The US Treasury has published a proposed rule to implement the COINS Act, the law that puts the outbound investment security programme on a statutory footing. The draft was announced on 22 October 2026 and appeared in the Federal Register on 26 October.
From notification to prohibition
Under the current rules, many US investments in Chinese AI companies only had to be notified, with outright bans reserved for systems above certain computing thresholds or intended for particular military or surveillance uses. The proposal goes much further. According to Freshfields' analysis, the development of any AI system by a covered foreign person would become a prohibited technology, without regard to computing power or end use. Treasury's own announcement frames the AI category around "super intelligence" systems.
The draft also:
- adds biotechnology as a prohibited category and brings in hypersonics;
- widens the semiconductor rules to cover items such as high-bandwidth memory, photonics and certain DUV lithography equipment;
- treats quantum algorithms as prohibited;
- expands the countries of concern beyond China to include Iran, North Korea, Russia, Cuba and Venezuela;
- applies a broader test of when a foreign company is controlled from a country of concern;
- extends the "knowingly directing" offence to notifiable deals; and
- sets a $50,000 de minimis threshold for notifiable transactions, with no grandfathering of existing arrangements.
What happens next
Comments are due by 7 December 2026. The statute requires a final rule by 13 March 2027, so investors have only a few months to see how the text settles.
For venture funds, private equity houses and corporate investors with Asian AI exposure, the proposal is a marked change. Deals that were legal with a filing may simply be off the table, and fund managers will need to check their limited partner commitments, side letters and co-investment rights against the new categories.
Why it matters financially
This is the largest single change in the week for capital flows into AI. Treasury has not published an estimate of the value of deals affected, but moving every AI developer in a country of concern into the prohibited category, with no grandfathering and a $50,000 floor for notifications, could cut US money off from a whole segment of the Chinese AI market and force restructuring of existing fund positions. Breaches of the programme carry civil and criminal penalties.