US Adds Another Three Sectors for Wider Outbound Investment Including Biotech Controls, Four more Countries Added

[ABS News Service/26.10.2026]

The Treasury Department is proposing expanding restrictions on US investment in sensitive foreign technologies, with consequences for technology companies, private investment funds, multinational businesses and drug developers.

The proposed rule would broaden existing controls on semiconductors, artificial intelligence and quantum technologies while adding biotechnology, hypersonic systems and additional high-performance computing activities.

It would implement the Comprehensive Outbound Investment National Security Act by prohibiting certain investments and requiring notification of others involving covered foreign businesses.

Comments are due December 7. The proposal does not itself impose the new requirements; Treasury will establish an effective date in the final rule.

The act emerged from a multiyear, bipartisan effort to prevent American capital and expertise from strengthening China’s military and surveillance capabilities.

Congress combined sector-based investment restrictions with authority to impose sanctions on particular companies in the fiscal year 2026 National Defense Authorization Act, which President Trump signed that in December 2025.

The legislation codified and expanded the framework initiated by President Biden’s August 2023 executive order. Biotechnology was not among the five sectors expressly identified in the statute, but Congress authorized Treasury to add technologies that enable specified capabilities of countries of concern.

The proposal would extend the program beyond China, including Hong Kong and Macau, to Cuba, Iran, North Korea and Russia.

Although the statutory definition also names Venezuela under the Maduro regime, Treasury’s FAQs state that Venezuela’s current government does not meet that definition. Coverage could nevertheless reach businesses in other jurisdictions through ownership, control and other specified relationships with covered foreign persons.

The changes would substantially widen the activities subject to investment prohibitions.

Treasury proposes restricting covered investments in entities developing any system within its defined artificial intelligence category, termed “super intelligence” in the proposal, replacing the existing division between prohibited and notifiable AI transactions.

Semiconductors

Semiconductor restrictions would expand to include radiation-hardened chips, photonic integrated circuits, high-bandwidth memory and additional advanced chips.

Quantum restrictions would extend to algorithms and applications for quantum computing.

New provisions would address hypersonic propulsion, testing facilities and related technologies, while requiring notification for certain supporting equipment and materials.

Those changes would affect more than direct acquisitions. Covered transactions would include:

· equity and contingent equity investments,

· certain loans carrying equity-like financial or governance rights,

· joint ventures, new operations and business expansions and

· specified investments in foreign private funds.

A joint venture could be covered wherever it is located. Obligations would also extend to US persons’ controlled foreign entities and to certain transactions that US individuals direct on behalf of foreign businesses.

Implications

The implications differ by business model.

Venture capital and private equity firms would need to assess portfolio companies’ technologies and ownership structures.

Corporate investors would need to examine strategic minority stakes and joint development arrangements.

Multinationals would need to address relevant decisions made through foreign subsidiaries and by U.S. personnel serving in management or board roles.

These implications follow from the proposal’s transaction definitions and provisions governing controlled foreign entities and directed transactions.

Treasury would retain exceptions for specified transactions, including investments in publicly traded securities and investment company securities, certain limited-partner investments, and qualifying intracompany transfers.

Some exceptions would be unavailable where an investment confers governance rights beyond standard minority shareholder protections. The proposed $50,000 de minimis exception would apply only to notification requirements; it would not authorize an otherwise prohibited investment.

Biotechnology presents a particularly broad set of research and commercial implications. The proposed prohibited-technology definition includes the development, engineering or use of biological systems to produce or modify pharmaceutical compounds, including vaccines, cell and gene therapies, monoclonal antibodies and small molecules. Separate provisions cover specified sequencing technologies, bioinformatics tools, biomanufacturing equipment and laboratory automation.

The scope reaches technologies used in routine drug discovery and development as well as those with more evident defense applications. The distinction between investment and ordinary commercial contracting remains central. A drug licensing agreement or research services contract would not automatically become prohibited because it involves a Chinese biotechnology company.

Treasury states that activities outside the definition of a covered national security transaction would remain outside the program unless undertaken to evade it. An arrangement involving equity, qualifying financing or a joint venture, however, could produce a different result. The proposed exception for certain contractual arrangements also excludes technology transfers and transfers of technical knowledge.

The proposal cites biological weapons proliferation, supply-chain security and military applications as grounds for restrictions, but acknowledges that significant public health risks or harm to American businesses could have countervailing national security effects.

It asks whether pharmaceutical compounds and research equipment should be defined more narrowly to focus on advanced or frontier technologies.

The effect on medical research will depend in part on those final definitions and on whether partnerships require covered investments or can proceed through arrangements outside the program.

Across industries, the proposal would place responsibility for classification on the parties.

Treasury describes a system of prohibitions and notifications, rather than a general transaction approval process.

Companies would be expected to conduct reasonable and diligent inquiries into relevant facts.

Treasury does not plan to publish a comprehensive list of covered foreign persons. Eligible parties could request nonbinding feedback on actual transactions or seek a national interest exemption.

Violations could result in civil penalties and compelled divestment.