Outbound Investment Security Program Regulations

Issuing agencies

Abstract

This proposed rule sets forth regulations that would implement Subtitle C of the Comprehensive Outbound Investment National Security Act, which is codified at Title VIII of the Defense Production Act. The proposed rule would require United States persons to provide notification to the U.S. Department of the Treasury regarding certain transactions involving foreign persons that are engaged in notifiable technologies; and prohibit United States persons from engaging in certain other transactions involving foreign persons that are engaged in prohibited technologies. Where consistent with Title VIII, the proposed rule incorporates certain definitions and concepts from the current regulations governing the Outbound Investment Security Program. The proposed rule also would add applicability dates to the regulations, such that those regulations would continue to apply to activities that occurred within the relevant timeframe.

Full Text

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<title>Federal Register, Volume 91 Issue 205 (Monday, October 26, 2026)</title>
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[Federal Register Volume 91, Number 205 (Monday, October 26, 2026)]
[Proposed Rules]
[Pages 67396-67433]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-21786]



[[Page 67395]]

Vol. 91

Monday,

No. 205

October 26, 2026

Part II





Department of the Treasury





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Office of Investment Security





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31 CFR Parts 850 and 851





Outbound Investment Security Program Regulations; Proposed Rule

Federal Register / Vol. 91 , No. 205 / Monday, October 26, 2026 / 
Proposed Rules

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DEPARTMENT OF THE TREASURY

Office of Investment Security

31 CFR Parts 850 and 851

[Docket No. TREAS-DO-2026-0595]
RIN 1505-AC94


Outbound Investment Security Program Regulations

AGENCY: Office of Investment Security, Department of the Treasury.

ACTION: Proposed rule.

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SUMMARY: This proposed rule sets forth regulations that would implement 
Subtitle C of the Comprehensive Outbound Investment National Security 
Act, which is codified at Title VIII of the Defense Production Act. The 
proposed rule would require United States persons to provide 
notification to the U.S. Department of the Treasury regarding certain 
transactions involving foreign persons that are engaged in notifiable 
technologies; and prohibit United States persons from engaging in 
certain other transactions involving foreign persons that are engaged 
in prohibited technologies. Where consistent with Title VIII, the 
proposed rule incorporates certain definitions and concepts from the 
current regulations governing the Outbound Investment Security Program. 
The proposed rule also would add applicability dates to the 
regulations, such that those regulations would continue to apply to 
activities that occurred within the relevant timeframe.

DATES: Written comments must be received by December 7, 2026.

ADDRESSES: Written comments on this proposed rule may be submitted 
through one of two methods:
    <bullet> Electronic Submission: Comments may be submitted 
electronically through the Federal Government eRulemaking portal at 
<a href="https://www.regulations.gov">https://www.regulations.gov</a>. Electronic submission of comments allows 
the commenter maximum time to prepare and submit a comment, ensures 
timely receipt, and enables the Department of the Treasury to make the 
comments available to the public.
    <bullet> Mail: Send to U.S. Department of the Treasury, Attention: 
Meena R. Sharma, Director, Office of Investment Security Policy and 
International Relations, 1500 Pennsylvania Avenue NW, Washington, DC 
20220.
    We encourage comments to be submitted via <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Please submit comments only and include your name 
and organization name (if any) and cite ``Outbound Investment Security 
Program Regulations'' in all correspondence. All comments submitted, 
including attachments and other supporting material, in response to 
this Notice of Proposed Rulemaking will be made public, including any 
personally identifiable or confidential business information that is 
included in a comment. Therefore, you should submit only information 
that you wish to make publicly available.
    As required by the Administrative Procedure Act at 5 U.S.C. 
553(b)(4), a plain language summary of the proposed rule is available 
at <a href="https://www.regulations.gov">https://www.regulations.gov</a>.

FOR FURTHER INFORMATION CONTACT: Meena R. Sharma, Director, Office of 
Investment Security for Policy and International Relations, at U.S. 
Department of the Treasury, 1500 Pennsylvania Avenue NW, Washington, DC 
20220; email: <a href="/cdn-cgi/l/email-protection#a2edebf18cedd7d6c0cdd7ccc68cf0c7c5d7cec3d6cbcdccd1e2d6d0c7c3d1d7d0db8cc5cdd4"><span class="__cf_email__" data-cfemail="bdf2f4ee93f2c8c9dfd2c8d3d993efd8dac8d1dcc9d4d2d3cefdc9cfd8dccec8cfc493dad2cb">[email&#160;protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Background

A. Executive Order 14105 and Current Outbound Investment Security 
Program

    On August 9, 2023, Executive Order 14105 (88 FR 54867), 
``Addressing United States Investments in Certain National Security 
Technologies and Products in Countries of Concern'' (the Outbound 
Order), was issued. The Outbound Order described the threat posed to 
the United States by countries of concern that exploit, or have the 
ability to exploit, certain U.S. outbound investments, including 
certain intangible benefits that often accompany U.S. investments and 
that help companies succeed. The Outbound Order identified the People's 
Republic of China (PRC), along with the Special Administrative Regions 
of Hong Kong and Macau, as a country of concern, and identified three 
technology areas for coverage.
    On November 15, 2024, the Department of the Treasury (Treasury 
Department) published regulations to implement the Outbound Order. 
These regulations are found at 31 CFR part 850 (Part 850 Regulations), 
and they established the Outbound Investment Security Program (OISP), 
which went into effect on January 2, 2025. Among other things, the Part 
850 Regulations (1) require U.S. persons to provide notification to the 
Treasury Department regarding certain transactions involving persons of 
a country of concern that are engaged in specified activities in the 
semiconductor and microelectronics and artificial intelligence (AI) 
sectors that may contribute to the threat to the national security of 
the United States; and (2) prohibit U.S. persons from engaging in 
certain other transactions involving persons of a country of concern 
that are engaged in other specified activities in the semiconductor and 
microelectronics, quantum information technologies, and AI systems 
sectors that pose a particularly acute national security threat to the 
United States.
    In the time since the OISP went into effect (approximately 21 
months), the Treasury Department has received approximately 100 
notifications of investments in the semiconductor and AI industries 
from a range of transaction parties, including venture capital firms, 
asset managers, investment banks, and individual investors and 
entrepreneurs. Many other transaction parties and their counsel have 
engaged with the Treasury Department during this time. The Treasury 
Department also has been closely monitoring investment activity that 
may be subject to the OISP, because such investment was either 
potentially prohibited or not notified. Additionally, the Treasury 
Department has engaged with a wide range of stakeholders across 
industries, issued guidance and responses to more than 50 Frequently 
Asked Questions, and launched a website dedicated to the OISP that 
includes an online portal for submission of notifications.

B. Comprehensive Outbound Investment National Security Act of 2025

    On December 18, 2025, Congress enacted the Comprehensive Outbound 
Investment National Security (COINS) Act as part of the National 
Defense Authorization Act for Fiscal Year 2026 (FY26 NDAA). In passing 
the COINS Act, Congress made clear that restricting certain U.S. 
outbound investments into dual-use strategic technologies that benefit 
a foreign adversary's military modernization efforts, surveillance 
states, and human rights abuses is necessary to prevent harm to U.S. 
national security and foreign policy interests. In addition, Congress 
stated that the President should exercise the authorities granted in 
the COINS Act to prevent countries of concern from exploiting U.S. 
capital to undermine U.S. national security and foreign policy 
interests.
    Subtitle C of the COINS Act adds Title VIII to the Defense 
Production Act of 1950, 50 U.S.C. 4581-4589 (Title VIII), and 
establishes a statutory basis for the OISP. In the COINS Act, Congress 
codified the framework for the Secretary of the Treasury (Secretary) to 
(1) require United States persons to provide

[[Page 67397]]

notification to the Treasury Department regarding certain transactions 
involving foreign persons engaged in notifiable technologies, and (2) 
prohibit United States persons from engaging in certain other 
transactions involving foreign persons engaged in prohibited 
technologies. Title VIII maintains various aspects of the current 
OISP--such as its application to certain transactions involving the 
semiconductor and microelectronics, AI systems, and quantum information 
technologies sectors in the PRC including the Hong Kong and Macau 
Special Administrative Regions--while broadening the program to address 
threats to U.S. national security posed by other advanced technologies. 
Specifically, Title VIII expands the OISP's jurisdiction to include two 
new technology sectors (in addition to the three already covered under 
the Part 850 Regulations): (1) high-performance computing and 
supercomputing; and (2) hypersonic systems. Title VIII also authorizes 
the Secretary--in consultation with the appropriate congressional 
committees and subject to notice and comment--to identify additional 
categories of notifiable and prohibited technologies beyond those 
specifically listed in the law that enable the military, intelligence, 
surveillance, or cyber-enabled capabilities of a country of concern, 
and to define the technical parameters of the technologies within those 
categories as reasonably needed for national security purposes.
    Title VIII includes an expanded list of countries of concern. In 
addition to the PRC (including Hong Kong and Macau), Title VIII 
includes as countries of concern the Republic of Cuba, the Islamic 
Republic of Iran, the Democratic People's Republic of Korea, the 
Russian Federation, and the Bolivarian Republic of Venezuela under the 
regime of Nicol[aacute]s Maduro Moros. Title VIII uses the terms 
notifiable technology and prohibited technology to capture the relevant 
technologies for coverage largely in place of the terms ``notifiable 
transaction'' and ``prohibited transaction'' found in the Part 850 
Regulations. Title VIII uses the term covered national security 
transaction (in place of the term ``covered transaction'' found in the 
Part 850 Regulations) and explicitly excepts from its coverage, among 
other things, underwriting services (including where such services 
involve the acquisition of equity), bank lending, processing or 
clearing of payments, prime brokerage, and global custody services. 
Title VIII also includes exceptions for de minimis transactions, 
specifically for (1) any transaction the value of which the Secretary 
determines is de minimis and (2) certain investments made by a limited 
partner or the equivalent where committed capital is not more than a de 
minimis amount, as determined by the Secretary. Title VIII does not set 
such de minimis values and instead grants the Secretary the discretion 
to do so. Title VIII additionally defines a covered foreign person only 
in terms of such person's relationship to a country of concern and not 
in connection with the technology or technologies in which such person 
engages (in contrast to the Part 850 Regulations, where ``covered 
foreign person'' has a different meaning).
    In addition to certain changes that expand the scope of the OISP, 
Title VIII includes certain new processes. In particular, Title VIII 
requires the Treasury Department to implement regulations establishing 
a process under which a person can request confidential non-binding 
feedback or anonymized public guidance for a potentially prohibited 
transaction. Title VIII also requires the Secretary to establish a 
mechanism for the public to submit evidence on a confidential basis 
with respect to whether a foreign person is a covered foreign person 
engaged in a prohibited technology or a notifiable technology. Title 
VIII further provides the Secretary with the discretionary authority to 
establish a publicly accessible, non-exhaustive database that 
identifies covered foreign persons that are engaged in a prohibited 
technology or a notifiable technology.

II. The Proposed Rule

A. Scope and Structure of the Proposed Rule

    The United States remains committed to maintaining a strong, open 
investment environment and supporting cross-border investment where 
consistent with the protection of U.S. national security. Certain U.S. 
investments, however, may be exploited by countries of concern to 
advance the development of sensitive technologies and products that 
contribute to those countries' military, intelligence, surveillance, or 
cyber-enabled capabilities.
    This current rulemaking seeks comment on the draft regulatory 
framework (Proposed Rule) to implement Subtitle C of the COINS Act. 
Consistent with the sense of Congress, in implementing the COINS Act, 
the Treasury Department seeks to (1) restrict certain U.S. outbound 
investments into certain technologies in countries of concern as is 
necessary to prevent harm to United States national security and 
foreign policy interests; and (2) balance the priority of protecting 
the national security interest of the United States while, to the 
extent practicable, minimizing the cost and complexity of compliance, 
adopting the least burdensome alternative that achieves regulatory 
objectives, and prioritizing transparency and stakeholder involvement 
in the process of issuing the rules.
    To implement Title VIII, Congress has directed the Secretary to 
issue or update current regulations that, as necessary, amend, 
terminate, supersede, revoke, or streamline the existing requirements 
in the Part 850 Regulations. Where consistent with Title VIII, the 
Proposed Rule incorporates certain definitions and concepts from the 
Part 850 Regulations. Where Title VIII uses new or different 
terminology, the Treasury Department has made adjustments while 
seeking, to the extent consistent with congressional intent, to 
preserve relevant aspects of the Part 850 Regulations. This approach is 
intended to minimize the cost and complexity of compliance for affected 
parties by maintaining certain definitions and concepts with which the 
regulated community is already familiar.
    The Proposed Rule, therefore, includes detailed definitions and 
descriptions of terms and elements to clearly delineate the scope of 
coverage and facilitate compliance by U.S. persons. At the same time, 
the Proposed Rule seeks to avoid loopholes that could undermine the 
intent of the COINS Act. The Treasury Department seeks input on how the 
Proposed Rule can best meet these objectives.
    Consistent with Title VIII, the Proposed Rule would place certain 
obligations upon any U.S. person in connection with a covered national 
security transaction in a prohibited technology or in a notifiable 
technology. A covered national security transaction would involve a 
U.S. person's investment in, or other specific activities in connection 
with, a covered foreign person that ``engages in'' a prohibited 
technology or notifiable technology. The proposed definition of covered 
foreign person is based on the person's relationship with a country of 
concern. A covered national security transaction relating to a 
prohibited technology--i.e., where the relevant covered foreign person 
``engages in'' a prohibited technology--would be a prohibited 
transaction, meaning it could not legally be undertaken. As set forth 
in the Proposed Rule, a covered foreign person ``engages in'' a 
prohibited technology when it undertakes an activity specified in the 
definition of

[[Page 67398]]

prohibited technology. The Proposed Rule would define prohibited 
technology to include specific activities in the sensitive technology 
sectors identified in Title VIII or by the Secretary pursuant to 
statutory authority. Meanwhile, a covered national security transaction 
in a notifiable technology--i.e., where the relevant covered foreign 
person ``engages in'' a notifiable technology--would be a notifiable 
transaction, meaning that it would be permitted under the Proposed Rule 
where a U.S. person would need to submit specified information about 
the transaction to the Treasury Department. As set forth in the 
Proposed Rule, a covered foreign person ``engages in'' a notifiable 
technology when it undertakes an activity specified in the definition 
of notifiable technology. The Proposed Rule would define notifiable 
technology to include certain other (i.e., non-prohibited) specific 
activities in the sensitive technology sectors identified in Title VIII 
or by the Secretary pursuant to statutory authority. Further, a U.S. 
person would have certain obligations under the Proposed Rule in 
connection with certain transactions undertaken by any non-U.S. person 
entity that it controls, referred to as a controlled foreign entity. 
These and other terms are defined in Subpart B of the Proposed Rule.
    Under the Proposed Rule, a U.S. person undertaking a transaction 
would have the obligation to determine whether the given transaction is 
prohibited, permissible but subject to notification requirements, or 
not covered by the Proposed Rule because it is an excepted transaction, 
it is exempt, or it is not within the jurisdiction set forth under the 
Proposed Rule. A U.S. person could seek a national interest exemption 
from the prohibition set out in the Proposed Rule by following the 
process described in Sec.  851.502 and further discussed below.
    As directed by Title VIII, the provisions contained in the Proposed 
Rule will not have retroactive effect. The Part 850 Regulations, 
however, will continue to apply to activities occurring between January 
2, 2025, and the effective date of the final regulations implementing 
Title VIII. Nothing in this Proposed Rule limits the authority of the 
Treasury Department or any other department or agency of the U.S. 
Government to take action, including enforcement action, in connection 
with conduct that would be a violation of the Part 850 Regulations, as 
applicable.
    In Section III, the Treasury Department seeks comment from 
stakeholders regarding the provisions of the Proposed Rule. The 
Treasury Department asks commentors to provide, where possible, 
empirical data or other specific information in support of their 
comments.

B. Discussion of the Proposed Rule

    The following discussion provides an overview and narrative 
description of the key substantive provisions of the Proposed Rule to 
implement Title VIII. Because the Part 850 Regulations will remain in 
effect for transactions occurring during the relevant period, the 
Treasury Department views establishing a new Part 851 within Title 31 
of the Code of Federal Regulations with the full process, procedures, 
and requirements under Title VIII as the most administrable approach. 
To make clear the applicability of the Part 850 Regulations, the 
Proposed Rule also would add a new Sec.  850.105 to the Part 850 
Regulations that sets the specific dates for the applicability of those 
regulations.
    Many provisions of the Proposed Rule are substantively identical to 
the corresponding provisions in the Part 850 Regulations. The Proposed 
Rule should be read in its entirety as many terms are related and 
various features are discussed in different parts. The Treasury 
Department will carefully consider all comments provided to the 
Proposed Rule and is particularly interested in receiving comments 
relating to the new provisions and revisions described below.
Subpart A--General
    This subpart includes a general discussion of the Proposed Rule's 
scope, how the Proposed Rule relates to other laws and regulations, the 
similarities and differences between the Proposed Rule and the Part 850 
Regulations, proposed guidance on how to interpret and apply certain 
terms and provisions, the application of the knowledge standard in 
certain circumstances, and, consistent with Title VIII, the role of the 
heads of other relevant Federal departments and agencies in the 
implementation and administration of Title VIII and the Proposed Rule. 
Subpart A of the Proposed Rule would generally be identical in 
substance to Sec. Sec.  850.101 through 850.104 in Subpart A of the 
Part 850 Regulations, with most differences focused on conforming the 
language of the regulatory text to terms used in Title VIII. Proposed 
Sec.  851.101(e) would also revise the Secretary's responsibilities to 
conform to Title VIII's requirements.
    The most significant change in Subpart A compared to the Part 850 
Regulations is an additional element explicitly added to the knowledge 
standard. The Treasury Department proposes to clarify in Sec.  851.104 
that it will take into consideration whether a U.S. person 
appropriately considered any information that the Treasury Department 
has provided to such U.S. person when assessing whether the U.S. person 
conducted a reasonable and diligent inquiry.
Sec.  851.104--Knowledge Standard
    Under the Proposed Rule, certain provisions, including the 
definition of covered national security transaction, would apply only 
if a U.S. person knows of a relevant fact or circumstance. As with the 
Part 850 Regulations, Sec.  851.104 of the Proposed Rule would provide 
explanation and guidance regarding the application of the knowledge 
standard. It would state that if a U.S. person fails to conduct a 
``reasonable and diligent inquiry'' at the time of a transaction and 
undertakes the transaction where a particular fact or circumstance 
indicative of a covered national security transaction is present, the 
Treasury Department may find in the course of determining compliance 
with the Proposed Rule that the U.S. person had reason to know of such 
fact or circumstance (and therefore, for purposes of the Proposed Rule, 
knew). The articulation of the application of the knowledge standard in 
Sec.  851.104 would be similar to that in the Part 850 Regulations. 
This is because Title VIII's definition of knowledge is substantially 
identical to that in the Part 850 Regulations, which indicates 
congressional intent to maintain the Part 850 Regulations' general 
approach to the knowledge standard. Further, consistency in this 
provision minimizes the cost and complexity of compliance for affected 
parties because the regulated community is already familiar with it. As 
such, the Proposed Rule would maintain both the definition of knowledge 
from the Part 850 Regulations (see the discussion of Sec.  851.217 
below), as well as the important explanatory language in Sec.  851.104, 
with certain modifications discussed below.
    The Treasury Department recognizes that for some potential covered 
national security transactions, a U.S. person's ability to conduct 
diligence may be somewhat limited in certain situations, including in 
the context of certain secondary market transactions. The Treasury 
Department reiterates that its assessment of whether a U.S. person has 
undertaken a reasonable and diligent inquiry would under the Proposed 
Rule be based on a consideration of the totality of the relevant facts 
and

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circumstances surrounding the transaction.
    Based on experience operating the OISP, the Treasury Department 
proposes adding at Sec.  851.104(c) of the Proposed Rule an additional 
factor it will consider when assessing whether a U.S. person has 
undertaken a reasonable and diligent inquiry: whether the U.S. person 
appropriately considered information provided by the Treasury 
Department prior to undertaking the transaction, including any 
assessments by the Treasury Department that the relevant covered 
foreign person may be engaged in a notifiable technology or a 
prohibited technology. The Treasury Department would consider the 
provision of such information when determining whether the U.S. person 
had knowledge of certain facts or circumstances. As discussed further 
below, the Treasury Department also proposes adding at Sec.  851.104(e) 
of the Proposed Rule a clarification that the knowledge standard shall 
also apply to the knowledge of a controlled foreign entity for the 
purposes of applying Sec. Sec.  851.402 and 851.403.
Subpart B--Definitions
    The Proposed Rule would preserve several definitions from the Part 
850 Regulations in their entirety; amend certain definitions from the 
Part 850 Regulations; and add several new defined terms both to 
implement the requirements in Title VIII and to make adjustments based 
on feedback received during implementation of the Part 850 Regulations. 
To assist in understanding this Proposed Rule, the discussion below 
notes proposed changes from the Part 850 Regulations and, in certain 
cases, highlights that the Proposed Rule would make no such substantive 
changes.
Sec.  851.202--Affiliate
    The Treasury Department proposes defining the term affiliate to 
mean, in the context of a transaction or activity covered under the 
Proposed Rule, a person that directly, or indirectly through one or 
more intermediaries, controls or is controlled by, or is under common 
control with, a person subject to this part. Under the Proposed Rule, 
if an affiliate of a covered foreign person is included on a list 
enumerated in Sec.  851.226(v), then a covered national security 
transaction involving a covered foreign person engaged in a notifiable 
technology would be a prohibited transaction.
Sec.  851.206--Controlled Foreign Entity
    Title VIII refers to the actions of a controlled foreign entity of 
a U.S. person when explaining the application of the prohibition and 
notification requirement but does not define the term. The Treasury 
Department proposes using the definition of controlled foreign entity 
from the Part 850 Regulations. As noted in the preamble to the Part 850 
Regulations, a controlled foreign entity is an entity incorporated in, 
or otherwise organized under the laws of, a country other than the 
United States of which a U.S. person is a parent. The definition is 
intended to draw a clear line so that it is straightforward for a U.S. 
person to ascertain whether an entity is a controlled foreign entity. 
Of note, Title VIII also uses the term ``controlled foreign person'' in 
reference to the exception for certain intracompany transfers of funds. 
The term ``controlled foreign person'' is not used in the Part 850 
Regulations, and the context for its use in Title VIII is substantially 
similar to that of a controlled foreign entity in the Part 850 
Regulations. Therefore, the Proposed Rule would continue only to refer 
to a controlled foreign entity.
Sec.  851.207--Country of Concern
    Title VIII defines country of concern as the PRC (including the 
Hong Kong and Macau Special Administrative Regions), which is 
consistent with the Part 850 Regulations, and adds Cuba, Iran, North 
Korea, Russia, and the Bolivarian Republic of Venezuela under the 
regime of Nicol[aacute]s Maduro Moros. The Proposed Rule would define 
country of concern consistent with the definition in Title VIII.
    With respect to inclusion of the Bolivarian Republic of Venezuela 
under the regime of Nicol[aacute]s Maduro Moros in Title VIII, that 
regime no longer exists. On March 5, 2026, the United States recognized 
Delcy Rodr[iacute]guez as the head of state of Venezuela and her 
government is not the regime of Nicol[aacute]s Maduro Moros.
Sec.  851.208--Covered Foreign Person
    Title VIII defines a covered foreign person as, subject to 
regulations, a foreign person that (i) is incorporated in, has a 
principal place of business in, or is organized under the laws of a 
country of concern; (ii) is a member of the Central Committee of the 
Chinese Communist Party (CCP) or is a member of the political 
leadership of a country of concern; (iii) is directly or indirectly 
subject to the direction or control of a country of concern, as defined 
by regulation, an entity described in (i) or (ii), or the state or the 
government of a country of concern (including any political 
subdivision, agency, or instrumentality thereof); or (iv) is owned in 
the aggregate, directly or indirectly, 50 percent or more by a country 
of concern, an entity described in (i) or (ii), or the state or the 
government of a country of concern (including any political 
subdivision, agency, or instrumentality thereof).
    Many aspects of the definition of covered foreign person in Title 
VIII generally align with the definition of ``person of a country of 
concern'' in the Part 850 Regulations, and Title VIII provides no 
indication that it was intended to limit the application of the program 
in ways that would permit easy circumvention of its restrictions. The 
Treasury Department therefore proposes defining covered foreign person 
in the Proposed Rule in a manner consistent with the definition of 
``person of a country of concern'' from the Part 850 Regulations. The 
Proposed Rule would maintain the Part 850 Regulations' coverage of 
certain individual foreign persons who are citizens or permanent 
residents of a country of concern. This inclusion is necessary to 
prevent circumvention that would undermine the effectiveness of the 
Proposed Rule. For example, if an individual national of a country of 
concern (who is not a member of the CCP Central Committee or the 
political leadership of a country of concern) chose to redomicile an 
entity that such individual wholly owned to engage in a prohibited 
technology or notifiable technology outside of a country of concern, 
the proposed definition would treat such entity as a covered foreign 
person. Including such individuals also minimizes the cost and 
complexity of compliance for affected parties, in this case by 
maintaining a definition with which the regulated community is already 
familiar.
    Title VIII includes as a category of covered foreign person certain 
foreign persons who are, directly or indirectly, subject to the 
direction or control of a country of concern or certain entities 
associated with a country of concern. For the purpose of the proposed 
definition of a covered foreign person, the Proposed Rule would define 
``subject to the direction or control'' to mean that the government of 
a country of concern (including any political subdivision, political 
party, agency, or instrumentality thereof, or any person acting for or 
on behalf of the government of a country of concern), relevant 
individual, or relevant entity has the power, directly or indirectly, 
to direct or cause the direction of the management or policies of the 
subject entity (whether through the ownership of voting securities, by 
contract, or otherwise).

[[Page 67400]]

    The Proposed Rule would also clarify that the 50 percent aggregate 
ownership requirement in Title VIII can be met through holdings of 
outstanding voting interest, voting power of the board, or equity 
interest. In addition, consistent with the need to prevent 
circumvention and retain features of the Proposed Rule that strengthen 
its effectiveness and are familiar to the regulated community, the 
Proposed Rule would state that this ownership interest also can be held 
by any individual that meets the definition of covered foreign person.
    Additionally, the Treasury Department proposes that where a person 
holds a voting interest, board seat, equity interest, or the 
contractual power to direct or cause the direction of management or 
policies of a covered foreign person, and more than 50 percent of the 
revenue, net income, capital expenditure, or operating expenses of the 
covered foreign person are attributable to that person, then that 
person be considered a covered foreign person. A person would also meet 
this condition if that person holds an interest in more than one 
covered foreign person, and more than 50 percent of the person's 
revenue, net income, capital expenditure, or operating expenses is 
attributable to such covered foreign persons, in aggregate. When 
calculating whether more than 50 percent of the person's revenue, net 
income, capital expenditure, or operating expenses are attributable to 
a given covered foreign person, amounts below $50,000 should not be 
included for purposes of calculating revenue attributable to a covered 
foreign person.
    This provision is intended to align the Proposed Rule's definition 
of covered foreign person with the definition of covered foreign person 
at Sec.  850.209(a)(2) of the Part 850 Regulations. This approach is 
consistent with Title VIII given its coverage of indirect covered 
national security transactions. This approach also addresses potential 
evasion or avoidance pursuant to the Secretary's authority in Title 
VIII, and it furthers the goal of providing clear guidance about 
coverage, while reducing confusion that might be caused by changes from 
the Part 850 Regulations.
Sec.  851.209--Covered National Security Transaction
    Title VIII defines the term covered national security transaction 
as, subject to regulations, a U.S. person's direct or indirect:
    <bullet> Acquisition of an equity interest or contingent equity 
interest in a covered foreign person that the U.S. person knows at the 
time of the acquisition is a covered foreign person;
    <bullet> Provision of a loan or similar debt financing agreement to 
a covered foreign person that the U.S. person knows at the time of the 
provision is a covered foreign person and where the provision affords 
or will afford the U.S. person lender certain financial or governance 
rights characteristic of an equity investment in the covered foreign 
person but not typical of a loan;
    <bullet> Entrance into a joint venture, wherever located, that is 
formed with a person of a country of concern where the U.S. person 
knows at the time of entrance into the joint venture, that the joint 
venture will engage, or plans to engage, in a prohibited technology or 
notifiable technology;
    <bullet> Conversion of contingent equity interest (or equivalent) 
or debt into an equity interest in a covered foreign person;
    <bullet> Acquisition, leasing, or other development of operations, 
land, property, or other assets in a country of concern that will 
result in, or the U.S. person plans to result in, the establishment of 
a covered foreign person or the engagement of a person of a country of 
concern in a prohibited technology or notifiable technology;
    <bullet> Direction of a transaction by a foreign person that the 
U.S. person knows at the time of the transaction would be a covered 
national security transaction if engaged in by a U.S. person, other 
than an acquisition of a limited partner interest or equivalent in a 
non-U.S. person pooled investment fund;
    <bullet> Acquisition of a limited partner or equivalent interest in 
a pooled investment fund where the fund is not a U.S. person and the 
U.S. person knows at the time of the acquisition that such fund likely 
will invest in a person of a country of concern that is in an 
enumerated prohibited technology or a notifiable technology sector, and 
where such fund undertakes a transaction that would be a covered 
national security transaction if engaged in by a U.S. person; and
    <bullet> Any other transaction identified by the Secretary, in 
consultation with the appropriate congressional committees and subject 
to public notice and comment, that is contributing to the military, 
intelligence, surveillance, or cyber-enabled capabilities of a country 
of concern.
    The Treasury Department proposes to implement Title VIII's 
definition of covered national security transaction in a way 
substantively consistent with the statutory text, but with a number of 
important modifications to ensure clarity and consistency with other 
provisions of Title VIII. Specifically, the Title VIII definition of 
covered national security transaction refers in multiple places to a 
``person of a country of concern.'' The term ``person of a country of 
concern'' is not defined in Title VIII but is used in the Part 850 
Regulations. Title VIII also uses the term covered foreign person, 
which appears to be the equivalent of ``person of a country of 
concern.'' As previously discussed, the Proposed Rule would include 
within the definition of covered foreign person some provisions 
currently included in the definition of a person of a country of 
concern in the Part 850 Regulations. Accordingly, the Proposed Rule 
would replace all references to a ``person of a country of concern'' in 
the definition of covered national security transaction with the term 
covered foreign person. Additionally, in each of the relevant 
provisions of the definition of covered national security transaction, 
the Treasury Department proposes to clarify that the relevant knowledge 
that the U.S. person must possess is not merely that the transaction 
involves a covered foreign person, but rather that it involves a 
covered foreign person that engages in a notifiable technology or 
prohibited technology. As reflected in the Proposed Rule, this would 
include specified circumstances in which that engagement is indirect 
because the covered foreign person has one of certain specified 
relationships with a covered foreign person engaged in a notifiable 
technology or prohibited technology. Without this clarification, the 
definition of covered national security transaction would extend to 
transactions without any nexus to relevant technologies.
    In addition, as noted in the discussion regarding the definition of 
covered foreign person, Title VIII and the Proposed Rule do not define 
that term in connection with activity that meets the definition of 
notifiable technology or prohibited technology. A covered national 
security transaction, however, involves a covered foreign person 
engaged in a notifiable technology or prohibited technology. For the 
Proposed Rule to reach a U.S. person investment in a covered foreign 
person or relevant joint venture that meet the conditions set forth in 
Sec.  851.208(a)(8) because of its relationship to one or more covered 
foreign persons that engage in a notifiable technology under Sec.  
851.218(a) through (g) or a prohibited technology under Sec.  
851.226(a) through (u), the Treasury Department would propose to define 
covered national security

[[Page 67401]]

transaction to include where such conditions are met.
    With respect to the provision of a loan or similar debt financing, 
the Treasury Department proposes to incorporate into the definition of 
covered national security transaction clarifications that were included 
in Note 2 to Sec.  850.210 of the Part 850 Regulations.
    The Proposed Rule would make one substantive clarification to the 
definition of covered national security transaction in Title VIII by 
adding a knowledge element to the conversion of a contingent equity 
interest (or equivalent) or debt in a covered foreign person that 
engages in a notifiable technology or prohibited technology or meets 
the conditions of Sec.  851.208(a)(8). This clarification would 
harmonize the conversion prong of the definition of a covered national 
security transaction with the other prongs of the definition and would 
avoid penalizing unwitting activity by a U.S. person that conducted a 
reasonable and diligent inquiry prior to the conversion of such 
interest and lacked reason to know that the contingent equity interest 
was subject to the Proposed Rule. The Proposed Rule would also clarify 
that the conversion prong applies only to a contingent equity interest 
(or equivalent) or debt acquired on or after the effective date that is 
set when the Proposed Rule is finalized.
    The Treasury Department notes that Title VIII incorporates directly 
into the definition of covered national security transaction the 
concept of ``knowingly directing'' present in the Part 850 Regulations 
and, accordingly, extends the scope of ``knowingly directing'' to 
include notifiable transactions. By contrast, the Part 850 Regulations 
limit the application of ``knowingly directing'' to prohibited 
transactions as that term is defined in that part (see 31 CFR 850.303). 
Consistent with Title VIII, proposed Sec.  851.209 incorporates the 
concept of ``knowingly directing'' into the definition of a covered 
national security transaction. Proposed Sec.  851.209(a)(6) also states 
when the Treasury Department considers the criteria in this prong to 
have been met and describes the conditions under which a U.S. person 
may recuse themself from decision-making so as not to be considered 
engaging in such a covered national security transaction. The proposed 
Sec.  851.209(a)(6) closely corresponds to Sec.  850.303 of the Part 
850 Regulations.
    The Treasury Department clarifies that a covered national security 
transaction involving the entrance into a joint venture under Sec.  
851.209(a)(3) would not require the establishment or formation of a new 
entity. The Proposed Rule would not define the term ``joint venture'' 
and instead, the Treasury Department refers to the plain English 
meaning of the term, i.e., as involving the contribution of capital 
and/or assets by two parties and the sharing of profits and losses.
    The Treasury Department also clarifies that U.S. person investments 
in venture capital funds, private equity funds, ``funds of funds,'' or 
other pooled investment funds with pre-existing investments in a 
covered foreign person may constitute an indirect covered national 
security transaction as proposed to be defined in Sec.  851.209(a)(1) 
through (a)(6), separate and apart from whether the acquisition may be 
a covered national security transaction under Sec.  851.209(a)(7).
    The Treasury Department also clarifies that an indirect covered 
national security transaction as proposed could include not only a U.S. 
person's use of an intermediary entity or natural person to engage in a 
transaction that would be a covered national security transaction if 
engaged in directly by a U.S. person, but also a U.S. person's use of a 
transaction structure that obfuscates or conceals the U.S. person's 
role in a transaction that would be a covered national security 
transaction if engaged in directly by a U.S. person.
Sec.  851.210--Develop
    Title VIII does not define develop and the Treasury Department 
proposes to maintain the definition of develop as it exists in the Part 
850 Regulations with three substantive clarifications. First, the 
Proposed Rule would make explicit that the term extends to activities 
engaged in through or in collaboration with affiliates, consistent with 
Title VIII's coverage of indirect covered national security 
transactions. Second, the Proposed Rule would also supplement the list 
of example stages prior to serial production provided in the Part 850 
Regulations by adding the act of transforming blueprints, schema, or 
other plans into a product. Finally, the Proposed Rule would clarify in 
Sec.  851.210(b) that the term develop includes the provision of high-
level oversight, direction, approval, conceptual input, or strategic 
planning in connection with any stage prior to serial production.
Sec.  851.212--Excepted Transaction
    Title VIII identifies certain ``exceptions and clarifications'' to 
the term covered national security transaction but does not use the 
term excepted transaction as that term is used in the Part 850 
Regulations. The Treasury Department proposes to retain the term 
excepted transaction in the Proposed Rule to refer to a transaction 
that is not a covered national security transaction because it meets 
specified conditions. See the discussion in Subpart E below for more 
information.
Sec.  851.214--Foreign Person
    Title VIII introduces the term foreign person but leaves the 
definition to regulations. Accordingly, the Treasury Department 
proposes to define foreign person as any person that is not a U.S. 
citizen or alien lawfully admitted for permanent residence in the 
United States or an entity organized under U.S. law, including any 
foreign branch of such entity, except that for the purposes of Sec.  
851.208(a)(5) through (a)(8), the term foreign person means any person. 
The carveout related to Sec.  851.208(a)(5) through (a)(8) is intended 
to preserve Title VIII's introduction of the term foreign person while 
continuing to capture in the proposed definition of covered foreign 
person those persons that have significant financial or other material 
relationships with covered foreign persons. This approach is consistent 
with the Part 850 Regulations and is intended to prevent circumvention 
of the Proposed Rule and strengthen its effectiveness.
Sec.  851.215--Hypersonic System
    Title VIII adds hypersonic systems as a technology sector in which 
the Secretary may identify prohibited technology or notifiable 
technology. The Treasury Department proposes adding the term hypersonic 
system as a defined term in the Proposed Rule. The term would mean a 
vehicle or weapon delivery system capable of sustained atmospheric 
flight or very low Earth orbit flight at speeds of Mach 5 or greater. 
The Proposed Rule would identify hypersonic glide vehicles, hypersonic 
cruise missiles, hypersonic air-launched or aero-ballistic missiles, 
maneuvering reentry vehicles, and reusable hypersonic vehicles as 
examples of a hypersonic system. Notably, the examples include both 
military and civilian hypersonic systems, which may include systems 
intended for spaceflight. The Treasury Department believes that this 
definition is consistent with industry usage and with other regulatory 
regimes, including export controls, specifically items with Export 
Control Classification Number (ECCN) 9A011 on the Commerce Control List 
and defense articles within Category IV of the United States Munitions 
List.

[[Page 67402]]

Sec.  851.216--Intracompany Transfer of Funds
    Title VIII provides an exception to the definition of covered 
national security transaction for an intracompany transfer of funds 
from a U.S. person ``parent company'' to a ``subsidiary'' located in a 
country of concern, where each of ``parent,'' ``subsidiary,'' and 
``intracompany transfer of funds'' is left undefined. As explained 
above, the Proposed Rule would define a controlled foreign entity to be 
the non-U.S. subsidiary of a U.S. person parent. The Treasury 
Department proposes to define the term intracompany transfer of funds 
to mean the provision of cash or credit by a U.S. person parent to (1) 
support operations of a controlled foreign entity, which operations are 
not in a notifiable technology or a prohibited technology; or (2) 
maintain operations of a controlled foreign entity, which operations 
are in a notifiable technology or prohibited technology that the 
controlled foreign entity was engaged in prior to the effective date 
that is set when the Proposed Rule is finalized at a later time. This 
definition is further discussed below in Subpart E.
Sec.  851.217--Knowledge
    Title VIII defines the terms knowledge and variants such as know as 
they are currently defined in the Part 850 Regulations. The Treasury 
Department proposes to maintain such definition in the Proposed Rule.
Sec.  851.218--Notifiable Technology
    Title VIII introduces the term notifiable technology and, subject 
to regulations, defines it as a technology within the areas of (1) 
semiconductor technology and microelectronics; (2) artificial 
intelligence systems; (3) quantum information technologies; (4) high-
performance computing and supercomputing; or (5) hypersonic systems, in 
each case where not already specified in regulations for prohibited 
technology. This statutory definition makes clear that the Secretary, 
in consultation with appropriate congressional committees and subject 
to notice and comment, may prescribe regulations defining the technical 
parameters of notifiable technologies as reasonably needed for national 
security purposes and may add and define categories to the list of 
technology sectors that enable the military, intelligence, 
surveillance, or cyber-enabled capabilities of a country of concern.
    The Proposed Rule would define certain notifiable technology 
sectors with reference to specific activities and technical parameters 
consistent with the activities and technical parameters in the Part 850 
Regulations, with specific changes and additions that reflect both 
Title VIII's requirement to consider notifiable technology in the areas 
of high-performance computing and supercomputing and hypersonic 
systems, as well as recent advances and developments in the 
semiconductor technology and microelectronics sector, which is 
currently covered by the Part 850 Regulations.
    With respect to changes to the three technology sectors covered by 
the Part 850 Regulations, the most notable involves what was defined as 
AI systems in the Part 850 Regulations and is referred to as ``super 
intelligence systems'' (SI systems) in the Proposed Rule. As discussed 
in more detail below, the Treasury Department, in consultation with 
interagency partners and the Executive Office of the President, has 
determined that the rapid advances in super intelligence capabilities 
of countries of concern warrant a broad prohibition on U.S. person 
investment in that sector. Accordingly, the Proposed Rule lists the 
development of SI systems within the definition of prohibited 
technology, and not within notifiable technology. The Treasury 
Department particularly welcomes comment on this approach, as discussed 
in further detail below.
Semiconductor Technology and Microelectronics
    As with the Part 850 Regulations, the Treasury Department proposes 
including within the definition of notifiable technology the design, 
fabrication, or packaging of any integrated circuit that is not 
included within the definition of prohibited technology (i.e., that 
does not meet the performance parameters and criteria identified in 
Sec.  851.226(c), (d), (e), and (f), as applicable, although these 
criteria differ in certain respects from those in the Part 850 
Regulations). Additionally, the Treasury Department proposes to include 
as notifiable technology the development or production of certain 
equipment not described in Sec.  851.226(b) that is designed or 
intended for use in the design, fabrication, or packaging of any 
integrated circuit. The Proposed Rule would separately define the terms 
fabricate and package, adding further technical detail as to both 
notifiable technology and prohibited technology. The Treasury 
Department assesses that the scope of this notification requirement 
would aid the U.S. Government's visibility into the volume and nature 
of investments of U.S. person transactions involving these technologies 
and products.
SI Systems
    In contrast to the Part 850 Regulations, the Proposed Rule would 
not include development of any SI system within the definition of 
notifiable technology. Instead, the Treasury Department would include 
development of any SI system within the definition of prohibited 
technology, as discussed below.
Quantum Information Technologies
    Similar to the Part 850 Regulations, the Proposed Rule would not 
include any quantum information technologies within the definition of a 
notifiable technology. The Treasury Department would include quantum 
information technologies within the definition of prohibited technology 
as set forth below.
    While Title VIII includes both artificial intelligence systems and 
quantum information technologies in the definition of a notifiable 
technology, Title VIII explicitly states that such technologies are to 
be included in the regulatory definition of a notifiable technology to 
the extent ``not already captured by the technical thresholds 
specified'' in the regulatory definition of a prohibited technology. 
Title VIII also explicitly directs the Secretary, in consultation with 
the appropriate congressional committees and subject to notice and 
comment, to define the parameters of those technologies as reasonably 
needed for national security purposes. For the reasons discussed below, 
the Treasury Department has not proposed any technical parameters 
within which the U.S. Government can permit a covered national security 
transaction into the SI systems or quantum information technologies 
sectors consistent with U.S. national security.
High-Performance Computing and Supercomputing
    The Proposed Rule would include as a notifiable technology the 
development or production of high-bandwidth, low-latency interconnects 
for high-performance computing, including interconnects for system-on-
chip, system-in-package, scale-up networks, and scale-out networks that 
are not otherwise proposed to be prohibited under the Proposed Rule. 
These interconnect technologies and approaches to integration 
contribute to the capability of super intelligence clusters, high-
performance computing environments, and modern data centers through 
high-speed data transfer

[[Page 67403]]

between and effective scaling of compute components.
Hypersonic Systems
    As noted above, the Treasury Department proposes to define 
hypersonic system at Sec.  851.215 as a vehicle or weapon delivery 
system capable of sustained atmospheric or very low Earth orbit flight 
at speeds of Mach 5 or greater, including hypersonic glide vehicles, 
hypersonic cruise missiles, hypersonic air-launched or aero-ballistic 
missiles, maneuvering reentry vehicles, and reusable hypersonic 
vehicles. The Treasury Department would include in the definition of 
notifiable technology the development or production of certain 
technologies capable of use in or for a hypersonic system or its 
components, including sensor, guidance, navigation, or control 
equipment or systems; software for research, modeling and simulation, 
analysis, or testing not included in the definition of prohibited 
technology; and metals, alloys, composites, ceramics, coatings, or 
other materials not included in the definition of prohibited 
technology.
Sec.  851.219--Notifiable Transaction
    Title VIII does not define the term notifiable transaction. The 
Treasury Department proposes using this term to describe the relevant 
language of Title VIII and to promote consistency with the Part 850 
Regulations, in which this term is used, to minimize the cost and 
complexity of compliance for affected parties. Accordingly, the 
Treasury Department proposes to define notifiable transaction as a 
covered national security transaction (that is not a prohibited 
transaction) in which the relevant covered foreign person or relevant 
joint venture (1) engages in a notifiable technology or (2) meets the 
conditions set forth in Sec.  851.208(a)(8) because of its relationship 
to one or more covered foreign persons that engage in a notifiable 
technology.
Sec.  851.221--Parent
    The Proposed Rule would define parent, with respect to an entity, 
as (1) a person that directly or indirectly holds more than 50 percent 
of the outstanding voting interest in an entity or the voting power of 
the board of the entity; (2) the general partner, managing member, or 
equivalent of the entity; or (3) the investment adviser to any entity 
that is a pooled investment fund, with ``investment adviser'' as 
defined in the Investment Advisers Act of 1940 (15 U.S.C. 80b-
2(a)(11)).
    The Treasury Department is considering whether to expand the 
definition of parent to incorporate certain sub-advisers to a non-U.S. 
person fund as well as the general manager (or equivalent) to a non-
U.S. person entity. The Treasury Department welcomes comments on this 
definition.
Sec.  851.222--Party
    Title VIII introduces the term party with respect to a covered 
national security transaction and states that it should have the 
meaning provided in regulations. The Treasury Department proposes 
defining party to mean any U.S. person, any covered foreign person, and 
any foreign person relevant to the covered national security 
transaction, including in the context of joint ventures or controlled 
foreign entities. The term would be used in proposed Sec.  851.902 
concerning submission of information in connection with a request for 
non-binding feedback. The Proposed Rule would require identification of 
``each party to the transaction,'' to include relevant intermediaries, 
financing sources, and controlled foreign entities. Party would also be 
used in Sec.  851.104(c) concerning a U.S. person's reasonable and 
diligent inquiry.
Sec.  851.223--Person
    Title VIII defines person as ``an individual, corporation, 
partnership, association, or any other organized group of persons, or 
legal successor or representative thereof, or any State or local 
government or agency thereof.'' The Treasury Department proposes 
modifying the definition to include any entity--where entity is 
separately defined in the Proposed Rule--rather than listing specific 
types or organizations. The Proposed Rule otherwise would implement 
Title VIII's definition without substantive changes.
Sec.  851.224--Principal Place of Business
    The term principal place of business is used in Title VIII's 
definition of covered foreign person but is not defined, leaving it to 
the Treasury Department to do so in regulations. The Treasury 
Department proposes defining principal place of business in a way that 
is similar to the corresponding definition in the Part 850 Regulations, 
but also specifically includes the location of an entity's headquarters 
and, separately, the location where an entity conducts its main 
business activities. For example, if a company is incorporated and has 
its official headquarters in the United States, but its chief executive 
officer resides and primarily manages the business in a country of 
concern, then the company's principal place of business would be in 
both the United States and the country of concern.
Sec.  851.226--Prohibited Technology
    Title VIII introduces the term prohibited technology, which is 
defined, subject to regulations, as a technology within one of the five 
technology areas enumerated in Title VIII: advanced semiconductor 
technology and microelectronics; artificial intelligence systems; 
quantum information technologies; high-performance computing and 
supercomputing; and hypersonic systems. As with notifiable technology 
discussed above, Title VIII provides the Secretary with the authority, 
in consultation with the appropriate congressional committees, to 
prescribe regulations that define the technical parameters of such 
technology as reasonably needed for national security purposes. The 
Secretary may also add and define technology categories beyond those 
listed in Title VIII that enable the military, intelligence, 
surveillance, or cyber-enabled capabilities of a country of concern. As 
discussed further below, the Secretary, in consultation with 
interagency partners and the Executive Office of the President, has 
determined that the biotechnology sector in countries of concern 
enables the military, intelligence, surveillance, or cyber-enabled 
capabilities of those countries and, therefore, pursuant to his 
authority under Title VIII to prescribe regulations, has added that 
sector to the proposed definition of prohibited technology.
Advanced Semiconductor Technology and Microelectronics
    Consistent with the Part 850 Regulations, the Treasury Department 
proposes including within the definition of prohibited technology the 
development or production of any electronic design automation software 
for the design of integrated circuits or advanced packaging and the 
development or production of any of the following: certain front-end 
semiconductor fabrication equipment designed for performing the volume 
fabrication of integrated circuits (to include extreme ultraviolet and 
deep ultraviolet lithography equipment), equipment for performing 
volume advanced packaging, or other items designed or intended for use 
in or with deep ultraviolet or extreme ultraviolet lithography 
fabrication equipment.
    Further consistent with the Part 850 Regulations, the Proposed Rule 
would also include within the definition of prohibited technology the 
design of any integrated circuit that meets or exceeds

[[Page 67404]]

certain advanced technical thresholds identified by the Department of 
Commerce's Bureau of Industry and Security (BIS), the fabrication of 
certain other advanced integrated circuits that meet certain specified 
parameters, and the development or production of integrated circuits 
manufactured from certain specified semiconductors, certain radiation 
hardened integrated circuits designed to withstand specified high-
radiation environments, and photonic integrated circuits. Additionally, 
the term would include the packaging of any integrated circuit using 
advanced packaging techniques.
    The Proposed Rule also would include within the definition of 
prohibited technology the development or production of high-bandwidth 
memory with a memory bandwidth density greater than 2 gigabytes per 
second per square millimeter. This modification as compared to the Part 
850 Regulations would bring the scope of prohibited technology in this 
sector into alignment with current export control restrictions, 
specifically ECCN 3A090 on the Commerce Control List.
    Also consistent with the Part 850 Regulations, the Proposed Rule 
would separately define the terms advanced packaging, develop, and 
produce, adding further technical detail to the relevant prohibition 
provisions.
SI Systems
    Since publication of the Part 850 Regulations nearly two years ago, 
technology has undergone rapid transformation, with breakthrough 
advances in the capabilities and development of SI systems. A range of 
SI systems developed by covered foreign persons present significant 
national security risks--from the ability to autonomously conduct 
cyberattacks to the potential use by malign actors and foreign 
adversaries to develop weapons of mass destruction. SI systems can also 
provide countries of concern with the potential to substantially 
enhance military modernization efforts, surveillance, and real-time 
targeting and decision-making capabilities. A range of SI systems may 
pose novel national security risks in areas such as cyberattacks and 
the development of chemical, biological, radiological, nuclear, or 
explosive weapons, as well as expose novel security vulnerabilities. 
The Treasury Department has observed advances in the capabilities and 
development of SI systems directly through its market monitoring 
activity, receipt of notifications as part of the OISP, and other 
sources.
    The Part 850 Regulations distinguished among ``AI systems'' for 
purposes of the prohibition, the notification requirement, or absence 
from OISP coverage based on the quantity of computing power for 
training, designed end uses, and intended end uses. Over the past two 
years, SI models have achieved notable performance gains through 
additional means other than the quantity of training compute. 
Therefore, no single measure, benchmark, or threshold is currently 
sufficient to distinguish advanced models. Although the quantity of 
training compute may continue to indicate a degree of SI model 
capability, developers increasingly rely on additional methods to 
improve model capability, including other research and development 
activities such as synthetic data generation, improved algorithmic or 
architectural efficiencies, and novel post-training techniques or 
increasing inference-time compute.
    Similarly, the proliferation and adoption of SI capabilities have 
made SI system end uses more challenging to isolate. General-purpose SI 
models that were not necessarily designed to be used for relevant 
national security applications nevertheless may exhibit that 
functionality, and investors may lack insight into the capabilities of 
such models if model developers have not evaluated or advertised these 
capabilities. Additionally, the availability of capable open-source SI 
models that have fewer safeguards and oversight may lead to their 
utilization and incorporation into SI systems in contexts outside their 
intended scope.
    Accordingly, the Secretary, in consultation with interagency 
partners and the Executive Office of the President, has determined that 
it is necessary for national security purposes to define prohibited 
technology to include the development of any SI system. The Treasury 
Department notes that this approach is consistent with the COINS Act's 
direction to balance the priority of protecting the national security 
interest of the United States, while, to the extent practicable, 
minimizing the cost and complexity of compliance for affected parties 
and adopting the least burdensome alternative that achieves regulatory 
objectives. Specifically, this approach seeks to protect U.S. national 
security and streamline compliance through clear proposed regulatory 
text that does not rely on a U.S. person ascertaining the technical 
capabilities or thresholds of SI systems being developed by a covered 
foreign person (which was the case in the Part 850 Regulations).
    Importantly, the Treasury Department proposes to include clarifying 
language regarding when the use or incorporation of certain third-party 
SI systems would or would not constitute the development of an SI 
system. This language generally corresponds to Notes 2 and 3 to Sec.  
850.224 in the Part 850 Regulations.
    The Treasury Department particularly welcomes feedback regarding 
the potential implications arising from defining prohibited technology 
to include the development of any SI system, as well as feedback 
relating to the definition of an SI system. Where possible, feedback 
should discuss impacts, possible alternative approaches aimed at the 
same policy intent described above, and where relevant, should include 
suggestions for how the Proposed Rule could be scoped to address the 
national security concerns described above accounting for the potential 
impact on U.S. businesses and consumers. To the extent that a U.S. 
person believes engaging in a covered national security transaction is 
in the national interest of the United States, the Treasury Department 
notes that the Proposed Rule provides a process by which the U.S. 
person may request an exemption from the Proposed Rule's coverage, 
provided that the Secretary, in coordination with other relevant 
Federal departments and agencies, determines the transaction to be in 
the U.S. national interest. See Subpart E for a further discussion on 
exceptions and exemptions.
Quantum Information Technologies
    The Treasury Department proposes to include within the definition 
of prohibited technology the development of a quantum computer or 
production of any of the critical components required to produce or 
operate a quantum computer (such as a dilution refrigerator or two-
stage pulse tube cryocooler), or the development of software for the 
purpose of designing, simulating, testing, or controlling a quantum 
computer, or for identifying, implementing, costing, or optimizing 
algorithms and applications for a quantum computer.
    The Proposed Rule would also include in the definition of 
prohibited technology the development of algorithms and applications 
for quantum information science technologies. 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.
    The definition of prohibited technology would include the

[[Page 67405]]

development or production of any quantum sensing platform designed for, 
or that the relevant covered foreign person intends to be used for, any 
military, government intelligence, or mass-surveillance end uses.
    The development or production of certain quantum networks and 
quantum communication systems would also be prohibited technology. 
Specifically, prohibited technology would include such networks and 
systems designed for, or that the relevant covered foreign person 
intends to be used for: (1) networking to scale up the capabilities of 
quantum computers; (2) secure communications, such as quantum key 
distribution; or (3) any other application that has any military, 
government intelligence, or mass-surveillance end use.
    The Proposed Rule would separately define the term quantum 
computer, adding further technical detail to the prohibition provision.
High-Performance Computing and Supercomputing
    The Treasury Department proposes maintaining the prohibition in the 
Part 850 Regulations on U.S. person investment with respect to the 
high-performance computing and supercomputing technology area. 
Consistent with the Part 850 Regulations, the definition of prohibited 
technology would include developing, installing, selling, or producing 
any supercomputer enabled by advanced integrated circuits that can 
provide a theoretical compute capacity of 100 or more double-precision 
(64-bit) petaflops or 200 or more single-precision (32-bit) petaflops 
of processing power within a 41,600 cubic foot or smaller envelope, or 
components designed for enabling any of such capabilities of a 
supercomputer. Certain technologies included within the advanced 
semiconductor technology and microelectronics category also are 
relevant to the high-performance computing and supercomputing 
technology area, including the fabrication of any specified DRAM 
integrated circuit, the development and production of any photonic 
integrated circuit (including the development of optical components, 
co-packaged optics, or silicon-photonics integration), and the 
development and production of certain high-bandwidth memory.
Hypersonic Systems
    The Treasury Department proposes to define prohibited technology to 
include the development or production of a hypersonic system, as that 
term is defined in the Proposed Rule (and discussed above), a 
propulsion system capable of enabling hypersonic flight, or fuels or 
propellants for hypersonic propulsion systems. Propulsion systems 
capable of enabling hypersonic flight would include rocket-based 
propulsion, hypersonic airbreathing propulsion such as ramjets and 
scramjets, and combined cycle propulsion.
    The term prohibited technology would also include the development 
or production of certain materials designed for, or that a covered 
foreign person intends to be used for, a hypersonic system, including 
refractory metals or alloys, refractory or ultra-high temperature 
ceramics, certain carbon composites, and stealth coatings, as well as 
the development or operation of specialized infrastructure or a 
facility capable of testing a hypersonic system.
    The Proposed Rule would define prohibited technology to also 
include the development of digital twin technology for modeling and 
simulation of, monitoring, or optimizing a hypersonic system and the 
development of digital thread technology that collects, manages, or 
represents the data flows related to a hypersonic system.
Biotechnology
    Certain advanced or sensitive biotechnologies in countries of 
concern--including those that are subject to export controls, 
biomanufacturing or bioengineering of certain compounds and materials, 
and the technology and equipment capable of being used to engage in 
such manufacturing or engineering--pose an acute risk to U.S. national 
security. Such risks include the proliferation of biological weapons, 
the development of brain-computer interfaces, harm to U.S. supply chain 
security, and the indigenization by countries of concern of advanced 
technologies with military, government intelligence, and mass 
surveillance end uses. U.S. person investments in covered foreign 
persons engaged in such activities are at risk of exploitation. 
Accordingly, pursuant to the authority granted to the Secretary by 
Title VIII, the definition of prohibited technology would include 
specific activities and technical parameters associated with the 
biotechnology sector, as discussed further below.
    Specifically, the Treasury Department proposes to define prohibited 
technology to include the development, engineering, or use of a 
biological system--or component of a biological system--to modify, 
enhance, produce, or control: (1) certain export-controlled agents or 
toxins, as well as novel agents and toxins capable of similar effects 
as those currently export-controlled; (2) energetic precursors or 
energetic materials; (3) novel or high-performance functional materials 
(i.e., bio-derived products that exhibit novel or enhanced properties, 
such as adaptive or protective coatings, materials for agile 
infrastructure, materials capable of self-repair or self-assembly, and 
biosensors); (4) pharmaceutical compounds (e.g., small molecules, 
polymers, vaccines, blood and blood components, allergenics, cell and 
gene therapies, and monoclonal antibodies or other recombinant 
therapeutic proteins), as well as their delivery systems; and (5) 
biofuels (i.e., fuels made or derived from bio-based feedstock). The 
Proposed Rule also would define prohibited technology to include the 
development or production of brain computer interfaces and the 
development, construction, or production of biomanufacturing equipment, 
including components and associated software or technology, as 
identified in ECCNs 2B352, 2D352, and 2E001 on the Commerce Control 
List. The Treasury Department also proposes to include in the 
definition of prohibited technology the development or production of 
certain other related technology or equipment (including components and 
associated software), to include: biological sequencing technology, 
including short-read or long-read sequencing; certain flow cytometers 
and cell sorters; certain liquid chromatography mass spectrometry 
instruments; certain computational or bioinformatics tools; and 
hardware, robotics, or software for automated scientific discovery or 
experimentation, including laboratory automation or cloud lab 
infrastructure.
    It is necessary to place restrictions in this sector in the 
interest of protecting U.S. national security; at the same time, the 
Treasury Department recognizes that restrictions may potentially have 
countervailing effects on national security to the extent restrictions 
lead to significant public health risks or harm U.S. businesses in this 
sector. Accordingly, the Treasury Department is particularly interested 
in comment on this approach. Where possible, feedback should discuss 
impacts, possible alternative approaches aimed at the same policy 
intent described above, and any suggestions for how the Proposed Rule 
could be scoped to address the national security concerns described 
above. In particular, the Treasury Department requests comments on the 
following questions:
    <bullet> Whether or how the Treasury Department should more 
precisely describe the biological systems covered in proposed Sec.  
851.226(r);

[[Page 67406]]

    <bullet> Whether the Treasury Department should adjust proposed 
Sec.  851.226(r) to focus on where the development, engineering, or use 
of a biological system is undertaken using equipment identified in 
proposed Sec.  851.226(t) or (u);
    <bullet> Whether or how the Treasury Department should more 
precisely describe the biofuels covered in proposed Sec.  851.226(r), 
such that the Proposed Rule does not include fuels that do not pose 
acute national security risks (such as ethanol);
    <bullet> Whether or how a ``novel or high-performance functional 
material'' identified in proposed Sec.  851.226(r)(3) could be more 
precisely described and whether definitions used in other regulatory 
programs, including export controls, could be leveraged to achieve 
additional clarity;
    <bullet> Whether and how ``pharmaceutical compounds'' described in 
proposed Sec.  851.226(r)(4) should be more precisely scoped to focus 
on advanced or frontier technologies; and
    <bullet> Whether the technical parameters of the equipment listed 
in proposed Sec.  851.226(u) should be more precisely scoped to focus 
on advanced or frontier technologies.
    To the extent that a U.S. person believes engaging in a covered 
national security transaction is in the national interest of the United 
States, the Treasury Department notes that the Proposed Rule provides a 
process by which the U.S. person may request an exemption from the 
Proposed Rule's coverage, which could be granted if the Secretary, in 
coordination with other federal departments and agencies, determines 
the transaction to be in the U.S. national interest. See Subpart E for 
a further discussion on exceptions and exemptions.
Cross-Reference to U.S. Government Lists
    The Treasury Department would also include within the definition of 
prohibited technology any notifiable technology engaged in by a covered 
foreign person or relevant joint venture where such covered foreign 
person or joint venture is, or any of its affiliates or subsidiaries 
are, included on one of several U.S. Government lists, such as the 
Entity List maintained by BIS. Defining prohibited technology to 
include notifiable technology engaged in by such persons is reasonably 
needed for national security purposes because the U.S. Government's 
inclusion of such persons on any of these lists reflects a 
determination that the person poses a threat to the foreign policy or 
national security interests of the United States. In addition, defining 
prohibited technology in this manner promotes consistency with the Part 
850 Regulations and provides bright lines for certain U.S. person 
investments, which would minimize the cost and complexity of compliance 
for affected parties while addressing national security risks.
    Section 851.226(v) would cross-reference two additional U.S. 
Government lists beyond those in the Part 850 Regulations: the 
Department of War's list of Chinese military companies under section 
1260H of the National Defense Authorization Act for Fiscal Year 2021 
and the Office of Management and Budget's list of biotechnology 
companies of concern under the BIOSECURE Act, section 851 of the FY26 
NDAA. Such lists are particularly relevant for the OISP, given their 
focus on entities with connections to the PRC military.
    The Treasury Department also proposes that relevant listed entities 
in Sec.  851.226(v) include the affiliates and subsidiaries of a 
covered foreign person or relevant joint venture that engages in a 
notifiable technology. Prohibiting a U.S. person from engaging in a 
covered national security transaction with a covered foreign person 
engaged in a notifiable technology whose affiliate or subsidiary is 
included on one of the U.S. Government lists would strengthen the 
Proposed Rule by deterring listed persons from establishing 
subsidiaries to engage in a notifiable technology and participate in a 
covered national security transaction that the listed person could not.
Sec.  851.227--Prohibited Transaction
    Title VIII does not use the term prohibited transaction, which was 
used in the Part 850 Regulations. The Treasury Department proposes 
maintaining this term and concept to provide a single term to describe 
the operative language of section 801 of Title VIII and to promote 
consistency with the Part 850 Regulations to minimize the cost and 
complexity of compliance for affected parties. Accordingly, the 
Treasury Department proposes to define prohibited transaction as a 
covered national security transaction in which the relevant covered 
foreign person or relevant joint venture:
    <bullet> Engages in a prohibited technology; or
    <bullet> Meets the investment and financial thresholds under 
proposed Sec.  851.208(a)(8) because of its relationship to one or more 
covered foreign persons that engage in a prohibited technology.
Sec.  851.229--Relevant Federal Departments and Agencies
    The Treasury Department proposes defining the relevant Federal 
departments and agencies as those departments or agencies specifically 
mentioned in Title VIII; i.e., the Departments of State, War, Commerce, 
and Energy, and the Office of the Director of National Intelligence--as 
well as the Office of the U.S. Trade Representative and the Office of 
Science and Technology Policy, and any other department, agency, or 
office the Secretary determines to be appropriate.
Sec.  851.232--Super Intelligence (SI) System
    Title VIII includes ``AI systems'' as a technology area in which 
the Secretary may identify specific notifiable technology or prohibited 
technology. Title VIII does not further define an ``AI system.'' The 
Treasury Department proposes to define super intelligence (SI) system 
\1\ in a manner that is generally consistent with the existing 
definition of an ``AI system'' found in the Part 850 Regulations, but 
with some modifications. The narrative description of the Proposed Rule 
below refers to ``artificial intelligence system'' or ``AI system'' 
when discussing the applicable requirements in the Part 850 Regulations 
or Title VIII and refers to SI system and the abbreviation ``SI'' when 
discussing the Proposed Rule.
---------------------------------------------------------------------------

    \1\ On September 29, 2026, Executive Order 14434 (91 FR 63129), 
``Inaugurating the Era of Super Intelligence,'' was issued. Section 
2 of Executive Order 14434 requires executive departments and 
agencies to use ``Super Intelligence'' and ``SI'' in place of 
``Artificial Intelligence'' and ``AI'' in certain documents.
---------------------------------------------------------------------------

    Under Sec.  851.232(a) of the Proposed Rule, an SI system would be 
a machine-based system with certain specified functions and 
characteristics that are consistent with those in the Part 850 
Regulations and also would specifically include machine-based systems 
that can generate content (with the phrase ``generate content'' seeking 
to capture generative SI that can create content such as text, audio, 
images, multimedia, or code). Section 851.232(b) of the Proposed Rule 
would include within the definition of SI system any data system, 
software, hardware, application, tool, or utility that operates in 
whole or in part using such a machine-based system, including a harness 
for agentic capability or an embodied SI system. Under Sec.  
851.232(b), an SI system would include, for example, robotic or other 
autonomous or unmanned systems that operate using an SI system. The 
Treasury Department welcomes

[[Page 67407]]

comment on the proposed definition of SI system.
Subpart C--Prohibited Transactions and Other Prohibited Activities
    Title VIII authorizes the Secretary to prohibit a U.S. person, 
including its controlled foreign entities, from knowingly engaging in a 
covered national security transaction in any prohibited technology. To 
promote consistency with the Part 850 Regulations and to minimize the 
cost and complexity of compliance for affected parties, this subpart of 
the Proposed Rule closely aligns with the text of the Part 850 
Regulations and describes activities that would be prohibited. Such 
activities would include a U.S. person engaging in a prohibited 
transaction unless an exemption has been granted. A U.S. person would 
also be required to take all reasonable steps to prohibit and prevent 
any transaction by its controlled foreign entity that would be a 
prohibited transaction if engaged in by a U.S. person.
Subpart D--Notifiable Transactions and Other Notifiable Activities
    This subpart of the Proposed Rule would require a U.S. person to 
notify the Treasury Department in any of the following circumstances: 
(1) if the U.S. person knowingly undertakes a notifiable transaction; 
(2) if a controlled foreign entity of the U.S. person knowingly 
undertakes a transaction that would be notifiable if undertaken by a 
U.S. person; and (3) if the U.S. person learns following the completion 
date that a transaction that it undertook would have been a covered 
national security transaction if the U.S. person had known of certain 
facts or circumstances at the time of the transaction. In each case, 
the U.S. person would be required to meet certain deadlines and follow 
specified procedures that include requirements to submit detailed 
information to the Treasury Department, certify the completeness and 
accuracy of the information submitted, and maintain records. A U.S. 
person would also be required to promptly notify the Treasury 
Department of any material omission or inaccuracy that the U.S. person 
learns about following any information submission.
    The Treasury Department notes that Sec.  851.402 would clarify that 
a U.S. person must submit a notification when its controlled foreign 
entity undertakes a transaction that the controlled foreign entity or 
the U.S. person knew at the time of the transaction would be a 
notifiable transaction if engaged in by a U.S. person. Section 851.403 
would clarify that a U.S. person's notification obligations in 
connection with post-transaction knowledge apply both to transactions 
undertaken by a U.S. person and to transactions undertaken by a 
controlled foreign entity of a U.S. person. As discussed above, to 
reflect the proposed changes to Sec. Sec.  851.402 and 851.403, the 
Treasury Department proposes to clarify in Sec.  851.104 that the 
knowledge standard would also apply to the knowledge of a controlled 
foreign entity for the purposes of applying Sec. Sec.  851.402 and 
851.403.
    Section 851.405 would expand the information from the Part 850 
Regulations that is required as part of a notification. The items that 
would be added are those that typically have been part of follow-on 
requests for information by the Treasury Department. Including these 
items in the regulatory text is intended to streamline any follow-on 
requests once a notification has been submitted.
Subpart E--Exceptions and Exemptions
    Title VIII gives the Secretary authority to exempt from prohibition 
any activity determined by the President, in consultation with or 
delegated to the Secretary, and in coordination with the Secretary of 
Commerce, Secretary of State, and, as appropriate, the heads of other 
relevant Federal departments and agencies, to be in the national 
interest of the United States. Additionally, Title VIII establishes an 
exemption from prohibition for any authorized intelligence activities 
of the United States.
    This subpart of the Proposed Rule identifies the activities or 
transactions that are not included within the definition of covered 
national security transaction, as discussed below.
Sec.  851.501--Excepted Transaction
    Title VIII identifies, subject to regulations, those transactions 
or activities that are not included within the definition of covered 
national security transaction. Under the Proposed Rule, as in the Part 
850 Regulations, such transactions would be referred to as excepted 
transactions.
    As discussed in more detail below, an excepted transaction in the 
Proposed Rule would include the following (subject to limitations in 
some instances, as explained below):
    <bullet> An investment by a U.S. person in a security that trades 
on a securities exchange or the over-the-counter market in any 
jurisdiction;
    <bullet> An investment by a U.S. person in a security issued by an 
investment company, such as an index fund, mutual fund, or exchange 
traded fund;
    <bullet> An investment by a U.S. person limited partner or 
equivalent in a pooled investment fund as described in Sec.  
851.209(a)(7) where (1) the U.S. person's committed capital does not 
exceed $2 million, or (2) the investment is subject to a specific 
binding contractual assurance regarding a notifiable transaction (for 
purposes of an exception from the notification requirement) or a 
prohibited transaction (for purposes of an exception from the 
prohibition);
    <bullet> An investment in a derivative of any security described 
above;
    <bullet> A U.S. person's full buyout of all equity or interests of 
all covered foreign persons in an entity or assets located outside a 
country of concern;
    <bullet> An intracompany transfer of funds from a U.S. person to 
its controlled foreign entity;
    <bullet> A transaction made after the effective date of the final 
regulations implementing the COINS Act pursuant to a binding, uncalled 
capital commitment entered into before that date;
    <bullet> Acquisition of a voting interest in a covered foreign 
person by a U.S. person lender upon default or other condition of a 
loan made by a lending syndicate;
    <bullet> The receipt of employment compensation by an individual in 
the form of an award of equity or the grant of an option to purchase 
equity in a covered foreign person, or the exercise of such option;
    <bullet> Transactions by a U.S. person that, in the aggregate 
across the preceding 12 months, do not exceed $50,000 in value (for an 
exception from the notification requirement only);
    <bullet> A transaction secondary to a covered national security 
transaction, including certain contractual arrangements or the 
procurement of material inputs for any covered national security 
transaction; bank lending; processing, clearing, or sending of payments 
by a bank; underwriting services; debt rating services; prime 
brokerage; global custody; equity research and analysis; or other 
similar services;
    <bullet> Any ordinary or administrative business transaction;
    <bullet> Any ancillary transaction involving covered foreign 
persons undertaken by a financial institution, such as the processing 
of cash transactions, underwriting and credit rating services, or other 
services ordinarily incidental to the provision of financial services;
    <bullet> Certain transactions that occur in a country or territory 
outside the United States that has been designated by the

[[Page 67408]]

Secretary in accordance with provisions set forth in Sec.  851.501(k) 
of the Proposed Rule; and
    <bullet> Any transactions completed before the enactment of Title 
VIII on December 18, 2025, unless subject to the Part 850 Regulations, 
in which case those rules apply.
    Certain excepted transactions listed above were included in the 
Part 850 Regulations but not specifically included in Title VIII: (1) 
fulfilment of a binding, uncalled capital commitment made prior to the 
effective date of the final regulations; (2) acquisition of a voting 
interest in a covered foreign person upon default or other condition of 
a loan made by a lending syndicate; (3) receipt and exercise of 
employment compensation in the form of equity or options to purchase 
equity in a covered foreign person; and (4) a transaction with or 
involving a country or territory outside the United States designated 
by the Secretary in accordance with criteria that relate to the country 
or territory's own measures to address risks related to outbound 
investment. To further Congress's direction to balance protecting 
national security with minimizing the cost and complexity of compliance 
for affected parties, and to minimize impacts on the smooth functioning 
of U.S. capital markets while still achieving the national security 
objectives of the COINS Act, the Secretary has determined, pursuant to 
the authority provided in Title VIII, that maintaining these excepted 
transactions, with which the regulated public is already familiar, is 
in the national interest of the United States, and therefore includes 
these exceptions in the Proposed Rule. Further explanation regarding 
the Secretary's determination is provided below.
    Fulfilment of a binding, uncalled capital commitment. Including 
this exception in Sec.  851.501 is in the national interest because it 
is intended to avoid disruption to a U.S. person that entered into a 
binding commitment prior to the effective date of the final 
regulations. Such a transaction, however, may be a ``covered 
transaction'' pursuant to the Part 850 Regulations.
    Acquisition of voting interest upon default of a syndicated loan. 
Including this exception is in the national interest because it would 
avoid potential disruption to private credit markets in a narrow set of 
circumstances where a U.S. person lender has passively received an 
interest in a covered foreign person and, even after receiving such 
interest, lacks a role in the lending syndicate that could create the 
opportunity for a U.S. person lender's intangible benefits to transfer 
to the covered foreign person debtor. The Treasury Department welcomes 
comments regarding whether this exception is redundant given Title 
VIII's language regarding the exception for secondary transactions, 
which includes bank lending.
    Receipt of employment compensation in the form of stock or stock 
options and the exercise of such options. Including an exception for 
receipt of employment compensation in the form of equity or the option 
to acquire equity (and the exercise of such an option) in a covered 
foreign person is in the national interest because it avoids 
interference with certain individual U.S. workers' employment prospects 
and potentially personal finances. Moreover, U.S. person employees are 
generally not providing capital to a covered foreign person employer.
    Transactions in certain designated countries or territories. Title 
VIII directs the Secretary, in coordination with the Secretary of 
State, Secretary of Commerce, and the heads of other relevant Federal 
departments and agencies, to engage on both a bilateral and 
multilateral basis with allies and partners to encourage the 
development of mechanisms similar to the OISP to prevent the 
development of prohibited technologies by a country of concern. 
Including an exception for certain transactions occurring in countries 
and territories that develop such similar mechanisms is in the national 
interest because it incentivizes allies and partners to take such 
steps, which helps protect U.S. national security and foreign policy 
interests.
    Details regarding the other exceptions pursuant to Title VIII are 
provided below.
    Publicly traded securities. Title VIII includes as an excepted 
transaction investment in a security, as defined in section 3(a)(10) of 
the Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(10), that trades 
on a securities exchange or the ``over-the-counter'' market in any 
jurisdiction. The Proposed Rule incorporates the exception with minor, 
non-substantive clarifications. The Treasury Department considers this 
exception to be substantively equivalent to the corresponding exception 
in the Part 850 Regulations. As a result, the Treasury Department 
considers that existing guidance available on the OISP website related 
to the publicly traded securities exception would likely be re-issued 
in a manner that applies similarly to this exception under Title VIII.
    Securities issued by an investment company. Title VIII also 
includes an exception for investment in a security issued by an 
investment company, as defined in the Investment Company Act of 1940, 
that is registered with the Securities and Exchange Commission. 
Consistent with Title VIII and with the Part 850 Regulations, the 
Proposed Rule also includes such an exception, along with illustrative 
language from the corresponding exception in the Part 850 Regulations, 
i.e., ``such as an index fund, mutual fund, or exchange traded fund.''
    The Part 850 Regulations also provide for an exception to the 
definition of a covered national security transaction for investment by 
a U.S. person in any company that has elected to be regulated or is 
regulated as a business development company pursuant to section 54 of 
the Investment Company Act of 1940, as amended, at 15 U.S.C. 80a-53. 
Title VIII does not provide for a corresponding exception to the 
definition of covered national security transaction, and the Proposed 
Rule likewise does not include it. The Treasury Department welcomes 
comment on whether extending the exception in Sec.  851.501(a)(1)(ii) 
of the Proposed Rule to an investment in a business development company 
is in the national interest. Title VIII additionally provides the 
Secretary discretion to except investment in a ``security issued by a 
non-United States investment company that is registered with a foreign 
regulator with comparable oversight standards and regulatory 
jurisdiction to the Securities and Exchange Commission as determined by 
the Secretary.'' The Treasury Department does not include this 
exception in the Proposed Rule but invites comment regarding which 
foreign regulators may qualify under Title VIII's standard and the 
potential scope of such an exception.
    Limited partner investments. Title VIII also contains an exception 
from the coverage of limited partner investments when made as a limited 
partner or equivalent in a venture capital fund, private equity fund, 
``fund of funds,'' or pooled investment fund, including where (1) the 
limited partner or equivalent's committed capital is not more than a de 
minimis amount, as determined by the Secretary; and (2) where the 
limited partner or equivalent obtains a binding contractual assurance 
that its capital in the fund will not be used to engage in a 
transaction that would be a covered national security transaction if 
engaged in by a U.S. person. With respect to the first prong, to 
promote consistency with the Part 850 Regulations to minimize the cost 
and complexity of compliance for affected parties, and in light of the

[[Page 67409]]

notifications received to date as part of the OISP, the Secretary has 
determined to set this de minimis value at $2,000,000 in the Proposed 
Rule. With respect to the second prong, the Proposed Rule refers to a 
prohibited transaction or notifiable transaction, as applicable, as the 
corresponding exception in the Part 850 Regulations currently does, 
rather than a covered national security transaction. For clarification, 
the phrase ``as applicable'' means that receipt of a binding 
contractual assurance regarding notifiable transactions would except 
the U.S. person from the notification requirement, while receipt of a 
binding contractual assurance regarding prohibited transactions would 
mean that a U.S. person limited partner or equivalent would not commit 
a violation in the event that the fund used the U.S. person's capital 
to engage in a prohibited transaction, despite such contractual 
assurances. Additionally, the Treasury Department clarifies that this 
exception applies only to limited partner investments covered by Sec.  
851.209(a)(7), consistent with the corresponding exception in the Part 
850 Regulations.
    Derivatives. The Title VIII exception for investments in 
derivatives is explicitly limited to derivatives of a security 
described in three exceptions discussed above: publicly traded 
securities, securities issued by an investment company, and limited 
partner investments. The Proposed Rule maintains this scope for 
exceptions for investments in derivatives although it no longer 
contains the carve-out from the corresponding exception present in the 
Part 850 Regulations for derivatives that confer the right to acquire 
equity, rights associated with equity, or any assets of a covered 
foreign person. The Treasury Department invites comment on whether 
removing this carve-out would create a loophole for U.S. person 
investments that could raise national security concerns.
    Exclusion from exception for investments affording certain 
governance rights. The Secretary also has determined that it is in the 
national interest to exclude from certain exceptions (namely, those for 
investments in publicly traded securities, securities issued by an 
investment company, limited partner investments, and derivatives, each 
as discussed above) covered national security transactions involving 
certain equity investments that would afford the U.S. person certain 
governance rights beyond standard minority shareholder protections with 
respect to a covered foreign person. This carveout would help ensure 
that the exceptions in the Proposed Rule are consistent with the policy 
objectives of Title VIII, and that U.S. persons cannot undertake a 
transaction that has a higher likelihood of advancing the technologies 
that are a core concern of Title VIII. The Treasury Department further 
believes this carveout would be important to protect against potential 
evasion of the Proposed Rule's notification requirements and 
prohibitions. Additionally, the Proposed Rule would include clarifying 
language noting that the relevant ``rights'' of the U.S. person are 
governance-related rights.
    Buyout exception. Title VIII creates an exception similar to the 
buyout exception in the Part 850 Regulations. The Title VIII exception 
appears broader than the exception in the Part 850 Regulations in that 
it applies to a U.S. person's acquisition of all the equity or other 
interests owned or held by a single covered foreign person in an entity 
or assets located outside of a country of concern, while the 
corresponding exception in the Part 850 Regulations requires for its 
application that a U.S. person acquire all equity or interests owned or 
held by all ``persons of a country of concern.''
    The wording of the statutory exception, if left unclarified, could 
introduce administrative challenges for the OISP and create 
interpretive ambiguity. This is so because in the case of an entity or 
assets outside of a country of concern in which multiple covered 
foreign persons hold equity or other interests, excepting a U.S. 
person's buyout of a single covered foreign person's interest in such 
entity or assets could effectively permit U.S. person investment in a 
covered foreign person entity that is engaged in a prohibited 
technology (or allow for such a transaction to go unnotified where the 
covered foreign person is engaged in a notifiable technology) even 
while such covered foreign person continues to have significant, or 
even majority, post-transaction ownership by other covered foreign 
persons. And although Title VIII's language would on its face permit 
such a circumstance, its emphasis on excepting a U.S. person's 
acquisition of the ``totality of the interest'' indicates that Congress 
did not contemplate this scenario. The Proposed Rule, therefore, would 
apply the buyout exception only where a U.S. person acquires all equity 
or interests owned or held by all covered foreign persons such that, 
following the acquisition, the entity no longer constitutes a covered 
foreign person.
    Intracompany transfer exception. Title VIII provides an exception 
for the intracompany transfer of funds, as defined by the Secretary, 
``from a United States parent company to a subsidiary located in a 
country of concern or a transaction that, but for this clause, would be 
a covered national security transaction between a U.S. person and its 
controlled foreign person that supports operations that are not covered 
national security transactions or that maintains covered national 
security transactions that the controlled foreign person was engaged in 
prior to the effective date of the regulations implementing'' Title 
VIII. (Emphases added for clarity.)
    The Proposed Rule would clarify the statutory exception and 
harmonize its terminology with the rest of the Proposed Rule. By 
operation of the proposed definitions of ``parent,'' ``subsidiary,'' 
``controlled foreign entity,'' and ``intracompany transfer of funds'' 
in the Proposed Rule, a U.S. person parent's subsidiary located in a 
country of concern would be a controlled foreign entity, such that the 
relevant exception in the Proposed Rule would refer to the intracompany 
transfer of funds by a U.S. person to a controlled foreign entity. The 
Treasury Department notes that the intracompany transfer exception in 
Title VIII refers to transactions between a U.S. person and its 
``controlled foreign person.'' As discussed above, the term 
``controlled foreign person'' is used only in the intracompany transfer 
exception and does not otherwise appear in Title VIII, and the Proposed 
Rule therefore instead uses the term controlled foreign entity, 
consistent with the other parts of Title VIII and with the Part 850 
Regulations.
    The Title VIII statutory exception also is limited to supporting 
``operations that are not covered national security transactions.'' On 
its face, such language would apply the intracompany transfer exception 
only to investments in entities that themselves engage in covered 
national security transactions. Given the statutory definition's 
similarity to the corresponding exception in Part 850 Regulations, it 
is unlikely Congress intended such a result. To ensure the proper and 
intended operation of Title VIII and to promote consistency with the 
Part 850 Regulations to minimize the cost and complexity of compliance 
for affected parties, the proposed exception (via the definition of an 
intracompany transfer of funds) would refer instead to supporting 
operations that are not in a prohibited technology or a notifiable 
technology.
    The Treasury Department is considering whether and how it should 
further define what it means to

[[Page 67410]]

``maintain operations'' within the intracompany transfer exception. 
Specifically, the Treasury Department invites comment on whether to (1) 
adopt a narrow construction of this term, such that the U.S. person 
parent would be limited to providing capital that would permit the 
controlled foreign entity to perform no more than upkeep and 
maintenance of the notifiable technology or prohibited technology; (2) 
adopt a broader construction to include upgrading or improving the 
existing operations, but not permitting any expanded production of the 
technology; or (3) most expansively, adopt a construction that permits 
expanding production or improving technological capabilities (provided 
that such improvement does not involve engaging in a different 
notifiable technology or prohibited technology or shifting from a 
notifiable technology to a prohibited technology).
    De minimis transaction. Title VIII also includes an exception for 
transactions, the value of which the Secretary determines is de 
minimis. Based on the Treasury Department's experience administering 
the OISP, the Secretary has determined that the de minimis value should 
be $50,000, aggregated across the covered national security 
transactions or provision of funds to the relevant covered foreign 
person or joint venture in the preceding 12 months. The $50,000 
threshold would refer to the value of the transaction or transactions, 
which can include the provision of funds as well as the fair market 
value of any non-cash consideration. Pursuant to the authority 
delegated to the Secretary in Title VIII and as explained in the 
proposed definition of an excepted transaction, the Treasury Department 
would not be bound by the U.S. person's determination of the value of a 
transaction. A U.S. person investor considering the applicability of 
this exception to a transaction involving non-cash consideration is 
encouraged to consider valuing such consideration in ways consistent 
with the equity or other interest acquired in exchange for such non-
cash consideration.
    The Proposed Rule would further limit the application of this 
exception to transactions that would otherwise be notifiable 
transactions. A prohibited transaction below this threshold could raise 
national security concerns given that the technology at issue may 
enable the military, intelligence, surveillance, or cyber-enabled 
capabilities of a country of concern. Therefore, the Secretary does not 
believe that any such transaction should be classified under Title VIII 
as de minimis.
    Secondary transaction. Title VIII includes a new category of 
excepted transaction: a transaction secondary to a covered national 
security transaction. The Proposed Rule would incorporate the relevant 
text from Title VIII without modification. The Treasury Department 
invites comment on the scope of ``contractual arrangements;'' what 
``other similar services'' may exist that would constitute a secondary 
transaction; whether ``bank lending'' would except all ``banks'' from 
covered national security transactions involving loan provision or 
similar debt financing; and whether other ``secondary transactions'' 
are duplicative of any ancillary transactions, including the exception 
for underwriting services or the processing, clearing, or sending of 
payments by a bank.
    Ordinary or administrative business transaction. Title VIII 
includes an exception for any ordinary or administrative business 
transaction as may be defined in regulations. The Treasury Department 
has opted not to include a definition of an ordinary or administrative 
business transaction in the Proposed Rule. Given the broad scope of the 
exceptions for ancillary transactions and secondary transactions, the 
Treasury Department believes that transactions that may fall within the 
category of ordinary or administrative business transaction likely 
would already be within the scope of those exceptions or would not be 
covered national security transactions at all. The Treasury Department 
welcomes comment on what may constitute an ordinary or administrative 
business transaction that (1) would meet the definition of a covered 
national security transaction; and (2) is not otherwise included in 
another exception in the Proposed Rule.
    Ancillary transaction. Title VIII creates a new exception for any 
ancillary transaction undertaken by a financial institution, as 
``financial institution'' is defined in 31 U.S.C. 5312. The Proposed 
Rule would incorporate Title VIII's statutory definition and clarify 
that such transactions must be undertaken in connection with, or in 
certain situations, on behalf of, a covered foreign person.
    Transaction completed before the effective date of Title VIII. 
Title VIII also includes an exception for any transaction completed 
before the date of the enactment of Title VIII, i.e., December 18, 
2025. The Proposed Rule would implement this provision but limit the 
application to any covered national security transaction not otherwise 
subject to the Part 850 Regulations. This additional language is 
intended to ensure that parties understand that the exception does not 
permit them to avoid any prohibition or notification requirements under 
the Part 850 Regulations for any covered national security transaction 
that would be a ``covered transaction'' under the Part 850 Regulations.
Sec.  851.502--National Interest Exemption
    Title VIII authorizes the Secretary to exempt from prohibition any 
activity determined by the President, in consultation with the 
Secretary, or delegated to the Secretary, in coordination with the 
Secretary of Commerce, Secretary of State, and, as appropriate, the 
heads of other relevant Federal departments and agencies, to be in the 
national interest of the United States. Any determination to grant a 
national interest exemption will be based on a consideration of the 
totality of the relevant facts and circumstances.
    Instructions for submitting a request for a national interest 
exemption can be found on the OISP website.
    The Treasury Department is considering whether a streamlined 
process for seeking a national interest exemption would be appropriate 
for covered national security transactions in one or more technology 
sectors. The Treasury Department requests comment on what the criteria 
and timelines should be if any such process were to be considered.
Sec.  851.503--Intelligence Activities Exemption
    Title VIII adds an exemption for any authorized intelligence 
activities of the United States. Section 851.503 of the Proposed Rule 
incorporates this exemption.
Subpart F--Violations
    This subpart of the Proposed Rule describes conduct that would be 
treated as a violation of the Proposed Rule. Such conduct would include 
taking any action prohibited by the Proposed Rule, failing to take any 
action required by the Proposed Rule within the timeframe and in the 
manner required, taking action to evade or avoid--or conspiring to 
violate--the Proposed Rule's requirements, and making materially false 
or misleading representations to the Treasury Department when 
submitting any information required by the Proposed Rule.
    The Treasury Department notes that the proposed anti-evasion 
language would apply to any action that evades or avoids, has the 
purpose of evading or avoiding, causes a violation of, or attempts to 
violate any of the Proposed

[[Page 67411]]

Rule's obligations, as well as to any conspiracies formed to violate 
the obligations of the Proposed Rule. Evasion may include the 
establishment by a U.S. person of an entity or corporate structure to 
effectuate a transaction that would be a covered national security 
transaction if undertaken by a U.S. person. While many U.S. investors 
or asset managers may have bona fide commercial reasons to establish 
non-U.S. investment vehicles to effectuate investments outside of the 
United States, in determining whether an entity was established or used 
for the purpose of evading the obligations of the Proposed Rule, the 
Treasury Department may consider, inter alia: whether a U.S. person de 
facto controls the non-U.S. entity irrespective of formal corporate 
governance rights or voting interest held in the entity; the extent and 
nature of any shared personnel, services, facilities, or branding 
between a U.S. person and the non-U.S. entity, or commingling of funds; 
privity in limited partnership interest between a U.S. person and the 
non-U.S. entity (i.e., does the non-U.S. entity have the same investors 
as an affiliated U.S. fund or fund controlled by a U.S. person); and 
shared beneficial ownership or right to proceeds (including any 
commercial arrangements effectuating the same) between the U.S. person 
and the non-U.S. entity.
    Pursuant to Title VIII, the Treasury Department proposes adding a 
new Sec.  851.605, which would establish that, in an enforcement action 
for a violation of the Proposed Rule, the burden of proof shall be upon 
the Secretary.
Subpart G--Penalties and Disclosures
    This subpart of the Proposed Rule describes the penalties that 
would be applicable to violations of the Proposed Rule. The Treasury 
Department notes that the current Part 850 Regulations contain text 
that allows for civil and criminal penalties. Title VIII, however, 
includes language regarding civil penalties but does not include 
language regarding criminal penalties. As such, the Treasury Department 
proposes to retain previous civil penalty language from the Part 850 
Regulations in the Proposed Rule and to omit language that allows for 
criminal penalties from the Proposed Rule. The Proposed Rule would 
include civil penalties up to the maximum amount set forth in section 
206 of the International Emergency Economic Powers Act, 50 U.S.C. 1701 
et seq. The Treasury Department may impose a civil penalty on any 
person that violates the Proposed Rule. Further, to implement Title 
VIII, the Proposed Rule would also state that the Secretary may compel 
the divestment of a covered national security transaction in a 
prohibited technology.
    This subpart would also describe the process for submission of a 
voluntary self-disclosure by a person that may have violated applicable 
rules. The Treasury Department may take self-disclosures into account 
as a mitigating factor in determining any appropriate response, 
including the potential imposition of penalties, if the Treasury 
Department determines that there was a violation. Consistent with Title 
VIII, the Proposed Rule would use corresponding language from the Part 
850 Regulations but would modify the scope of a voluntary self-
disclosure to require that such disclosures contain a proposal for 
mitigation of any harms associated with the violation, including 
divestment or a voluntary disgorgement of profits. The Proposed Rule 
would further specify the information that must be included in a 
voluntary self-disclosure letter.
Subpart H--Provision and Handling of Information
    This subpart of the Proposed Rule would implement the section of 
Title VIII that provides that information or documentary material 
provided to the Treasury Department under this part is exempt from 
disclosure under section 552(b)(3) of Title 5 of the United States 
Code. Title VIII also identifies exceptions to this rule.
    The Proposed Rule would incorporate this provision of Title VIII 
with certain clarifications. Title VIII excepts from the disclosure 
exemption certain information ``[g]athered by the Secretary or the 
Secretary's designee where the disclosure is determined to be in the 
national interest.'' Section 851.801(b)(6) would clarify that the 
determination is made by the Secretary or the Secretary's designee. 
Factors that the Secretary or the Secretary's designee may consider 
when determining if disclosure is in the national interest may include 
whether such disclosure will further national security interests, 
address law enforcement needs, or promote compliance with the rule. 
Circumstances in which the Secretary may determine the disclosure of 
information to be in the national interest can include, for example, in 
the context of notifying the public regarding an action taken by the 
Treasury Department to enforce compliance with the Proposed Rule. The 
Treasury Department anticipates this exception to be invoked only in 
circumstances in which the Secretary identifies a national interest 
that disclosure could help to address.
Subpart I--Non-Binding Feedback
    This subpart would implement Title VIII by establishing procedures 
by which an eligible person may request non-binding feedback from the 
Treasury Department regarding a prohibited transaction.
    The Treasury Department recognizes that parties may have questions 
regarding whether a specific investment would constitute a prohibited 
transaction. Indeed, since the Part 850 Regulations became effective in 
January 2025, transaction parties and the public have requested 
feedback on interpretations of the Part 850 Regulations, submitted 
questions regarding compliance with the regulations, and sought 
additional public guidance. In response, the Treasury Department has 
published on its website several tranches of Frequently Asked Questions 
designed to assist the public with understanding and complying with the 
regulations.
    To make effective and efficient use of the Treasury Department's 
resources, limit frivolous requests as contemplated under Title VIII, 
and adhere to Title VIII's confidentiality requirements, the Proposed 
Rule would require that requests for feedback be submitted in writing 
by a party with a direct financial interest in an actual--not 
hypothetical--transaction. While an executed contract would not be 
required, the material terms of the prospective transaction would need 
to be identified in a binding written agreement or other binding 
document to demonstrate that the transaction is not hypothetical. 
Requesters would need to provide sufficient detail regarding the 
transaction--which could be in the form of an executed contract, term 
sheet, or other written documentation--to permit a meaningful review 
and potential determination by the Treasury Department as to whether 
the transaction is a prohibited transaction. The Treasury Department 
recognizes that a person that is not a party to a covered national 
security transaction may have tips or referrals related to compliance 
with the OISP, and the Treasury Department continues to encourage the 
submission of tips and referrals by email to 
<a href="/cdn-cgi/l/email-protection#0b447e7f69647e656f255f627b784b7f796e6a787e7972256c647d"><span class="__cf_email__" data-cfemail="743b0100161b011a105a201d040734000611150701060d5a131b02">[email&#160;protected]</span></a>. The Treasury Department will continue to 
monitor and evaluate such tips and referrals, but it does not intend to 
provide feedback to them.
    The Treasury Department expects that a party, before submitting a 
request for non-binding feedback, will have conducted sufficient 
diligence with respect to a potential investment to provide the 
information that the

[[Page 67412]]

Treasury Department would need to evaluate such a request. This would 
include, at a minimum, information about the requester and any party to 
the transaction; a detailed description of the structure of the 
transaction (including the form of investment, governance and 
information rights, timing, and completion date); a detailed 
description of the products, services, technologies, or activities 
implicated by the transaction; all operative documents and material 
term sheets, draft agreements, side letters, and other written 
materials reflecting the transaction; and any other information that 
the requester believes would be relevant to the application of the 
Proposed Rule to the transaction.
    The Proposed Rule would outline additional features of the 
submission process for non-binding feedback, including a required 
certification that the request contains true, correct, and complete 
disclosure of all material facts and circumstances known to the 
requester at the time of submission and that the requester will 
supplement the request if the requester learns of material changes or 
omissions. The Proposed Rule notes that the Treasury Department may 
request additional information or a meeting with the requester and any 
relevant parties to the transaction.
    The Proposed Rule would state that receipt of a complete request 
for non-binding feedback would not obligate the Treasury Department to 
issue such feedback and would also state that the Treasury Department 
may, in its sole discretion, respond to a complete request by providing 
anonymized public guidance, issuing confidential, written non-binding 
feedback, or declining to provide feedback. The Proposed Rule would 
further state that non-binding feedback provided pursuant to this 
subpart would address only whether a transaction, as described in the 
request, would constitute a prohibited transaction, and that the 
Treasury Department may provide feedback that is responsive to some, 
but not all, of the questions or information presented by the 
requester. The Proposed Rule would also describe the non-binding nature 
of the feedback, noting that feedback provided pursuant to this subpart 
would not bind the Treasury Department, any other Federal or local 
department or agency, or any court; would not constitute an 
authorization, license, exemption, or waiver; and would not preclude 
the Treasury Department from taking any action authorized by the law 
with respect to the transaction, the requester, or any other person.
    To further limit frivolous requests as authorized under Title VIII, 
the Proposed Rule would describe types of requests that the Treasury 
Department may identify as frivolous, including requests that concern 
hypothetical conduct, are incomplete or lack sufficient information to 
permit a meaningful review, or seek general advisory views or policy 
guidance that is not specific to the transaction that is the subject of 
the request.
    The Treasury Department notes that this non-binding feedback 
process would be a new addition to the OISP, as the Part 850 
Regulations do not include such a process, and welcomes comment on this 
subpart.
Subpart J--Information on Covered Foreign Persons
    Subpart J of the Proposed Rule would implement Title VIII by 
establishing a mechanism by which the public can submit evidence, on a 
confidential basis, regarding whether a foreign person is a covered 
foreign person engaged in a prohibited technology or notifiable 
technology. The Proposed Rule would describe the information that the 
Treasury Department requires to determine whether a foreign person is a 
covered foreign person.
    The Treasury Department is actively considering whether and how to 
establish a publicly accessible, non-exhaustive database of covered 
foreign persons as described in Title VIII. Items under consideration 
include: (1) whether to limit such a database to only covered foreign 
persons engaged in prohibited technology; (2) the evidentiary standard 
that the Treasury Department should meet before determining that a 
foreign person is (or is no longer) a covered foreign person engaged in 
a prohibited technology or a notifiable technology and should be 
included in (or removed from) a database; (3) how to communicate the 
limited temporal nature of inclusion in any such database, given that a 
covered foreign person's engagement in a prohibited technology or 
notifiable technology can change over time; and (4) the administrative 
burden this may place on the Treasury Department. The Treasury 
Department welcomes comment on these and any other issues that may be 
relevant to the establishment of the public database.
Subpart K--Other Provisions
    This subpart of the Proposed Rule would implement provisions 
related to the delegation of the Secretary's authorities under Title 
VIII, any amendment or modification of the Proposed Rule, severability 
of the Proposed Rule, and a requirement for certain information 
regarding any transaction to be furnished upon demand. The Proposed 
Rule would also state that, consistent with Title VIII, the Treasury 
Department has the power to investigate conduct that may constitute a 
violation, hold hearings, call witnesses, and require in-person 
testimony or production of documents.

III. Request for Comment

    The Treasury Department welcomes comment with respect to the 
Proposed Rule as a whole and to specific provisions discussed above in 
Section II, accompanied by empirical data or other specific information 
wherever possible.

IV. Rulemaking Requirements

    This Proposed Rule is intended to implement Subtitle C of the COINS 
Act, which added Title VIII to the Defense Production Act of 1950. 
Title VIII establishes a statutory framework for the Secretary to (1) 
require U.S. persons to provide notification to the Treasury Department 
regarding certain transactions involving foreign persons that are 
engaged in activities involving notifiable technologies, and (2) 
prohibit U.S. persons from engaging in certain other transactions 
involving foreign persons that are engaged in activities involving 
prohibited technologies.
    The Treasury Department has opted, as a matter of discretion, to 
undertake a high-level analysis of the anticipated costs and benefits 
of the Proposed Rule.
    In addition, this section includes the required assessments of the 
reporting and recordkeeping burdens under the Paperwork Reduction Act 
of 1995 (PRA), 44 U.S.C. 3501 et seq., and the potential impact on 
small entities pursuant to the Regulatory Flexibility Act (RFA), 5 
U.S.C. 601 et seq.

A. Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess costs 
and benefits of available regulatory alternatives for certain types of 
rulemaking in certain circumstances and, if regulation is necessary, to 
select regulatory approaches that maximize net benefits. The Office of 
Management and Budget's Office of Information and Regulatory Affairs 
has designated this Proposed Rule a significant regulatory action under 
E.O. 12866. The Treasury Department conducted an assessment of the 
costs and benefits of the Proposed Rule, as well as the costs and 
benefits of available regulatory alternatives.
    As noted above, Title VIII directs the Secretary to issue 
regulations to (1) require U.S. persons to provide

[[Page 67413]]

notification to the Treasury Department regarding certain transactions 
involving foreign persons that are engaged in activities involving 
notifiable technologies, and (2) prohibit U.S. persons from engaging in 
certain other transactions involving foreign persons that are engaged 
in activities involving prohibited technologies. The Proposed Rule 
maintains the general framework of the Part 850 Regulations while 
making changes to implement Title VIII and address the effort by 
countries of concern to develop certain technologies that pose a threat 
to the national security of the United States.
    Title VIII authorizes the Secretary, in consultation with the 
appropriate congressional committees and subject to notice and comment, 
to prescribe regulations defining the technical parameters of 
notifiable technologies and prohibited technologies in the following 
technology sectors: (1) semiconductor technology and microelectronics; 
(2) artificial intelligence systems; (3) quantum information 
technologies; (4) high-performance computing and supercomputing; and 
(5) hypersonic systems. As described above, the Treasury Department has 
determined that rapid advances in the development, adoption, and use of 
SI capabilities by countries of concern warrant an expansion in the 
prohibition of U.S. person investment in that sector. Additionally, for 
the reasons described above, the Treasury Department has expanded the 
prohibition on U.S. person investment into semiconductors and quantum 
computing in countries of concern. Title VIII also authorizes the 
Secretary, in consultation with the appropriate congressional 
committees, to add and define categories of technologies and products 
that enable the military, intelligence, surveillance, or cyber-enabled 
capabilities of a country of concern. The Secretary has determined for 
purposes of this Proposed Rule to add certain technologies and products 
within the biotechnology sector as prohibited technologies. Other 
changes include the coverage of additional countries of concern: 
Russia, Iran, Cuba, the Democratic People's Republic of Korea, and 
Venezuela under the regime of Nicol[aacute]s Maduro Moros. Title VIII 
also requires that the implementing regulations establish a process 
under which a person can request confidential non-binding feedback or 
anonymized public guidance for a potentially prohibited transaction.
    The Proposed Rule would apply to certain types of investments by 
U.S. persons in covered foreign persons engaged in the technologies and 
activities described above or meets the conditions of Sec.  
851.208(a)(8). These include certain acquisitions of equity interests, 
limited partner investments, greenfield investments, joint ventures, 
and certain debt financing transactions. The Proposed Rule would except 
from coverage certain activities or transactions that are identified in 
Title VIII, including investments in publicly traded securities, 
certain investment funds, any de minimis transaction, any ancillary 
transaction, an intracompany transfer of funds, or any ordinary or 
administrative business transaction, as well as other transactions 
secondary to a covered national security transaction. Title VIII also 
authorizes the Secretary to except from coverage any other transaction 
that the Secretary determines is in the national interest of the United 
States.

B. Costs

    The primary direct costs to the public associated with the Proposed 
Rule would relate to (1) understanding the Proposed Rule, (2) 
conducting the transaction-specific diligence that would be needed for 
a U.S. person to determine whether its intended transaction would be 
subject to either the notification or prohibition provisions of the 
Proposed Rule; and (3) if applicable, preparing and submitting a 
mandatory notification of certain transactions or other information to 
the Treasury Department pursuant the Proposed Rule. The Treasury 
Department requests comments on any of the assumptions and estimates in 
this analysis.
    The Proposed Rule would apply to all U.S. persons undertaking a 
covered national security transaction with or involving a covered 
foreign person. To estimate the number of potential transactions 
subject to the Proposed Rule, the Treasury Department considered the 
number of transactions filed under the notification requirement 
pursuant to the Part 850 Regulations, the scoping of the Proposed Rule, 
and a review of commercially available data on transactions that may be 
subject to the Proposed Rule based on the identified sector of the 
investment target.
    For example, to estimate the number of entities and transactions 
that would be potentially affected by the Proposed Rule and would incur 
associated compliance costs, the Treasury Department considered 
publicly available data from PitchBook relating to transactions from 
approximately 2023 through 2025. This data indicated that over the 
relevant three-year period, almost 230 unique U.S.-based investors 
completed approximately 300 initial and add-on investment transactions 
in the semiconductor, artificial intelligence, quantum information 
technology, hypersonic system, high-performance computing and 
supercomputing, and biotechnology sectors (as such sectors are 
identified in the commercially available data) in countries of concern. 
This data suggests an annual average of 75 different investors 
collectively engaging in an annual average of approximately 100 
potentially covered national security transactions. While granular 
details of U.S. private investment overseas cannot be determined with 
precision, the Treasury Department believes this figure to be a 
reasonable estimate. For purpose of this analysis, the Treasury 
Department then doubled the averages from this data over the relevant 
three-year period to account for the possibility that these average 
figures undercount transactions. For example, commercially available 
data may not include certain transactions that would be subject to the 
Proposed Rule, or such data may not identify certain transactions as 
occurring in the technology sectors subject to the Proposed Rule. Thus, 
the Treasury Department's analysis is based on the assumption that, 
annually, around 150 different investors collectively engage in 200 
transactions that would be potentially covered by the Proposed Rule.
    The Treasury Department is interested in comments regarding 
additional publicly available data sources that the Treasury Department 
should consider. The Treasury Department also welcomes comment on 
whether doubling the averages from publicly available data is a 
reasonable way to account for uncertainty or whether the Treasury 
Department should account for this uncertainty using a different 
methodology.
    To derive an estimate for the costs related to the Proposed Rule, 
the Treasury Department first estimated the associated labor costs. The 
Treasury Department expects that businesses reviewing the Proposed Rule 
and engaging in potentially relevant transactions would engage their 
own employees as well as lawyers from outside law firms.
    For a low-end estimate, the Treasury Department relied on May 2025 
Occupational Employment and Wage Statistics (OEWS) data from the Bureau 
of Labor Statistics (BLS), which reports the mean hourly wage for 
Standard Occupational Classification System Code (SOC Code) 231011--
Lawyers to be $89.35 per hour and SOC Code

[[Page 67414]]

111021--General and Operations Managers to be $64.87 per hour.\2\ In 
each instance the Treasury Department tripled the BLS mean hourly wage 
figure. This adjustment is meant not only to account for employee 
benefits and overhead, but also to reflect the presumption that, 
because these U.S. investors require attorneys and other staff with 
experience in cross-border investments that involve complex financial 
and corporate structures, the hourly labor costs of the investors and 
their advisers likely to be affected by the Proposed Rule will be 
systematically higher than the hourly mean wage in these occupational 
categories. Accordingly, the Treasury Department estimates that the 
impacted entities will each incur costs of $195 per hour for operations 
managers and $268 for lawyers. As the Treasury Department is unable to 
determine which particular tasks will be performed by managers as 
compared to lawyers, this cost analysis uses the average wage of the 
two positions for both the low-end and high-end estimate, which the 
Treasury Department assesses is a reasonable method for estimating the 
hourly cost. The average of these figures is $231 per hour, which is 
the low-end estimate.
---------------------------------------------------------------------------

    \2\ Occupational Employment and Wage Statistics Tables: U.S. 
Bureau of Labor Statistics, <a href="https://www.bls.gov/oes/tables.htm">https://www.bls.gov/oes/tables.htm</a>.
---------------------------------------------------------------------------

    For a high-end estimate, for the reasons discussed in the preceding 
paragraph, the Treasury Department acknowledges that the hourly rate 
billed for a lawyer performing the relevant type of work at an outside 
firm may be higher than the average hourly wage of a lawyer. Using BLS 
OEWS data from 2025, the average hourly attorney billing rate in 
Washington, DC, where many private practice attorneys who advise on the 
OISP are based, was $116.73 and the hourly cost for operations managers 
was $78.67.\3\ In each instance, the Treasury Department tripled the 
BLS mean hourly wage figure. This adjustment is meant not only to 
account for employee benefits and overhead, but also to reflect the 
presumption that hourly labor costs of the investors and their advisers 
likely to be affected by the Proposed Rule will be systematically 
higher than the hourly mean wage in these occupation categories. 
Accordingly, the Treasury Department estimates that the affected 
entities will each incur costs of $236 per hour for operations managers 
and $350 for lawyers. The blended average figure for Washington, DC, is 
$293 per hour. The Treasury Department seeks comment on whether these 
figures (i.e., the low-end or the high-end estimate) are reasonable 
benchmarks and estimates for this analysis or whether there are other 
sources of data or estimates it should consider.
---------------------------------------------------------------------------

    \3\ Id.
---------------------------------------------------------------------------

Costs Associated With Understanding the Proposed Rule
    Based on the above assumptions and estimates of affected entities, 
number of transactions, and labor costs, the Treasury Department has 
estimated the annual time and cost that would be spent by affected 
entities in understanding the Proposed Rule. While recognizing that the 
amount of time necessary to understand the Proposed Rule will vary, the 
Treasury Department arrived at the below estimates for purposes of this 
analysis.
    The range of estimated aggregate annual costs for understanding the 
Proposed Rule begins at $462,000 on the low end and rises to $586,000 
on the high end. This is based on the estimate of an average time 
burden to be 10 total person-hours per transaction for understanding 
the Proposed Rule. As such, 10 total person-hours per transaction 
multiplied by 200 annual transactions and the low-end hourly labor cost 
range and high-end hourly labor cost range described above, 
respectively, result in the total cost range for understanding the 
Proposed Rule.
Costs Associated With Diligence and Maintaining Records
    Based on the above assumptions and estimates of affected entities, 
number of transactions, and labor costs, the Treasury Department has 
estimated the annual time and cost that would be spent by affected 
entities on conducting diligence. While recognizing that the extent of 
this diligence will necessarily vary from transaction to transaction 
and noting that these economic estimates should in no way be construed 
as relevant to a party's determination of what constitutes a reasonable 
and diligent inquiry in light of the particular facts and circumstances 
of a transaction and the requirements of the Proposed Rule, the 
Treasury Department arrived at the following estimates for purposes of 
this regulatory analysis.
    The Treasury Department estimates that the range of the annual 
additional cost for conducting diligence and maintaining records would 
range from $0 on the low-end to $2,344,000 on the high-end. In 
estimating the low-end, the Treasury Department recognizes that 
virtually all investment transactions, regardless of whether the 
investment is potentially subject to this Proposed Rule, require some 
minimum level of review, diligence, assessment, and recordkeeping by 
the investor. And, in most cases, the level of collected and retained 
information necessary to comply with the Proposed Rule would not give 
rise to an additional cost to the investor.
    The Treasury Department estimates that with respect to those 
investment transactions where diligence and recordkeeping costs are 
expected to marginally exceed the normal costs due to more detailed 
inquiry regarding a technology or other detail relevant to the Proposed 
Rule, the average additional burden would not exceed 40 total person 
hours per transaction for conducting diligence and maintaining records.
    As such, the Treasury Department arrived at the high-end estimate 
by multiplying 40 total person hours per transaction by 200 annual 
transactions by the high-end hourly labor cost range described above. 
The Treasury Department estimates 40 person-hours per transaction, 
based on a total of approximately eight person-hours across all 
involved employees and lawyers per business day for one week. However, 
the cost and duration of a U.S. person conducting diligence will vary 
depending on a transaction's complexity and may be higher for certain 
transactions, such as indirect transactions, including transactions 
undertaken by a U.S. person's controlled foreign entity.
    The Treasury Department seeks comment on whether these figures are 
reasonable benchmarks and estimates for this analysis or whether there 
are specific sources of data or estimates it should consider.
Costs Associated With Providing Information
    The Proposed Rule contemplates mandatory notifications for 
notifiable transactions and other notices and information submissions. 
The Treasury Department intends to require U.S. persons to provide 
notification of certain transactions under the Proposed Rule. The 
Proposed Rule also contemplates that a person seeking a national 
interest exemption from the prohibition requirements of the Proposed 
Rule would submit certain information to the Treasury Department. The 
Proposed Rule also would require a U.S. person to make a post-closing 
submission regarding a transaction that the U.S. person believed at 
closing was not a covered national security transaction if the person 
later discovers information that, had it been known at closing, would 
have caused the transaction to be a covered national security 
transaction. Moreover, the

[[Page 67415]]

Proposed Rule would require a person to submit a notice of any material 
omission or inaccuracy in any previous representation, statement, or 
certification. Lastly, the Treasury Department anticipates time and 
cost associated with responding to inquiries by the Treasury 
Department.
    The Treasury Department expects that, of the universe of 
potentially covered national security transactions for which U.S. 
persons perform due diligence each year, some will turn out not to be 
covered, others will turn out to be notifiable, and still others will 
turn out to be prohibited. For purposes of this analysis, however, the 
Treasury Department has assumed that U.S. persons will perform due 
diligence with respect to 200 potentially covered national security 
transactions each year, and that all 200 transactions are notifiable 
transactions. The Treasury Department has made this assumption in the 
interest of estimating an upper bound. As a general matter, a 
notifiable transaction would likely cost more in terms of time and 
resources than a prohibited transaction, because, in addition to the 
due diligence cost, a notifiable transaction would entail extra time to 
prepare and submit a notification.
    The estimated annual cost range for time spent submitting 
information would be $2,310,000 to $2,930,000. This estimate assumes 50 
person hours per transaction for preparing and submitting a 
notification, combined with the number of transactions per year--200--
and the hourly labor cost range described above--$231 to $293. As 
discussed above, this number likely reflects the high-end estimate 
since this analysis assumes that every potentially relevant transaction 
would result in a notification. However, the Treasury Department 
expects that some prospective transactions subjected to due diligence 
would turn out to be not covered and others would turn out to be 
prohibited; transactions that are not covered national security 
transactions and prohibited transactions would not trigger a 
notification.
    For purposes of this analysis, the Treasury Department estimated 
only the total annual costs of preparing and submitting a notification. 
If a respondent submits information in support of a national interest 
exemption, the Treasury Department anticipates that the associated time 
needed to prepare and submit such information would be comparable to 
the costs of preparing and submitting a notification. The Treasury 
Department anticipates that the time and cost of preparing and 
submitting a post-transaction notice, notice of any material omission 
or inaccuracy in any previous representation, statement, or 
certification, or responding to agency inquiries may be comparable but 
likely lower than the costs of preparing and submitting a notification.
    Additionally, the Treasury Department recognizes that a U.S. person 
may incur costs for the preparation of a request for confidential non-
binding feedback or anonymized public guidance. However, since this is 
an optional request for a U.S. person and is a new addition to the 
existing program, the Treasury Department cannot estimate the number of 
requests that may be submitted. Therefore, the Treasury Department has 
determined that costs associated with the non-binding feedback process 
will not be included in this cost estimate.
Estimated Total Direct Cost
    Based on the direct cost estimates above, the total annual direct 
costs associated with complying with the Proposed Rule can be expected 
to have a range of between $2,772,000 to $5,860,000 and the total 
annual time burden would be approximately 20,000 person-hours.
Additional Indirect Costs Associated With Prohibited Transactions
    With respect to prohibited transactions, the Treasury Department 
does not believe that the Proposed Rule will have additional direct 
economic costs to U.S. investors beyond those described above. There 
may, however, be additional indirect costs associated with prohibited 
transactions. Investors who would have otherwise engaged in a 
prohibited transaction, absent the Proposed Rule, may have to seek less 
promising investment opportunities since they would be precluded from 
undertaking and benefiting from prohibited transactions that would be 
foreclosed to them by the Proposed Rule. These indirect costs amount to 
the difference between the return that would have been generated by the 
prohibited transaction and the return that would result from the best 
alternative transaction. In addition, while the Proposed Rule may have 
an economic impact on investment targets that are covered foreign 
persons because certain transactions would be prohibited, the Proposed 
Rule is not designed to, nor does it, prohibit all U.S. person 
investments into such persons, due to the several exceptions provided 
for in the Proposed Rule.
Costs to the U.S. Government
    Administering the Proposed Rule would also entail costs to the U.S. 
Government. Such costs would include information technology (IT) 
development and ongoing annual maintenance, as well as processing 
electronic submissions of the transaction data. The Treasury Department 
estimates that IT development costs would be between $4 million and $5 
million with an additional $2 million to $3 million required to 
maintain the new systems and the underlying technology being leveraged 
to support the new capabilities. This would include adjustments to 
address changes in the type of notification information being received, 
as well as implementing processes for the electronic submission of 
requests for confidential non-binding feedback, and information 
submissions regarding potentially covered foreign persons, among other 
changes.
    The Treasury Department or other agencies may incur additional 
costs, besides those estimated above, while promoting compliance with 
the notification and prohibition requirements, potentially including 
providing training on the requirements, publishing documents such as 
guidance and frequently asked questions, and conducting outreach to and 
answering inquiries from the public. The Treasury Department does not 
currently have specific estimates for these costs but estimates that 
there would be personnel costs of less than $1 million associated with 
the Proposed Rule in Fiscal Year 2027. For future years, the Treasury 
Department may incur additional costs for ongoing outreach and 
enforcement, as well as ensuring there is sufficient personnel to 
review and timely respond to requests for confidential non-binding 
feedback.
    The Treasury Department and other government agencies may also 
incur costs in enforcing compliance with the Proposed Rule. These may 
include additional personnel costs related to the expanded prohibition 
in existing technology sectors as well as new technology sectors added 
by Title VIII. The Treasury Department does not currently have 
estimates for these costs, and they are not included in the estimates 
above.
    The Treasury Department plans to monitor compliance with the 
Proposed Rule, when finalized, by leveraging a variety of data sources, 
both internal and external. Because the external data sources may 
include third parties, the Treasury Department requests comment on what 
external data sources would be

[[Page 67416]]

appropriate to leverage in identifying non-compliance with the Proposed 
Rule and what potential costs may be incurred by such third parties. If 
the external data sources include third party commercial data, the 
Treasury Department assesses that the costs associated with accessing 
these databases would be modest and incremental, given that the 
Treasury Department regularly maintains access to such databases but 
may need to request additional licenses for employees. After 
identifying an instance of apparent non-compliance, the Treasury 
Department may initiate outreach to the involved entity, work with law 
enforcement to investigate the apparent non-compliance, or initiate an 
enforcement action. The Treasury Department's enforcement of the 
Proposed Rule would also involve coordination with law enforcement 
agencies. These law enforcement agencies may also incur costs (time and 
resources) while conducting investigations into potential non-
compliance.

C. Benefits

    As Congress noted in the COINS Act, there are countless known and 
unknown entities in countries of concern that are developing dual-use 
strategic technologies that benefit a foreign adversary's military 
modernization efforts, surveillance states, and human rights abuses. 
Advancement by countries of concern in sensitive technologies and 
products critical for the military, intelligence, surveillance, human 
rights abuse, or cyber-enabled capabilities of such countries 
constitutes a threat to the national security of the United States. 
Restricting certain U.S. outbound investments into certain technologies 
in countries of concern is necessary to prevent harm to U.S. national 
security and foreign policy interests.
    The Proposed Rule is designed to complement existing tools of the 
U.S. Government and effectively address the threat to the national 
security of the United States described in Title VIII. While the 
benefit of protecting national security is difficult to quantify, the 
Treasury Department has identified specific benefits below. The 
notification function of the Proposed Rule is intended to provide key 
information that the Treasury Department could use to better inform the 
development and implementation of the OISP. Such notifications received 
under the existing OISP have increased the U.S. Government's visibility 
into transactions by U.S. persons, or their controlled foreign 
entities, in the SI and the semiconductor and microelectronics sectors 
in a country of concern. These have also assisted the U.S. Government 
by highlighting trends with respect to related capital flows and 
investment by non-U.S. persons in these technology sectors in a country 
of concern. Finally, these notifications have informed policy 
development for the Proposed Rule as well as other U.S. Government 
efforts to protect U.S. national security. The Treasury Department 
expects to receive similar benefits from notifications filed under the 
Proposed Rule. The Treasury Department does not currently propose a 
breakeven analysis for the Proposed Rule, as it continues to collect 
information on potential costs and benefits of the Proposed Rule 
through the rulemaking process.

D. Alternatives

    The Proposed Rule is promulgated pursuant to Title VIII, which 
directs the Treasury Department to issue regulations to implement its 
requirements. However, the Treasury Department considered some 
alternative approaches that would be consistent with Title VIII. 
Specifically, the Treasury Department considered the following 
potential alternatives to the Proposed Rule:
    <bullet> Limited exceptions. In the Proposed Rule, the Treasury 
Department would define the term ``covered national security 
transaction'' largely as defined in Title VIII (as set forth in Subpart 
B) without further permitted additions and would provide for certain 
exceptions (in Subpart E), some of which are explicitly required by 
Title VIII and others that are permitted, but not required, under Title 
VIII. Therefore, as an alternative consistent with Title VIII, the 
Treasury Department could have proposed a broader definition of covered 
national security transaction and/or fewer exceptions. This alternative 
likely would result in the gathering of more information on U.S. 
investments in sensitive technologies and products in countries of 
concern through notifiable transactions, which would expand the 
information available to assist the development and implementation of 
the OISP. But the alternative approach also likely would impose higher 
compliance costs on U.S. persons.
    <bullet> Prohibited and notifiable technology using broad 
definition of sectors rather than specific activities and technologies. 
In the Proposed Rule, the Treasury Department would define notifiable 
technology and prohibited technology in Sec.  851.218 and Sec.  
851.226, respectively, by reference to certain technologies and 
activities, and in some instance, end uses. Alternatively, and 
consistent with Title VIII, the Treasury Department could have proposed 
broad sectoral categorizations, such as, for example, defining a 
prohibited technology to include ``all super intelligence'' in a 
country of concern. If the Treasury Department had proposed that 
approach, the Treasury Department estimates that it would create 
ambiguity and uncertainty for U.S. persons about what investments were 
subject to the prohibition and notification requirements because of the 
lack of a clear, articulated nexus between a covered foreign person and 
the technology being described. This in turn would result in 
significant compliance costs and overall economic consequences on U.S. 
persons and the U.S. economy that could undermine potential national 
security benefits.

Paperwork Reduction Act

    The collections of information contained in this Proposed Rule have 
been submitted to OMB for review in accordance with section 3507(d) of 
the PRA under control number 1505-0282.
    The Proposed Rule would require U.S. persons to submit a 
notification with respect to (1) any notifiable transaction, as defined 
in the Proposed Rule; (2) any transaction by a controlled foreign 
entity that would be a notifiable transaction if engaged in by a U.S. 
person; and (3) any transaction for which a U.S. person acquires actual 
awareness after the completion date of the transaction that the 
transaction would have been a prohibited transaction or notifiable 
transaction if such awareness had been possessed by the relevant U.S. 
person at the time of the transaction. Such notification would include 
relevant details on the U.S. person involved in the transaction, as 
well as information on the transaction and the foreign person involved. 
The Proposed Rule would require any U.S. person that has filed a 
notification to respond to any questions or document requests from the 
Treasury Department related to the transaction or compliance with the 
Proposed Rule; any information or documents provided to the Treasury 
Department in response to such request would be deemed part of the 
notification under the Proposed Rule.
    The Proposed Rule would also require any U.S. person that files a 
notification to maintain a copy of the notification filed and 
supporting documentation for a period of ten years from the date of the 
filing. Further, the Proposed Rule would require any person who has 
made any representation, statement, or certification subject to the 
Proposed Rule to notify the Treasury Department

[[Page 67417]]

in writing of any material omission or inaccuracy in such 
representation, statement, or certification. Also, the Proposed Rule 
would require any voluntary self-disclosure letter to describe the 
violation and provide complete information to inform an understanding 
of the violation, and may in some instances require additional 
supporting documentation. Additionally, the Proposed Rule would require 
any U.S. person seeking confidential non-binding feedback to have a 
direct financial interest in an actual transaction and provide 
sufficient detail in writing to determine if a transaction is a 
prohibited transaction. Finally, the Proposed Rule would also require 
any U.S. person seeking a national interest exemption to submit 
information to the Treasury Department regarding the scope of the 
transaction, including, as applicable, the information that would be 
required for a notification of a notifiable transaction.
    The collections of information described would be used by the 
Treasury Department and, as appropriate, certain other Executive Branch 
agencies, in connection with the analysis of notifiable transactions 
pursuant to Title VIII. Under the current OISP, information provided in 
notifications has increased the U.S. Government's visibility into the 
volume and nature of U.S. person transactions involving the 
semiconductor and microelectronics and SI sectors, as well as helped 
highlight trends with respect to related capital flows. Similarly, the 
Treasury Department expects this information would continue to assist 
in informing future policy development and decisions, including any 
modifications to the scope of prohibited transaction or notifiable 
transaction. Additionally, the information would assist the Secretary 
in complying with the reporting requirements in Title VIII and in 
determining whether to grant a national interest exemption to a 
particular covered national security transaction. The Proposed Rule 
would require the Treasury Department not to make public any 
information or documentary materials submitted to or filed with the 
Treasury Department under the Proposed Rule unless required by law or 
otherwise provided in the Proposed Rule, including when the information 
is relevant to any penalty imposed or any other enforcement action 
taken under the Proposed Rule.
    Written comments and recommendations for the proposed information 
collections can be submitted by visiting <a href="https://www.reginfo.gov/public/do/PRAMain">https://www.reginfo.gov/public/do/PRAMain</a>. Information collection requests may be found by 
selecting ``Currently Under Review--Open for Public Comments'' or by 
using the search function. Comments on the collections of information 
should be received by December 7, 2026.
    The Treasury Department used the methodology described in the 
previous section to estimate the total annual reporting and 
recordkeeping burden of the information collections in this Proposed 
Rule. The Treasury Department estimates that the annual hourly burden 
would be 18,000 hours. This annual total is based on the Treasury 
Department's assumption that: (1) 150 entities per year would respond 
to the information collections in this Proposed Rule and these 
respondents would file 200 responses to the information collections 
annually; and (2) each respondent would spend an average of 50 to 90 
person hours per response. The Treasury Department estimates that the 
annual cost burden associated with the information collections in the 
Proposed Rule would range between $2,310,000 and $5,274,000.
    In accordance with 5 CFR 1320.8(d)(1), the Treasury Department is 
soliciting comments from members of the public concerning these 
collections of information to:
    (1) Evaluate whether the proposed collections of information are 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (2) Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collections of information;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collections of information on those 
who are to respond, including through the use of appropriate automated 
collection techniques or other forms of information technology.
    Under the PRA, an agency may not conduct or sponsor, and a person 
is not required to respond to, a collection of information unless it 
displays a valid control number assigned by the OMB.

Regulatory Flexibility Act

    It is hereby certified that the Proposed Rule would not have a 
significant economic impact on a substantial number of small entities 
within the meaning of section 601(6) of the Regulatory Flexibility Act.
    The Proposed Rule may impact any U.S. person, including a small 
business that engages in a covered national security transaction with a 
covered foreign person. The Treasury Department does not anticipate 
that the Proposed Rule would affect ``small organizations'' or ``small 
governmental jurisdiction[s],'' as defined in the RFA.
    The Treasury Department expects the Proposed Rule to have a 
negligible baseline impact on small businesses because the Proposed 
Rule focuses on certain transactions that--based on the Treasury 
Department's experience with the type of U.S. investors involved in 
transactions currently subject to the existing OISP--are more likely to 
involve a small number of sophisticated investors managing substantial 
amounts of capital and with access to expertise in a number of emerging 
technology sectors. This expertise may be acquired through affiliated 
companies or the hiring of senior advisors with significant experience 
growing and managing successful technology companies, either of which 
financial investors that meet the requirements to be a small business 
are unlikely to have. Further, the covered foreign persons subject to 
the Proposed Rule are largely located outside of the United States, 
requiring U.S. investors to hire or retain staff skilled in assessing 
and structuring complex cross-border investments in foreign companies, 
which is not common to small businesses. In addition, and as discussed 
below, the Treasury Department has assessed that small businesses would 
be more likely to enter into the types of transactions excepted from 
coverage, including de minimis transactions and investments in publicly 
traded securities, if such businesses are investing at all into covered 
national security transactions.
    As an example, the Small Business Administration's (SBA's) Table of 
Size Standards with respect to North American Industry Classification 
System U.S. Industry Sector 52 ``Finance and Insurance'' defines a 
small business in this sector by dollar value rather than by number of 
employees. For example, SBA categories such as ``open end investment 
funds,'' and ``other financial vehicles'' are not considered small 
businesses if their average annual receipts exceed $40 million. A 
number of the U.S. investors who have submitted notifications pursuant 
to the Part 850 Regulations are investment firms or entities that 
exceed this threshold, as do most investment entities operating in the 
United States. As a reference point, according to the Investment 
Company Institute, there were 11,263 U.S. businesses in this

[[Page 67418]]

category with net sales of $1.58 trillion.\4\ Extrapolating from this 
data, the average net sales per firm in this category would have been 
$140.4 million.
---------------------------------------------------------------------------

    \4\ Investment Company Institute, 2026, Investment Company 
Factbook, Data Tables <a href="https://www.icifactbook.org/26-fb-data-tables.html#sec9">https://www.icifactbook.org/26-fb-data-tables.html#sec9</a>.
---------------------------------------------------------------------------

    Given the applications of technologies and products in these 
sectors, the Treasury Department believes investments into these 
sectors involving a person of a country of concern is not typical for a 
small business, as these investor types are treated in the SBA's Table 
of Size Standards. Importantly, the Proposed Rule would also except 
certain types of transactions, including certain investments into 
publicly traded securities or into certain investment funds, as well as 
de minimis transactions where a small business is more likely to 
consider investing. Given the narrow scoping of what constitutes a 
covered national security transaction under the Proposed Rule, the 
Treasury Department expects that few small businesses, as that term is 
defined by SBA, will be impacted by the Proposed Rule.
    In the unlikely event that a small entity is subject to the 
requirements of the Proposed Rule, such entity would be expected to 
incur the costs described in the separate cost benefit analysis above. 
For submission of notifications, the Treasury Department has endeavored 
to develop information gathering procedures that minimize the burden on 
U.S. persons, both large and small. U.S. persons who file a 
notification will use a fillable form that will be available online and 
is intended to facilitate submission through an electronic format. This 
fillable form will benefit anyone who submits a notification, 
regardless of their size, but may be especially helpful for small 
businesses that will be able to submit directly to the Treasury 
Department through the online portal.
    Notwithstanding this certification, the Treasury Department invites 
comments from the public about the impact the Proposed Rule would have 
on small entities. The Proposed Rule will be submitted to the Chief 
Counsel for the SBA Office of Advocacy for comment on its impact on 
small business.

Unfunded Mandates Reform Act (UMRA)

    Section 202 of UMRA, 2 U.S.C. 1532, requires that agencies assess 
anticipated costs and benefits and take certain other actions before 
issuing a final rule that includes any Federal mandate that may result 
in expenditures in any one year by a State, local, or Tribal 
government, in the aggregate, or by the private sector, of $100 million 
in 1995 dollars, updated annually for inflation. The Proposed Rule does 
not include any Federal mandate that may result in expenditures by 
State, local, or Tribal governments, or by the private sector in excess 
of that threshold.

Executive Order 13132: Federalism

    Executive Order 13132 prohibits an agency from publishing any rule 
that has federalism implications if the rule either imposes 
substantial, direct compliance costs on State and local governments, 
and is not required by statute, or preempts State law, unless the 
agency meets the consultation and funding requirements of section 6 of 
the order. The Proposed Rule does not have federalism implications and 
does not impose substantial direct compliance costs on State and local 
governments or preempt State law within the meaning of Executive Order 
13132.

List of Subjects

31 CFR Part 850

    Administrative practice and procedure, Artificial intelligence, 
Business and industry, Confidential business information, Electronic 
filing, Executive orders, Foreign persons, Hong Kong, Holding 
companies, Investigations, Investments, Investment companies, 
Microelectronics, National defense, National security, Macau, 
Penalties, People's Republic of China, Quantum information 
technologies, Reporting and recordkeeping requirements, Science and 
technology, Securities, Semiconductors, U.S. investments abroad.

31 CFR Part 851

    Administrative practice and procedure, Artificial intelligence, 
Biobased products, Biologics, Business and industry, Confidential 
business information, Computer technology, Democratic People's Republic 
of Korea, Electronic filing, Foreign persons, High-Performance 
computing, Hong Kong, Holding companies, Hypersonic systems, 
Investigations, Investments, Investment companies, Islamic Republic of 
Iran, Microelectronics, National defense, National security, Macau, 
Penalties, People's Republic of China, Quantum information 
technologies, Reporting and recordkeeping requirements, Russian 
Federation, Science and technology, Scientific equipment, Securities, 
Semiconductors, Supercomputing, U.S. investments abroad, Venezuela.

    For the reasons set out in the preamble, 31 CFR chapter VIII is 
proposed to be amended as follows:

PART 850--PROVISIONS PERTAINING TO U.S. INVESTMENTS IN CERTAIN 
NATIONAL SECURITY TECHNOLOGIES AND PRODUCTS IN COUNTRIES OF CONCERN

0
1. The authority citation for part 850 continues to read as follows:

    Authority: 50 U.S.C. 1701 et seq.; E.O. 14105, 88 FR 54867, 31 
U.S.C. 321.

Subpart A--General

0
2. Add Sec.  850.105 to read as follows:


Sec.  850.105  Applicability.

    The regulations in this part apply to activities of U.S. persons 
that occurred on or after January 2, 2025, and prior to [EFFECTIVE DATE 
OF FINAL RULE].
0
3. Add part 851, consisting of Sec. Sec.  851.101 through 851.1104, to 
read as follows:

PART 851--OUTBOUND INVESTMENT SECURITY PROGRAM REGULATIONS

Subpart A--General
Sec.
851.101 Scope.
851.102 Relation of this part to other laws and regulations.
851.103 Rules of construction and interpretation.
851.104 Knowledge standard.
Subpart B--Definitions
851.201 Advanced packaging.
851.202 Affiliate.
851.203 Certification.
851.204 Completion date.
851.205 Contingent equity interest.
851.206 Controlled foreign entity.
851.207 Country of concern.
851.208 Covered foreign person.
851.209 Covered national security transaction.
851.210 Develop.
851.211 Entity.
851.212 Excepted transaction.
851.213 Fabricate.
851.214 Foreign person.
851.215 Hypersonic system.
851.216 Intracompany transfer of funds.
851.217 Knowledge.
851.218 Notifiable technology.
851.219 Notifiable transaction.
851.220 Package.
851.221 Parent.
851.222 Party.
851.223 Person.
851.224 Principal place of business.
851.225 Produce.
851.226 Prohibited technology.
851.227 Prohibited transaction.
851.228 Quantum computer.
851.229 Relevant Federal departments and agencies.
851.230 Secretary.
851.231 Subsidiary.

[[Page 67419]]

851.232 Super intelligence (SI) system.
851.233 United States.
851.234 U.S. person.
Subpart C--Prohibited Transactions and Other Prohibited Activities
851.301 Undertaking a prohibited transaction.
851.302 Actions of a controlled foreign entity.
Subpart D--Notifiable Transactions and Other Notifiable Activities
851.401 Undertaking a notifiable transaction.
851.402 Notification of actions of a controlled foreign entity.
851.403 Notification of post-transaction knowledge.
851.404 Procedures for notifications.
851.405 Content of notifications.
851.406 Notice of material omission or inaccuracy.
Subpart E--Exceptions and Exemptions
851.501 Excepted transaction.
851.502 National interest exemption.
851.503 Intelligence activities exemption.
Subpart F--Violations
851.601 Taking actions prohibited by this part.
851.602 Failure to fulfill requirements.
851.603 Misrepresentation, concealment, and omission of facts.
851.604 Evasions; attempts; causing violations; conspiracies.
851.605 Burden of proof.
Subpart G--Penalties and Disclosures
851.701 Penalties.
851.702 Administrative collection; referral to United States 
Department of Justice.
851.703 Divestment.
851.704 Voluntary self-disclosure.
Subpart H--Provision and Handling of Information
851.801 Confidentiality.
851.802 Language of information.
Subpart I--Non-Binding Feedback
851.901 Eligibility to request feedback.
851.902 Submission requirements.
851.903 Additional information; completeness.
851.904 Issuance of non-binding feedback.
851.905 Effect of non-binding feedback.
851.906 Anonymized public guidance.
851.907 Limitations; frivolous feedback requests.
851.908 Signature requirement.
Subpart J--Information on Covered Foreign Persons
851.1001 Confidential submission of information on covered foreign 
persons.
Subpart K--Other Provisions
851.1101 Delegation of authorities of the Secretary of the Treasury.
851.1102 Amendment, modification, or revocation.
851.1103 Severability.
851.1104 Reports to be furnished on demand.

    Authority: 50 U.S.C. 4581-4589; 31 U.S.C. 321.

Subpart A--General


Sec.  851.101  Scope.

    (a) This part implements Title VIII of the Defense Production Act 
of 1950, as amended (50 U.S.C. 4581-4589) (Title VIII), which directs 
the Secretary of the Treasury (the Secretary), in consultation with the 
Secretary of Commerce, the Secretary of State, and, as appropriate, the 
heads of other relevant Federal departments and agencies (as defined in 
Sec.  851.229), to issue, subject to public notice and comment, 
regulations to require a U.S. person to provide written notification on 
behalf of itself or its controlled foreign entity regarding certain 
covered national security transactions in any notifiable technology 
and, where the Secretary has exercised the authority under Title VIII 
to prohibit certain transactions, to prohibit a U.S. person and its 
controlled foreign entities from engaging in certain covered national 
security transactions in any prohibited technology.
    (b) This part identifies certain types of transactions that are 
covered national security transactions--which are certain transactions 
by a U.S. person into or with a covered foreign person. Additionally, 
this part identifies other instances where a U.S. person has 
obligations with respect to certain transactions. The regulations 
prescribe exceptions to the definition of covered national security 
transaction. A transaction that meets an exception is not a covered 
national security transaction and is referred to as an excepted 
transaction. Finally, this part:
    (1) Exempts any authorized intelligence activities of the United 
States; and
    (2) Prescribes a process to consider exempting certain activities 
from the definition of a covered national security transaction on a 
case-by-case basis.
    (c) This part identifies categories of covered national security 
transactions that are notifiable transactions. A notifiable transaction 
is a covered national security transaction by a U.S. person or its 
controlled foreign entity with a covered foreign person or a relevant 
joint venture involving a notifiable technology. A notifiable 
transaction includes a U.S. person's direction of a transaction that 
the U.S. person knows would be a notifiable transaction if engaged in 
by a U.S. person (other than an acquisition of a limited partner 
interest or equivalent in a pooled investment fund that is not a U.S. 
person). This part requires a U.S. person to notify the Department of 
the Treasury of each such notifiable transaction by such U.S. person or 
its controlled foreign entity. This part also requires a U.S. person to 
provide prompt notice to the Department of the Treasury upon acquiring 
actual knowledge after the completion date of a transaction of facts or 
circumstances that would have caused the transaction to be a covered 
national security transaction if the U.S. person had such knowledge on 
the completion date. Additionally, any person who makes a 
representation, statement, or certification to the Department of the 
Treasury under this part is required to promptly notify the Department 
of the Treasury upon learning of a material omission or inaccuracy in 
such representation, statement, or certification.
    (d) This part identifies categories of covered national security 
transactions that are prohibited transactions. A prohibited transaction 
is a covered national security transaction by a U.S. person with a 
covered foreign person or relevant joint venture involving a prohibited 
technology. This part prohibits a U.S. person from knowingly engaging 
in a prohibited transaction, which includes a prohibition on a U.S. 
person's direction of a transaction that the U.S. person knows would be 
a prohibited transaction if engaged in by a U.S. person (other than an 
acquisition of a limited partner interest or equivalent in a pooled 
investment fund that is not a U.S. person). This part also requires a 
U.S. person to take all reasonable steps to prohibit and prevent any 
transaction by its controlled foreign entity that would be a prohibited 
transaction if undertaken by a U.S. person.
    (e) This part provides for the imposition of civil penalties for 
any violation, and the Secretary has the authority to compel divestment 
of a covered national security transaction in a prohibited technology. 
Pursuant to Title VIII, the Secretary also is required to establish a 
process to identify covered national security transactions for which no 
notification was submitted and for which information is reasonably 
available.
    (f) The Secretary should, as appropriate:
    (1) Coordinate with the Secretary of Commerce, the Secretary of 
State, and the heads of other relevant Federal departments and 
agencies, to determine whether certain activity is in the national 
interest of the United States and should be exempted from prohibition;
    (2) Consult with the Secretary of Commerce, the Secretary of State, 
and,

[[Page 67420]]

as appropriate, the heads of other relevant Federal departments and 
agencies, when issuing or updating regulations to implement Title VIII;
    (3) Consult with the Secretary of Commerce and, as appropriate, the 
heads of other relevant Federal departments and agencies, regarding the 
report required by section 803 of Title VIII;
    (4) Consult with the Secretary of Commerce regarding the 
establishment of a publicly accessible, non-exhaustive database that 
identifies covered foreign persons that are either engaged in a 
prohibited technology or a notifiable technology and a mechanism for a 
covered foreign person to petition for removal or inclusion in such a 
database; and
    (5) Coordinate with the Secretary of State, the Secretary of 
Commerce, and the heads of other relevant Federal departments and 
agencies to:
    (i) Conduct bilateral and multilateral engagement with allies and 
partners to promote and increase coordination of protocols and 
procedures to facilitate the effective implementation of and 
appropriate compliance with the prohibition and notification 
requirement pursuant to Title VIII;
    (ii) Work with allies and partners to establish mechanisms for 
information sharing; and
    (iii) Work with and encourage allies and partners to develop 
outbound investment screening mechanisms to prevent the development of 
prohibited technologies by countries of concern.


Sec.  851.102  Relation of this part to other laws and regulations.

    (a) Nothing in this part may be construed to alter, affect, or 
negate any other authority, process, regulation, investigation, 
enforcement measure, license, authorization, or review provided by or 
established under any other provision of Federal law, including the 
International Emergency Economic Powers Act (IEEPA) (50 U.S.C. 1701 et 
seq.), or any other authority of the President or the Congress under 
the Constitution of the United States. This part is separate from, and 
independent of, the other parts of this subtitle. Differing foreign 
policy and national security circumstances may result in differing 
interpretations of the same or similar language among the separate 
parts of this subtitle. No action taken pursuant to any other provision 
of law or regulation, including the other parts of this subtitle, 
authorizes any transaction prohibited by this part or alters any other 
obligation under this part. No action taken pursuant to this part 
relieves any party from complying with any other applicable laws or 
regulations.
    (b) The regulations in this part apply from [EFFECTIVE DATE OF 
FINAL RULE].
    (c) For any activities of a U.S. person to which part 850 of this 
chapter was applicable on or after January 2, 2025, and prior to 
[EFFECTIVE DATE OF FINAL RULE], the regulations in part 850 of this 
chapter will continue to apply.


Sec.  851.103  Rules of construction and interpretation.

    (a) As used in this part, the term ``including'' (or variations 
such as ``include'') means ``including but not limited to.''
    (b) Any term in the singular includes the plural, and the plural 
includes the singular, if such use would be appropriate.
    (c) Section headings are included for convenience of reference only 
and shall not affect the interpretation of this part.


Sec.  851.104  Knowledge standard.

    (a) Certain provisions of this part apply only if a U.S. person 
knows of a fact or circumstance. The term knowledge is defined in Sec.  
851.217. In determining whether a U.S. person is complying with this 
part or has violated any obligation under this part, the Department of 
the Treasury will assess whether such person has or had knowledge of 
the relevant facts and circumstances at the specified time.
    (b) Such assessment as to whether, at the time of a given 
transaction, a U.S. person has or had knowledge of a given fact or 
circumstance will be made based on information a U.S. person had or 
could have had through a reasonable and diligent inquiry. A U.S. person 
that has failed to conduct a reasonable and diligent inquiry by the 
time of a given transaction may be assessed to have had reason to know 
of a given fact or circumstance, including facts or circumstances that 
would cause the transaction to be a covered national security 
transaction in a notifiable technology or a prohibited technology.
    (c) In assessing whether a U.S. person has undertaken such a 
reasonable and diligent inquiry, the Department of the Treasury's 
considerations will include the following, as applicable, among others 
that the Department of the Treasury deems relevant, with respect to a 
particular transaction:
    (1) The inquiry a U.S. person has made regarding an investment 
target or other relevant party, including questions asked of the 
investment target or relevant party, as of the time of the transaction;
    (2) The contractual representations or warranties the U.S. person 
has obtained or attempted to obtain from the investment target or other 
relevant party with respect to the determination of a transaction's 
status as a covered national security transaction in a notifiable 
technology or a prohibited technology and the status of an investment 
target or other relevant party as a covered foreign person;
    (3) The efforts by the U.S. person as of the time of the 
transaction to obtain and consider available non-public information 
relevant to the determination of a transaction's status as a covered 
national security transaction in a notifiable technology or prohibited 
technology and the status of an investment target or other relevant 
party as a covered foreign person;
    (4) Available public information, the efforts undertaken by the 
U.S. person to obtain and consider such information, and the degree to 
which other information available to the U.S. person as of the time of 
the transaction is consistent or inconsistent with such publicly 
available information;
    (5) Whether the U.S. person purposefully avoided learning or 
seeking relevant information;
    (6) The presence or absence of warning signs, which may include 
evasive responses or non-responses from an investment target or other 
relevant party to questions or a refusal to provide information, 
contractual representations, or warranties;
    (7) The use of available public and commercial databases to 
identify and verify relevant information of an investment target or 
other relevant party; and
    (8) Whether the U.S. person appropriately considered any 
information made available by the Department of the Treasury prior to 
the completion of the transaction, including any assessments by the 
Department of the Treasury that the relevant covered foreign person may 
be engaged in a notifiable technology or a prohibited technology.
    (d) An assessment of whether a U.S. person has undertaken a 
reasonable and diligent inquiry shall be based on a consideration of 
the totality of relevant facts and circumstances.
    (e) Paragraphs (a) through (d) of this section shall also apply to 
the knowledge of a controlled foreign entity for the purposes of 
applying Sec. Sec.  851.402 and 851.403.

[[Page 67421]]

Subpart B--Definitions


Sec.  851.201  Advanced packaging.

    The term advanced packaging means to package integrated circuits in 
a manner that supports the two-and-one-half-dimensional (2.5D) or 
three-dimensional (3D) assembly of integrated circuits, such as by 
directly attaching one or more die or wafer using through-silicon vias, 
die or wafer bonding, heterogeneous integration, or other advanced 
methods and materials.


Sec.  851.202  Affiliate.

    The term affiliate means, in the context of a transaction or 
activity covered under this part, a person that directly, or indirectly 
through one or more intermediaries, controls or is controlled by, or is 
under common control with, a person subject to this part.


Sec.  851.203  Certification.

    (a) The term certification means a written statement signed by the 
chief executive officer or other duly authorized designee of the person 
filing a notification or providing other information that certifies 
under the penalties provided in the False Statements Accountability Act 
of 1996, as amended (18 U.S.C. 1001), that the notification or other 
information filed or provided:
    (1) Fully complies with the regulations in this part; and
    (2) Is accurate and complete in all material respects to the best 
knowledge of the person filing a notification or other information.
    (b) For purposes of this section, a duly authorized designee is:
    (1) In the case of a partnership, any general partner thereof;
    (2) In the case of a corporation, any officer thereof; and
    (3) In the case of any entity lacking partners and officers, any 
individual within the organization exercising executive functions 
similar to those of a general partner of a partnership or an officer of 
a corporation or otherwise authorized by the board of directors or 
equivalent to provide such certification.
    (c) In each case described in paragraph (b) of this section, such 
designee must possess actual authority to make the certification on 
behalf of the person filing a notification or other information.

    Note 1 to Sec.  851.203: A template for certifications may be 
found at the Department of the Treasury's Outbound Investment 
Security Program website.

Sec.  851.204  Completion date.

    The term completion date means:
    (a) With respect to a covered national security transaction other 
than under Sec.  851.209(a)(7), the earliest date upon which any 
interest, asset, property, or right is conveyed, assigned, delivered, 
or otherwise transferred to a U.S. person, or as applicable, its 
controlled foreign entity; or
    (b) With respect to a covered national security transaction under 
Sec.  851.209(a)(7), the earliest date upon which any interest, asset, 
property, or right in the relevant covered foreign person is conveyed, 
assigned, delivered, or otherwise transferred to the applicable fund.


Sec.  851.205  Contingent equity interest.

    The term contingent equity interest means a financial interest 
(including debt) that currently does not constitute an equity interest 
but is convertible into, or provides the right to acquire, an equity 
interest upon the occurrence of a contingency or defined event or at 
the discretion of the U.S. person that holds the financial interest.


Sec.  851.206  Controlled foreign entity.

    (a) The term controlled foreign entity means any entity 
incorporated in, or otherwise organized under the laws of, a country 
other than the United States of which a U.S. person is a parent.
    (b) For purposes of the term controlled foreign entity, the 
following rules shall apply in determining whether an entity is a 
parent of another entity in a tiered ownership structure:
    (1) Where the relationship between an entity and another entity is 
that of parent and subsidiary, the holdings of voting interest or 
voting power of the board, as applicable, of a subsidiary shall be 
fully attributed to the parent.
    (2) Where the relationship between an entity and another entity is 
not that of parent and subsidiary (i.e., because the holdings of voting 
interest or voting power of the board, as applicable, of the first 
entity in the second entity is 50 percent or less), then the indirect 
downstream holdings of voting interest or voting power of the board, as 
applicable, attributed to the first entity shall be determined 
proportionately.
    (3) Where the circumstances in paragraphs (b)(1) and (2) of this 
section apply (i.e., because a U.S. person holds both direct and 
indirect downstream holdings in the same entity), any holdings of 
voting interest shall be aggregated for the purposes of applying the 
definition in this section, and any holdings of voting power of the 
board shall be aggregated for the purposes of applying the definition 
in this section. Voting interest shall not be aggregated with voting 
power of the board for the purposes of applying the definition in this 
section.


Sec.  851.207  Country of concern.

    The term country of concern means any of the following:
    (a) The People's Republic of China, including the Hong Kong and 
Macau Special Administrative Regions;
    (b) The Republic of Cuba;
    (c) The Islamic Republic of Iran;
    (d) The Democratic People's Republic of Korea;
    (e) The Russian Federation; and
    (f) The Bolivarian Republic of Venezuela under the regime of 
Nicol[aacute]s Maduro Moros.


Sec.  851.208  Covered foreign person.

    (a) The term covered foreign person means a foreign person that:
    (1) Is an individual that:
    (i) Is a citizen or permanent resident of a country of concern;
    (ii) Is not a U.S. citizen; and
    (iii) Is not a permanent resident of the United States;
    (2) Is an entity incorporated in, has a principal place of business 
in, or is otherwise organized under the laws of a country of concern;
    (3) Is an individual that is a member of the Central Committee of 
the Chinese Communist Party or is otherwise a member of the political 
leadership of a country of concern;
    (4) Is the government of a country of concern, including any 
political subdivision, political party, agency, or instrumentality 
thereof, or any person acting for or on behalf of the government of a 
country of concern;
    (5) Is an entity owned in the aggregate, directly or indirectly, 50 
percent or more, in terms of outstanding voting interest, voting power 
of the board, or equity interest, by a foreign person meeting the 
criteria of paragraphs (a)(1) through (4) of this section;
    (6) Is an entity directly or indirectly subject to the direction or 
control of a foreign person meeting the criteria of paragraphs (a)(1) 
through (4) of this section;
    (7) Is an entity in which one or more foreign persons meeting the 
criteria of paragraph (a)(5) or (6) of this section, individually or in 
the aggregate, directly or indirectly, holds at least 50 percent of any 
of the following interests of such entity: outstanding voting interest, 
voting power of the board, or equity interest; or
    (8) Is an entity that directly or indirectly holds a board seat on, 
a voting or equity interest (other than through securities or interests 
that would satisfy the conditions in

[[Page 67422]]

Sec.  851.501(a) if held by a U.S. person) in, or any contractual power 
to direct or cause the direction of the management or policies of any 
person or persons meeting the criteria of paragraphs (a)(1) through (7) 
of this section that engage(s) in a notifiable technology or prohibited 
technology and from or through which it:
    (i) Derives more than 50 percent of its revenue individually, or as 
aggregated across such persons from each of which it derives at least 
$50,000 (or equivalent) of its revenue, on an annual basis;
    (ii) Derives more than 50 percent of its net income individually, 
or as aggregated across such persons from each of which it derives at 
least $50,000 (or equivalent) of its net income, on an annual basis;
    (iii) Incurs more than 50 percent of its capital expenditure 
individually, or as aggregated across such persons from each of which 
it incurs at least $50,000 (or equivalent) of its capital expenditure, 
on an annual basis; or
    (iv) Incurs more than 50 percent of its operating expenses 
individually, or as aggregated across such persons from each of which 
it incurs at least $50,000 (or equivalent) of its operating expenses, 
on an annual basis.
    (b) As used in paragraph (a)(6) of this section, subject to the 
direction or control means that the government of a country of concern 
(including any political subdivision, political party, agency, or 
instrumentality thereof, or any person acting for or on behalf of the 
government of a country of concern), the individual described in 
paragraph (a)(1) or (3) of this section, or entity described in 
paragraph (a)(2) of this section has the power, directly or indirectly, 
to direct or cause the direction of the management or policies of such 
entity (whether through the ownership of voting securities, by 
contract, or otherwise).
    (c) For purposes of paragraph (a)(8) of this section:
    (1) Calculations shall be based on an audited financial statement 
from the most recent year. If an audited financial statement is not 
available, the most recent unaudited financial statement shall be used 
instead. If no financial statement is available, an independent 
appraisal shall be used instead. If no independent appraisal is 
available, a good-faith estimate shall be used instead.
    (2) Where an amount is not denominated in U.S. dollars, the U.S. 
dollar equivalent shall be determined based on the most recent 
published rate of exchange available on the Department of the 
Treasury's website.
    (d) References in paragraph (a)(8) of this section to revenue, net 
income, capital expenditure, or operating expenses refer to overall 
revenue, net income, capital expenditure, or operating expenses, as 
applicable, without subtracting amounts attributable to persons 
described in paragraph (a) of this section of less than $50,000 (or 
equivalent).


Sec.  851.209  Covered national security transaction.

    (a) The term covered national security transaction means a U.S. 
person's direct or indirect:
    (1) Acquisition of an equity interest or contingent equity interest 
in a covered foreign person that the U.S. person knows at the time of 
the acquisition is a covered foreign person that engages in a 
notifiable technology or a prohibited technology or that meets the 
conditions set forth under Sec.  851.208(a)(8);
    (2) Provision of a loan or a similar debt financing arrangement to 
a covered foreign person that the U.S. person knows at the time of the 
provision is a covered foreign person that engages in a notifiable 
technology or a prohibited technology or that meets the conditions set 
forth under Sec.  851.208(a)(8), where such debt financing affords or 
will afford the U.S. person an interest in profits of the covered 
foreign person, the right to appoint members of the board of directors 
(or equivalent) of the covered foreign person, or other comparable 
financial or governance rights characteristic of an equity investment 
but not typical of a loan; provided:
    (i) Neither the issuance of a secured loan or similar debt 
financing for which equity is pledged as collateral, nor the 
acquisition of such secured debt on the secondary market, is an 
acquisition of an equity interest; and
    (ii) Foreclosure on collateral where the debtholder takes 
possession of the pledged equity is an acquisition of an equity 
interest; provided that such an acquisition is not a covered national 
security transaction where the equity was pledged prior to [EFFECTIVE 
DATE OF FINAL RULE], or where the U.S. person did not know at the time 
of issuing or acquiring the debt that the pledged equity was in a 
covered foreign person that engages in a notifiable technology or 
prohibited technology;
    (3) Entrance into a joint venture, wherever located, that is formed 
with a covered foreign person, and that the U.S. person knows at the 
time of entrance into the joint venture that the joint venture will

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