Treasury Department Issues First Civil Penalty under the Outbound Investment Security Program

On October 7, 2026, the U.S. Department of Treasury announced its first civil enforcement penalty imposed under the Outbound Investment Security Program (OISP). For U.S. investment funds, U.S. managers of funds abroad, and U.S. companies with controlled subsidiaries abroad, this enforcement action is a practical reminder that OISP diligence and documentation should extend across controlled foreign entities, including for small and follow-on investments. This is especially relevant to funds investing in Chinese companies in the semiconductor, quantum and artificial intelligence (AI) sectors and U.S. companies with controlled foreign subsidiaries involved with these sectors.

OISP Background
Under the OISP regulations, a covered transaction by a U.S. person involving a person of a country of concern (currently, only China, including Hong Kong and Macau) may be prohibited or notifiable (though certain transactions are excepted). Investments involving AI that are not otherwise prohibited are notifiable if they involve the development of AI systems designed for any military end use, government intelligence, or mass-surveillance end use; intended to be used for cybersecurity applications, digital forensics tools, penetration testing tools, or the control of robotic systems; or trained using certain specified computing thresholds. Investments involving supercomputers, certain quantum computers, quantum computing components and networks, and certain advanced semiconductors are also covered transactions under the current OISP regulations. A summary of investments in the three covered sectors that are prohibited or notifiable is available here.

Critically, the regulations extend to investments made by controlled foreign entities, as was the case in this recent enforcement action. Controlled foreign entities are defined as any foreign entity of which a U.S. person is a parent. Treasury expects U.S. entities to conduct a “reasonable and diligent inquiry” into whether investments may be covered transactions.

Treasury’s First OISP Penalty
Treasury announced its first civil penalty under the OISP regulations against Amidi LLC in the amount of $200,000 for failing to notify Treasury of an investment made on April 19, 2025, by Amidi’s subsidiary, a Chinese fund. The fund, reportedly affiliated with Amidi’s venture capital arm, Plug and Play, invested approximately $92,478 into Shanghai Qiongche Intelligent Technology Company Limited (“Noematrix Ltd.”), a Chinese company developing AI, robotics and embodied intelligence.

Treasury framed the violation as a failure to report a notifiable investment by Amidi’s controlled foreign entity. Notably, the $200,000 penalty is more than twice the reported investment amount. Treasury has not provided its methodology for calculating the penalty, nor has it published a response from Amidi concerning the alleged violation. Under the OISP, Treasury can impose a civil penalty up to $377,700 or an amount that is twice the value of the transaction, whichever is greater.

Treasury stated that it identified the investment through “regular and ongoing compliance and market monitoring efforts,” suggesting it does not rely solely on voluntary self-disclosures or required notifications. It also emphasized that a U.S. person must notify Treasury of transactions by controlled foreign entities when those transactions would be notifiable if undertaken by a U.S. person. A U.S. person must also take all reasonable steps to prevent controlled foreign entities from making prohibited investments.

Looking Ahead
The Amidi penalty shows that even small investments may draw scrutiny when they involve companies, including foreign entities owned or controlled by U.S. persons, engaged in covered activities in China involving AI, semiconductors or quantum. There is no de minimis threshold for the notification requirement, and here, a roughly $92,478 investment by a controlled foreign entity drew a $200,000 penalty.

U.S. funds and investing entities should ensure that diligence and documentation processes are designed to scale as the outbound investment regime expands. As we discussed in a prior alert here, the Comprehensive Outbound Investment National Security Act of 2025 (“COINS Act”) that became law in December 2025 expands the OSIP to include additional countries and technology sectors. The Department of Treasury is expected to issue rules to implement the COINS Act in the near future.