Treasury's 22 October 2026 COINS Act Proposal Adds Quantum Algorithms and Applications to the Outbound Investment Prohibition: What Section 851.226(j) Says Before 7 December
In 1994 the State Department told Phil Karn that Bruce Schneier's book Applied Cryptography, with its printed source code, could leave the country freely, while a floppy disk carrying the same code remained a munition under US export rules. A year later MIT Press printed the source code of Phil Zimmermann's encryption program PGP as a hardbound book, and Zimmermann asked the government how it would treat it. The controls of that decade already targeted software. What the episodes showed was how hard it is to hold code once it can be copied in any form.
Thirty-one years later the US Treasury is drawing a quantum line around algorithms through a different instrument. Export controls govern what leaves the country. The outbound investment program governs American money, and the proposal Treasury issued on 22 October 2026 would govern which companies in China and five other countries US persons may fund. Under it, the prohibited list would reach past quantum hardware to quantum software, algorithms and applications.
What Treasury proposed on 22 October 2026 under the COINS Act
Treasury's press release of 22 October announces a notice of proposed rulemaking, docket TREAS-DO-2026-0595, scheduled for Federal Register publication on 26 October 2026, under the Comprehensive Outbound Investment National Security Act, passed as part of the Fiscal Year 2026 National Defense Authorization Act. The accompanying fact sheet and FAQ give the enactment date of the relevant title as 18 December 2025 and explain that the proposal builds on the Outbound Investment Security Program, in force since 2 January 2025 under 31 C.F.R. Part 850. Those regulations keep applying to transactions made before a final rule takes effect. The proposal itself changes no obligation today; Treasury says the final rule will set the effective date. The proposed new rules would sit in a new 31 C.F.R. Part 851.
The statute lists five technology sectors: semiconductors and microelectronics, artificial intelligence, quantum information technologies, high-performance computing and hypersonic systems. It lets the Secretary add others that enable the military, intelligence, surveillance or cyber capabilities of a country of concern, and Treasury has used that power to add biotechnology. The countries of concern are China, including Hong Kong and Macau, plus Cuba, Iran, North Korea, Russia and Venezuela under the Maduro regime. Treasury's own FAQ adds that Venezuela does not currently meet that definition, because the United States recognized Delcy Rodríguez as head of state on 5 March 2026.
One change of vocabulary runs through the whole text. Executive Order 14434 of 29 September 2026, "Inaugurating the Era of Super Intelligence," requires agencies to write "Super Intelligence" in place of "Artificial Intelligence" in certain documents, so the proposal speaks of "super intelligence systems" where Part 850 said "AI systems." The fact sheet states the substantive change plainly: the existing prohibition would cover covered companies that develop any such system, and the notification requirement for AI transactions would end.
Which quantum activities the proposal would prohibit, and what it adds for algorithms and applications
The fact sheet summarizes the quantum change in one line: the proposal "expands the prohibition to cover U.S. person investment into the development of algorithms or applications for quantum computing." The draft rule text is more detailed. Proposed section 851.226 lists four quantum paragraphs. Paragraph (i) covers the development of a quantum computer, the production of its critical components "such as a dilution refrigerator or two-stage pulse tube cryocooler," and software for "designing, simulating, testing, or controlling a quantum computer, or for identifying, implementing, costing, or optimizing algorithms and applications for a quantum computer." Paragraph (j), the new one, covers the "development of any algorithm or application for quantum information science technologies." Paragraph (k) covers quantum sensing platforms designed or intended for military, government intelligence or mass-surveillance end uses. Paragraph (l) covers quantum networks and communication systems for scaling up quantum computers, for secure communications such as quantum key distribution, or for other military, intelligence or mass-surveillance uses. Quantum has no notification tier; a covered quantum transaction would be prohibited or outside the rule.
The preamble explains paragraph (j) in different terms. It says the proposed rule "would include an end-use limitation to appropriately scope this provision to refer to activities that could give rise to an acute national security threat, recognizing that similar technologies could have important civilian purposes." Paragraphs (k) and (l) carry their end-use language in the text. Paragraph (j), as drafted, does not. Read literally, it reaches any algorithm or application for any quantum information science technology, which includes sensing and communication as well as computing.
Practical takeaway. Treasury's explanation of paragraph (j) promises an end-use limit that its draft text does not contain. Whether that is a drafting gap to be closed in the final rule or a deliberate breadth is the most consequential quantum question in the proposal, and the 7 December comment deadline is when Treasury will hear it.
The gap matters because of where quantum companies now sit. Much of the sector's activity is in software: compilers, error-correction decoders, simulation stacks, and application packages for chemistry, logistics or finance that run on hardware the developer does not own. A Chinese startup writing quantum chemistry routines for a cloud processor builds no machine. With an end-use limit, an American fund weighing equity in it would ask what the routines are for. Without one, the fund would ask only whether they are quantum.
The transaction types stay familiar: equity and contingent equity, convertible debt or debt with lender rights, joint ventures, greenfield expansion, a US person directing a foreign person's deal, and limited-partner stakes in non-US funds. Several exceptions carry over or arrive: publicly traded securities, index and mutual funds, limited-partner commitments of $2 million or less, employee equity, and a new de minimis line of $50,000 across twelve months, which the fact sheet says exempts only from notification. Licensing, consulting and procurement contracts are excepted, apart from those that transfer technology or technical knowledge.
How the knowledge standard and the missing list of companies put the diligence on US investors
The proposal would hold a US person to its obligations when that person "had knowledge" of the relevant facts. The fact sheet defines knowledge in three steps: actual knowledge that a fact exists or is substantially certain, awareness of a high probability, or information the person "could have possessed" through a reasonable and diligent inquiry. The third step does the work. It converts the question of what an investor knew into the question of what an investor should have asked.
Treasury also says it "does not intend to establish" a database of covered foreign persons. Instead the proposal creates a confidential channel through which anyone may tell Treasury that a foreign company is engaged in a covered technology, a way to request non-binding feedback on an actual transaction, and a national interest exemption. Under the proposal, a notifiable deal would have to be filed within 30 calendar days of completion, or within 30 days of the investor later acquiring actual knowledge that the deal was covered. Violations would carry civil penalties up to the IEEPA maximum, and the Secretary could compel divestment of a prohibited investment.
Put the software extension next to that knowledge standard and the practical problem appears. A quantum computer is a large object in a known building. A quantum algorithm can be a line of business inside a company whose pitch deck calls itself an optimization or drug-discovery firm. The proposal leaves it to the investor's diligence team, reading a target's code repositories, papers and hiring, to decide whether that line of business amounts to "development of algorithms or applications for quantum computing."
Why the same proposal reaches medicine: brain-computer interfaces, bioinformatics and automated discovery
The new biotechnology sector widens the overlap. The fact sheet lists bio-derived compounds, brain-computer interfaces, biomanufacturing equipment, biological design and sequencing, bioinformatics tools, and "hardware or software for automated scientific discovery or experimentation" as prohibited investment targets. Quantum chemistry for drug design now sits close to two lines at once. Quentir's Medicine Monitor recently read a Chalmers, Lund and Jülich study that designed protein sequences on an IBM quantum processor; work of that kind, done by a company in a country of concern, could be read as a quantum application, as bioinformatics, or as automated discovery. The fact sheet does not say how the categories interact when one product fits all three.
The humane stake runs both ways. The stated purpose of the program is to keep American capital away from military modernization, surveillance and human rights abuses, and brain-computer interfaces and sequencing tools are plausible instruments of all three. The same tools also serve stroke rehabilitation and rare-disease diagnosis, and broad wording can chill cross-border medical research funding that the drafters never meant to reach. The draft text gives those tools no end-use qualifier either. Proposed paragraph (s) covers brain-computer interfaces, "including invasive, partially invasive, non-invasive, and hybrid systems," together with "associated software." Paragraph (u)(4) covers computational or bioinformatics tools for the "research, design, optimization, modeling and simulation, discovery, or assessment of biological systems or processes."
How Quentir Reads It
Commerce's export controls of September 2024 already reached quantum items, software and technology. Treasury's 2025 investment rule then covered quantum computers, components and end-use-limited sensing and networking. The COINS proposal would add a paragraph for algorithms and applications, which puts the quantum investment line where much of the commercial value now sits, and where a company's location and purpose are hardest to establish.
Two consequences follow. The first is about effect. Quentir's Defense Monitor read of how China is willing a quantum industry into existence set out the case that outbound controls wall off a sector that has rarely needed American money, with Chinese quantum financing rounds rising sharply in the first half of 2026. A software prohibition costs a state-funded laboratory little. For an American limited partner in a regional fund it adds a diligence burden for every portfolio company with a quantum module. The second is about drafting. If paragraph (j) is finalized without the end-use limit its preamble describes, compliance teams will apply it as written and treat any quantum algorithm work as prohibited. That would place the practical boundary well past the "acute national security threat" Treasury says it is aiming at.
Reading this proposal well means reading it beside what came before it: the 2025 rule, the June 2026 federal quantum orders, the export-control tables and the allied measures that Treasury may recognize under its third-country exception. Quentir's All-access membership keeps that file in one place, with every Signature Brief and Signature Report as it publishes, including Signature Report No. 3 on quantum-AI convergence, export controls and supply chains after the June 2026 orders. The dates to watch are the close of comments on 7 December 2026 and the statute's deadline for implementing regulations, 450 days after enactment, which by our count falls on 13 March 2027. The final rule will set its own effective date, and the comments filed by 7 December will shape how it defines a quantum application.
Sources: US Department of the Treasury, Office of Investment Security, "Outbound Investment Security Program Regulations," proposed rule, 31 CFR Parts 850 and 851, Docket TREAS-DO-2026-0595, RIN 1505-AC94, public inspection copy, scheduled for Federal Register publication on 26 October 2026 as FR Doc. 2026-21786, read 23 October 2026; US Department of the Treasury, "Treasury Issues Proposed Rule to Implement Comprehensive Outbound Investment National Security Act", press release, 22 October 2026; Treasury Office of Investment Security, "Fact Sheet: Treasury Department Issues Notice of Proposed Rulemaking on Implementation of the Comprehensive Outbound Investment National Security (COINS) Act", with FAQ, 22 October 2026; Treasury, Outbound Investment Security Program page, read 23 October 2026; comments through regulations.gov until 7 December 2026; 31 C.F.R. Part 850, effective 2 January 2025; Executive Order 14434, "Inaugurating the Era of Super Intelligence," 29 September 2026, 91 FR 63129, as cited in the Treasury fact sheet; US Department of Commerce, Bureau of Industry and Security, interim final rule adding quantum computing items to the Commerce Control List, September 2024; Philip R. Zimmermann, PGP Source Code and Internals, MIT Press, 1995.
Published intelligence, built to inform your own decisions. Published: October 23, 2026.