On October 7, 2026, the U.S. Department of the Treasury (“Treasury”) announced its first enforcement action under the Outbound Investment Security Program (“OISP”), imposing a $200,000 civil penalty on Amidi, LLC (“Amidi”), a U.S. investor, for failing to submit a required notification for an investment by its controlled Chinese subsidiary in a Chinese artificial intelligence company. The penalty is notable not only because it is the first, but also because it suggests Treasury is prepared to bring enforcement actions that target investments undertaken by U.S. persons’ controlled foreign entities, even where the investments are relatively small and arguably may not implicate the core policy concerns that motivated the OISP. The importance of these early enforcement signals goes beyond compliance with the current OISP: they will carry increased importance in light of Treasury’s forthcoming regulations to strengthen and update the OISP under the Comprehensive Outbound Investment National Security (“COINS”) Act of 2025, especially given the National Security Science and Technology Strategy’s recent indication that the “Trump Administration will expand Outbound to encompass additional restrictions on U.S. investments in other areas implicated by China’s military-civil fusion strategy.”
According to Treasury, on April 19, 2025, a Chinese investment fund controlled by Amidi invested approximately $92,478 in Shanghai Qiongche Intelligent Technology Company Limited (“Noematrix”), a private Chinese company that develops artificial intelligence systems for robotics applications. Treasury concluded that the investment was subject to the OISP’s notification requirements and imposed a $200,000 civil penalty after determining that Amidi did not submit the required post-closing notification.
Treasury’s announcement emphasizes that the violation involved a transaction undertaken by a controlled foreign entity of a U.S. person. As discussed in our prior client alert, the OISP prohibits or requires notification for certain transactions by U.S. persons involving Chinese or Chinese-linked entities engaged in specified activities related to semiconductors, quantum information technologies, and artificial intelligence. The rule applies not only to direct U.S. person investments but also includes certain anti-circumvention provisions that carry extraterritorial effect. One of those provisions relates to controlled foreign entities: The OISP requires a U.S. person to submit a notification of any transaction undertaken by its controlled foreign entity if the transaction would have been notifiable had it been undertaken by the U.S. person directly. Treasury’s press release highlighted the OISP’s requirement that U.S. persons (here, Amidi) take “all reasonable steps to prohibit and prevent” transactions by their controlled foreign entities (Amidi’s Chinese fund subsidiary) that would constitute prohibited transactions if undertaken by the U.S. person itself. The OISP also requires U.S. persons to file notifications with Treasury for any transaction by a controlled foreign entity that would be a notifiable transaction if engaged in by a U.S. person.
Treasury’s press release also notes that Amidi is the parent entity of the organization that does business as Plug and Play Tech Center. Publicly available announcements indicate that Plug and Play China participated in financing rounds involving Noematrix before the OISP took effect, meaning that the transaction underlying Treasury’s enforcement action was a follow-on investment in a company in which Amidi, through Plug and Play China, had previously invested.
- Rather than pursuing a straightforward investment made directly by a U.S. person, Treasury’s first public penalty arises from the OISP’s controlled foreign entity provisions, which extend OISP obligations to the activities of controlled foreign entities. Treasury’s decision to bring its first enforcement action under these provisions underscores its willingness to enforce the OISP’s anti-circumvention framework and its expectation that U.S. parent companies actively monitor and control the investment activities of their foreign subsidiaries.
- U.S. companies, investment advisers, and fund sponsors should ensure that their outbound investment compliance programs extend beyond investments undertaken by U.S. persons to any entities that are controlled by U.S. persons.
- The enforcement action highlights the OISP’s extraterritorial reach, given that the underlying transaction involved a Chinese fund investing in a Chinese company. Investors cannot assume a transaction falls outside the OISP merely because the parties to the transaction are located outside the United States.
- The penalty may also signal Treasury’s willingness to rigorously enforce the OISP’s other extraterritorial aspects, such as the OISP’s prohibition on U.S. persons “knowingly directing” transactions undertaken by foreign persons that would be prohibited if undertaken by a U.S. person.
- The size of the penalty is noteworthy. Treasury imposed a $200,000 penalty, which is more than twice the value of the investment ($92,478).
- The penalty also signals that Treasury is prepared to impose substantial monetary penalties not only for prohibited transactions, but also for failure to satisfy the OISP’s notification requirements.
- The press release states that Treasury “identified this transaction as part of its regular and ongoing compliance and market monitoring efforts.” The statement suggests that Treasury is actively reviewing publicly available information, including investment announcements, press releases, media and industry reporting, portfolio disclosures, and similar materials, to identify potential OISP violations. While Treasury did not explain how it identified the transaction, publicly available information concerning Noematrix and its investors disclosed Plug and Play China’s participation in the company’s April 2025 fundraising round.
- Treasury also reiterated that it accepts tips, referrals, and other relevant information through the Outbound Program tips line, signaling that third-party reporting may support its enforcement efforts.
- Publicly available announcements indicate that Plug and Play China participated in financing rounds involving Noematrix before the OISP took effect, suggesting that the transaction underlying Treasury’s enforcement action was a follow-on investment by a pre-existing investor. Treasury’s decision to bring its first enforcement action in this context suggests that it is prepared to pursue violations of the OISP’s requirements even where the transaction arguably does not directly implicate the core policy concerns underlying the rule.
- The investment amount here was relatively modest, and the investor appears to have had a pre-existing relationship with the company before the OISP became effective, making it less likely that “intangible benefits” would flow to the company through the follow-on investment.
If you have any questions regarding the issues discussed in this alert, please contact any member of our CFIUS practice listed below.
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