE Act. These changes will likely have the biggest practical effect in the semiconductor and microelectronics space, where a meaningful set of notifiable activities remain.
Feedback: The proposed regulations would establish a mechanism that allows parties to voluntarily request feedback from Treasury on whether transactions are prohibited. However, parties must prove they have a real interest in an actual transaction to seek this feedback (hypothetical transactions are insufficient), and Treasury retains the right not to respond.
Database: Treasury is considering whether to establish a nonexhaustive database of covered persons engaged in prohibited and/or notifiable activities.
The “maintaining operations” exception for intracompany transactions: The existing regulations contain an exception for intracompany transactions that “maintain operations” in which a company was engaged prior to the effective date of the regulations. Treasury has proposed to include a similar exception in the new regulations and is weighing how broadly to define it.
- What this means for existing operations: Treasury has asked for comments on what “maintaining operations” means. It may be that U.S. persons cannot do anything more with their existing operations in China (or other designated countries) than engage in upkeep (i.e., no upgrades or expansions), but this is not clear, and the term could be interpreted to allow more expansive activity.

Further Guidance

Sidley’s Global Arbitration, Trade, and Advocacy practice has been advising on the U.S. outbound investment regime since its inception. We are already helping many clients understand the proposed new regulations. If you have questions, please reach out.

Appendix: Covered Technologies Under the Proposed Regulations (changes to the existing OISP are bolded and underlined)

Sector	Notifiable technologies	Prohibited technologies
Semiconductors and microelectronics	Design of any integrated circuit that is not described in the “design” paragraph of the prohibited column Fabrication of any integrated circuit that is not described in the “fabrication” paragraph of the prohibited column Development or production of any integrated circuit that is not described in the “development or production” paragraph of the prohibited column pertaining to integrated circuits Packaging of any integrated circuit that is not described in the “packaging” paragraph of the prohibited column Development or production of equipment, not described in the “development or production” paragraph of the prohibited column pertaining to equipment, that is designed or intended for use in the design, fabrication, or packaging of any integrated circuit	Development or production of any electronic design automation software for the design of integrated circuits or advanced packaging Development or production of any front-end semiconductor fabrication equipment designed for performing the volume fabrication of integrated circuits, including equipment used in the production stages from a blank wafer or substrate to a completed wafer or substrate (i.e., the integrated circuits are processed but are still on the wafer or substrate); equipment for performing volume advanced packaging; or commodity, material, software, or technology designed or intended for use in or with deep ultraviolet lithography fabrication equipment or extreme ultraviolet lithography fabrication equipment Design of any integrated circuit that meets or exceeds the performance parameters in Export Control Classification Number 3A090.a in supplement no. 1 to 15 CFR part 774, or any integrated circuit designed for operation at or below 4.5 Kelvin Fabrication of any logic integrated circuit using a nonplanar transistor architecture or with a production technology node of 16/14 nanometers or less, including any fully depleted silicon-on-insulator (FDSOI) integrated circuit; NOT-AND (NAND) memory integrated circuit with 128 layers or more; dynamic random-access memory (DRAM) integrated circuit having a memory cell area of less than 0.0026 µm²; a memory density greater than 0.20 gigabits per square millimeter; or more than 3000 through-silicon vias per die;¹ integrated circuit using graphene transistors or carbon nanotubes; or integrated circuit designed for operation at or below 4.5 Kelvin Development or production of any integrated circuit manufactured from silicon carbide or a gallium-based compound semiconductor, III-V compound semiconductor, or ultrawide bandgap semiconductor² integrated circuit designed to, or rated radiation hardened to, withstand any of the following: a total dose of 5 × 103 Gy (Si), or higher; a dose rate upset of 5 × 106 Gy (Si)/s, or higher; or a fluence (integrated flux) of neutrons (1 MeV equivalent) of 5 × 1013 n/cm2 or higher on silicon, or its equivalent for other materials; or photonic integrated circuit, including development of optical components, co-packaged optics, or silicon-photonics integration Packaging of any integrated circuit using advanced packaging techniques Development or production of high-bandwidth memory with a memory bandwidth density greater than 2 gigabytes per second per square millimeter
High-performance computing	Development or production of high-bandwidth, low-latency interconnects for high-performance computing, including interconnects for system-on-chip, system-in-package, scale-up networks, and scale-out networks	Development, installation, sale, or production of any supercomputer enabled by advanced integrated circuits that can provide a theoretical compute capacity of 100 or more double-precision (64-bit) petaflops or 200 or more single-precision (32-bit) petaflops of processing power within a 41,600 cubic foot or smaller envelope, or components designed for enabling any of such capabilities of a supercomputer
SI	*None listed.*	Development of any SI system, provided that where an SI system as defined at § 851.232(b) operates in whole or in part using an SI system as defined at § 851.232(a), the latter of which is sourced from a third party, the relevant covered foreign person or joint venture develops such SI system when it enhances or extends the capability of such third-party system; for example, developing an agentic harness layer with a third-party SI model enhances and extends the capability of the third-party model by enabling autonomous execution of action loops; managing memory and context; or using intermediate or hidden reasoning or self-correction, among other functions, to solve complex tasks and format feedback prior to producing user-facing outputs; and use of an off-the-shelf third-party SI system strictly for internal, noncommercial purposes (including the customization, configuration, or fine-tuning of a third-party SI model or machine-based system strictly for internal, noncommercial use (e.g., not for sale or licensing)) does not constitute development of an SI system solely on that basis³
Quantum information technologies	*None listed.*	Development of a quantum computer or production of any of the critical components required to produce or operate a quantum computer (such as a dilution refrigerator or two-stage pulse tube cryocooler), or development of software for the purpose of designing, simulating, testing, or controlling a quantum computer, or for identifying, implementing, costing, or optimizing algorithms and applications for a quantum computer Development of any algorithm or application for quantum information science technologies Development or production of any quantum sensing platform designed for, or that the relevant covered foreign person intends to be used for, any military, government intelligence, or mass-surveillance end use Development or production of any quantum network or quantum communication system designed for, or that the relevant covered foreign person intends to be used for networking to scale up the capabilities of any quantum computer, such as for the purposes of breaking or compromising encryption; secure communications, such as quantum key distribution; or any other application that has any military, government intelligence, or mass-surveillance end use
Hypersonics	Development or production of any of the following technologies when capable of use in or for a hypersonic system or its components: sensor, guidance, navigation, or control equipment or systems; *metals, alloys, composites, ceramics, coatings, or other materials not described in the bullet in the right-hand column marked (); or software for research, modeling and simulation, analysis, or testing not described in the bullet in the right-hand column marked ()	Development or production of any hypersonic system or propulsion system capable of enabling hypersonic flight, including rocket-based propulsion, hypersonic airbreathing propulsion such as ramjets and scramjets, and combined cycle propulsion, or fuels or propellants for hypersonic propulsion systems Development or production of any of the following materials designed for, or that the covered foreign person intends to be used for, a hypersonic system:* refractory metals or alloys; refractory or ultra-high temperature ceramics, or ultra-high temperature ceramic matrix composites; carbon-carbon or carbon-matrix composites; or stealth coatings or other materials designed to minimize external observation of a hypersonic system, such as spectral or multispectral absorption materials Development or operation of specialized infrastructure or a facility capable of testing a hypersonic system, including hypersonic arc jet facilities, wind tunnels, and ground test beds Development of digital twin technology for modeling and simulation of, monitoring, or optimizing a hypersonic system or digital thread technology that collects, manages, or represents the data flows related to a hypersonic system**
Biotechnology	*None listed.*	Development, engineering, or use of a biological system — or any component of a biological system — to modify, enhance, produce, or control any of the following compounds or materials: an agent or toxin restricted in 7 CFR part 331, 9 CFR part 121, 42 CFR part 73, 22 CFR part 121, or 15 CFR part 774, or novel agents or toxins that are capable of causing death, disease, or other biological malfunction in a living organism; deterioration of food, water, equipment, supplies, or material; or deleterious alteration of the environment; an energetic precursor or energetic material, including propellants, explosives, and pyrotechnics; a novel or high-performance functional material, i.e., a bioderived product that exhibits novel or enhanced properties, such as an adaptive or protective coating, biocement or other material for agile infrastructure, material capable of self-repair or self-assembly, and a biosensor; a pharmaceutical compound, including, small molecules, polymers, vaccines, blood and blood components, allergenics, cell and gene therapies, and monoclonal antibodies or other recombinant therapeutic proteins, as well as their delivery mechanisms; or a biofuel, i.e., fuel made or derived from a bio-based feedstock Development or production of brain computer interfaces, including invasive, partially invasive, noninvasive, and hybrid systems that enable interaction between the brain and its environment, as well as associated software Development, construction, or production of biomanufacturing equipment, including components and associated software or technology and as identified in Export Control Classification Numbers 2B352, 2D352, or 2E001, in supplement no. 1 to 15 CFR part 774 Development or production of the following technology or equipment, including components and associated software: biological sequencing technology, including short-read or long-read sequencing; flow cytometers and cell sorters that are designed for spectral analysis or that contain 26 or greater detectors or channels; liquid chromatography mass spectrometry instruments designed for top-down proteomic analysis; computational or bioinformatics tools for research, design, optimization, modeling and simulation, discovery, or assessment of biological systems or processes; and hardware, robotics, or software for automated scientific discovery or experimentation, including laboratory automation or cloud lab infrastructure
Restricted parties (applies to engagement in any notifiable technology)	—	Engagement in a notifiable technology by a covered foreign person, or, with respect to a covered national security transaction described in § 851.209(a)(3), the relevant joint venture, where such covered foreign person or joint venture is, or any of its affiliates or subsidiaries are, included on the Bureau of Industry and Security Entity List (15 CFR part 744, supplement no. 4); included on the Bureau of Industry and Security Military End User List (15 CFR part 744, supplement no. 7); defined as a “Military Intelligence End-User” by the Bureau of Industry and Security in 15 CFR 744.22(f)(2); included on the Department of the Treasury list of Specially Designated Nationals and Blocked Persons (SDN List), or is an entity in which one or more individuals or entities included on the SDN List, individually or in the aggregate, directly or indirectly, own a 50% or greater interest; included on the Department of the Treasury list of Non-SDN Chinese Military-Industrial Complex Companies; included on the Department of Defense list of Chinese military companies in accordance with Section 1260H of the National Defense Authorization Act for Fiscal Year 2021 including subsequent amendments; included on the Office of Management and Budget list of biotechnology companies of concern in accordance with the BIOSECURE Act, Section 851 of the National Defense Authorization Act for Fiscal Year 2026; or designated as a foreign terrorist organization by the Secretary of State under 8 U.S.C. 1189.

¹Under the existing OISP, fabrication of “[d]ynamic random-access memory (DRAM) integrated circuits using a technology node of 18 nanometer half-pitch or less” falls in the prohibited category; fabrication of other DRAM integrated circuits is only notifiable.

²The existing OISP covers the development or production of “integrated circuits manufactured from a gallium-based compound semiconductor” in the prohibited category. The expansion of this category to the development or production of silicon carbide, III-V compound, and ultrawide bandgap semiconductors is new.

³Under the existing OISP, the coverage of SI systems depends on the quantity of computing power used to train the system and the system’s end uses. Some SI systems fall in the prohibited category; others are merely notifiable; and some are not covered at all. The proposed regulations place development of any SI system in the prohibited category.

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