[Federal Register Volume 88, Number 231 (Monday, December 4, 2023)]
[Proposed Rules]
[Pages 84082-84089]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-26479]


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DEPARTMENT OF ENERGY

10 CFR Chapter III

RIN 1901-ZA02


Interpretation of Foreign Entity of Concern

AGENCY: Office of Manufacturing and Energy Supply Chains (MESC), U.S. 
Department of Energy.

ACTION: Notification of proposed interpretive rule; request for 
comments.

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SUMMARY: The U.S. Department of Energy (DOE or the Department) provides 
this notification of proposed interpretive rule and request for public 
comment on its interpretation of the statutory definition of ``foreign 
entity of concern'' (FEOC) in the Infrastructure Investment and Jobs 
Act, also known as the Bipartisan Infrastructure Law (BIL). This 
statutory definition provides that, among other criteria, a foreign 
entity is a FEOC if it is ``owned by, controlled by, or subject to the 
jurisdiction or direction of a government of a foreign country that is 
a covered nation.'' In this document, DOE proposes to clarify the term 
``foreign entity of concern'' by providing interpretations of the 
following key terms: ``government of a foreign country;'' ``foreign 
entity;'' ``subject to the jurisdiction;'' and ``owned by, controlled 
by, or subject to the direction of.''

DATES: DOE invites stakeholders to submit written comments on its 
interpretation. DOE will accept comments, data, and information 
regarding this interpretation no later than January 3, 2024. Only 
comments received through one of the methods described in the ADDRESSES 
section will be accepted.

ADDRESSES: Interested persons are encouraged to submit comments using 
the Federal eRulemaking Portal at www.regulations.gov. Follow the 
instructions for submitting comments for RIN 1901-ZA02.
    Alternatively, interested persons may submit comments, including 
comments containing information for which disclosure is restricted by 
statute, such as trade secrets and commercial or

[[Page 84083]]

financial information (hereinafter referred to as Confidential Business 
Information (CBI)) and appropriately marked as such, by email to 
[email protected]. Please include RIN 1901-ZA02 in the subject 
line of the message. Please submit comments in Microsoft Word, or PDF 
file format, and avoid the use of encryption.

FOR FURTHER INFORMATION CONTACT: Mallory Clites, U.S. Department of 
Energy, Office of Manufacturing and Energy Supply Chains at Email: 
[email protected], Telephone: 202-287-1803.

SUPPLEMENTARY INFORMATION: 

Table of Contents

A. Background and Purpose
B. Proposed FEOC Terminology Interpretations
    I. Foreign Entity
    II. Government of a Foreign Country
    III. Subject to the Jurisdiction
    IV. Owned by, Controlled by, or Subject to the Direction
C. Explanation of Proposed Interpretation
    I. Foreign Entity
    II. Government of a Foreign Country
    III. Subject to the Jurisdiction
    IV. Owned by, Controlled by, or Subject to the Direction
    a. Control via 25% Interest
    b. Control via Licensing and Contracting
D. Additional Request for Comments
E. Public Comment Process
F. Confidential Business Information
G. Approval of the Office of the Secretary

A. Background and Purpose

    Section 40207 of BIL (42 U.S.C. 18741) provides DOE $6 billion to 
support domestic battery material processing, manufacturing, and 
recycling. Section 40207(b)(3)(C) directs DOE to prioritize material 
processing applicants that will not use battery material supplied by or 
originating from a ``foreign entity of concern'' (FEOC). Similarly, 
section 40207(c)(3)(C) directs DOE to prioritize manufacturing 
applicants who will not use battery material supplied by or originating 
from a FEOC and prioritize recycling applicants who will not export 
recovered critical materials to a FEOC. FEOC is defined in BIL section 
40207(a)(5). The relevant paragraph lists five grounds upon which a 
foreign entity is considered a FEOC. Subparagraphs (A), (B), and (D) 
address entities designated as foreign terrorist organizations by the 
Secretary of State, included on the Specially Designated Nationals and 
Blocked Persons List (SDN List) maintained by the Department of the 
Treasury's Office of Foreign Assets Control (OFAC), and alleged by the 
Attorney General to have been involved in various illegal activities, 
including espionage and arms exports, for which a conviction was 
obtained, respectively. Subparagraph (C) states that a foreign entity 
is a FEOC if it is ``owned by, controlled by, or subject to the 
jurisdiction or direction of a government of a foreign country that is 
a covered nation (as defined in [10 U.S.C. 4872(d)(2)]).'' The 
``covered nations'' are the People's Republic of China (PRC), the 
Russian Federation, the Democratic People's Republic of North Korea, 
and the Islamic Republic of Iran (10 U.S.C. 4872(d)(2)). BIL section 
40207(a)(5) provides no further definition of the term ``foreign 
entity'' or of the terms used in subparagraph (C).
    Subparagraph (E) of BIL section 40207(a)(5) provides an additional 
means by which an entity may be designated to be a FEOC: a foreign 
entity is a FEOC if it is ``determined by the Secretary [of Energy], in 
consultation with the Secretary of Defense and the Director of National 
Intelligence, to be engaged in unauthorized conduct that is detrimental 
to the national security or foreign policy of the United States.''
    In addition to affecting which entities DOE will prioritize as part 
of its BIL section 40207 Battery Materials Processing and Battery 
Manufacturing and Recycling Grant Programs, the term is cross-
referenced in section 30D of the Internal Revenue Code (IRC) (26 U.S.C. 
30D), as amended by the Inflation Reduction Act of 2022 (IRA). Section 
30D provides a tax credit for new clean vehicles, including battery 
electric vehicles. Section 30D(d)(7) excludes from the definition of 
``new clean vehicle'' ``(A) any vehicle placed in service after 
December 31, 2024, with respect to which any of the applicable critical 
minerals contained in the battery of such vehicle (as described in 
[section 30D(e)(1)(A)]) were extracted, processed, or recycled by a 
[FEOC] (as defined in section 40207(a)(5) [of BIL] (42 U.S.C. 
18741(a)(5))), or (B) any vehicle placed in service after December 31, 
2023, with respect to which any of the components contained in the 
battery of such vehicle (as described in section 30D(e)(2)(A)) were 
manufactured or assembled by a [FEOC] (as so defined).''
    DOE is issuing this proposed guidance regarding which foreign 
entities qualify as FEOCs as a result of being ``owned by, controlled 
by, or subject to the jurisdiction or direction of a government of a 
foreign country that is a covered nation.'' DOE considers this proposed 
guidance to be a proposed interpretive rule for purposes of section 553 
of the Administrative Procedure Act (APA) (5 U.S.C. 551 et seq.) and 
does not consider this guidance to be a legislative rule subject to the 
procedural requirements of that section. For the purposes of this 
document, DOE uses the term ``interpretive rule'' and ``guidance'' 
interchangeably. Subsequent to the issuance of this interpretive rule, 
DOE intends to promulgate separate regulations implementing the 
Secretary's ``determination authority'' contained in BIL section 
40207(a)(5)(E) (42 U.S.C. 18741(a)(5)(E)).
    In accordance with section 553 of the APA, public notice and 
opportunity for comment is not required for an interpretive rule. 
Nevertheless, to get the benefit of input from the public and 
interested stakeholders, the Department specifically requests comments 
on its proposed interpretation of the terms discussed herein. This 
document is intended to solicit public feedback on the DOE 
interpretation to better understand stakeholder perspectives prior to 
implementation of finalized guidance. The Department will consider all 
comments received during the public comment period, and modify its 
proposed approach, as appropriate, based on public comment.
    This proposed guidance proceeds as follows: Section B provides 
DOE's interpretation of the relevant terms related to whether a foreign 
entity is a FEOC as the result of being owned by, controlled by, or 
subject to the jurisdiction or direction of a government of a foreign 
country that is a covered nation; Section C provides an explanation of 
DOE's interpretation, along with citations to analogous provisions in 
other statutory and regulatory contexts that DOE consulted in making 
its interpretation; and Section D identifies some specific topics on 
which DOE requests comment from the public.

B. Proposed FEOC Terminology Interpretations

    DOE proposes to clarify the term ``foreign entity of concern'' by 
providing interpretations for the following terms within BIL section 
40207(a)(5)(C) (42 U.S.C. 18741(a)(5)(C)): ``government of a foreign 
country;'' ``foreign entity;'' ``subject to the jurisdiction;'' and 
``owned by, controlled by, or subject to the direction of.'' These 
terms are interpreted separately, recognizing that the terms have 
unique meaning. DOE also proposes interpretations of additional terms 
necessary to provide clarity.
    For DOE's proposed guidance, an entity is determined to be a FEOC 
under BIL section 40207(a)(5)(C) if it meets the definition of a 
``foreign entity,'' (Section B.I) and either is ``subject to the

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jurisdiction'' of a covered nation government (Section B.III) or is 
``owned by, controlled by, or subject to the direction of'' (Section 
B.IV) the ``government of a foreign country'' (Section B.II) that is a 
covered nation.

I. Foreign Entity

    DOE proposes to interpret ``foreign entity'' to mean:
    (i) A government of a foreign country;
    (ii) A natural person who is not a lawful permanent resident of the 
United States, citizen of the United States, or any other protected 
individual (as such term is defined in 8 U.S.C. 1324b(a)(3));
    (iii) A partnership, association, corporation, organization, or 
other combination of persons organized under the laws of or having its 
principal place of business in a foreign country; or
    (iv) An entity organized under the laws of the United States that 
is owned by, controlled by, or subject to the direction (as interpreted 
in Section IV) of an entity that qualifies as a foreign entity in 
paragraphs (i)-(iii).

II. Government of a Foreign Country

    DOE proposes to interpret ``government of a foreign country'' to 
mean:
    (i) A national or subnational government of a foreign country;
    (ii) An agency or instrumentality of a national or subnational 
government of a foreign country;
    (iii) A dominant or ruling political party (e.g., Chinese Communist 
Party (CCP)) of a foreign country; or
    (iv) A current or former senior foreign political figure.
    Senior foreign political figure means (a) a senior official, either 
in the executive, legislative, administrative, military, or judicial 
branches of a foreign government (whether elected or not), or of a 
dominant or ruling foreign political party, and (b) an immediate family 
member (spouse, parent, sibling, child, or a spouse's parent and 
sibling) of any individual described in (a). ``Senior official'' means 
an individual with substantial authority over policy, operations, or 
the use of government-owned resources.

III. Subject to the Jurisdiction

    DOE proposes that a foreign entity is ``subject to the 
jurisdiction'' of a covered nation government if:
    (i) The foreign entity is incorporated or domiciled in, or has its 
principal place of business in, a covered nation; or
    (ii) With respect to the critical minerals, components, or 
materials of a given battery, the foreign entity engages in the 
extraction, processing, or recycling of such critical minerals, the 
manufacturing or assembly of such components, or the processing of such 
materials, in a covered nation.

IV. Owned by, Controlled by, or Subject to the Direction

    DOE proposes that an entity is ``owned by, controlled by, or 
subject to the direction'' of another entity (including the government 
of a foreign country that is a covered nation) if:
    (i) 25% or more of the entity's board seats, voting rights, or 
equity interest are cumulatively held by that other entity, whether 
directly or indirectly via one or more intermediate entities; or
    (ii) With respect to the critical minerals, battery components, or 
battery materials of a given battery, the entity has entered into a 
licensing arrangement or other contract with another entity (a 
contractor) that entitles that other entity to exercise effective 
control over the extraction, processing, recycling, manufacturing, or 
assembly (collectively, ``production'') of the critical minerals, 
battery components, or battery materials that would be attributed to 
the entity.
    Cumulatively held. For the purposes of determining control by a 
foreign entity (including the government of a foreign country), control 
is evaluated based on the combined interest in an entity held, directly 
or indirectly, by all other entities that qualify under the above 
interpretation of ``foreign entity.'' Additionally, an entity that 
qualifies as a ``government of a foreign country that is a covered 
nation'' enters into a formal arrangement to act in concert with 
another entity or entities that have an interest in the same third-
party entity, the cumulative board seats, voting rights, or equity 
interests of all such entities are combined for the purpose of 
determining the level of control attributable to each of those 
entities.
    Indirect control. For purposes of determining whether an entity 
indirectly holds board seats, voting rights, or equity interest in a 
tiered ownership structure:
     If a ``parent'' entity (including the government of a 
foreign country) directly holds 50% or more of a ``subsidiary'' 
entity's board seats, voting rights, or equity interest, then the 
parent and subsidiary are treated as equivalent in the evaluation of 
control, as if the subsidiary were an extension of the parent. As such, 
any holdings of the subsidiary are fully attributed to the parent.
     If a ``parent'' entity directly holds less than 50% of a 
``subsidiary'' entity's board seats, voting rights, or equity interest, 
then indirect ownership is attributed proportionately.
    Section C, contains multiple scenarios illustrating how to 
determine when an entity is indirectly controlled under this 
interpretive rule.
    Effective control means the right of the contractor in the 
contractual relationship to determine the quantity or timing of 
production, to determine which entities may purchase or use the output 
of production, or to restrict access to the site of production to the 
contractor's own personnel; or the exclusive right to maintain, repair, 
or operate equipment that is critical to production.
    In the case of a contract with a FEOC, a contractual relationship 
will be deemed to not confer effective control by the FEOC if the 
applicable agreement(s) reserves expressly to one or more non-FEOC 
entities all of the following rights:
    (i) To determine the quantity of critical mineral, component, or 
material produced (subject to any overall maximum or minimum quantities 
agreed to by the parties prior to execution of the contract);
    (ii) To determine, within the overall contract term, the timing of 
production, including when and whether to cease production;
    (iii) To use the critical mineral, component, or material for its 
own purposes or, if the agreement contemplates sales, to sell the 
critical mineral, component, or material to entities of its choosing;
    (iv) To access all areas of the production site continuously and 
observe all stages of the production process; and
    (v) At its election, to independently operate, maintain, and repair 
all equipment critical to production and to access and use any 
intellectual property, information, and data critical to production, 
notwithstanding any export control or other limit on the use of 
intellectual property imposed by a covered nation subsequent to 
execution.

C. Explanation of Proposed Interpretation

    The term FEOC, as used in both BIL section 40207 and IRC section 
30D, is intended to address upstream supply chains of individual 
entities that may benefit from direct or indirect federal government 
financial support. As such, the interpretations proposed above are 
intended to be structured as, to the greatest degree possible, bright-
line rules that would allow individual entities to readily evaluate 
whether their upstream suppliers would or would not be considered 
FEOCs. In the case of the

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Battery Manufacturing and Recycling Grants Program in BIL section 
40207, a bright-line rule will afford eligible entities using their 
grants for battery recycling greater clarity in avoiding the export of 
recovered critical materials to a FEOC.

I. Foreign Entity

    To be considered a FEOC under BIL section 40207(a)(5) (42 U.S.C. 
18741(a)(5)), the statute requires that the entity be a ``foreign 
entity.'' However, section 40207 does not define ``foreign entity.''
    The interpretation of ``foreign entity'' in this proposed guidance 
aligns closely with the definition of ``foreign entity'' contained in 
the 2021 National Defense Authorization Act (NDAA) (15 U.S.C. 4651(6)), 
which informs certain Department of Commerce programs related to 
semiconductors. Both the interpretation proposed in this guidance and 
the 2021 NDAA definitions define foreign entities to include three main 
categories of entities: (1) a government of a foreign country and a 
foreign political party; (2) a natural person who is not a lawful 
permanent resident of the United States, citizen of the United States, 
or any other protected individual (as such term is defined in 8 U.S.C. 
1324b(a)(3) (addressing unfair immigration-related employment 
practices)); or (3) a partnership, association, corporation, 
organization, or other combination of persons organized under the laws 
of or having its principal place of business in a foreign country.
    DOE's interpretation in this proposed guidance specifically 
provides that entities organized under the laws of the United States 
that are subject to the ownership, control, or direction of another 
entity that qualifies as a foreign entity will also qualify as 
``foreign entities'' for the purposes of BIL section 40207(a)(5)(C). 
The 2021 NDAA definition of foreign entity allows for U.S. entities to 
be considered foreign in this way and also provides an additional list 
of criteria by which such persons may be considered foreign due to 
their relationship with the three main categories of foreign entities. 
While these criteria are relevant for the purposes of the Department of 
Commerce programs at issue, which are primarily concerned with 
preventing the transfer of semiconductor technology to covered nation 
governments, DOE assesses that the criteria are not necessary for the 
purpose of evaluating covered nation-associated risk to the battery 
supply chains, because the natural persons and corporate entities that 
are relevant to the battery supply chain are already encompassed in the 
identified criteria for ``foreign entity.'' DOE's interpretation 
ensures that governments of covered nations cannot evade the FEOC 
restriction simply by establishing a U.S. subsidiary, while otherwise 
maintaining ownership or control over that subsidiary.

II. Government of a Foreign Country

    ``Government of a foreign country'' is a term used to determine 
whether an entity is ``owned by, controlled by, or subject to the 
jurisdiction or direction of a government of a foreign country.'' It is 
also used in the proposed interpretation of ``foreign entity'' in 
paragraph (i) of Section B.I.
    The proposed interpretation of the term ``government of a foreign 
country'' contained within this notice includes subnational 
governments, which can have significant ownership or control of firms 
in the vehicle supply chain. In the covered nations at issue here, 
there exist many subnational and local government-owned entities, that 
play a large role in their nation's economies, and local state-owned 
enterprises (SOEs) are a large driver of regional economies. This term 
also includes instrumentalities, which include separate legal entities 
that are organs of a state but where ownership may be unclear, such as 
a utility or public financial institution. This interpretation aligns 
with the definition of ``foreign government'' promulgated by the 
Department of the Treasury in its regulations implementing the 
Committee on Foreign Investment in the United States (CFIUS) program 
(31 CFR 800.221). That definition includes ``national and subnational 
governments, including their respective departments, agencies, and 
instrumentalities.''
    The proposed interpretation of the term ``government of a foreign 
country'' also includes senior foreign political figures. This 
inclusion recognizes the reality of government influence over business 
entities in covered nations, which is often exercised through 
individuals representing the government on corporate boards or acting 
at the direction of the government or to advance governmental interests 
when serving as an equity owner or through voting interests in an 
otherwise privately held business. This interpretation aligns with the 
Defense Department's National Industrial Security Program Operating 
Manual (NISPOM) regulatory definition of ``foreign interest'' (32 CFR 
117.3) and associated ``foreign ownership, control or influence'' 
(FOCI) regulations (32 CFR 117.11), which recognize as FOCI the 
influence of a representative of a foreign government with the power to 
direct or decide issues related to a U.S. entity. In addition, in order 
to deal with the situation in which officials leave their official 
positions in order to exert the same type of influence on behalf of the 
government, the interpretation also includes former senior government 
officials and former senior party leaders. Inclusion of former 
officials is consistent with regulatory definitions in other contexts. 
For example, the Bank Secrecy Act (BSA) private banking account 
regulations (relating to due diligence program requirements for private 
banking accounts established, maintained, administered, or managed in 
the United States for foreign persons) administered by the Department 
of the Treasury's Financial Crimes Enforcement Network (FinCEN) include 
both current and former officials in the definition of ``senior foreign 
political figure'' (31 CFR 1010.605(p)). Those regulations provide 
further interpretation of the term ``senior official'' that DOE has 
also included to provide additional clarity.
    In the specific context of the CCP in the PRC, DOE considers its 
interpretation of ``government of a foreign country'' to include 
current members of Chinese People's Political Consultative Conference 
and current and former members of the Politburo Standing Committee, the 
Politburo, the Central Committee, and the National Party Congress 
because they qualify as ``senior foreign political figures.''
    Finally, the inclusion of immediate family members of senior 
foreign political figures in the interpretation of ``government of a 
foreign country'' aligns with the BSA private banking regulation. Those 
regulations include the immediate family members of a senior foreign 
political figure in their definition of ``senior foreign political 
figure'' (31 CFR 1010.605(p)(1)(iii)). Immediate family members in 
those regulations mean spouses, parents, siblings, children, and a 
spouse's parents and siblings (31 CFR 1010.605(p)(2)(ii)).

III. Subject to the Jurisdiction

    If an entity is ``subject to the jurisdiction'' of a government of 
a foreign country that is a covered nation, the entity is a FEOC. DOE's 
proposed interpretation provides an objective standard, consistent with 
the common understanding of ``jurisdiction,'' rather than a subjective 
standard that relies upon an individual nation's understanding of its 
own jurisdictional reach. As such, the interpretation first recognizes 
that any organization formed

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under the laws of the government of a covered nation is a national of 
that nation and therefore subject to its direct legal reach. Cf. 28 
U.S.C. 1332(c)(1) (noting that, for the purposes of diversity 
jurisdiction, ``a corporation shall be deemed to be a citizen of every 
. . . foreign state by which it has been incorporated and of the . . . 
foreign state where it has its principal place of business'').
    Second, DOE's proposal accounts for the fact that several critical 
segments of the battery supply chain today are predominantly processed 
and manufactured within covered nation boundaries,\1\ and recognizes 
that a covered nation will be able to exercise legal control 
(potentially forcing an entity to cease production or cease exports) 
over an entity with respect to any critical minerals that are 
physically extracted, processed, or recycled, any battery components 
that are manufactured or assembled, and any battery materials that are 
processed within those boundaries, even if the entity is not legally 
formed under the laws of the covered nation. See Third Restatement 
(Foreign Relations) (1986) section 402(1) (stating that a state has 
``jurisdiction to prescribe law with respect to [conduct, persons, and 
interests] within its territory''). At the same time, DOE's 
interpretation recognizes that such an entity, which is not legally 
formed in a covered nation but has production activities inside a 
covered nation, may also have separate production activities that occur 
outside the covered nation. In that case, the covered nation does not 
have jurisdiction over those outside production activities. Therefore, 
under the proposed guidance, an entity that is not legally incorporated 
in a covered nation could be nevertheless considered a FEOC under the 
jurisdiction prong with respect to the particular critical minerals, 
battery components, or battery materials that are subject to the 
jurisdiction of a covered nation. But the entity would not be 
considered a FEOC with respect to its activities related to other 
critical minerals, battery components, or battery materials that are 
not subject to the jurisdiction of a covered nation.
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    \1\ 100-day-supply-chain-review-report.pdf (whitehouse.gov).
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    Finally, when an entity is a FEOC due to it being ``subject to the 
jurisdiction'' of a covered nation, subsidiaries of the FEOC are not 
automatically considered to also be FEOCs solely based on their parent 
being a covered nation jurisdictional entity. However, a subsidiary 
entity would be a FEOC itself if it is also either (1) ``subject to the 
jurisdiction'' of the covered nation, pursuant to Section B.III, or (2) 
``controlled by'' a covered nation government, pursuant to Section 
B.IV.
    DOE's interpretation is supported by statutory and regulatory 
choices made in similar contexts, including: the 2021 NDAA definition 
of ``foreign entity'' (15 U.S.C. 4651(6)); and the NISPOM regulatory 
definition of ``foreign interest'' (32 CFR 117.3). The above 
interpretation of ``subject to the jurisdiction'' provides clarity to 
original equipment manufacturers (OEM) that removing FEOCs from their 
supply chain will require removal of any critical minerals, battery 
components, and battery materials that are directly produced within the 
boundary of a covered nation.

IV. Owned by, Controlled by, or Subject to the Direction

    If an entity is ``owned by, controlled by, or subject to the 
direction'' of (hereinafter ``controlled by'') a government of a 
foreign country that is a covered nation, the entity is a FEOC. The 
term is also used in paragraph (iv) of the proposed interpretation of 
foreign entity to account for situations where a U.S. entity is 
sufficiently controlled to be considered foreign. DOE's proposed 
interpretation provides for both (1) control via the holding of 25% or 
more of an entity's board seats, voting rights, or equity interest, and 
(2) control via license or contract conferring rights on a person that 
amount to a conferral of control.
    Not all foreign entities are considered FEOCs. However, if an 
entity is a foreign entity that is ``controlled by'' a covered nation 
government, that entity is a FEOC. A subsidiary of that FEOC is not 
automatically considered a FEOC itself unless the subsidiary is either 
(1) ``subject to the jurisdiction'' of a covered nation government, or 
(2) ``controlled by'' a covered nation government (including via direct 
or indirect control, such as through joint ventures, or via contracts 
that confer effective control to a FEOC). As such, a FEOC that is 
controlled by a covered nation government may hold an interest in a 
subsidiary, even an interest above 25%, and that subsidiary may still 
not be a FEOC if the covered nation's level of control of the 
subsidiary falls below 25% (see scenario 3 below).
a. Control via 25% Interest
    DOE's interpretation of control is informed by careful analysis of 
corporate structure within the battery supply chain. In the battery 
industry, the primary methods by which a parent entity, including a 
government of a foreign country, exercises control over another entity 
is through voting interest, equity ownership, and/or boards of 
directors. Parent entities may exercise control via majority ownership 
of shares, voting interest, or board seats, and also through minority 
holdings. Furthermore, parent entities may act in concert with other 
investors to combine minority holdings to exercise control. As a 
result, an effective measure of control is one that considers multiple 
permutations of majority and minority holdings of equity, voting 
rights, and board seats that can cumulatively confer control.
    While there are several prominent companies within the battery 
supply chain that are majority-owned by covered nation governments, 
particularly in the upstream mining segment, the predominant form of 
state ownership and influence in most segments of the battery supply 
chain is through minority shareholding, voting rights, or board seats. 
DOE has evaluated a range of supply chain entities for which covered 
nation governments and officials with cumulative holdings between 25% 
and 50% have meaningful influence over corporate decision-making, even 
in cases of subsidiary entities operating in other jurisdictions and in 
the case of multiple minority shareholders acting in concert. However, 
DOE's assessment of the battery supply chain strongly suggests that 
minority control can attenuate with multiple tiers of separation 
between the state and the firm performing the covered activity.
    DOE recognizes that a bright-line metric for control will be 
necessary to ensure that OEMs can feasibly evaluate the presence of 
FEOCs within their supply chains. Informed by empirical evidence in the 
battery supply chain and choices made in other regulatory contexts, 
discussed further below, DOE's interpretation establishes a 25% 
threshold and guidance on calculation of the attenuation of control in 
a tiered ownership structure. In the case of majority control by a 
covered nation government, that control is not diluted such that 
outright ownership (50%+) confers full control. This ensures that a 
government-controlled company that has majority ownership of a 
subsidiary passes along control. However, multiple layers of minority 
control by a government may become so attenuated that an entity would 
no longer be classified as a FEOC. This bright-line threshold and 
guidance on how to calculate control will enable an evaluation of 
battery supply chains and facilitate any required reporting or

[[Page 84087]]

certification of whether that supply chain includes products produced 
by a FEOC. This same analysis applies to joint ventures, such that if 
the government of foreign country that is a covered nation controls, 
either directly or indirectly, 25% or more of a joint venture, then 
that joint venture is a FEOC.
    DOE's interpretation is supported by choices made in a variety of 
statutory and regulatory regimes and it has devised a method that 
accounts for the specific circumstances present in the battery 
industry. DOE takes a broad approach to the interests that count 
towards the 25% threshold, considering board seats, voting rights, and 
equity interest. This is consistent with FOCI regulations, which 
evaluate ownership based on equity ownership interests sufficient to 
provide ``the power to direct or decide issues affecting the entity's 
management or operations'' (32 CFR 117.11(a)(1)). The interpretation 
that the interests of two entities with an agreement to act in concert 
may be combined to establish a controlling interest is similar to 
concepts in Securities and Exchange Commission rules defining 
beneficial ownership in instances of shareholders acting in concert (17 
CFR 240.13d-5) and CFIUS regulations that consider arrangements to act 
in concert to determine, direct, or decide important matters affecting 
an entity as one means by which two or more entities may establish 
control over another entity (31 CFR 800.208(a)). Different thresholds 
of control are used in different statutory and regulatory contexts 
(see, for example, 26 U.S.C. 6038(e)(2), (3) (defining control with 
respect to a corporation to mean actual or constructive ownership by a 
person of stock possessing more than 50% of the total combined voting 
power of all classes of stock entitled to vote or 50% of the total 
value of shares of all classes of stock of a corporation, and control 
with respect to a partnership to generally mean actual or constructive 
ownership of a more than 50% capital or profit interest in a 
partnership); and 26 U.S.C. 368(c) (defining control with respect to 
certain corporate transactions to mean the ownership of stock 
possessing at least 80% of the total combined voting power of all 
classes of stock entitled to vote and at least 80% of the total number 
of shares of all other classes of stock of the corporation)). However, 
there are a number of analogous regulatory contexts in which a 25% 
threshold for considering an entity controlled is used. For instance, 
the Department of Commerce's final rule in Preventing the Improper Use 
of CHIPS Act Funding, implementing a very similar FEOC provision, uses 
a 25% threshold with respect to voting interest, board seats, and 
equity interests (88 FR 65600; Sept. 25, 2023). The State Department, 
in its International Traffic in Arms Regulation (ITAR) regulations, 
established a presumption of foreign control where foreign persons own 
25% or more of the outstanding voting securities of an entity, unless 
one U.S. person controls an equal or larger percentage (22 CFR 120.65). 
FinCEN's BSA private banking account regulations (31 CFR 
1010.605(j)(1)(i)) and Beneficial Ownership Reporting Rule (31 CFR 
1010.380(d)) also contain 25% ownership thresholds. See also 15 CFR 
760.1(c) (defining ``controlled in fact'' using a 25% threshold for 
cases where no other person controls an equal or larger percentage of 
voting securities). In some of these other contexts, the 25% 
calculation is based on a particular form of control (e.g., only voting 
shares). DOE's interpretation broadens the forms of control that are 
relevant to the 25%, because doing so accords with statutory concerns 
related to the corporate structure of the battery industry.
    DOE's interpretation of indirect control includes guidance on how 
to calculate the attenuation of control in a tiered ownership 
structure. In the case of majority control, that control is not 
attenuated such that outright ownership (50%+) confers full control. 
The proposed approach recognizes the reality that a parent entity that 
holds a majority of the voting interest, equity, or board seats in a 
subsidiary has unilateral control over that subsidiary and can direct 
that subsidiary's ability to exercise influence and control over its 
own subsidiaries. However, in the case of multiple tiers of minority 
control by a government, the actual ability of the government to 
influence the operations of a subsidiary may become so attenuated that 
the subsidiary would no longer reasonably be deemed ``controlled'' by 
the government. This understanding of how to calculate a parent 
entity's indirect ownership and control of sub-entities is similar to 
OFAC's 50% Rule, under which ``any entity owned in the aggregate, 
directly or indirectly, 50% or more by one or more blocked persons is 
itself considered to be a blocked person.'' See U.S. Dept. of the 
Treasury, Revised Guidance on Entities Owned by Persons Whose Property 
and Interests in Property are Blocked (Aug. 13, 2014).
    When calculating whether an entity is a FEOC based on whether the 
government of a covered nation directly or indirectly holds 25% or more 
of its voting share, equity interest, or board seats, DOE's 
interpretation would not factor in any voting share, equity interest, 
or board seats held by an entity that is a FEOC solely by virtue of 
being subject to the covered nation's jurisdiction.
    The following scenarios illustrate indirect control in a tiered 
ownership structure:
    1. If Entity A cumulatively holds 25% of Entity B's board seats, 
voting rights, or equity interest, then Entity A directly controls 
Entity B. If Entity B cumulatively holds 50% of Entity C's board seats, 
voting rights, or equity interest, then Entities B and C are treated as 
the same entity, and Entity A also indirectly controls Entity C.
    [cir] If Entity A is the government of a foreign country that is a 
covered nation, Entities B and C are both FEOCs.
    2. If Entity A cumulatively holds 50% of Entity B's board seats, 
voting rights, or equity interest, then Entity A is the direct 
controlling ``parent'' of Entity B, and Entities A and B are treated as 
the same entity. If Entity B cumulatively holds 25% of Entity C's board 
seats, voting rights, or equity interest, then Entity C is understood 
to be directly controlled by Entity B and indirectly controlled by 
Entity A.
    [cir] If Entity A is the government of a foreign country that is a 
covered nation, Entities B and C are both FEOCs.
    3. If Entity A cumulatively holds 25% of Entity B's board seats, 
voting rights, or equity interest, then Entity A directly controls 
Entity B. If Entity B cumulatively holds 40% of Entity C's board seats, 
voting rights, or equity interest, then Entity B directly controls 
Entity C. However, because Entity A does not hold 50% of the board 
seats, voting rights, or equity interest of Entity B, and Entity B does 
not hold 50% of the board seats, voting rights, or equity interest of 
Entity C, Entity A's indirect control of Entity C is calculated 
proportionately (25% x 40% = 10%). Based on that proportionate 
calculation, Entity A will be considered to hold only a 10% interest in 
Entity C, which is insufficient to meet the 25% threshold for control 
contemplated under this proposed guidance.
    [cir] If Entity A is the government of a foreign country that is a 
covered nation, Entity B is a FEOC. But Entity A holds only a 10% 
interest in Entity C, which is less than the 25% threshold requirement 
to deem Entity C controlled by Entity A. Therefore, Entity C is not a 
FEOC via the indirect control of Entity A.

[[Page 84088]]

b. Control via Licensing and Contracting
    DOE is concerned that if ``controlled by'' covered only direct and 
indirect holding of board seats, voting rights, and equity interest by 
the governments of covered nations, such governments may seek to evade 
application of the interpretation by instead controlling FEOCs that 
contract with non-FEOC entities to be the producer of record while the 
FEOC maintains effective control over production. Because such 
arrangements would defeat congressional intent, DOE proposes an 
interpretation of ``controlled by'' that includes ``effective control'' 
through contracts or licenses with a FEOC that warrant treating the 
FEOC as if it were the true entity responsible for any production.
    Many contractual and licensing arrangements do not raise these 
concerns. Therefore, to provide a reasonably bright-line test for 
evaluation of upstream battery supply chains that include numerous 
contracts and licenses, DOE has proposed in Section B.IV a safe harbor 
for evaluation of ``effective control.'' A non-FEOC entity that can 
demonstrate that it has reserved certain rights to itself or another 
non-FEOC through contract would not be deemed to be a FEOC solely based 
on its contractual relationships.
    DOE also recognizes that even if an entity's contractual 
relationship with a FEOC confers effective control over the production 
of particular critical minerals, battery components, or battery 
materials, the contracting entity would not necessarily be controlled 
by the government of a covered nation for critical minerals, battery 
components, or battery materials that were not produced pursuant to 
that contract or license. Therefore, under the proposed guidance, an 
entity could be considered a FEOC with respect to the particular 
critical minerals, battery components, or battery materials that are 
effectively produced by the FEOC under a contract or license but not 
with respect to other critical minerals, battery components, or battery 
materials that are produced by the entity outside the terms of the 
contract or license with a FEOC.
    The concept that an entity can be controlled via contract is 
supported by choices made in various regulatory contexts, including 
CFIUS regulations that include an understanding that control can be 
established via contractual arrangements to determine, direct, or 
decide important matters affecting an entity (31 CFR 800.208(a)). 
Further, intellectual property can be licensed restrictively, or even 
misused, to give the intellectual property owner rights beyond the 
typical ability to exclude others from making, using, selling, and/or 
copying the intellectual property for a limited time. In this scenario, 
ownership of a facility by an entity that does not have 25% voting 
interest, equity, or board seats held, directly or indirectly, by the 
government of a covered nation, would not be sufficient if a FEOC 
licensor or contractor maintains effective control through other 
mechanisms. Accordingly, DOE has proposed a definition of effective 
control that identifies criteria that would indicate that a license or 
contract provides the licensor or contractor with the ability to make 
business or operational choices that otherwise would rest with the 
licensee or principal. The criteria selected reflect various known 
mechanisms in restrictive or overreaching licenses such as lack of 
access by the licensee or principal to information and data (e.g., 
control parameters or specification and quantities of material input 
for equipment) that are necessary to operate equipment critical to 
production at necessary quality and throughput levels. This lack of 
access could be tantamount to the licensor or contractor having 
effective control over the licensee or principal.

D. Additional Request for Comments

    As explained in Section A, DOE requests comment on its proposed 
interpretations outlined in Section B, as well as the reasoning 
provided in Section C. Subsequent to the issuance of this interpretive 
guidance, DOE intends to promulgate separate regulations implementing 
the Secretary's determination authority contained in BIL section 
40207(a)(5)(E). As such, DOE also requests comment on the following.
    DOE recognizes that entities could attempt to evade ownership and 
control restrictions in various ways without materially changing the 
extent to which they are, in fact, subject to the ownership, control, 
or direction of a covered nation as defined in this guidance. Section 
40207(a)(5)(E) of BIL includes as FEOCs those foreign entities 
``determined by the Secretary [of Energy], in consultation with the 
Secretary of Defense and the Director of National Intelligence, to be 
engaged in unauthorized conduct that is detrimental to the national 
security or foreign policy of the United States.'' Accordingly, DOE 
requests comment on whether use of this determination authority could 
provide a tool for limiting attempts to evade such restrictions and 
what DOE may deem ``unauthorized conduct.'' DOE requests specific 
comment on whether, in addition to or instead of defining ``owned by, 
controlled by, or subject to the direction of'' to include effective 
control via contractual arrangement, DOE should consider whether a 
given contractual or licensing arrangement, or operational practice 
with a contractor or licensor, is a means of evading restrictions on 
production by a FEOC that would warrant use of its determination 
authority in BIL section 40207(a)(5)(E). For example, DOE recognizes 
that even if certain rights are reserved by a non-FEOC licensee in its 
contractual arrangement with a FEOC, a FEOC licensor may nevertheless 
compel the licensee through leverage or coercion to not exercise the 
licensee's contractual rights. DOE could construe any such overt 
compulsion by a FEOC licensor as unauthorized conduct, potentially 
subject to the determination authority. DOE requests comment on whether 
there are any other circumstances related to contractual arrangements 
between entities and FEOCs that could constitute unauthorized conduct, 
potentially subject to the determination authority.
    In addition, in recognition of the fact that it may be particularly 
difficult to definitively evaluate the contractual relationships of 
upstream suppliers, DOE is also considering whether to provide entities 
with the opportunity to voluntarily request a review of contracts and 
licensing arrangements by DOE in order to provide additional certainty 
regarding whether effective control by a FEOC is present. DOE requests 
comment on whether such a voluntary pre-review process would be 
beneficial and administrable, including input on what process steps 
would be reasonable and the types of documents that should be submitted 
for review.

E. Public Comment Process

    Comments submitted can be public or confidential.
    Do not submit to www.regulations.gov information claimed as CBI. 
Comments submitted through www.regulations.gov cannot be claimed as 
CBI. Comments received through the website will waive any CBI claims 
for the information submitted. For information on submitting CBI, see 
the Confidential Business Information section.

F. Confidential Business Information

    Pursuant to 10 CFR 1004.11, any person submitting information that 
he or she believes to be confidential and exempt by law from public 
disclosure should submit via email two well-marked copies: one copy of 
the

[[Page 84089]]

document marked ``confidential'' including all the information believed 
to be confidential, and one copy of the document marked ``non-
confidential'' with the information believed to be confidential 
deleted. Submit these documents via email at [email protected]. DOE 
will make its own determination about the confidential status of the 
information and treat it according to its determination.

G. Approval of the Office of the Secretary

    The Secretary of Energy has approved publication of this 
Notification of proposed interpretive rule; request for comments.

Signing Authority

    This document of the Department of Energy was signed on November 
28, 2023, by Giulia Siccardo, Director, Office of Manufacturing and 
Energy Supply Chains, pursuant to delegated authority from the 
Secretary of Energy. That document with the original signature and date 
is maintained by DOE. For administrative purposes only, and in 
compliance with requirements of the Office of the Federal Register, the 
undersigned DOE Federal Register Liaison Officer has been authorized to 
sign and submit the document in electronic format for publication, as 
an official document of the Department of Energy. This administrative 
process in no way alters the legal effect of this document upon 
publication in the Federal Register.

    Signed in Washington, DC, on November 28, 2023.
Treena V. Garrett,
Federal Register Liaison Officer, U.S. Department of Energy.
[FR Doc. 2023-26479 Filed 12-1-23; 8:45 am]
BILLING CODE 6450-01-P