Treasury announces first Outbound Investment Security Program penalty for failure to notify

On October 7, 2026, the US Department of the Treasury announced its first civil penalty under the Outbound Investment Security Program (OISP): $200,000 against US investment firm Amidi, LLC for failing to notify Treasury of a covered transaction by its controlled foreign entity. The action highlights the consequences of missed filings for investments undertaken through foreign subsidiaries and funds.

The OISP, which took effect on January 2, 2025, prohibits certain investments by US persons and requires notification of other investments involving entities headquartered or operating in, or with significant connections to, the People’s Republic of China (including the special administrative regions of Hong Kong and Macau) that are engaged in specified semiconductor, quantum information technology, and artificial intelligence (AI) activities. Covered transactions include equity investments, debt financings with equity-like rights, joint ventures, and certain investments in foreign funds.

The Amidi enforcement action

On April 19, 2025, one of Amidi’s subsidiaries, a Chinese investment fund, invested approximately $92,478 in Chinese AI company Shanghai Qiongche Intelligent Technology Company Limited (also known as Noematrix). Treasury describes Noematrix as a private Chinese company developing AI, robotics, and embodied intelligence. Amidi is also the parent of Plug and Play Tech Center, a Silicon Valley-based venture capital firm that invests in early-stage technology startups.

Under Treasury rule 31 C.F.R. § 850.402, Notification of actions of a controlled foreign entity, a US person must notify Treasury of a transaction by its controlled foreign entity when the transaction would require notification if undertaken by a US person. Notifications generally must be filed within 30 calendar days after completion. Under the OISP regulations, a “controlled foreign entity” is any foreign entity of which a US person is a parent. A US person is a “parent” of an entity if it, directly or indirectly, (i) holds or controls more than 50% of the entity’s outstanding voting interest or voting power of its board; (ii) is the general partner, managing member, or equivalent of the entity; or (iii) in the case of a pooled investment fund, is the fund’s investment adviser within the definition of the Investment Advisers Act of 1940. Because control can be indirect, the definition can include lower-tier subsidiaries and foreign funds managed or advised by US sponsors.

Amidi’s violation arose from the company’s failure to submit a required notification on behalf of a controlled foreign entity, not from a finding that the underlying investment was prohibited. Treasury identified the investment through its “regular and ongoing compliance and market monitoring efforts” and imposed the $200,000 penalty in July 2026.

Key takeaways

• OISP obligations extend to controlled foreign entities. Treasury penalized Amidi for failing to report an investment by its subsidiary, underscoring that US persons must monitor for covered transactions undertaken by their controlled foreign entities, take all reasonable steps to prevent their controlled foreign entities from engaging in prohibited transactions, and file notifications for any of their controlled foreign entities’ notifiable transactions.
• Treasury is actively monitoring outbound investments. Treasury identified the Noematrix transaction through its “regular and ongoing compliance and market monitoring efforts,” demonstrating that unreported transactions can be detected. Treasury is also encouraging the public to submit “tips” or other relevant information regarding compliance with the OISP.
• Missed notifications can carry significant penalties. The maximum civil penalty per violation is currently the greater of $377,700 or twice the value of the underlying transaction. Although Amidi’s penalty was below the maximum, it exceeded twice the value of the approximately $92,478 investment. Treasury’s announcement did not explain how Amidi’s penalty was calculated, but its OISP Enforcement Overview and Guidance provides that Treasury may consider certain aggravating and mitigating factors when determining an appropriate penalty for a violation.

Next steps

• Identify controlled foreign entities and strengthen screening. US firms should map their controlled foreign entities, including foreign-domiciled investment funds; screen investments before closing; assign responsibility for OISP notifications and deadlines to the appropriate personnel; and document reasonable steps taken to prevent prohibited transactions.
• Document diligence. The OISP knowledge standard turns on what a US person knew or could have learned through reasonable and diligent inquiry. US firms should train investment teams to flag potential OISP issues and document the diligence they conduct on investment targets and counterparties, including any contractual representations obtained. In assessing whether a US person conducted a reasonable and diligent inquiry, Treasury considers the totality of the circumstances, including the following factors:
  • The inquiry made regarding the investment target and its relevant counterparties
  • Any contractual representations or warranties obtained regarding the target’s covered-foreign-person status and activities
  • Efforts to obtain and consider available nonpublic information
  • The available public information and the efforts undertaken to obtain it
  • Any warning signs known or reasonably available and the steps taken to resolve them
  • The use of public and commercial databases to identify and verify relevant information

• Watch for COINS Act rules. The Comprehensive Outbound Investment National Security Act of 2025 (COINS Act), signed into law on December 18, 2025, will change the OISP’s scope and mandates that Treasury issue new regulations by March 13, 2027. Among other changes, the COINS Act requires adding more countries (such as Russia and Iran) and technologies (such as hypersonic systems and high-performance computing) to the OISP’s scope. Treasury has released proposed implementing regulations in a notice of proposed rulemaking, which we will cover in an upcoming client alert. US firms should review the proposed regulations promptly to assess their impact on existing and planned investments and consider submitting comments to Treasury by December 7, 2026. Existing OISP requirements remain in effect until the new regulations are finalized.

If you have any questions about the OISP and how it might affect your business, please contact the authors or your regular McDermott Will & Schulte lawyer.