On Oct. 7, 2026, the U.S. Department of the Treasury announced the first civil penalty under the Outbound Investment Security Program (OISP), which prohibits or requires notification of certain U.S. investments involving China. More than twice the value of the underlying investment, the penalty was imposed for a missed notification of a transaction by a U.S. company’s foreign subsidiary, not for a prohibited investment. That such a penalty has been assessed for missing a notification of an otherwise permissible investment sends a clear signal that Treasury is actively watching the market and will vigorously use its new powers to police OISP procedural requirements, and that U.S. parents will be held fully responsible for the actions of their foreign subsidiaries.
Overview
Under the OISP, U.S. persons are prohibited from certain investments in entities in or connected to the People’s Republic of China (PRC) including Hong Kong and Macau that are engaged in specified semiconductor, quantum-computing, and artificial intelligence (AI) activities, and must also notify Treasury of permissible investments in such entities engaged in a broader scope of activities involving semiconductors and AI technology. A U.S. person must also (a) notify Treasury of any transaction by its controlled foreign entity that would be notifiable if a U.S. person had undertaken it and (b) take all reasonable steps to prohibit and prevent its controlled foreign entity from engaging in any transaction that would be prohibited if a U.S. person had undertaken it. Civil penalties of up to the greater of USD377,700 and twice the value of the transaction can be imposed for OISP violations.
In July 2026, Treasury imposed a penalty of USD200,000 on Amidi, LLC (Amidi), a U.S.-headquartered global conglomerate, for failing to submit a required notification of an investment by its controlled Chinese fund in Shanghai Qiongche Intelligent Technology Company Limited (Noematrix), a private developer of AI, robotics, and embodied intelligence that Treasury described as an “embodied artificial intelligence company.” That investment of USD92,478 closed on April 19, 2025, approximately three and a half months after the OISP took effect on Jan. 2, 2025. Treasury stated that it identified the transaction through its “regular and ongoing compliance and market monitoring efforts”—suggesting that a voluntary disclosure or late notification likely was not submitted for the investment.
Key takeaways
U.S. parents need clear policies and guidance for their foreign subsidiaries
Treasury’s action underscores that U.S. entities will be penalized for OISP violations arising out of controlled foreign subsidiaries’ investments, even if not authorized or even known about. In addition to reporting notifiable investments, U.S. parents are obliged to take “all reasonable steps” to prevent prohibited transactions by their controlled foreign subsidiaries. U.S. parents should adopt written OISP policies for their controlled foreign entities covering pre-closing screening of targets’ activities, internal escalation and reporting to the U.S. parent, training, periodic audits and testing, and standard reps and warranties in investment agreements to address OISP risk. The failure to implement and adequately resource OISP procedures will be an aggravating factor in any Treasury penalty determination.
Treasury is actively monitoring, so consider self-reporting late or missed filings
As Treasury has access to numerous sources of public and confidential information (including through a dedicated Outbound Program tips line), investors should not assume that small, early-stage, or offshore deals will go unnoticed. The OISP requires notice within 30 days after a U.S. person acquires actual knowledge that a completed transaction is subject to the notification requirement, and it provides a process for voluntary self-disclosure of potential violations. Investors that learn after the fact of a transaction that may have been notifiable, or of one that may have violated the OISP, should strongly consider filing a late notification or a voluntary self-disclosure before Treasury contacts them. Once Treasury discovers and investigates a violation, the opportunity to mitigate penalties through a voluntary disclosure will be foreclosed.
The first case is about notification, not national security harm, but the technology matters
This case should also serve as a reminder of the breadth of technologies that are swept into the OISP’s notification requirement. Investments in companies developing any AI system intended to be used in the “control of robotics systems” are covered by the notification requirement (assuming the investment is not otherwise prohibited). Given the ubiquity of AI technology in robotics, it is likely that any investment in a Chinese company developing robotics will fall at least within the OISP’s notification requirement. (The OISP’s coverage of investments in semiconductor companies is even broader: any investment in a Chinese firm designing, fabricating, or packaging any integrated circuits would bring an investment within the scope of a notifiable or prohibited transaction.)
Investors should screen carefully for robotics and embodied-AI targets, where AI development may trigger OISP obligations even if the company does not describe itself as an AI developer. The investor bears the burden of classifying the target, and failing to conduct a reasonable and diligent inquiry can lead Treasury to treat the investor as having had reason to know the relevant facts.
Controls over China-based subsidiaries may raise issues under China’s Anti–Foreign Sanctions Law
China’s Anti–Foreign Sanctions Law (AFSL), in force since June 10, 2021, authorizes countermeasures when a foreign country, pursuant to its own laws, “contains or suppresses China” or adopts “discriminatory restrictive measures” against Chinese citizens or organizations. Persons involved in developing, deciding on, or implementing those measures may be placed on China’s Countermeasure List. The AFSL also allows Chinese parties to sue in Chinese courts for an injunction and damages against organizations and individuals that enforce, or assist in enforcing, such measures. The State Council’s March 2025 implementing regulations strengthened these tools and encouraged private enforcement. China has also signaled that it views the OISP as a target—for example, in 2023, China’s Ministry of Commerce said it was planning countermeasures in response to the executive order underlying the program. China’s June 2026 outbound-investment regulations also establish a mechanism for countermeasures against discriminatory foreign measures affecting Chinese investment. Chinese law does not specify which foreign measures qualify, and we are not aware of any public AFSL action tied specifically to OISP compliance. Still, the OISP appears to fall within the AFSL’s broad scope.
This creates a potential conflict for U.S. parents with China-based controlled foreign entities, such as the Chinese fund in the Amidi matter. Requiring a Chinese subsidiary to refuse, unwind, or report on investments in Chinese companies could be characterized as assisting in the enforcement of a discriminatory restrictive measure. This risk appears greatest for prohibited-transaction controls that cause a Chinese subsidiary to decline or exit a deal, and lower for after-the-fact notifications made by the U.S. parent. U.S. parents should coordinate with PRC counsel when designing OISP policies for China-based subsidiaries, including how those policies are documented, who makes the decisions, and how information is communicated.
Expansion of OISP-covered technologies expected soon
On Dec. 18, 2025, Congress passed the Comprehensive Outbound Investment National Security Act of 2025 (COINS Act), which codifies the OISP and expands its reach to investments in high-performance computing, supercomputing, hypersonic systems, and other technology sectors as added by Treasury, and also expands the geographic scope beyond China, Hong Kong, and Macau to Cuba, Iran, North Korea, Russia, and Venezuela (under the Maduro regime). Implementing regulations are expected soon. Investors should prepare to reassess existing portfolios, pipeline transactions, and controlled-foreign-entity compliance programs against the broader scope once the regulations are issued.
Additional recommendations
In addition to the takeaways noted above, investors should consider:
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conducting a look-back review of transactions closed on or after Jan. 2, 2025, by the U.S. parent and each controlled foreign entity to identify potentially notifiable or prohibited transactions
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mapping the corporate and fund structure to identify every entity that qualifies as a controlled foreign entity, including entities in which the U.S. person is a general partner, managing member, or investment adviser to a pooled investment fund
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documenting the diligence performed on each China-, Hong Kong-, or Macau-connected target, and keeping notifications and supporting records for the required 10-year period
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updating transaction documents to include OISP representations, covenants, and information rights that support classification and timely notification.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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