[Federal Register Volume 89, Number 129 (Friday, July 5, 2024)]
[Proposed Rules]
[Pages 55846-55881]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-13923]



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Vol. 89

Friday,

No. 129

July 5, 2024

Part IV





 Department of the Treasury





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 Office of Investment Security





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31 CFR Part 850





Provisions Pertaining to U.S. Investments in Certain National Security 
Technologies and Products in Countries of Concern; Proposed Rule

  Federal Register / Vol. 89, No. 129 / Friday, July 5, 2024 / Proposed 
Rules  

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DEPARTMENT OF THE TREASURY

Office of Investment Security

31 CFR Part 850

RIN 1505-AC82


Provisions Pertaining to U.S. Investments in Certain National 
Security Technologies and Products in Countries of Concern

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 
Executive Order 14105 of August 9, 2023, ``Addressing United States 
Investments in Certain National Security Technologies and Products in 
Countries of Concern,'' which declares a national emergency to address 
the threat to the United States posed by countries of concern, which 
seek to develop and exploit sensitive technologies or products critical 
for military, intelligence, surveillance, or cyber-enabled 
capabilities. The proposed rule would require United States persons to 
provide notification to the U.S. Department of the Treasury regarding 
certain transactions involving persons of a country of concern who are 
engaged in activities involving certain national security technologies 
and products that may contribute to the threat to the national security 
of the United States; and prohibit United States persons from engaging 
in certain other transactions involving persons of a country of concern 
who are engaged in activities involving certain other national security 
technologies and products that pose a particularly acute national 
security threat to the United States. This notice of proposed 
rulemaking (NPRM) seeks public comment on various topics related to the 
implementation of Executive Order 14105. In accordance with 5 U.S.C. 
553(b)(4), a summary of this rule may be found at https://www.regulations.gov.

DATES: Written comments must be received by August 4, 2024.

ADDRESSES: Written comments on this proposed rule may be submitted 
through one of two methods:
     Electronic Submission: Comments may be submitted 
electronically through the Federal Government eRulemaking portal at 
https://www.regulations.gov. 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.
     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.
    The Department of the Treasury encourages comments to be submitted 
via https://www.regulations.gov. Please submit comments only and 
include your name and organization name (if any) and cite ``Provisions 
Pertaining to U.S. Investments in Certain National Security 
Technologies and Products in Countries of Concern'' in all 
correspondence. All comments submitted in response to this NPRM, 
including attachments and other supporting material, will be made 
public, including any personally identifiable or confidential business 
information that is included in a comment. Therefore, commenters should 
submit only information that they wish to make publicly available. 
Commenters who wish to remain anonymous should not include identifying 
information in their comments.

FOR FURTHER INFORMATION CONTACT: Meena R. Sharma, Director, Office of 
Investment Security Policy and International Relations, at U.S. 
Department of the Treasury, 1500 Pennsylvania Avenue NW, Washington, DC 
20220; telephone: (202) 622-3425; email: 
[email protected].

SUPPLEMENTARY INFORMATION: 

I. Background

    On August 9, 2023, the President issued Executive Order 14105, 
``Addressing United States Investments in Certain National Security 
Technologies and Products in Countries of Concern'' (the Outbound 
Order), pursuant to his authority under the Constitution and the laws 
of the United States, including the International Emergency Economic 
Powers Act (IEEPA), the National Emergencies Act, and section 301 of 
title 3, United States Code (U.S.C.). In the Outbound Order, the 
President found that the advancement by countries of concern in 
sensitive technologies and products critical for the military, 
intelligence, surveillance, or cyber-enabled capabilities of such 
countries constitutes a threat to the national security of the United 
States, which has its source in whole or substantial part outside the 
United States, and that certain U.S. investments risk exacerbating this 
threat. In response, the President declared a national emergency to 
deal with this threat.
    The Outbound Order identifies three sectors of national security 
technologies and products to be covered by the program: semiconductors 
and microelectronics, quantum information technologies, and artificial 
intelligence. As described in the Outbound Order, countries of concern 
are exploiting 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. In an Annex to the 
Outbound Order, the President identified one country, the People's 
Republic of China (PRC), along with the Special Administrative Region 
of Hong Kong and the Special Administrative Region of Macau, as a 
country of concern. The President may modify the Annex to the Outbound 
Order and update the list of countries of concern.
    Advanced technologies and products that are increasingly developed 
and financed by the private sector form the basis of next-generation 
military, intelligence, surveillance, or cyber-enabled capabilities. As 
stated in the Outbound Order, advancements in sensitive technologies 
and products in the areas of semiconductors and microelectronics, 
quantum information technologies, and artificial intelligence will 
accelerate the development of advanced computational capabilities that 
will enable new applications that pose significant national security 
risks, such as the development of more sophisticated weapons systems, 
breaking of cryptographic codes, and other applications that could 
provide a country of concern with military advantages. The potential 
military, intelligence, surveillance, or cyber-enabled applications of 
these technologies and products pose risks to U.S. national security, 
particularly when developed in or by a country of concern in which the 
government seeks to (1) direct entities to obtain technologies to 
achieve national security objectives; and (2) compel entities to share 
or transfer these technologies to the government's military, 
intelligence, surveillance, or security apparatuses.
    U.S. investments are often more valuable than the capital alone 
because they can also include the transfer of intangible benefits. 
Intangible benefits that often accompany U.S. investments and help 
companies succeed include: enhanced standing and prominence, managerial 
assistance, access to investment and talent networks, market access, 
and enhanced access to additional financing. Certain investments by 
United States persons into a country of concern can be

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exploited to accelerate the development of sensitive technologies or 
products--including military, intelligence, surveillance, or cyber-
enabled capabilities--in ways that negatively impact the national 
security of the United States. Such investments, therefore, risk 
exacerbating this threat to U.S. national security.
    The Outbound Order has two primary components that serve distinct 
but related objectives with respect to the relevant technologies and 
products. The first component requires notification to the Secretary of 
the Treasury (the Secretary) regarding certain types of investments by 
a United States person in a covered foreign person engaged in covered 
activities pertaining to specified categories of technologies and 
products. The second component requires the Secretary to prohibit 
certain types of investment by a United States person in a covered 
foreign person engaged in covered activities pertaining to other 
specified categories of advanced technologies and products. Both 
components focus on investments that could enhance a country of 
concern's military, intelligence, surveillance, or cyber-enabled 
capabilities through the advancement of technologies and products in 
particularly sensitive areas.
    The Outbound Order directs the Secretary, in consultation with the 
Secretary of Commerce and, as appropriate, the heads of other relevant 
agencies, to issue, subject to public notice and comment, regulations 
that, among other things, require U.S. persons to submit information to 
the Department of the Treasury regarding notifiable transactions and 
prohibit U.S. persons from engaging in prohibited transactions. Under 
section 10(a) of the Outbound Order, the President authorizes the 
Secretary to promulgate rules and regulations, including elaborating 
upon the definitions contained in the Outbound Order. The Secretary's 
promulgation of regulations under the Outbound Order is consistent with 
the President's authority to ``issue such regulations, including 
regulations prescribing definitions, as may be necessary for the 
exercise'' of authorities granted under IEEPA (50 U.S.C. 1704) and the 
President's authority to designate and empower the head of any 
department or agency in the executive branch to perform any function 
which is vested in the President by law (3 U.S.C. 301).
    The Outbound Order instructs the Secretary to identify in such 
regulations categories of notifiable transactions that involve covered 
national security technologies and products that the Secretary, in 
consultation with the Secretary of Commerce and, as appropriate, the 
heads of other relevant agencies, determines may contribute to the 
threat to the national security of the United States identified in the 
Outbound Order. The Outbound Order also instructs the Secretary to 
identify categories of prohibited transactions that involve 
technologies and products that the Secretary, in consultation with the 
Secretary of Commerce and, as appropriate, the heads of other relevant 
agencies, determines pose a particularly acute national security threat 
to the United States. Consistent with the Outbound Order, the Secretary 
may exempt from the notification requirement or prohibition any 
transaction determined by the Secretary, in consultation with the heads 
of relevant agencies, as appropriate, to be in the national interest of 
the United States. Additionally, the Outbound Order requires the 
Secretary to investigate, in consultation with the heads of relevant 
agencies, as appropriate, violations of the Outbound Order or the 
regulations and pursue civil penalties for such violations.

II. Advance Notice of Proposed Rulemaking

    Concurrent with the issuance of the Outbound Order, on August 9, 
2023, the Department of the Treasury issued an Advance Notice of 
Proposed Rulemaking, 88 FR 54961 (August 14, 2023) (ANPRM), to provide 
transparency and clarity about the intended scope of the program and 
solicit early stakeholder participation in the rulemaking process. The 
ANPRM outlined key concepts under consideration and sought public 
comment on a range of topics related to the implementation of the 
Outbound Order.
    The Department of the Treasury received 60 public comment letters 
in response to the ANRPM, many from business associations that 
represent a wide variety of stakeholders across industries as well as 
from individuals and companies in the financial services, legal, and 
technology sectors. These comments are available on the public 
rulemaking docket at https://www.regulations.gov (Docket TREAS-DO-2023-
0009). The Department of the Treasury considered each comment in 
developing this proposed rule. In general, comments focused on 
enhancing the clarity of the scope of the program and the definitions 
under consideration, aligning the program where possible with other 
relevant U.S. Government programs, and supporting program development 
in a targeted manner to reduce unintended consequences for U.S. 
competitiveness. The key issues raised in the comments are discussed in 
the next section within the discussion of the proposed rule.

III. The Proposed Rule

A. Scope and Structure of the Proposed Rule

    The United States has long maintained an open investment policy and 
supports cross-border investment where consistent with the protection 
of United States national security interests. As discussed in the 
Outbound Order, certain United States investments may accelerate the 
development of sensitive technologies and products in countries that 
develop them to counter United States and allied capabilities. The 
Department of the Treasury has scoped the proposed rule to focus on the 
types of U.S. investments that present a likelihood of conveying both 
capital and intangible benefits that can be exploited to accelerate the 
development of sensitive technologies or products critical for 
military, intelligence, surveillance, or cyber-enabled capabilities of 
such countries in ways that negatively impact the national security of 
the United States. With an interest in minimizing unintended 
consequences and addressing the national security risks posed by 
countries of concern developing technologies that are critical to the 
next generation of military, intelligence, surveillance, or cyber-
enabled capabilities, the proposed rule includes detailed definitions 
and descriptions of terms and elements to appropriately scope coverage 
and facilitate compliance by United States persons. At the same time, 
the proposed rule seeks to avoid loopholes that could undermine the 
national security objectives of the Outbound Order. The Department of 
the Treasury seeks public input on how the proposed rule can best meet 
these important objectives.
    Consistent with the Outbound Order, the proposed rule would place 
certain obligations upon any U.S. person in connection with a covered 
transaction involving or resulting in the establishment of a covered 
foreign person. The proposed definition of covered foreign person 
focuses on the person's relationship to a country of concern and 
involvement in one or more covered activity related to certain national 
security technologies and products. A covered transaction may be a 
prohibited transaction, meaning it could not legally be undertaken, or 
it may be a notifiable transaction, meaning that it would be permitted 
under the proposed rule, but a U.S.

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person would need to submit specified information about the transaction 
to the Department of the Treasury. A U.S. person would also 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. Additionally, under the 
proposed rule, a U.S. person would be prohibited from knowingly 
directing a transaction that would be prohibited if undertaken by a 
U.S. person. These and other terms are defined in Subpart B of the 
proposed rule.
    The Outbound Order and the proposed rule seek to complement 
existing authorities and tools of the U.S. Government, including export 
controls and inbound investment reviews. However, the proposed rule 
would not entail a case-by-case review by the Department of the 
Treasury of covered transactions or any other transactions, nor would 
it establish a licensing process where a U.S. person would seek prior 
authorization for a covered transaction. The proposed rule would not 
establish comprehensive sanctions with respect to a particular 
jurisdiction or an entire sector. Nor would the proposed rule treat 
transactions as within its scope solely because they are denominated in 
U.S. dollars. Rather, as proposed, the relevant U.S. person undertaking 
a transaction would have the obligation to determine whether the given 
transaction is prohibited, permissible but subject to notification, or 
not covered by the rule because either it is an excepted transaction 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 
notification requirement or prohibition set out in this rule by 
following the process described in Sec.  850.502 and further discussed 
below.
    As noted in the ANPRM, it is not proposed that the program provide 
for retroactive application of the provisions related to the 
prohibition of certain transactions and the notification of others. 
However, the Department of the Treasury may, after the effective date 
of the regulations, request information about transactions by U.S. 
persons that were completed or agreed to after the date of the issuance 
of the Outbound Order to better inform the development and 
implementation of the program.
    In section IV, the Department of the Treasury seeks comment from 
stakeholders with respect to the proposed rule, accompanied by 
empirical data or other specific information wherever possible. The 
Department of the Treasury invites comments on the range of proposals 
in the proposed rule, and particularly as related to the specific 
provisions discussed in this section III.

B. Discussion of the Proposed Rule

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, 
proposed guidance on how to interpret and apply certain terms and 
provisions, the application of the knowledge standard in certain 
circumstances, and, consistent with the Outbound Order, the role of the 
heads of other relevant agencies in the implementation and 
administration of the proposed rule.
    With respect to the knowledge standard specifically, because a U.S. 
person must determine whether a transaction is a prohibited 
transaction, a notifiable transaction, or not covered under the 
proposed rule, the standard by which a U.S. person's knowledge of the 
relevant facts and circumstances is assessed is an important aspect of 
the rule. The ANPRM discussed that the Department of the Treasury was 
considering adopting a knowledge standard across this program, which 
would have meant that for a transaction potentially to be covered by 
the regulations, a U.S. person would need to know, or reasonably should 
know, based on information publicly available or available through 
reasonable and appropriate due diligence, that it is undertaking a 
transaction involving a covered foreign person and that the transaction 
is a covered transaction. Some commenters to the ANPRM stated that it 
would be difficult to ascertain when a U.S. person should know that a 
transaction is a covered transaction. At the same time, to reduce the 
risk of circumvention or evasion, the Department of the Treasury seeks 
to preserve flexibility to inquire into the facts and circumstances of 
a U.S. person's transaction, for example if a U.S. person failed to 
undertake due diligence or deliberately avoided learning certain facts.
    In light of these considerations, the proposed rule specifies that 
certain provisions, including in the definition of covered transaction, 
would apply only if a U.S. person has knowledge of the relevant facts 
or circumstances at the time of a transaction. The proposed definition 
of knowledge would include any the following: actual knowledge that a 
fact or circumstance exists or is substantially certain to occur, an 
awareness of a high probability of a fact or circumstance's existence 
or future occurrence, or reason to know of a fact or circumstance's 
existence. The proposed definition of covered transaction would 
generally require the U.S. person to know (or in some circumstances, to 
intend) at the time of a transaction that the transaction involves a 
covered foreign person, will result in the establishment of a covered 
foreign person (in the case of a greenfield, brownfield, or a joint 
venture investment), or will result in a person of a country of 
concern's engagement in a new covered activity (in the case of a 
business pivot). The Department of the Treasury is not proposing to 
hold a U.S. person liable for a transaction that has all of the other 
attributes of a covered transaction but that the U.S. person did not 
know at the time (which includes not having reason to know at the time) 
was involved with or would result in a covered foreign person. If a 
U.S. person failed to conduct a reasonable and diligent inquiry at the 
time of a transaction and undertook the transaction where a particular 
fact or circumstance indicative of a covered transaction was present, 
the Department of the Treasury 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). To provide clarity, the proposed rule includes 
some of the factors that the Department of the Treasury will consider 
in assessing whether a U.S. person undertook such an inquiry, as 
applicable. These include efforts to obtain information and contractual 
assurances that should be obtainable through a reasonable transactional 
due diligence process with respect to the determination of a 
transaction's status as a covered transaction or relevant entity's 
status as a covered foreign person.
    The Department of the Treasury has considered the practical 
application of this approach. More specifically, if a U.S. person has 
undertaken a reasonable and diligent inquiry and still does not have 
knowledge of a fact or circumstance relevant to whether a transaction 
involves or would result in a covered foreign person in a way that 
would render the transaction a covered transaction, the Department of 
the Treasury ordinarily (absent other circumstances) would not 
attribute knowledge of that fact or circumstance to such U.S. person 
even if the transaction has all of the other attributes of a covered 
transaction. Additionally, if a U.S. person failed to undertake a 
reasonable and diligent inquiry but the

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transaction in question does not involve a covered foreign person, the 
Department of the Treasury would not hold the U.S. person liable for 
the lack of a reasonable and diligent inquiry.
    Commenters to the ANPRM requested a range of additional items from 
the Department of the Treasury that would assist a U.S. person in 
complying with the program such as including examples, making available 
answers to frequently asked questions, and publishing a list of 
entities designated as a covered foreign person. To illustrate the 
application of certain terms and facilitate understanding of this 
proposed rule, the Department of the Treasury has included a number of 
examples in the discussion section at Subpart B below, which are 
numbered sequentially to facilitate public comment. These examples are 
provided for informational purposes and should not be construed to 
alter the meaning of the text of the proposed regulations. 
Additionally, the Department of the Treasury anticipates making 
available answers to certain frequently asked questions as the program 
is implemented.
Subpart B--Definitions
Sec.  850.202--AI System
    One of the categories of covered national security technologies and 
products in the Outbound Order is sensitive technologies and products 
in the artificial intelligence (AI) sector. As discussed in the ANPRM, 
the U.S. Government is concerned with the development of AI systems 
that enable the military modernization of countries of concern--
including weapons, intelligence, and surveillance capabilities--
including those that have applications in areas such as cybersecurity 
and robotics. The policy objective is to cover U.S. investment into 
entities that develop AI systems that have applications that pose, or 
have the potential to pose, significant national security risks without 
broadly capturing investments into entities that develop AI systems 
intended only for consumer applications or other civilian end uses that 
do not have potential national security consequences. To address these 
concerns, the proposed rule would have a notification requirement (see 
the definition of notifiable transaction) and a prohibition (see the 
definition of prohibited transaction) with respect to investments in 
entities engaged in certain covered activities involving AI systems.
    The ANPRM provided an initial definition for ``AI system'' as ``an 
engineered or machine-based system that can, for a given set of 
objectives, generate outputs such as predictions, recommendations, or 
decisions influencing real or virtual environments. AI systems are 
designed to operate with varying levels of autonomy.''
    Commenters to the ANPRM requested that the Department of the 
Treasury align terms with other U.S. Government programs where 
possible. After the Outbound Order and ANPRM were published, the 
President issued Executive Order 14110, ``Safe, Secure, and Trustworthy 
Development and Use of Artificial Intelligence'' on October 30, 2023 
(the AI Order), which, among other things, establishes new standards 
for AI safety and security. The AI Order provides definitions for the 
terms ``artificial intelligence'' and ``AI system'' which this proposed 
rule incorporates in the definition of AI system. The Department of the 
Treasury invites comments on the proposed definition of AI system.
Sec.  850.206--Controlled Foreign Entity
    The proposed rule would define controlled foreign entity as an 
entity of which a U.S. person is a parent, meaning a U.S. person 
directly or indirectly holds more than 50 percent of the outstanding 
voting interest or voting power of the board of the entity; is a 
general partner, managing member, or equivalent of the entity; or, if 
the entity is a pooled investment fund, is an investment adviser to any 
such fund. The proposed rule would place obligations on a U.S. person 
to take all reasonable steps to prohibit and prevent its controlled 
foreign entity from undertaking a transaction that would be a 
prohibited transaction if undertaken by a U.S. person, and to notify 
the Department of the Treasury if the controlled foreign entity 
undertakes a transaction that would be a notifiable transaction if 
undertaken by a U.S. person. This approach is intended to address a 
potential loophole whereby a U.S. person that is a parent of a non-U.S. 
person entity could use such an entity to undertake an investment that 
would otherwise be a covered transaction if undertaken by the U.S. 
person directly. Additionally, this approach is aimed at increasing 
U.S. Government visibility into these transactions or in some cases, 
limiting the flow of capital and intangible benefits through an entity 
closely tied to and often influenced by a U.S. person that is a parent, 
which would be contrary to the objectives of the Outbound Order. In 
assessing whether the parent has taken all reasonable steps, the 
Department of the Treasury would consider certain factors with respect 
to a U.S. person and its controlled foreign entity, including the 
existence and implementation of periodic training and reporting 
requirements with respect to compliance with the proposed regulations 
and the implementation of internal controls. The Department of the 
Treasury would assess compliance based on a consideration of the 
totality of relevant facts and circumstances, including whether such 
steps were reasonable given the size and sophistication of the parent. 
Generally, if the U.S. person has taken steps, including those 
described in Sec.  850.302(b), that were reasonable given, for example, 
the size and sophistication of the U.S. person, the U.S. person would 
be found in compliance with the proposed rule.
    The definition of controlled foreign entity is intended to draw a 
bright line so that a U.S. person could easily ascertain whether an 
entity is its controlled foreign entity. In determining whether a U.S. 
person indirectly holds voting interest or voting power of the board 
via a tiered ownership structure for purposes of this provision, where 
the relationship between an entity and another entity is that of a 
parent and subsidiary, the voting interest or voting power of the board 
of a subsidiary would be fully attributed to the parent. By contrast, 
if an entity holds 50 percent or less of another entity's voting 
interest or voting power of the board--that is, if the relationship is 
not a parent-subsidiary relationship--then the indirect downstream 
holdings of voting interest or voting power of the board, as 
applicable, attributed to the first entity would be determined 
proportionately.
    If a U.S. person holds both direct and indirect holdings in the 
same entity, the direct and indirect holdings of the U.S. person's 
voting interest or voting power of the board, as applicable, would be 
aggregated. For the avoidance of doubt, each of these metrics (voting 
interest or voting power of the board) would be evaluated independently 
from the other. For example, if an entity has 20 percent of its voting 
interest and 15 percent of its voting power of the board each held by a 
U.S. person, these percentages would not be combined to equal 35 
percent.
    The following examples illustrate the application of the proposed 
definition of controlled foreign entity:
    (1) Example 1. A U.S. person holds more than 50 percent of the 
voting interest of the non-U.S. person Company A, and Company A holds 
more than 50 percent of the voting interest of the non-U.S. person 
Company B. Each of Company A and

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Company B would be a controlled foreign entity of the U.S. person, 
because the U.S. person directly holds more than 50 percent of Company 
A's voting interest, so Company A's holding of more than 50 percent of 
Company B is fully attributed to the U.S. person.
    (2) Example 2. A U.S. person holds a 25 percent voting interest of 
the non-U.S. person Company C, and Company C holds 60 percent of the 
voting interest of the non-U.S. person Company D. The U.S. person 
indirectly holds 15 percent of the voting interest of Company D. 
Company D would not be a controlled foreign entity of the U.S. person 
because the U.S. person only indirectly holds 15 percent of the voting 
interest of Company D.
    (3) Example 3. A U.S. person holds more than 50 percent of the 
voting interest of non-U.S. person Company E and 10 percent of the 
voting interest of the non-U.S. person Company F. Company E also holds 
41 percent of the voting interest of Company F. Companies E and F would 
each be a controlled foreign entity of the U.S. person because the U.S. 
person directly holds more than 50 percent of Company E and has an 
aggregated voting interest (direct and indirect) of more than 50 
percent of Company F (10 percent directly and 41 percent indirectly).
    (4) Example 4. A U.S. person holds 49 percent of the voting 
interest of Company G; Company G holds 52 percent of the voting 
interest in Company H; and Company H holds 30 percent of the voting 
interest of non-U.S. person Company I. Since Company G holds more than 
50 percent of the voting interest in Company H, Company G is a parent 
of Company H and Company H's 30 percent interest in Company I is fully 
attributed to Company G. The U.S. person's indirect interest in Company 
I is therefore 14.7 percent, which is calculated by multiplying the 
U.S. person's 49 percent interest in Company G and Company G's 30 
percent interest in Company I. Company I is not a controlled foreign 
entity of the U.S. person.
    The Department of the Treasury invites comments regarding this 
definition, including considerations with respect to coverage of 
entities established outside of the United States.
Sec.  850.208--Covered Activity
    The proposed rule identifies activities that would provide the 
relevant nexus between the covered foreign person and the covered 
national security technologies and products described in the Outbound 
Order. The Outbound Order defines the term ``covered national security 
technologies and products'' to mean sensitive technologies and products 
in the semiconductors and microelectronics, quantum information 
technologies, and AI sectors that are critical for the military, 
intelligence, surveillance, or cyber-enabled capabilities of a country 
of concern, as determined by the Secretary of the Treasury in 
consultation with the Secretary of Commerce and, as appropriate, the 
heads of other relevant agencies. The Outbound Order further states 
that, where applicable, ``covered national security technologies and 
products'' may be limited by reference to certain end uses of those 
technologies or products.
    The three primary definitions in the proposed rule implementing the 
term ``covered national security technologies and products'' are 
covered activity, notifiable transaction, and prohibited transaction. 
The term covered activity would mean, in the context of a particular 
transaction, any of the activities referred to in the definition of 
notifiable transaction in Sec.  850.217 or prohibited transaction in 
Sec.  850.224. The Department of the Treasury invites comments on the 
approach in the proposed rule to incorporating specific covered 
national security technologies and products in the definitions of 
notifiable transaction and prohibited transaction based on a 
description of the technology or product and the relevant activities, 
capabilities, or end uses of such technology or product, as applicable, 
and any alternative approaches that should be considered.
    The proposed definitions of notifiable transaction and prohibited 
transaction would identify specific covered activities relevant to the 
technology or product within each category. Some such covered 
activities would relate to semiconductors and microelectronics 
technology, equipment, and capabilities that enable the production and 
certain uses of integrated circuits that underpin current and future 
military innovations that improve the speed and accuracy of military 
decision-making, planning, and logistics, among other things; as well 
as that enable mass surveillance or other cyber-enabled capabilities. 
The proposed rule would also address covered activities related to 
quantum information technologies and products that enable capabilities 
that could compromise encryption and other cybersecurity controls and 
jeopardize military communications, among other things. In the case of 
a quantum sensing platform or quantum network, the end-use provision 
avoids covering use cases in strictly civilian fields. Finally, the 
proposed rule would address covered activities related to certain AI 
systems that have applications that pose or have the potential to pose 
significant national security risk. The proposed rule would not seek to 
broadly capture AI systems intended only for commercial applications or 
other civilian end uses and that do not have potential national 
security consequences, as discussed further below.
    Those covered activities with respect to technologies and products 
that pose a particularly acute national security threat are 
incorporated into the definition of prohibited transaction. Those 
covered activities with respect to technologies and products that may 
contribute to the threat to the national security of the United States 
are incorporated into the definition of notifiable transaction. The 
scope of prohibited transaction and the scope of notifiable transaction 
are intended to be distinct and not overlap. The Department of the 
Treasury intends that the notification requirement will increase the 
U.S. Government's visibility into U.S. person transactions involving 
the relevant technologies and products and that these notifications 
will be helpful in highlighting aggregate sector trends and related 
capital flows as well as informing future policy development. The 
proposed prohibitions would be tailored restrictions on specific, 
identified areas to prevent U.S. persons from investing in the 
development of technologies and products that pose a particularly acute 
national security threat. Both the specific covered activities as well 
as the technical descriptions in the proposed rule were crafted with 
these objectives in mind. A more detailed discussion of specific 
covered activities and proposed technical descriptions is below under 
the sections on notifiable transaction and prohibited transaction. The 
Department of the Treasury invites comments on alternative approaches 
that would meet the stated objectives.
Sec.  850.209--Covered Foreign Person
    The Outbound Order requires the Department of the Treasury to 
prohibit or require notification of certain transactions involving a 
covered foreign person and defines the term as ``a person of a country 
of concern who or that is engaged in activities, as identified in the 
regulations issued under [the Outbound Order], involving one or more 
covered national security technologies and products.'' The definition 
of covered foreign person in the proposed rule describes three sets of 
circumstances that would cause a person to be a covered foreign person.

[[Page 55851]]

Sec.  850.209(a)(1)
    First, a person would be a covered foreign person if it is a person 
of a country of concern that is engaged in a covered activity.
Sec.  850.209(a)(2)
    Second, a person would be a covered foreign person even if it is 
not itself a person of a country of concern or engaged in a covered 
activity but has a particular relationship with a person of a country 
of concern that is engaged in a covered activity. The relationship 
would have to meet two conditions. First, the relevant person would 
have to hold a specified interest in the person of a country of 
concern. That interest could take the form of a voting interest, board 
seat (voting or observer), equity interest, or the power to direct or 
cause the direction of the management or policies of the person of a 
country of concern through contractual arrangement(s) (including, for 
the avoidance of doubt, any contractual arrangement with respect to a 
variable interest entity). The exact size of this interest--such as the 
percentage of voting interest or the number of board seats (voting or 
observer)--is not determinative as long as there is some interest of 
the nature described. The policy objective is to cover situations where 
a vested interest between the two persons exists. Second, if there is 
such an interest, then more than 50 percent of the first person's 
revenue, net income, capital expenditure, or operating expenses would 
need to be attributable to the person of a country of concern and that 
person must be engaged in a covered activity. The first person also 
would meet this condition if that person holds an interest in more than 
one person of a country of concern engaged in a covered activity, and 
more than 50 percent of the first person's revenue, net income, capital 
expenditure, or operating expenses is attributable to such persons of a 
country of concern, in aggregate. The Department of the Treasury 
intends the threshold of more than 50 percent of any of the financial 
metrics to be evaluated independently, not in combination. For example, 
assuming no other relevant circumstances, if a person's interest in a 
person of a country of concern represents 20 percent of the first 
person's revenue and 31 percent of its capital expenditures, these 
metrics would be evaluated independently and not combined to equal 51 
percent.
    Under this second set of circumstances, the Department of the 
Treasury intends to capture those entities that, while not directly 
engaged in a covered activity themselves, are significantly financially 
connected to entities that are engaged in a covered activity. The 
Department of the Treasury considers that if more than 50 percent of an 
investment target's revenue, net income, capital expenditure, or 
operating expense is attributable to one or more persons of a country 
of concern that are engaged in a covered activity, the intangible 
benefits associated with a U.S. person's investment in the target are 
likely to be conveyed to such persons of a country of concern. 
Accordingly, the Department of the Treasury considers that the 
investment target itself should be treated as a covered foreign person. 
Consistent with the policy objectives of the Outbound Order, this 
approach seeks to focus on transactions where there is a likelihood of 
the transfer of intangible benefits to a person of a country of concern 
engaged in a covered activity. Moreover, in setting the relevant 
threshold for financial metrics between the investment target and 
persons of a country of concern engaged in a covered activity at more 
than 50 percent, the Department of the Treasury expects that through 
reasonable and diligent inquiry a U.S. person would be able to 
determine whether a potential investment target meets the applicable 
conditions. In capturing certain U.S. person transactions with entities 
that have a vested interest in, as well as a significant financial 
relationship with, a covered foreign person, this approach is intended 
to, among other things, address a common transaction structure whereby 
investments are made into parent companies or holding companies. Under 
these circumstances, a U.S. entity or an entity in a third country 
could be considered a covered foreign person.
Sec.  850.209(a)(3)
    Lastly, a person of a country of concern would be a covered foreign 
person by virtue of its participation in a joint venture with a U.S. 
person if such joint venture is engaged in a covered activity. That is, 
even though the person of a country of concern may not be engaged in a 
covered activity itself, the fact of its participation in a joint 
venture that is engaged in a covered activity would cause the person to 
be a covered foreign person. Consistent with the policy objectives of 
the Outbound Order, this approach seeks to focus on transactions where 
there is a likelihood of the transfer of intangible benefits from a 
U.S. person to a person of a country of concern in connection with a 
covered activity.
    The following examples illustrate the application of the proposed 
definition of covered foreign person:
    (5) Example 5. Company J holds a 10 percent equity interest in 
Company K, which is a person of a country of concern engaged in a 
covered activity, and income from Company K comprises 30 percent of 
Company J's net income for the most recent year for which audited 
financial statements are available. In addition, Company J holds a 10 
percent equity interest in Company L, which is a person of a country of 
concern engaged in a covered activity, and income from Company L 
comprises 21 percent of Company J's net income for the most recent year 
for which audited financial statements are available. Therefore, 
Company J would be a covered foreign person under Sec.  850.209(a)(2), 
because income from Company K and income from Company L, which are both 
persons of a country of concern that are engaged in covered activities 
in which Company J holds an equity interest, together comprise 51 
percent of the net income of Company J for the most recent year for 
which audited financial statements are available.
    (6) Example 6. Assume the same facts as Example 5, except that none 
of Company J's net income is attributable to Company K, and instead, 30 
percent of Company J's capital expenditures for the most recent year 
for which audited financial statements are available at the time of a 
given transaction is attributable to Company K. Company J would not be 
a covered foreign person under Sec.  850.209(a)(2), because the 
percentage of capital expenditures attributable to Company K and the 
percentage of net income attributable to Company L would not be 
aggregated, and neither the percentage of capital expenditures 
attributable to Company K nor the percentage of net income attributable 
to Company L is more than 50 percent for Company J.
    The Department of the Treasury invites comments regarding this 
definition, including its application to a U.S. entity or a third-
country entity.
    In response to the ANPRM, some commenters requested that the 
definition of covered foreign person include a de minimis threshold 
below which a person of a country of concern's activity involving a 
covered technology or product would not trigger the definition of 
covered activity, meaning the person would not be a covered foreign 
person. The Department of the Treasury declines to propose a de minimis 
threshold for this definition. A de minimis threshold based on the 
financial significance of a covered

[[Page 55852]]

activity in relation to any particular entity does not necessarily 
correspond to the national security significance of such activity. 
Setting a de minimis threshold based on the level of activity involving 
a covered technology or product would be challenging and would not 
effectively respond to the national security objectives of the Outbound 
Order.
    In response to the ANPRM, some commenters requested that the 
Department of the Treasury maintain a publicly available list of 
covered foreign persons. The Department of the Treasury declines to 
adopt that suggestion in the proposed rule. Compiling a list of covered 
foreign persons would be challenging given that any such list would 
likely be subject to frequent change and likely underinclusive, which 
would undermine the national security goals of the Outbound Order. 
Limiting the definition of covered foreign person to persons included 
on such a list would risk excluding certain persons that should be 
covered in order to accomplish the objectives of the Outbound Order, 
including early-stage companies that may not have come to the attention 
of the Department of the Treasury. Providing a list of covered foreign 
persons could also result in attempts to evade the rule through 
corporate restructuring and would be overly burdensome to maintain for 
the reasons listed above. Rather, under the proposed rule, the 
Department of the Treasury would expect a U.S. person to conduct a 
reasonable and diligent inquiry to determine whether a transaction is 
covered under the proposed rule, including whether any covered foreign 
person is involved.
Sec.  850.210--Covered Transaction
    As discussed in greater detail below, the definition of covered 
transaction would include a U.S. person's direct or indirect:
     Acquisition of an equity interest or contingent equity 
interest in a covered foreign person;
     Provision of debt financing convertible to an equity 
interest in a covered foreign person or provision of debt financing 
that affords the lender certain management or governance rights in a 
covered foreign person;
     Conversion of a contingent equity interest or convertible 
debt in a covered foreign person;
     Greenfield investment or certain other corporate 
expansions that either will establish a covered foreign person, or will 
cause an existing person of a country of concern to pivot into a new 
covered activity;
     Entrance into a joint venture, wherever located, with a 
person of a country of concern where the joint venture will undertake a 
covered activity; and
     Investment as a limited partner or equivalent (LP) into a 
non-U.S. person pooled investment fund that invests in a covered 
foreign person.
    Each of the above transaction types includes a specific requirement 
for what a U.S. person would need to know or intend for a transaction 
to be a covered transaction. Further detail on each of these 
transaction types is provided below.
    The definition of covered transaction notes that it does not 
include an excepted transaction or, consistent with the Outbound Order, 
a transaction for the conduct of the official business of the United 
States Government by employees, grantees, or contractors thereof.
Acquisition of Equity Interest or Contingent Equity Interest
    The definition of covered transaction would include the acquisition 
of an equity interest (or equivalent) in a covered foreign person and 
the acquisition of a financial instrument that does not constitute an 
equity interest at the time of the covered transaction but is 
convertible into, or provides the right to acquire, an equity interest 
in a covered foreign person upon the occurrence of a contingency or 
defined event. While the issuance of debt secured by equity in a 
covered foreign person would not, absent other circumstances, be a 
covered transaction, foreclosure on collateral that constitutes an 
equity interest in a covered foreign person would constitute the 
acquisition of an equity interest under the proposed rule and would be 
a covered transaction.
Convertible Debt; Debt With Special Rights
    The definition of covered transaction would include the provision 
of debt financing that is convertible by the U.S. person into equity of 
a covered foreign person. Additionally, the provision of debt financing 
that affords or will afford the U.S. person the right to make 
management decisions on behalf of a covered foreign person or to 
appoint members of the board of a covered foreign person would also be 
a covered transaction. The intent is to capture lending by a U.S. 
person lender only where such lending involves the acquisition of 
equity or equity-like rights by the U.S. person lender with respect to 
a covered foreign person.
Conversion of Contingent Interest or Convertible Debt
    The definition of covered transaction includes as a separate basis 
of coverage the conversion of a contingent equity interest or 
convertible debt in a covered foreign person. As stated above, in 
addition to the conversion, the original acquisition of either such 
interest is a covered transaction. With respect to a notifiable 
transaction, the policy objective of including the conversion of a 
contingent equity or convertible debt in the definition of covered 
transaction is to gain visibility into the circumstances in which 
contingent interests in a covered foreign person convert. Including the 
conversion of a contingent equity interest or convertible debt in the 
scope of covered transaction would also address circumstances where the 
investment target or borrower is not a covered foreign person at the 
time of acquisition of the relevant interest but is a covered foreign 
person at the time of conversion of such interest (e.g., as a result of 
newly engaging in a covered activity or the target's relationship with 
a person of a country of concern engaged in a covered activity). The 
Department of the Treasury anticipates that if the original acquisition 
was a notifiable transaction and was timely notified, the second 
notification submitted with respect to the conversion would likely be 
similar to the first notification and thus less time-consuming to 
prepare. The Department of the Treasury considered alternative 
approaches such as covering only the acquisition and not the conversion 
of contingent interests or covering only the conversion. However, each 
alternative could be either over- or under-inclusive in situations 
where an investment target has pivoted away from, or into, a covered 
activity in the interim between acquisition and conversion.
Greenfield or Brownfield Investment
    The definition of covered transaction would include a U.S. person's 
acquisition, leasing, or development of operations, land, property, or 
other assets in a country of concern when the U.S. person knows that 
such acquisition, leasing, or development will, or the U.S. person 
intends it to, either (1) establish a covered foreign person, such as 
the acquisition of land in a country of concern with the intent to 
convert it into a facility that designs an integrated circuit or (2) 
pivot an existing entity's operations into a new covered activity, such 
as the acquisition of a factory with the intent to retrofit it to 
produce equipment for performing

[[Page 55853]]

volume advanced packaging. A U.S. person's intent (as distinct from 
knowledge) would be sufficient in these cases for the transaction to be 
a covered transaction. This is because in the greenfield and brownfield 
context, a U.S. person may not know at the time of the transaction that 
the investment will result in a covered activity, yet the Department of 
the Treasury nevertheless seeks to cover activities intended to bring 
about the establishment of a covered foreign person or a person of a 
country of concern's engagement in a new covered activity, since such a 
situation is likely to convey intangible benefits from the U.S. person 
to a covered foreign person. That a covered foreign person ultimately 
results from a greenfield or brownfield investment would not be 
necessary for coverage under the proposed rule, as long as the intent 
to establish a covered foreign person is present at the time of the 
transaction. The Department of the Treasury has assessed that requiring 
a greenfield or brownfield investment to result in the establishment of 
a covered foreign person or a person of a country of concern's 
engagement in a new covered activity before triggering obligations 
associated with covered transaction status risks undermining the 
national security goals of the program. For the avoidance of doubt, the 
Department of the Treasury does not intend to scope in a real estate 
transaction where the U.S. person does not have the requisite knowledge 
or intent.
Joint Venture Investment
    The definition of covered transaction would include a U.S. person's 
entrance into a joint venture, wherever located, with a person of a 
country of concern where the U.S. person either knows or intends that 
the joint venture will engage in a covered activity. Like the 
greenfield or brownfield investment prong above, this is intended to 
cover situations in which a covered foreign person does not exist at 
the time of a transaction, but the transaction structure presents the 
opportunity and incentive for the transfer of intangible benefits from 
a U.S. person to a person of a country of concern through the joint 
venture. Similar to a greenfield or brownfield transaction, a U.S. 
person's intent (as distinct from knowledge) would be sufficient for 
coverage in the joint venture context because a U.S. person may not 
know at the time of the transaction that the joint venture will engage 
in a covered activity, yet the Department of the Treasury seeks to 
capture transactions likely to convey intangible benefits to a covered 
foreign person. Also similar to a greenfield or brownfield transaction, 
the joint venture would need not engage in a covered activity for the 
establishment of the joint venture to be a covered transaction under 
the proposed rule, as long as the U.S. person intends for it to do so.
Investment Made as an LP
    The definition of covered transaction would include U.S. person 
investments made as an LP into certain pooled funds. This approach 
would differ from other prongs of the definition of covered transaction 
in the ways described below.
    First, it would cover only an investment into a non-U.S. person 
pooled investment fund because the activities of such a fund that is a 
U.S. person would be directly addressed by other prongs of this 
definition.
    Second, it would cover an investment only when the U.S. person 
knows at the time of the investment that the pooled fund likely will 
invest in a person of a country of concern engaged in one or more of 
the three sectors of covered national security technologies and 
products identified in the Outbound Order. The Department of the 
Treasury has assessed that when a pooled fund is soliciting 
investments, it may not yet have identified specific targets in which 
it seeks to make investments. Therefore, it may not be practicable for 
an LP to know where its investment is going, via the pooled fund, in 
terms of a specific target entity even following a reasonable and 
diligent inquiry at the time of its LP investment. However, it is 
possible for an LP to know, through a reasonable and diligent inquiry, 
where a pooled fund is likely to invest at a higher level in terms of 
geography and sector. For example, a U.S. person could know that a 
pooled fund is likely to invest in PRC AI companies based on 
researching past investments made by a pooled fund's manager, engaging 
with the pooled investment fund's general partner, or reviewing such 
fund's prospectus or other documentation.
    Third, this approach would cover an LP investment only when the 
pooled investment fund undertakes an investment that would be a covered 
transaction if made by the U.S. person directly, to avoid regulating 
transactions by U.S. person LPs that do not ultimately result in 
investments into a covered foreign person. In other words, in order to 
meet the criteria of a covered transaction, (1) the U.S. person LP 
would need to invest in a pooled fund that the U.S. person knows is 
likely to invest in a person of a country of concern that is in any of 
the three specified sectors in the Outbound Order; and (2) such pooled 
fund would need to actually undertake a transaction that would be a 
covered transaction if undertaken by a U.S. person. If the transaction 
is a notifiable transaction, this would mean that the U.S. person would 
be required to file the relevant notification no later than 30 calendar 
days following the earliest date of the pooled fund's investment in a 
covered foreign person. If the investment ultimately made by the pooled 
fund would have been a prohibited transaction if made by a U.S. person 
and the U.S. person knew at the time of its LP investment in the pooled 
fund that the pooled fund likely would invest in a person of a country 
of concern engaged in any of the three specified sectors in the 
Outbound Order, then such investment made by the pooled fund in a 
covered foreign person would result in the U.S. person having made a 
prohibited transaction, which would be a violation of the proposed 
rule. On the other hand, a U.S. person's investment as an LP into a 
pooled fund would not be a covered transaction if the U.S. person does 
not know at the time of its investment that the pooled investment fund 
likely will invest in a person of a country of concern that is in any 
of the three relevant sectors, even when such fund subsequently 
undertakes an investment that would be a covered transaction if made by 
a U.S. person.
Indirect Covered Transaction
    To address a potential loophole, a U.S. person's transaction that 
is indirect, as well as direct, would be a covered transaction 
regardless of the number of intermediary entities involved in such 
transaction if it meets the elements of the definition. For example, if 
a U.S. person purchased shares in a special purpose vehicle, wherever 
located, that in turn acquired an equity interest in a covered foreign 
person, and the U.S. person knew at the time of its transaction that 
the special purpose vehicle would be acquiring an equity interest in a 
covered foreign person, that transaction would be a covered 
transaction.
Knowledge Requirement for a Covered Transaction
    As set forth in the proposed rule, a transaction that otherwise has 
the attributes of a covered transaction ordinarily would be treated as 
a covered transaction only if the relevant U.S. person knows at the 
time of the transaction that the transaction involves, or will result 
in the establishment of, a covered foreign person (or will result in a 
person of a country of concern's engagement in a

[[Page 55854]]

new covered activity). As discussed with respect to Subpart A, 
knowledge for this purpose includes both actual knowledge and reason to 
know of the relevant facts or circumstances--that is, a U.S. person 
that had reason to know of the relevant facts or circumstances would 
not be excused from obligations or liability associated with entering 
into a covered transaction due to its alleged lack of actual knowledge 
of those facts or circumstances. Please see the discussion in Subpart A 
above for further information on how knowledge, which includes reason 
to know, would be assessed.
    The following examples illustrate the application of the proposed 
definition of covered transaction:
    (7) Example 7. A U.S. person acquires an existing manufacturing 
facility in a country of concern that does not, at the time of the 
acquisition, engage in a covered activity. Prior to the transaction, 
the U.S. person extensively researches the feasibility of retrofitting 
the facility to undertake a covered activity and secures financing on 
the basis of future cash flows from the facility's undertaking of such 
covered activity. The acquisition would therefore be a covered 
transaction under Sec.  850.210(a)(4)(i) because it is the acquisition 
of assets in a country of concern that the U.S. person intends at the 
time of the transaction to result in the establishment of a covered 
foreign person.
    (8) Example 8. A U.S. person invests as an LP in Company M, a 
pooled fund which is not a U.S. person. At the time of the U.S. 
person's investment, Company M has not undertaken any investments. 
However, Company M's manager has an extensive track record of investing 
predominantly in the artificial intelligence sector in a country of 
concern. Company M's prospectus states that Company M will invest in 
entities that are leading AI technology advancements including those 
with a principal place of business in a country of concern. One year 
following the conclusion of fundraising, Company M undertakes a 
transaction that would be a covered transaction if undertaken by a U.S. 
person. The U.S. person's investment as an LP would therefore be a 
covered transaction under Sec.  850.210(a)(6), because the U.S. person 
had reason to know (and therefore is deemed to have known) that Company 
M was likely to invest in a person of a country of concern engaged in 
one of the sectors enumerated in Sec.  850.210(a)(6), and Company M 
subsequently undertook a transaction that would be a covered 
transaction if undertaken by a U.S. person. More specifically, if 
Company M's transaction would be a prohibited transaction if undertaken 
by a U.S. person, then the U.S. person's investment as an LP into 
Company M would be a prohibited transaction; if Company M's transaction 
would be a notifiable transaction if undertaken by a U.S. person, then 
the U.S. person's investment as an LP into Company M would be a 
notifiable transaction. The completion date of the transaction for the 
purpose of the deadline for a submission of the required notification 
would be the earliest date upon which any interest, asset, property, or 
right in the relevant covered foreign person was conveyed, assigned, 
delivered, or otherwise transferred to Company M. It would not be the 
date of the U.S. person's original investment in Company M.
    (9) Example 9. Assume the same facts as Example 8, except that 
Company M never undertakes a transaction that would be a covered 
transaction if undertaken by a U.S. person. As a result, the U.S. 
person's LP investment in Company M would not be a covered transaction, 
as Company M's undertaking of a transaction that would be a covered 
transaction if undertaken by a U.S. person is a necessary element of 
Sec.  850.210(a)(6) of the proposed rule.
    Some commenters to the ANPRM requested that certain other 
activities be either included in the definition of excepted transaction 
or explicitly excluded from the definition of covered transaction. 
These include university-to-university research collaborations; the 
sale of goods and services; the purchase, sale, and licensing of 
intellectual property; and a variety of financial and non-financial 
services ancillary to a transaction such as the processing, clearing, 
or sending of payments by a bank. The proposed definition of covered 
transaction has been crafted to refer to a narrow set of specific 
transaction types, and the proposed rule does not explicitly exclude a 
list of other activities from this definition as it is not necessary 
(for any transaction to be covered, the elements in the definition of 
covered transaction need to be met).
    Under Sec.  850.210(b)(ii), consistent with the Outbound Order, a 
transaction undertaken for the conduct of the official business of the 
United States Government by employees, grantees, or contractors thereof 
would not be a covered transaction.
Sec.  850.214--Excepted Transaction
    The proposed rule includes a definition of excepted transaction 
that refers to a transaction that is not a covered transaction because 
it meets specified conditions. See the discussion of Subpart E below 
for more information.
Sec.  850.216--Knowledge
    The proposed rule defines knowledge (which includes variants such 
as ``know'') as actual knowledge that a fact or circumstance exists or 
is substantially certain to occur, an awareness at the time of a 
transaction of a high probability of a fact or circumstance's future 
occurrence, or reason to know of a fact or circumstance's existence. 
Consistent with commenter requests in response to the ANPRM that the 
terms align with other U.S. Government programs where possible, this 
language is similar to the definition of knowledge found in the Export 
Administration Regulations at 15 CFR 772.1. See the above discussion of 
Subpart A for more information on how this term would be applied in the 
proposed rule.
Sec.  850.217--Notifiable Transaction
    A notifiable transaction would be a covered transaction in which 
the relevant covered foreign person undertakes (or in the case of 
certain greenfield, brownfield, or joint venture investments, the U.S. 
person knows will or intends to undertake) any of several specified 
covered activities listed in the proposed definition of notifiable 
transaction. At this time, the Department of the Treasury has 
determined that the listed activities may contribute to the threat to 
the national security of the United States identified in the Outbound 
Order. Each of the technical descriptions and, where applicable, 
references to end uses in the proposed definition, is designed to 
achieve the national security policy objectives of the Outbound Order, 
and the Department of the Treasury may consider further technical 
refinements consistent with these objectives. Each covered activity for 
purposes of a notifiable transaction is discussed below.
    The submission of information to the Department of the Treasury 
regarding a notifiable transaction would increase the U.S. Government's 
visibility into a transaction involving technologies and products 
relevant to the threat to the national security of the United States 
identified in the Outbound Order. This information would be instructive 
in identifying sectoral trends and related capital flows in the covered 
activities. Additionally, it would inform future policy development 
with respect to both implementation of the Outbound Order, as well as 
the establishment or expansion of other U.S. Government programs 
relevant to the covered

[[Page 55855]]

national security technologies and products. It is expected that this 
information would help policymakers determine whether any existing 
legal authorities should be used, or new action should be taken to 
address the threat to the national security of the United States 
identified in the Outbound Order. The Department of the Treasury 
invites comments on whether the proposed definition of notifiable 
transaction meets these goals.
Integrated Circuit Design and Production
    The covered activities set forth in the definition of notifiable 
transaction would include the design, fabrication, or packaging of any 
integrated circuit that is not covered by the prohibited transaction 
definition (i.e., that does not meet the performance parameters and 
criteria identified in Sec.  850.224(c), (d) and (e), as applicable). 
The proposed rule separately defines the terms fabricate and package, 
adding further technical detail as to both the notification and 
prohibition provisions. The Department of the Treasury assesses that 
the scope of this notification requirement would increase the U.S. 
Government's visibility into the volume and nature of investments of 
U.S. person transactions involving the defined technologies and 
products that may contribute to the threat to the national security of 
the United States.
AI Systems
    The covered activities set forth in the definition of notifiable 
transaction would include the development of an AI system that is not 
covered by the prohibited transaction definition (i.e., that does not 
meet the criteria identified in Sec.  850.224(j) or (k)) and that is:
    (1) Designed to be used for any government intelligence or mass-
surveillance end use (e.g., through mining text, audio, or video; image 
recognition; location tracking; or surreptitious listening devices) or 
military end use (e.g., for weapons targeting, target identification, 
combat simulation, military vehicle or weapons control, military 
decision-making, weapons design, or combat system logistics and 
maintenance);
    (2) Intended by the relevant covered foreign person to be used for 
cybersecurity applications, digital forensics tools, and penetration 
testing tools, or the control of robotic systems; or
    (3) Trained using a quantity of computing power greater than a 
certain level of computational operations (e.g., integer or floating-
point operations). The Department of the Treasury is considering three 
potential alternates for the level of computational operations: 
10[caret]23, 10[caret]24, or 10[caret]25.
    This approach to covering the development of an AI system for 
purposes of a notifiable transaction reflects further consideration 
since the end-use qualification discussed in the ANPRM and focuses on 
the AI system's design in some cases and its intended use by the 
relevant covered foreign person in other cases. Additionally, the 
proposed rule would include a technical parameter based on the amount 
of compute used to train an AI system. Commenters to the ANPRM 
recommended, in the context of prohibited transactions, adding coverage 
of transactions involving frontier AI models, defined based on a set of 
technical parameters. Given the approach related to the development of 
an AI system for purposes of a prohibited transaction (discussed 
below), the proposed rule offers for comment specific technical 
parameters in the definition of notifiable transaction as well. The 
Department of the Treasury intends to select one of the compute power 
alternates for purposes of the prohibited transaction definition and 
would potentially set the relevant amount of compute power for the 
corresponding provision in the definition of notifiable transaction 
below the amount of compute power in the definition of prohibited 
transaction (at Sec.  850.224(k)(1)). For the definition of notifiable 
transaction as well as the definition of prohibited transaction, the 
Department of the Treasury is interested in considering alternatives, 
including whether the definition should account for (1) specialized AI 
models trained on high-quality data that could require a lower amount 
of compute power; (2) AI models that can be fine-tuned or retrained to 
remove safety features; (3) other techniques (such as model scaling, 
Monte Carlo Tree Search, pruning, chain of thought, that could be used 
to increase performance); or (4) other relevant considerations, 
including alternative language with respect to the definition of 
covered activities relating to AI systems for purposes of notifiable 
transactions to add clarity or more precisely capture activities giving 
rise to the national security concerns related to the development of AI 
systems.
Sec.  850.221--Person of a Country of Concern
    This defined term is a component of the definitions of covered 
foreign person and covered transaction. It would include an individual 
who is a citizen or permanent resident of a country of concern and 
exclude U.S. citizens and U.S. permanent residents. It would also 
include an entity with a principal place of business in, headquartered 
in, incorporated in, or organized under the laws of a country of 
concern. The Department of the Treasury invites comments on the impact 
of this definition as proposed, particularly whether other categories 
of persons in addition to U.S. citizens and permanent residents should 
be excluded from the definition of person of a country of concern.
    The definition would also include the government of a country of 
concern, persons acting on behalf of such a government, and persons 
controlled by or directed by such a government. The Department of the 
Treasury expects that, through a reasonable and diligent inquiry, a 
U.S. person should be able to determine whether a potential investment 
target involves a person of a country of concern as defined in the 
proposed rule.
    Finally, the definition would include any entity, wherever located, 
in which one or more persons of a country of concern, individually or 
in the aggregate, hold at least 50 percent of any outstanding voting 
interest, voting power of the board, or equity interest, regardless of 
whether the interest is held directly or indirectly. This is intended 
to capture entities located outside of a country of concern that are 
majority-owned by persons of a country of concern, because a U.S. 
person investment into such an entity could result in the transfer of 
intangible benefits to or for the benefit of one or more persons of a 
country of concern. When evaluating a tiered ownership structure for 
any given entity, a U.S. person would need to determine whether persons 
of a country of concern, individually or in the aggregate, hold at 
least 50 percent of the entity's voting interest, voting power of the 
board, or equity interest, in which case, the entity would be 
considered a person of a country of concern. If the entity meets this 
criteria, another entity in which it holds at least 50 percent of the 
entity's voting interest, voting power of the board, or equity interest 
would also be a person of a country of concern, and so on. The 
definition is intended to draw a bright line so that it is 
straightforward for a U.S. person to ascertain whether an entity is a 
person of a country of concern.
    The following examples illustrate the application of the proposed 
definition of person of a country of concern:
    (10) Example 10. Company N has its principal place of business in a 
country outside of a country of concern and is headquartered and 
incorporated outside

[[Page 55856]]

of a country of concern. Six citizens of a country of concern, each of 
whom is not a U.S. citizen or U.S. permanent resident, each hold 10 
percent of Company N's equity interest. Company N would therefore be a 
person of a country of concern under Sec.  850.221(d), because an 
aggregate of 60 percent of the entity's equity interest is held by 
persons of a country of concern.
    (11) Example 11. Assume the same facts as Example 10. In addition, 
Company N holds 60 percent of the voting power of the board of Company 
O, which also has its principal place of business in a country outside 
of a country of concern and is headquartered and incorporated outside 
of a country of concern. Company O would therefore be a person of a 
country of concern under Sec.  850.221(e), because 60 percent of 
Company O's board voting power is held by Company N, which is a person 
of a country of concern under Sec.  850.221(d).
Sec.  850.224--Prohibited Transaction
    A prohibited transaction would be a covered transaction in which 
the relevant covered foreign person undertakes (or in the case of 
certain greenfield, brownfield, or joint venture investments, the U.S. 
person knows will or intends to undertake) any of several specified 
covered activities listed in the proposed definition of prohibited 
transaction. At this time, the Department of the Treasury has 
determined that the listed activities pose a particularly acute 
national security threat to the United States identified in the 
Outbound Order. Each of the technical descriptions and, where 
applicable, references to end uses in the proposed definition, is 
designed to achieve the focused national security policy objectives of 
the Outbound Order, and the Department of the Treasury may consider 
further technical refinements consistent with these objectives. Each 
covered activity for purposes of a prohibited transaction is discussed 
below.
Advanced Integrated Circuit Design and Equipment
    The covered activities set forth in the definition of prohibited 
transaction would include developing or producing any electronic design 
automation software for the design of integrated circuits or advanced 
packaging. The proposed rule separately defines the terms advanced 
packaging, develop, and produce, adding further technical detail to the 
prohibition provision. Additional covered activities included in the 
definition of prohibited transaction would include developing or 
producing any of the following: certain front-end semiconductor 
fabrication equipment designed for performing the volume fabrication of 
integrated circuits, equipment for performing volume advanced 
packaging, or other items designed exclusively for use in or with 
extreme ultraviolet lithography fabrication equipment.
Advanced Integrated Circuit Design and Production
    The covered activities set forth in the definition of prohibited 
transaction would include designing any integrated circuit that meets 
or exceeds certain advanced technical thresholds identified by the 
Bureau of Industry and Security of the Department of Commerce, or 
integrated circuits designed for operation at or below 4.5 Kelvin. The 
term would also include the fabrication of advanced integrated circuits 
that meet the technical criteria specified in the proposed rule. 
Additionally, the term would include the packaging of any integrated 
circuit using advanced packaging techniques.
Supercomputers
    The covered activities set forth in the definition of prohibited 
transaction 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. The 
Department of the Treasury invites comments on the scope of covered 
activities involving supercomputers in the definition of prohibited 
transaction including whether any adjustments or clarification should 
be made.
Quantum Computers and Components
    The covered activities set forth in the definition of prohibited 
transaction would include developing a quantum computer or producing 
any of the critical components required to produce a quantum computer 
such as a dilution refrigerator or two-stage pulse tube cryocooler. The 
proposed rule separately defines the term quantum computer, adding 
further technical detail to the prohibition provision. The Department 
of the Treasury invites comments regarding this prong of the definition 
including input on how further clarity might be provided with respect 
to what is meant by critical components, and the extent to which 
dilution refrigerator or two-stage pulse tube cryocooler can be further 
defined in terms of critical performance or otherwise.
Quantum Sensors
    The covered activities set forth in the definition of prohibited 
transaction would include developing or producing any quantum sensing 
platform designed for, or which the relevant covered foreign person 
intends to be used for, military, government intelligence, or mass-
surveillance end uses. The proposed rule includes an end-use limitation 
to appropriately scope this activity to circumstances that could give 
rise to a particularly acute national security threat, recognizing that 
similar technologies could have important civilian purposes.
Quantum Networking and Quantum Communication Systems
    The covered activities set forth in the definition of prohibited 
transaction would include developing or producing any quantum network 
or quantum communication system designed for, or which 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 
military, government intelligence, or mass-surveillance end use. The 
proposed rule includes an end-use limitation to appropriately scope 
this activity to circumstances that could give rise to a particularly 
acute national security threat, recognizing that similar technologies 
could have civilian purposes.
AI Systems
    Some commenters to the ANPRM noted that the AI definitions under 
consideration in connection with a prohibited transaction could apply 
broadly and potentially sweep in civilian uses of an AI system 
unnecessarily. As noted above, the policy objective is to cover U.S. 
investment into entities that develop AI systems that have applications 
that pose a particularly acute national security threat without broadly 
capturing investments into entities that develop AI systems intended 
only for consumer applications or other civilian end uses that do not 
have potential national security consequences. To make sure the scope 
of prohibited transactions related to the development of any AI system 
appropriately addresses the national security threat identified in the 
Outbound Order, the covered activities would include any AI system that 
is designed to be exclusively used for, or which the relevant covered 
foreign

[[Page 55857]]

person intends to be used for, any military end use (e.g., for weapons 
targeting, target identification, combat simulation, military vehicle 
or weapon control, military decision-making, weapons design, or combat 
system logistics and maintenance); or government intelligence or mass 
surveillance end use (e.g., through mining text, audio, or video; image 
recognition; location tracking; or surreptitious listening devices). 
Additionally, as discussed above in connection with notifiable 
transactions involving the development of AI systems, commenters to the 
ANPRM recommended, among other things, adding coverage of transactions 
involving frontier AI models and defined based on a set of technical 
parameters. The proposed rule offers for comment specific technical 
parameters in describing any AI system that is trained using a certain 
quantity of computing power generally and separately, any AI system 
that is trained using a certain quantity of computing power using 
primarily biological sequence data. The Department of the Treasury is 
considering setting the general computing power threshold for a 
prohibited transaction at one of three levels: 10[supcaret]24, 
10[supcaret]25, or 10[supcaret]26 computational operations (e.g., 
integer or floating-point operations). As discussed above in connection 
with notifiable transactions involving the development of AI systems, 
the Department of the Treasury intends to select one of the general 
compute power alternates for purposes of the prohibited transaction 
definition and would potentially set the relevant amount of compute 
power for the corresponding provision in the definition of notifiable 
transaction (at Sec.  850.217(d)(3)) below the amount of compute power 
in the definition of prohibited transaction. With respect to AI systems 
trained primarily using biological sequence data, the Department of the 
Treasury is considering setting the computing power threshold at one of 
two levels: 10[supcaret]23 or 10[supcaret]24 computational operations. 
As noted below, the Department of the Treasury is considering whether 
this approach with respect to biological sequence data should be 
utilized for the definition of a notifiable transaction rather than the 
definition of a prohibited transaction. Regardless, the Department of 
the Treasury invites comments on the impacts of setting the computing 
power threshold at the various levels proposed as alternates.
    The Department of the Treasury, in consultation with other 
departments and agencies, has determined that the covered activities 
described in connection with AI systems pose a particularly acute 
threat to the national security of the United States and thus are 
appropriate for the definition of prohibited transaction. The specified 
end uses relate directly to the national security threats identified in 
the Outbound Order, and the Department of the Treasury, in consultation 
with other departments and agencies, has determined that transactions 
involving either an AI system exclusively designed to be deployed for 
such an end use or the relevant covered foreign person's intent to use 
an AI system for such an end use present a particularly acute threat to 
U.S. national security. Meanwhile, the general computing power 
thresholds set forth for consideration would cover powerful AI models, 
which could enable potential applications of concern, such as the 
design, synthesis, acquisition, or use of chemical, biological, 
radiological, or nuclear weapons; powerful offensive cyber operations; 
or the evasion of human control or oversight through deception or 
obfuscation. Such models can also enable next-generation military 
capabilities through improving the speed and accuracy of military 
decision-making and intelligence capabilities. Models trained using a 
quantity of computing power greater than 10[supcaret]23 or 
10[supcaret]24 computational operations using primarily biological 
sequence data could enable potential biotechnology applications of 
concern, including for the design of biological weapons. The Department 
of Treasury welcomes comments on whether any transactions involving AI 
systems that could pose a threat to U.S. national security as 
identified in the Outbound Order would not be covered by the 
definitions of a notifiable transaction or a prohibited transaction. 
The Department of the Treasury invites comments on the impacts of each 
of these computing power threshold alternates. The Department of the 
Treasury is also interested in comments on whether and why this 
approach to biological sequence data should instead be considered for 
the notification requirement rather than the prohibition.
Cross-Reference to U.S. Government Lists
    The definition of prohibited transaction would also provide that 
any covered transaction is prohibited when it is with or involves a 
covered foreign person undertaking any covered activity--whether 
referred to in the definition of prohibited transaction or in the 
definition of notifiable transaction--if the covered foreign person is 
included on one of several U.S. Government lists, such as the Entity 
List maintained by the Bureau of Industry and Security within the 
Department of Commerce. Because the United States has already 
determined that the inclusion of a person on such a list evidences a 
threat to the interests of the United States, such as the foreign 
policy or national security of the United States, if a listed person is 
a covered foreign person engaged in any covered activity, then a U.S. 
person's covered transaction with such covered foreign person and the 
transfer of capital and U.S. person intangible benefits to them would 
pose a particularly acute risk to U.S. national security even when such 
listed person is engaged in what would otherwise qualify as only a 
covered activity under the notifiable transaction definition.
Sec.  850.229--U.S. Person
    The proposed rule would apply to the conduct of a U.S. person only. 
In the proposed rule, a U.S. person would include any United States 
citizen or lawful permanent resident, as well as any entity organized 
under the laws of the United States or any jurisdiction within the 
United States, including any foreign branch of any such entity, or any 
person in the United States. This would mean that an entity organized 
in the United States would be considered a U.S. person for purposes of 
the proposed rule even if its parent is a non-U.S. person.
    Some commenters to the ANPRM raised questions about the potential 
extraterritorial reach of the proposed rule as it relates to this term. 
Depending on how U.S. person is defined, these commenters noted that 
the proposed rule could purport to restrict activity taking place 
outside of the United States. In response to these comments, the 
Department of the Treasury clarifies two points. First, a non-U.S. 
person that happens to be a parent of a U.S. person would not be 
treated as a U.S. person for the purposes of this proposed rule solely 
because of its relationship to the U.S. person. Second, while any 
person in the United States, including personnel of a non-U.S. person 
entity working in a branch office of that entity or otherwise, would be 
considered a U.S. person under the proposed rule based on their 
presence in the United States, such person's non-U.S. person employer 
would not be considered a U.S. person solely because of an employee's 
presence in the United States. The Department of the Treasury invites 
comments regarding this proposed approach.

[[Page 55858]]

    Some commenters to the ANPRM noted that the potential inclusion of 
``any person in the United States'' in this definition could scope in a 
non-U.S. person in transit through the United States that takes an 
action during this transit that could constitute a covered transaction, 
such as signing investment paperwork, and therefore this portion of the 
definition should be scaled back or removed. However, the inclusion of 
``any person in the United States'' mirrors the language used in the 
definition of ``United States person'' in the Outbound Order. The 
Department of the Treasury is concerned with persons who are neither 
citizens nor permanent residents and who are nevertheless able to 
accrue knowledge, experience, networks, and other intangible assets 
while they are in the United States that could convey valuable benefits 
to a covered foreign person. The circumstance of a non-U.S. citizen or 
permanent resident individual in transit through the United States who 
wishes to enter into a transaction that could trigger program coverage, 
while possible, is not likely to be a frequent occurrence and can be 
reasonably managed with advance planning.
Subpart C--Prohibited Transactions and Other Prohibited Activities
    This subpart of the proposed rule 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 and would 
include a U.S. person knowingly directing an otherwise prohibited 
transaction, as described below. 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.
Sec.  850.303--Knowingly Directing an Otherwise Prohibited Transaction
    Subpart C includes a prohibition on a U.S. person that possesses 
authority at a non-U.S. person entity from knowingly directing a 
transaction by that non-U.S. person entity that would be a prohibited 
transaction if undertaken by a U.S. person. This provision is intended 
to address a potential loophole, such as a U.S. person senior manager 
at a foreign fund that invests in a covered foreign person or otherwise 
directs a transaction that would be prohibited if engaged in by a U.S. 
person.
    In the ANPRM, the Department of the Treasury noted that it was 
considering applying this provision to situations where a U.S. person, 
with knowledge, ``orders, decides, approves, or otherwise causes to be 
performed a transaction that would be prohibited under these 
regulations if engaged in by a U.S. person.'' Commenters to the ANPRM 
sought clarity on this language, including at what stage of an 
investment such ``directing'' would occur, what level of involvement or 
responsibility would be required to trigger the definition, and through 
what types of entities such ``knowingly directing'' would need to occur 
to be covered. Commenters to the ANPRM also asked for clarification 
that ordinary banking activities would not be scoped into this 
definition.
    The Department of the Treasury's proposed approach to this 
provision is guided by several goals: (1) establishing a clear standard 
so a U.S. person (or a non-U.S. person employing such U.S. person) can 
determine whether its (or its employee's) conduct is covered; (2) 
limiting the reach of the provision to minimize the potential impact on 
non-senior U.S. person employees, including administrative staff and 
individuals not playing a substantial role in an investment decision; 
and (3) capturing concerning U.S. person activities in a targeted 
manner.
    Under the proposed rule, a U.S. person ``knowingly directs'' a 
transaction when such U.S. person has authority to make or 
substantially participate in decisions on behalf of a non-U.S. person 
entity and exercises that authority to direct, order, decide upon, or 
approve a transaction that would be a prohibited transaction if engaged 
in by a U.S. person. The proposed provision specifies that a U.S. 
person would have authority if such U.S. person is an officer, 
director, or senior advisor, or otherwise possesses senior-level 
authority. The Department of the Treasury requests comments on the 
impacts of the proposed approach as well as any alternatives that 
commenters consider appropriate.
    In response to commenter questions on the ANPRM about whether this 
provision would apply only to the activity of U.S. persons at non-U.S. 
person funds, or to non-financial entities as well, the proposed rule 
clarifies that this provision would prohibit a U.S. person from 
knowingly directing a transaction via any type of non-U.S. person 
entity if the subject transaction would be a prohibited transaction if 
undertaken by a U.S. person. In response to commenter questions on the 
ANPRM about whether ordinary banking activities would be included in 
the definition of knowingly directing, the Department of the Treasury's 
proposed approach to this provision is intended to avoid scoping in the 
provision of third-party services such as banking services, as well as 
routine administrative work by a U.S. person who lacks substantial 
involvement in an investment decision. Rather, the Department of the 
Treasury's objective is to address a potential loophole that could 
otherwise permit a U.S. person to transfer capital and intangible 
benefits to a covered foreign person via a non-U.S. person entity.
    The following example illustrates the application of the proposed 
definition of knowingly directing:
    (12) Example 12. A U.S. person is a senior executive at Company P, 
a non-U.S. person operating company. The U.S. person's role includes 
substantial participation in investment decisions related to Company 
P's strategic acquisitions. The U.S. person participates in 
deliberations among Company P's leadership about whether to undertake a 
share purchase in Company Q, a privately-held covered foreign person 
that develops a quantum computer. Following these deliberations, the 
U.S. person votes in favor of the share purchase and knows at the time 
of the vote that the share purchase would be a prohibited transaction 
if undertaken by a U.S. person. Therefore, the U.S. person would have 
knowingly directed an otherwise prohibited transaction under the 
proposed rule.
    Wherever possible, consistent with national security objectives, 
the Department of the Treasury seeks to avoid broad implications on the 
employment of U.S. persons. As a result, the proposed approach would 
carve out a U.S. person who recuses themself from an investment even if 
that person has the authority to make or substantially participate in 
decisions on behalf of a non-U.S. person entity. The Department of the 
Treasury invites comments regarding the proposed approach, particularly 
to what stage of an investment this recusal carveout should apply 
(e.g., negotiation of a transaction, the decision to undertake the 
transaction, and/or overseeing the investment after the completion 
date).
Subpart D--Notifiable Transactions and Other Notifiable Activities
    This subpart of the proposed rule would require a U.S. person to 
notify the Department of the Treasury in any of the following 
circumstances:
     If it undertakes a notifiable transaction (Sec.  850.401);
     If its controlled foreign entity undertakes a transaction 
that would be notifiable if undertaken by a U.S. person (Sec.  
850.402), or;

[[Page 55859]]

     If the U.S. person acquires actual knowledge following the 
completion date of a transaction that the transaction would have been a 
covered transaction if the U.S. person had known of relevant facts or 
circumstances as of the completion date (Sec.  850.403).
    In each of the above circumstances, the U.S. person would be 
required to follow specified procedures that include requirements to 
submit detailed information to the Department of the Treasury according 
to set timeframes and to certify as to the completeness and accuracy of 
the information submitted, as well as to maintain relevant records. A 
U.S. person would also be required to promptly notify the Department of 
the Treasury of any material omission or inaccuracy that the U.S. 
person learns about following any information submission.
    The requirement to notify the Department of the Treasury in Sec.  
850.403 would apply to circumstances in which a U.S. person acquires 
actual knowledge after the window in which a Sec.  850.401 notification 
could have been timely submitted. Specifically, the Sec.  850.403 
notification requirement would apply to situations where a U.S. person 
did not possess knowledge at the time of the transaction of a fact 
that, if known at the time of the transaction, would have made the 
transaction a covered transaction (such as, for example, the investment 
target's engagement in a covered activity). The information 
requirements for a Sec.  850.403 notification include an explanation by 
the U.S. person as to why it did not possess or obtain such knowledge 
at the time of the transaction and to describe any pre-transaction 
diligence.
    Some commenters stated that certain of the information considered 
in the ANPRM as elements of a complete notification could be difficult 
to obtain or burdensome to provide and cautioned that certain 
information requirements could have an unintended chilling effect on 
transactions in the relevant activities described in the ANPRM. The 
proposed rule seeks to address the national security threat described 
in the Outbound Order while minimizing unintended consequences. In 
light of this, the proposed rule contains information requirements for 
a notifiable transaction that would provide important details regarding 
a transaction, but are more focused than those listed in the ANPRM. The 
proposed rule also would require the U.S. person to maintain a copy of 
the notification and supporting documentation for ten years (consistent 
with the 21st Century Peace through Strength Act of 2024 (Sec. 3111, 
Pub. L. 118-50), which amended section 206 of IEEPA and extended the 
statute of limitations for violations of IEEPA from five years to ten 
years), during which period the Department of the Treasury could 
request such documents.
    In response to comments to the ANPRM that a requirement to submit a 
notification before the completion date of a transaction could have the 
effect of delaying the transaction, the proposed rule would allow a 
notification to be submitted no later than 30 calendar days following 
the completion date of a notifiable transaction. In other words, the 
U.S. person could submit the notification at any point prior to the 
completion date of the notifiable transaction or within 30 calendar 
days following the completion date.
    The following example illustrates the application of the proposed 
definition of completion date and the submission of a notification in 
the context of an acquisition of a contingent equity interest:
    (13) Example 13. A U.S. person acquires a contingent equity 
interest in a covered foreign person in a transaction that is a 
notifiable transaction. One year later, the contingent equity interest 
converts into an equity interest. The U.S. person's acquisition of a 
contingent equity interest and subsequent conversion into an equity 
interest each constitute a separate covered transaction under Sec.  
850.210(a)(1) and Sec.  850.210(a)(3), respectively. Under Sec.  
850.204, Sec.  850.401, and Sec.  850.404, the U.S. person would be 
required to file the first notification with the Department of the 
Treasury no later than 30 calendar days following the completion date 
of the first covered transaction, which would be the earliest date upon 
which the contingent equity interest is conveyed, assigned, delivered, 
or otherwise transferred to the U.S. person. Likewise, the U.S. person 
would be required to file the second notification with the Department 
of the Treasury no later than 30 calendar days following the completion 
date of the second covered transaction, which would be the earliest 
date upon which the equity interest (resulting from the conversion of 
the contingent equity interest) is conveyed, assigned, delivered, or 
otherwise transferred to the U.S. person.
Subpart E--Exceptions and Exemptions
    This subpart of the proposed rule specifies particular factors that 
would cause an otherwise covered transaction to be treated as an 
excepted transaction. This subpart also specifies provisions that would 
apply when a transaction is a covered transaction but a party to that 
transaction seeks an exemption from certain applicable rules on 
national interest grounds (which, if granted, would cause the 
transaction to be an exempted transaction).
Sec.  850.501--Excepted Transaction
    In keeping with the goal of tailoring the proposed rule to address 
the national security threat described in the Outbound Order while 
minimizing disruptive effects on U.S. persons, the proposed rule would 
define certain exceptions. A transaction that otherwise would qualify 
as a covered transaction but meets one of the exceptions would be 
referred to as an excepted transaction. The Department of the Treasury 
considers that a transaction that would qualify as an excepted 
transaction presents a lower likelihood of the transfer of intangible 
benefits to the covered foreign person or is otherwise less likely to 
present national security concern than a covered transaction.
    As discussed in detail below, an excepted transaction would include 
the following (subject to conditions in some instances, as explained 
below):
     An investment by a U.S. person in a publicly traded 
security;
     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;
     An investment of a certain size by a U.S. person LP in a 
pooled investment fund;
     A U.S. person's full buyout of all interests of any person 
of a country of concern in an entity, such that the entity would not 
constitute a covered foreign person following the transaction;
     An intracompany transaction between a U.S. person parent 
and its subsidiary to support ongoing operations (or other activities 
that are not covered activities as defined in Sec.  850.208);
     Fulfillment of a U.S. person's binding capital commitment 
entered into prior to the date of the Outbound Order;
     The acquisition of a voting interest in a covered foreign 
person upon default or other condition involving a loan, where the loan 
was made by a lending syndicate and a U.S. person participates 
passively in the syndicate; and
     Certain transactions that occur in a country or territory 
outside the United States that has been designated by the Secretary in 
accordance with provisions set forth in Sec.  850.501(f) of the 
proposed rule.
    To make sure these exceptions are consistent with the policy 
objectives, certain of the transactions described

[[Page 55860]]

above would cease to qualify as an excepted transaction if a U.S. 
person were to obtain certain investor rights beyond standard minority 
shareholder protections (for example, in connection with publicly 
traded securities or an LP investment).
    The ANPRM proposed an exception for an investment into a publicly 
traded security, with ``security'' defined as set forth in section 
3(a)(1) of the Securities Exchange Act of 1934. In response to the 
ANPRM, some commenters requested that the definition of ``publicly 
traded security'' be broadened from the definition of ``security'' used 
in the discussion of excepted transactions in the ANPRM to align with 
the definition used by the Department of the Treasury's Office of 
Foreign Assets Control in connection with the Non-SDN Chinese Military-
Industrial Complex Companies List. The proposed rule would effectively 
broaden the carveout to include a security traded on a non-U.S. 
exchange, or a security traded ``over-the-counter,'' in addition to a 
security traded on a U.S. exchange. The proposed rule would adopt this 
suggestion because a U.S. person's purchase of securities traded on a 
public exchange, whether inside or outside the United States, presents 
a lower likelihood of transferring intangible benefits to a covered 
foreign person.
    The proposed rule also would provide an exception for investment in 
securities issued by an investment company, such as an index fund, 
mutual fund, or exchange traded fund, as well as a business development 
company under the Investment Company Act of 1940, as amended.
    Similarly, a U.S. person making an LP investment under a specified 
threshold into a pooled fund that then invests in a covered foreign 
person would, subject to the specified criteria, constitute an excepted 
transaction. The rationale for this approach is that LP transactions 
above a certain threshold are more likely to involve the transfer of 
intangible benefits such as those often associated with larger 
institutional investors, including standing and prominence, managerial 
assistance, and enhanced access to additional financing. When a U.S. 
person's committed capital to a pooled investment fund as an LP exceeds 
a certain threshold, the U.S. person may have greater incentive and 
potentially greater ability to impact the success of a covered foreign 
person in which the pooled fund invests. The proposed rule presents two 
alternate approaches for defining the threshold beneath which a U.S. 
person's LP investment into a pooled fund that then invests in a 
covered foreign person would constitute an excepted transaction.
    Under proposed Alternate 1, a U.S. person's investment made as an 
LP in a pooled fund would constitute an excepted transaction if (1) the 
LP's rights are consistent with a passive investment and (2) the LP's 
committed capital is not more than 50 percent of the total assets under 
management of the pooled fund. If the U.S. person LP's committed 
capital were to constitute more than 50 percent of the total assets 
under management of the pooled fund, its investment would qualify as an 
excepted transaction only if the U.S. person secured a binding 
agreement that the pooled fund would not use its capital for a 
prohibited transaction. This approach was developed to address the 
likelihood of intangible benefits being transferred by such an 
investment if, for example, a U.S. person's LP investment is large 
enough compared to the investable assets of the pooled fund such that 
the U.S. person LP is an anchor investor or otherwise wields 
substantial influence that would allow it to guide the pooled fund's 
investment decisions or interact regularly with the pooled fund's 
investment targets. This approach would also address situations where 
the U.S. person's LP investment falls below the threshold but contains 
one of several indicia of control or influence over the pooled fund or 
the ultimate covered foreign person investment target by excluding such 
an investment from the definition of excepted transaction.
    Under proposed Alternate 2, a U.S. person's investment made as an 
LP in a pooled investment fund would constitute an excepted transaction 
if the LP's committed capital is not more than $1 million. The 
rationale for this alternate approach is that if an LP investment is 
above the $1 million threshold, a U.S. person's LP investment may be 
large enough that its investment transfers intangible benefits, such as 
standing and prominence that an underlying covered foreign person 
investment target could exploit for legitimacy or for further 
fundraising purposes. Although this alternate may scope in a greater 
number of LP investments as covered transactions compared to Alternate 
1, this bright-line approach may be easier to comply with while still 
addressing the risk of intangible benefits being transferred by such an 
investment.
    An excepted transaction also would include a U.S. person's full 
buyout of the interests of a person of a country of concern in an 
entity, where the entity would not constitute a covered foreign person 
following the transaction. As discussed in the ANPRM, the objective of 
this exception is to carve out from coverage a transaction that 
eliminates the likelihood that intangible benefits of a U.S. person 
transfer to a covered foreign person, because following a full buyout, 
a person of a country of concern will no longer have any interest in 
the target of the buyout.
    An excepted transaction would also include certain intracompany 
transactions--that is, a transaction between a U.S. person and its 
controlled foreign entity to support ongoing operations or other 
activities that are not covered activities. The goal of this exception 
is to avoid unintended interference with the ongoing operations of a 
U.S. person's controlled foreign entity even when that controlled 
foreign entity also meets the definition of covered foreign person. The 
Department of the Treasury expects that the initial acquisition or 
establishment of the subsidiary would already constitute a covered 
transaction, and where it does not, the potential impacts on the U.S. 
person from covering such intracompany transactions under the proposed 
rule would likely outweigh the benefit in terms of the objectives of 
the Outbound Order. Although the definition of covered transaction in 
the proposed rule would not usually apply to most routine intracompany 
activities such as the sale or purchase of inventory or fixed assets, 
the provision of paid services, or the licensing of technology, the 
intracompany transaction exception in the proposed rule nonetheless 
excepts intracompany transactions that would be covered transactions 
but support activities that are not covered activities. To avoid use of 
the intracompany transaction exception to establish new covered foreign 
persons or to pivot existing subsidiaries into a new covered activity, 
the exception would not apply to greenfield investments, pivots of 
existing entities' operations into covered activities, and joint 
ventures.
    Consistent with the ANPRM, the proposed definition of excepted 
transaction would also include any transaction made in fulfillment of a 
U.S. person's binding capital commitment entered into prior to the 
effective date of the Outbound Order (August 9, 2023). A U.S. person 
would not have been aware of the scope of the Outbound Order and 
directive for the implementation of the prohibition and notification 
requirement before the Outbound Order was issued, and this exception is 
intended to avoid significant disruption to a U.S. person who entered 
into a binding commitment prior to August 9, 2023. The ANPRM,

[[Page 55861]]

issued on the same day as the Outbound Order, also included discussion 
of a possible exception for fulfillment of ``binding capital 
commitments . . . made prior to the issuance of the [Outbound] Order.'' 
The Department of the Treasury proposes to specify that this proposed 
exception applies to any transaction made in fulfillment of a binding 
capital commitment entered into prior to the date of the Outbound 
Order. The intent is to effectively address the national emergency 
identified in the Outbound Order and avoid creating incentives for U.S. 
persons to enter into new binding commitments for a covered transaction 
after issuance of the proposed rule. The Department of the Treasury 
requests comment on the scope of the exception, including how to 
address the timing of binding capital commitments.
    The definition of excepted transaction would also include the 
acquisition of a voting interest in a covered foreign person by a U.S. 
person upon default or other condition involving a loan or similar 
financing arrangement where the U.S. person lender was part of a 
syndicate of banks and cannot initiate action vis-[agrave]-vis the 
debtor on its own and does not have a lead role in the syndicate. 
Consistent with the objectives of the Outbound Order, it would except a 
narrow set of circumstances in which 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 Department of the Treasury, together with the Departments of 
State and Commerce and other agencies, recognize the importance of 
working with our partners and allies and will continue coordinating 
closely to address our shared national security concerns posed by 
outbound investment. In recognition of the shared objectives and in 
furtherance of the U.S. Government's efforts to encourage partners and 
allies address risks posed by outbound investment, the proposed rule 
would also provide for the potential application of the term excepted 
transaction to certain transactions with or involving a person of a 
country or territory outside of the United States designated by the 
Secretary in accordance with certain criteria (to be developed) that 
relate to that country or territory's own measures to address the 
national security risk related to certain outbound investment. The 
Department of the Treasury expects that any such country or territory 
would be designated after accounting for factors such as whether the 
country or territory is regulating outbound investment transactions 
involving technologies critical to a country of concern's military, 
intelligence, surveillance, or cyber-enabled capabilities, which 
technologies are covered by such regulation, and whether such 
regulation addresses national security concerns posed by outbound 
investment similar to those addressed by the U.S. outbound program. The 
Department of the Treasury is considering taking into account other 
factors for purposes of designating a country or territory, including 
the extent to which a country or territory cooperates with the United 
States on issues of national security and whether it has in place and 
is using related authorities and tools, such as export controls, to 
protect sensitive technologies and products.
    The proposed rule would provide for the application of this 
exception only to certain types of transactions with or involving a 
person of a designated country or territory. The proposed rule 
anticipates that the Secretary would determine the types of 
transactions for which the related national security concerns are 
likely to be adequately addressed by measures taken or that may be 
taken by the government of a country or territory outside the United 
States. Once developed, the Department of the Treasury intends to make 
factors for the designation of a country or territory as well as types 
of transactions and/or activities that would be subject to the 
exception publicly available on Treasury's Outbound Investment Security 
Program website. The Department of the Treasury, along with the 
Departments of State and Commerce, will continue to work with partners 
and allies as they explore addressing the national security concerns 
posed by certain outbound investments. The Department of the Treasury 
invites comments and input on the proposed factors for the Secretary to 
consider when designating a country or territory in this context as 
well as comments on the types of transactions or activities that should 
be excepted once a country or territory has been designated. 
Additionally, the Department of the Treasury invites comments more 
generally on efforts to engage internationally on outbound investment 
security.
Sec.  850.502--National Interest Exemption
    The Outbound Order authorizes the Secretary to ``exempt from 
applicable prohibitions or notification requirements any transaction or 
transactions determined by the Secretary, in consultation with the 
heads of relevant agencies, as appropriate, to be in the national 
interest of the United States.''
    On a case-by-case basis, the Secretary, in consultation with the 
Secretary of Commerce, the Secretary of State, and the heads of 
relevant agencies, as appropriate, may determine that a covered 
transaction is in the national interest of the United States and 
therefore, exempt it from certain provisions of this proposed rule. The 
Department of the Treasury anticipates that this exemption of a covered 
transaction would be granted by the Secretary in exceptional 
circumstances.
    This section of the proposed rule describes the process and 
considerations for such a determination. Any determination that a 
covered transaction is in the national interest of the United States 
and therefore exempt from certain provisions will be based on a 
consideration of the totality of the facts and circumstances. The 
Department of the Treasury anticipates that such determination may be 
informed by, among other considerations, the transaction's effect on 
critical U.S. supply chain needs, domestic production needed for 
projected national defense requirements, the United States' 
technological leadership globally in areas affecting U.S. national 
security, and the impact on national security from prohibiting a given 
transaction. The Department of the Treasury is not considering granting 
retroactive waivers or exemptions (i.e., waivers or exemptions after a 
prohibited transaction has been completed).
    In order to request a national interest exemption, a U.S. person 
would need to submit certain information to the Department of the 
Treasury, including describing the scope of the relevant transaction, 
the basis for the request, and an analysis of the transaction's 
potential impact on the national interest of the United States. The 
Department of the Treasury may request that a U.S. person submit 
information that may include some or all of the information required by 
Sec.  850.405, as well as additional details based on the facts and 
circumstances.
    Once developed, the Department of the Treasury anticipates 
detailing the process and required information for any national 
interest exemption request on the Department of the Treasury's Outbound 
Investment Program website.
Subpart F--Violations
    This subpart of the proposed rule describes conduct that would be 
treated as a violation of the proposed rule. Such

[[Page 55862]]

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 specified, and making materially false 
or misleading representations to the Department of the Treasury when 
submitting any information required by the proposed rule. The proposed 
rule would also prohibit any action that evades or avoids or has the 
purpose of evading or avoiding any of the prohibitions of the proposed 
rule.
Subpart G--Penalties and Disclosures
    This subpart of the proposed rule describes the penalties that 
would be applicable to violations of the proposed rule by any person 
subject to the jurisdiction of the United States, which would include 
civil and criminal penalties up to the maximum amount set forth in 
section 206 of IEEPA. Under the proposed rule, the Department of the 
Treasury may impose a civil penalty on any person that violates the 
rule, and the Secretary may refer potential criminal violations under 
the proposed rule to the Attorney General. Further, the proposed rule 
states that the Secretary, in consultation with the heads of relevant 
agencies, may take action to nullify, void, or otherwise compel 
divestment of any prohibited transaction entered into after the 
effective date of the rule. This subpart also describes the process for 
a person that may have violated applicable rules to submit a voluntary 
self-disclosure. A U.S. person could elect to make such a disclosure of 
actual or possible violations. The Department of the Treasury would 
take such disclosure into account as a mitigating factor in determining 
the appropriate response, including the potential imposition of 
penalties, if the Department of the Treasury determines that there was, 
in fact, a violation.
Subpart H--Provision and Handling of Information
    This subpart describes the Department of the Treasury's proposal to 
treat as confidential, subject to limited exceptions, information and 
documentary materials that are submitted pursuant to the regulations 
and that are not otherwise publicly available. Except to the extent 
required by law or in accordance with one of the enumerated exceptions, 
the Department of the Treasury would not disclose such information 
publicly.
    However, consistent with the exceptions set forth in the proposed 
rule, the Department of the Treasury would be permitted to disclose 
information that would otherwise be treated as confidential in certain 
limited circumstances; for example, the Department of the Treasury 
could disclose information to U.S. partners and allies where the 
information is important for the national security analysis or actions 
of the Department of the Treasury or such partners and allies, and 
subject to appropriate safeguards. Separately, under the proposed rule, 
the Department of the Treasury could use information submitted to 
fulfill its obligations under the Outbound Order, which include the 
requirement to prepare annual reports to the President in coordination 
with the Secretary of Commerce and in consultation with the heads of 
other relevant agencies, as appropriate, and could include anonymized 
data gathered pursuant to this part.
    The Department of the Treasury is considering whether there are 
additional circumstances where disclosure of otherwise confidential 
information should be permitted. One proposal under consideration would 
allow the Department of the Treasury to disclose such information to 
the public as and when the Secretary determines that such disclosure is 
in the national interest: for example, to promote compliance with the 
proposed regulations by sharing with the public information about the 
activities of particular persons of a country of concern. The 
Department of the Treasury expects that such an exception would be 
subject to a high bar and limited to circumstances in which the 
Secretary identifies a pressing national interest that disclosure could 
help to address. This exception would not supersede any applicable 
statutory restrictions that may constrain the sharing of certain 
categories of information, such as information that a party has 
identified as protected trade secrets information. The Department of 
the Treasury invites comments on the considerations that it should take 
into account in identifying the scope of this potential additional 
exception to confidential treatment, the standard that should apply to 
the Secretary's determination, and what safeguards may be applicable to 
disclosure when such an exception applies.
Subpart I--Other Provisions
    This subpart of the proposed rule contains provisions related to 
the delegation of the Secretary's authorities under the Outbound Order, 
any amendment to or modification of the proposed rule, and a 
requirement for certain information regarding any transaction to be 
furnished upon demand. The proposed rule states that, consistent with 
the statutory authority on which the Outbound Order and the proposed 
rule are based, the Department of the Treasury has the power to 
investigate conduct that may constitute a violation, hold hearings, 
call witnesses, and require in-person testimony or production of 
documents, among other powers listed in Sec.  850.904.
    Subpart I would also establish, in Sec.  850.903, that the 
provisions of the rule are severable from one another. If any of the 
provisions of this rule as finalized, or the application thereof to any 
person or circumstance, were to be held invalid, such invalidity would 
not affect other provisions or application of such provisions to other 
persons or circumstances that can be given effect without the invalid 
provision or application.

IV. Request for Comment

    The Department of the Treasury invites comments on any and all 
aspects of the proposed rule, including and on the specific provisions 
discussed above in section III and the questions below. The Department 
of the Treasury invites comments accompanied by empirical data or other 
specific information wherever possible.
    1. Are there areas where the proposed rule is broader than 
necessary to address the national security concerns identified in the 
Outbound Order? Are there areas where it is narrower than necessary or 
contains loopholes? If so, where and what adjustments should be made?
    2. How could the knowledge standard in the proposed rule be 
clarified? What, if any, alternatives should be considered? What other 
factors should be considered to assess whether a person conducted a 
reasonable and diligent inquiry?
    3. What considerations should the Department of the Treasury take 
into account with respect to the ease or difficulty with which a U.S. 
person will be able to comply with the proposed rule, particularly with 
respect to ascertaining whether an investment target or relevant 
counterparty is a person of a country of concern and engaged in a 
covered activity?
    4. Are there adjustments to the scope of covered activities 
identified in the definition of either notifiable transaction or 
prohibited transaction in the proposed rule (including addition(s), 
removal(s), or elaboration(s)) that should be made to help ensure that 
the definition addresses the national security concerns identified in 
the Outbound Order and discussed above while minimizing

[[Page 55863]]

unintended consequences? If so, what are they?
    5. Is the line between the covered activities identified in the 
definition of notifiable transaction and those in the definition of 
prohibited transaction (with respect to the products and technologies 
in the semiconductors and microelectronics and the AI sectors) 
appropriately drawn? What are the potential consequences of the 
proposed scope of covered activities in the definition of notifiable 
transaction and prohibited transaction and how should the distinction 
between the two be adjusted, if at all?
    6. How do U.S. persons anticipate ascertaining the information 
necessary to comply with paragraph (a)(2) of the definition of covered 
foreign person at Sec.  850.209? How, if at all, should this definition 
be adjusted for a situation in which no financial statement (audited or 
otherwise) is available for a covered foreign person?
    7. Are there adjustments to the types and scope of covered 
transactions identified in the proposed rule (including addition(s), 
removal(s), or elaboration(s)) that should be made to help ensure it 
addresses the national security concerns identified in the Outbound 
Order and discussed above while minimizing unintended consequences? If 
so, what are they?
    8. How, if at all, should the definition of covered transaction be 
modified with respect to the conversion of a contingent equity interest 
or convertible debt? What are the considerations as to the balance 
among minimizing compliance costs, avoiding over- or under-
inclusiveness, while maintaining U.S. Government visibility into the 
instances of conversion?
    9. How, if at all, should the definition of covered transaction be 
modified with respect to LP investments? What considerations should the 
Department of the Treasury take into account with respect to a U.S. 
person's LP investment qualifying as a covered transaction when the 
relevant pooled investment fund actually undertakes a transaction that 
would be a covered transaction if undertaken by a U.S. person?
    10. Could the proposed approach to defining an indirect controlled 
foreign entity be further refined to enhance clarity and facilitate 
compliance, and if so, how?
    11. The definitions of controlled foreign entity and person of a 
country of concern discuss application of such terms in the case of a 
tiered ownership structure. Could either of these definitions be 
further refined to enhance clarity and facilitate compliance with 
respect to their application in a tiered ownership structure, and if 
so, how?
    12. The proposed definition of person of a country of concern (in 
Sec.  850.221(d)) and the proposed definition of covered foreign person 
(in Sec.  850.209(a)(2)) could include a U.S. person entity. What 
considerations should the Department of the Treasury take into account 
with respect to an entity qualifying as a U.S. person and also as a 
covered foreign person or person of a country of concern? What are the 
instances in, and what is the frequency with which, this may occur?
    13. What are the legal, commercial, practical or other consequences 
of including in, or conversely excluding from, the definition of U.S. 
person a person who is lawfully present in the United States? What are 
the consequences of an individual simultaneously being both a person of 
a country of concern and a U.S. person? Under what circumstances, and 
with what frequency, may this occur?
    14. What are the considerations for U.S. person due diligence 
related to the specified end uses and computing thresholds in the 
different alternates for an AI system in the definitions of notifiable 
transaction and prohibited transaction? How would a U.S. person 
investor determine the computational threshold levels of any AI system 
of an investment target or relevant counterparty? What are the 
considerations with respect to making such determinations related to an 
entity of a country of concern specifically?
    15. What would be the impact of a prohibition on U.S. person 
transactions involving entities that develop an AI system trained using 
a quantity of computing power greater than 10[supcaret]24, 
10[supcaret]25, or 10[supcaret]26 computational operations? What, if 
any, unintended consequences could result from adoption of the 
alternate definitions of AI system?
    16. What would be the impact of a prohibition on U.S. person 
transactions involving entities that develop an AI system trained using 
a quantity of computing power greater than 10[supcaret]23 or 
10[supcaret]24 computational operations applied to biological sequence 
data? What are the considerations or factors weighing in favor or 
against requiring notification rather than a prohibition in this 
instance?
    17. How should the Department of the Treasury ensure the 
regulations remain responsive to changes in the sectors identified in 
the Outbound Order (i.e., the semiconductors and microelectronics, 
quantum information technologies, and artificial intelligence sectors)?
    18. How, if at all, could the prohibition on knowingly directing a 
transaction be modified to best address national security concerns 
identified in the Outbound Order and discussed above while maximizing 
clarity and minimizing adverse impacts on U.S. persons, including their 
employment at foreign companies? What, if any, alternatives should be 
considered?
    19. What is the practical utility of a recusal carveout from the 
prohibition on knowingly directing a transaction? What stage(s) of an 
investment should the recusal carveout from the prohibition on 
knowingly directing apply to (for example, should it apply to 
negotiating and decision-making related to an investment, management 
and oversight of the investment after the completion date, or something 
else), and why? In what ways could the recusal carveout's clarity or 
usefulness be enhanced?
    20. What challenges, if any, are anticipated in connection with the 
information required to be submitted for a notifiable transaction? Are 
they scoped appropriately to obtain information relevant to the 
national security concerns identified in the Outbound Order and 
discussed above, including increasing the U.S. Government's visibility 
into U.S. person transactions involving the relevant technologies and 
products and highlighting trends with respect to related capital flows? 
If not, how should the information requirements be modified?
    21. Are there categories of transactions that should be added to, 
or removed from, the definition of excepted transaction in light of the 
national security concerns identified in the Outbound Order? If so, 
what are they and why? What potential consequences should the 
Department of the Treasury consider in limiting the applicability of 
the definition of excepted transaction to a transaction made pursuant 
to a binding, uncalled capital commitment entered into before August 9, 
2023?
    22. Which of the two proposed alternates for the exception for LP 
investments in the definition of excepted transaction best addresses 
national security concerns while minimizing disruptive effects? Should 
either approach and corresponding threshold for the exception be 
adjusted, and if so, why and how? What consequences could result from 
basing an exception on either of the proposed thresholds? What are the 
considerations related to compliance by U.S. persons? Where available, 
please support your answer with data about the type, aggregate number, 
or total dollar

[[Page 55864]]

equivalent amount of investments that would be excepted under each of 
the two proposed alternates.
    23. What adjustments, if any, should be made to the proposed rule 
to clarify the coverage with respect to a greenfield investment, 
brownfield investment, or joint venture that is a covered transaction 
versus an intracompany transaction to support ongoing operations or 
other activities in a country of concern that is an excepted 
transaction?
    24. What is the value to stakeholders of including a national 
interest exemption for notifiable transactions, prohibited 
transactions, or both? Under what circumstance might a U.S. person 
request a national interest exemption in general? Specifically with 
respect to a notifiable transaction, under what circumstance might a 
U.S. person request a national interest exemption from the notification 
requirement, while still needing to provide information about the 
proposed transaction in the course of seeking the exemption?
    25. What specific information should the Department of the Treasury 
require from a U.S. person seeking a national interest exemption in 
order to evaluate the transaction's potential impact on the national 
interest of the United States and to substantiate the basis for 
requesting an exemption from the prohibition or notification 
requirement?

V. Rulemaking Requirements

    This rulemaking pertains to a foreign affairs function of the 
United States and therefore is not subject to the rulemaking 
requirements of the Administrative Procedure Act (APA) (5 U.S.C. 553), 
which exempts a rulemaking from notice and comment requirements ``to 
the extent there is involved . . . a military or foreign affairs 
function of the United States.'' 5 U.S.C. 553(a)(1). As required by the 
Outbound Order, the proposed rule is being issued to assist in 
addressing the national emergency declared by the President with 
respect to the national security threat posed by countries of concern 
developing technologies that are critical to the next generation of 
military, intelligence, surveillance, or cyber-enabled capabilities. As 
described in the Outbound Order, this threat to the national security 
of the United States has its source in whole or substantial part 
outside the United States. The proposed rule would have a direct impact 
on foreign affairs concerns, which include the protection of national 
security against external threats (for example, limiting investment in 
specific sectors in designated countries of concern). Although the 
proposed rule is not subject to the notice and comment requirements of 
the APA, the Department of the Treasury is engaging in notice and 
comment rulemaking for this proposed rule, consistent with section 1(a) 
of the Outbound Order. In addition, the proposed rule was designated as 
significant under Executive Order 12866, as amended, and was reviewed 
by the Office of Information and Regulatory Affairs (OIRA) in the 
Office of Management and Budget (OMB). The Department of the Treasury 
has undertaken an analysis of the anticipated costs and benefits of the 
proposed rule. Following the issuance of the ANPRM, a number of 
stakeholders commented about the potential burden associated with this 
program, which is novel in its approach to addressing the national 
security concern posed by U.S. outbound investments involving a country 
of concern. The Department of the Treasury, after taking into account 
these comments and the novelty of the program, conducted an analysis of 
the relative costs and benefits of the proposed rule. For purposes of 
this analysis, the Department of the Treasury assessed the costs and 
benefits of the proposed rule relative to a no-action baseline 
reflecting U.S. person investment behavior in the absence of 
regulations.
    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., in each case as discussed below.

A. Executive Orders 12866, 13563, and 14094

    Executive Orders 12866, 13563, and 14094 direct agencies to assess 
the 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 Department of the Treasury has 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 in section I, the Outbound Order directs the 
Secretary to establish a program to prohibit U.S. persons from engaging 
in certain transactions and require U.S. persons to submit 
notifications of certain other transactions. These two primary 
components of the program established by the Outbound Order would serve 
distinct but interrelated objectives with respect to the relevant 
technologies and products. The first component would require the 
Secretary to prohibit certain types of investment by a U.S. person in a 
covered foreign person engaged in certain categories of activities 
related to technologies and products that pose a particularly acute 
national security threat. The second component would require 
notification to the Secretary regarding certain types of investments by 
a U.S. person in a covered foreign person engaged in other categories 
of activities related to technologies and products that may contribute 
to the threat to national security. The focus of both components would 
be on investments that could enhance a country of concern's military, 
intelligence, surveillance, or cyber-enabled capabilities through the 
advancement of technologies and products in particularly sensitive 
areas. In an Annex to the Outbound Order, the President identified the 
People's Republic of China, along with the Special Administrative 
Region of Hong Kong and the Special Administrative Region of Macau, as 
a country of concern.
    As described above in section I, this proposed rule is consistent 
with the President's mandate in the Outbound Order and prescribes 
procedures and obligations governing the (1) prohibition of certain 
types of investment by U.S. persons into certain entities located in or 
subject to the jurisdiction of a country of concern, certain other 
entities owned by persons of a country of concern, and certain entities 
with an interest in and significant financial connection to a person of 
a country of concern, with capabilities or activities related to 
defined technologies and products; and (2) mandatory notification to 
the Secretary by U.S. persons for certain types of investment into 
certain entities located in or subject to the jurisdiction of a country 
of concern, certain other entities owned by persons of a country of 
concern, and certain entities with an interest in and significant 
financial connection to a person of a country of concern, with 
capabilities or activities related to defined technologies and 
products. The implementation of the Outbound Order through this 
proposed rule would advance the President's objective of regulating 
certain investments from the United States into a country of concern.
    The proposed rule would cover a defined set of transactions such as 
certain acquisitions of equity interests (e.g., mergers and 
acquisitions, private equity, and venture capital) and contingent 
equity interests, certain debt financing transactions, greenfield and

[[Page 55865]]

brownfield investments, joint ventures, and certain LP investments by 
U.S. persons. Given the focus on transactions that could aid in the 
development of technological advances that pose a risk to U.S. national 
security, the Department of the Treasury proposes to except from the 
program certain transactions with a lower likelihood of having that 
effect. The proposed exceptions extend to certain investments into 
publicly traded securities or into securities issued by an investment 
company, such as an index fund, mutual fund, or exchange traded fund.

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 a particular transaction would be 
either a notifiable transaction or a prohibited transaction under the 
proposed rule; and (3) if applicable, preparing and submitting a 
mandatory notification of certain transactions or other information to 
the Department of the Treasury pursuant to the proposed rule. The 
Department of the Treasury invites comment on any of the assumptions 
and estimates in this analysis.
    The proposed rule would apply to all U.S. persons who undertake, 
directly or indirectly, a covered transaction. Because of the tailored 
scoping of the proposed rule, the Department of the Treasury estimates 
that it would apply to a relatively modest volume of potential covered 
transactions. While precise data that matches the scope of covered 
transactions including the relevant technology and products in the 
proposed rule is not available--and is one of the reasons for the 
notification requirement which would increase the U.S. Government's 
visibility into the relevant transactions--a review of available data 
appears to support this estimate of a modest volume. For example, to 
estimate the number of entities that would be potentially affected by 
the proposed rule and would incur associated direct compliance costs, 
the Department of the Treasury considered data available through 
PitchBook from approximately 2021 to 2023.\1\ This data indicates that 
over this three-year period, 180 unique U.S.-based investors made 
around 318 equity and add-on investment transactions in the 
semiconductor, AI, and quantum science sectors of the PRC (as defined 
by PitchBook). This data suggests an annual average of 60 different 
investors engaging in an annual average of 106 potentially covered 
transactions. Since details of U.S. private investment overseas cannot 
be determined with precision through the available data, and there are 
limitations in any dataset based on the parameters set by the provider, 
the Department of the Treasury has determined this figure to be a lower 
bound. The Department of the Treasury also acknowledges that some U.S. 
person investors may incur costs even where the rule does not appear to 
apply directly to their transaction. To clarify, the figure used to 
estimate the volume of potentially covered transactions may not capture 
all instances of parties who may incur costs as a result of the 
proposed rule. For example, a U.S. person may not always know in 
advance of the due diligence process whether the U.S. person will want 
or need to collect information related to the proposed rule and then 
proceed to spend resources on diligence, only to confirm that the 
relevant transaction is not a covered transaction.
---------------------------------------------------------------------------

    \1\ PitchBook, https://pitchbook.com (last visited May 24, 
2024).
---------------------------------------------------------------------------

    For purposes of this analysis, the Department of the Treasury 
doubled the averages from the available data to account for the likely 
underrepresentation of potentially relevant transactions. Thus, the 
Department of the Treasury's analysis is based on the estimate of 
approximately 120 entities and 212 transactions annually (based on an 
assumption of an annual average of 1.77 transactions per entity) that 
may be affected by the proposed rule. The Department of the Treasury is 
soliciting comments on the reasonableness of this estimate (in terms of 
the data source and analysis), and whether there are other sources of 
data that the Department of the Treasury should consider for its cost 
analysis. The Department of the Treasury also invites comments on 
whether doubling the averages from publicly available data is a 
reasonable way to account for any underrepresentation of potentially 
relevant transactions, or whether a different methodology should be 
used. For the remainder of this analysis, however, the Department of 
the Treasury relied on the estimates as described above.
    To derive an estimate for the costs related to the proposed rule, 
the Department of the Treasury first estimated the associated labor 
costs related to interpreting and applying the proposed rule. The 
Department of the Treasury expects that individuals and entities 
reviewing the proposed rule and engaging in potentially relevant 
transactions would engage on their own and through their own employees 
as well as hire lawyers or advisors from outside firms.
    For a low-end estimate, the Department of the Treasury relied on a 
figure 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 $84.84 per hour and SOC Code 111021--
General and Operations Managers to be $62.18 per hour.\2\ In each 
instance the Department of the Treasury tripled the BLS mean hourly 
wage figure. This adjustment is intended to not only account for 
employee benefits and overhead, but also to reflect the presumption 
that hourly labor costs of the investors and their advisors likely to 
be affected by the proposed rule will often be higher than the hourly 
mean wage in these occupation categories across the United States. 
Accordingly, the Department of the Treasury estimates that the impacted 
entities will each incur costs of $187 per hour for managers and $255 
for lawyers. The average of these figures is $221 per hour and, again, 
this is a low-end estimate.
---------------------------------------------------------------------------

    \2\ Figures based on May 2023 data.
---------------------------------------------------------------------------

    For a high-end estimate, the Department of the Treasury 
acknowledges that the hourly rate billed for a lawyer performing the 
relevant type of work at a private firm may be significantly higher 
than the average hourly wage of a lawyer from the BLS figure. The 
global data and business intelligence platform Statista reports that 
the average hourly attorney billing rate in Washington, DC, in 2023 was 
$392.\3\ The average of the hourly cost of a manager at $187 per hour 
and the Statista figure of the hourly rate of a lawyer at $392 per hour 
is $290. The Department of the Treasury invites comments on whether 
either of 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 that should be considered.
---------------------------------------------------------------------------

    \3\ Statista (Feb. 26, 2024), https://www.statista.com/statistics/941146/legal-services-hourly-rates-metropolitan-region-united-states/.
---------------------------------------------------------------------------

Costs Associated With Understanding the Proposed Rule
    Based on the above assumptions and estimates of affected entities, 
number of transactions and labor costs, the Department of the Treasury 
has estimated the annual time and cost that would be spent by affected 
entities in understanding the proposed rule. While

[[Page 55866]]

recognizing that the extent of this diligence will necessarily vary 
from transaction to transaction, the Department of the Treasury arrived 
at the below estimates for purposes of this regulatory analysis.
    The range of estimated aggregate annual costs for understanding the 
proposed rule begins at $468,520 on the low end and goes up to $614,800 
on the high end. This is based on the estimate of an average time 
burden to be ten total person hours per transaction for understanding 
the proposed rule. As such, ten total person hours per transaction 
multiplied by 212 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 Department of the Treasury 
has estimated the annual time and cost that would be spent by affected 
entities on conducting additional transactional diligence with respect 
to this proposed rule. These economic estimates should in no way be 
construed as relevant to the reasonableness of the inquiry a party 
would pursue in light of the particular facts and circumstances of a 
transaction and the requirements of the proposed rule. While 
recognizing that the extent of this diligence will necessarily vary 
from transaction to transaction, the Department of the Treasury arrived 
at the below estimates for purposes of this regulatory analysis.
    The Department of the Treasury recognizes that most investment 
transactions, regardless of whether the investment is potentially 
subject to this proposed rule, involve some level of review, diligence, 
assessment, and recordkeeping by the investor. And, for some 
transactions and investors, the level of information collection, 
retention, and diligence necessary to comply with the proposed rule may 
not give rise to any costs beyond what would be incurred in the absence 
of the proposed rule. This conclusion is reached by focusing on the 
nature of the information required for a notification, which consists 
of data typically gathered or available in the process of making an 
investment. This includes, for example, the proposed information 
requirements regarding transaction party identifying information as 
well as the commercial rationale, transaction structure, financial 
details, and completion date of the transaction itself.
    The Department of the Treasury assesses that it is reasonable in 
some cases to assume that customary transactional due diligence would 
involve the collection and review of this required information, meaning 
that the only incremental costs would be incurred for the review of the 
information from the perspective of ensuring compliance with the 
proposed rule. While the notification requirement would also include 
(1) information regarding covered activities undertaken by the covered 
foreign person that makes the transaction a notifiable transaction, as 
well as a brief description of the known end uses and end users of the 
covered foreign person's technology, products, or services; (2) a 
statement of the attributes that cause the entity to be a covered 
foreign person; and (3) in certain cases, the identification of the 
technology node(s) at which any applicable product is produced, the due 
diligence underlying many covered transactions would include gathering 
and reviewing this information even if not specifically to comply with 
the proposed rule. The proposed rule further states that 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 awareness or 
reason to know of a given fact or circumstance, including facts or 
circumstances that would cause the transaction to be a covered 
transaction. Compliance with this provision and the requirements of the 
proposed rule may in some cases require enhanced diligence. Recognizing 
that in some instances, compliance with the proposed rule may not 
require the collection and retention of additional transaction-related 
information, this analysis considers reasonable estimates of the 
additional due diligence and recordkeeping costs that could be 
associated with the proposed rule as described below.
    The range of estimated annual incremental cost for conducting due 
diligence and recordkeeping associated with the proposed rule runs from 
$0 on the low end to $2,459,200 on the high end. These are two ends of 
the range, and it is anticipated that the costs for most transactions 
would fall between these figures. The Department of the Treasury 
estimates that the average time burden would likely not exceed 40 total 
person hours per transaction for conducting additional due diligence 
and recordkeeping with respect to the proposed rule.
    For the low end of this range, it is reasonable to anticipate that 
some investors, having spent resources learning about the proposed 
rule, as discussed above, will be able to quickly collect and assess 
the information needed to determine whether a potential transaction 
would be a prohibited transaction. As such, the low-end estimate is a 
zero-dollar incremental cost for additional due diligence and 
recordkeeping. Not all transactions will be this simple, and it is 
reasonable to anticipate more costs at the higher end of the range. As 
such, 40 total person hours per transaction multiplied by 212 annual 
transactions and the high-end hourly labor cost estimate described 
above results in the high-end estimate for additional due diligence and 
recordkeeping related to the proposed rule. The Department of the 
Treasury estimates 40 person hours per transaction, based on 
approximately a total of eight person hours across all involved general 
and operations managers and lawyers per business day for one week. 
However, the cost of a U.S. person conducting diligence and the 
difficulty of that exercise will vary depending on a transaction's 
complexity, the availability of relevant information, and the 
incremental person hours may be higher for certain transactions, for 
example those that involve indirect transactions.
    The Department of the Treasury invites comments on whether these 
figures are reasonable benchmarks and estimates for this analysis or 
whether there are other sources of data or estimates it should 
consider.
Costs Associated With Providing Information
    The proposed rule would require the submission of information to 
the Department of the Treasury for notifiable transactions and provides 
for certain other circumstances that require information submission. 
The Department of the Treasury 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 proposed rule's notification requirement or 
prohibition would submit certain information to the Department of the 
Treasury. The proposed rule would also require a U.S. person to make a 
post-closing submission regarding a transaction that it believed at 
closing was not a covered transaction when the U.S. person later 
discovers information which, had it been known at closing, would have 
caused the transaction to be a covered

[[Page 55867]]

transaction. Also, the proposed rule would require a U.S. person to 
inform the Department of the Treasury of any material omission or 
inaccuracy in any previous representation, statement, or certification. 
Lastly, the Department of the Treasury anticipates time and cost 
associated with responding to inquiries by the Department of the 
Treasury.
    The Department of the Treasury expects that of the universe of 
potentially covered transactions for which U.S. persons perform due 
diligence each year, certain transactions 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 
Department of the Treasury has assumed that U.S. persons will perform 
due diligence with respect to the estimated 212 potentially covered 
transactions each year, and that all 212 will turn out to be notifiable 
transactions. The Department of the Treasury took this approach in the 
interest of estimating a theoretical maximum upper bound, recognizing 
that the number of actual notifiable transactions is likely to be less 
than 100 percent of potentially covered transactions. 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 resources to prepare and 
submit a notification.
    The estimated annual cost range for time spent submitting 
information would be $2,342,600 to $3,074,000. This estimate assumes 50 
person hours per transaction for preparing and submitting a 
notification through an online portal, combined with the number of 
transactions per year (212) and the hourly labor cost range described 
above--$221 to $290. As discussed above, this number reflects the high-
end estimate, since this analysis assumes that every potentially 
relevant transaction would result in a notification.
    For purposes of this analysis, the Department of the Treasury 
estimated only the total annual costs of preparing and submitting a 
notification under Sec.  850.404 of the proposed rule. The Department 
of the Treasury anticipates that the time and cost behind 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 to 
the costs of preparing and submitting a notification. Likewise, where a 
U.S. person elects to provide information in seeking a national 
interest exemption, the Department of the Treasury anticipates that the 
associated costs would be comparable to or could slightly exceed the 
costs of preparing and submitting a notification.
Estimated Total Direct Costs
    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 $2,811,120 and $6,148,000 and the total 
annual time burden would be approximately 21,200 person hours.
Additional Indirect Costs Associated With Prohibited Transactions and 
Non-Covered Transactions
    With respect to prohibited transactions, the Department of the 
Treasury has no basis to conclude 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 pursue alternative investment opportunities since they would be 
precluded from undertaking a prohibited transaction. These indirect 
costs amount to the difference, if any, between the return on 
investment that would have been generated by a prohibited transaction 
and the return on investment that would result from an alternative 
transaction. Any attempt to quantify this cost would be speculative and 
difficult to assess in any specificity due to individual decision-
making, opportunities available, and market conditions. 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 
scope of transactions covered as well as the exceptions provided for in 
the proposed rule.
Costs to the U.S. Government
    Administering the regulation 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 notifications. The Department of the Treasury estimates that 
initial IT development costs would be between $4 million and $8 million 
with an additional $2 million to $3 million required to maintain the 
systems and the underlying technology being leveraged to support the 
capabilities. The Department of the Treasury and other relevant 
agencies, including the Department of Commerce, may incur additional 
costs, besides those estimated above. This includes other 
responsibilities related to the implementation of the proposed rule 
such as analyzing notifications submitted as well as complying with the 
reporting requirements under the Outbound Order. Furthermore, costs may 
be associated with efforts to promote compliance with the notification 
requirement and prohibition requirements, potentially including 
education on the requirements, development of guidance and frequently 
asked questions, and conducting stakeholder outreach. The Department of 
the Treasury does not currently have specific estimates for these costs 
but estimates that there would be personnel costs of less than $2 
million associated with the proposed regulation in Fiscal Year 2024 
with additional costs for ongoing outreach and enforcement thereafter.
    The Department of the Treasury and other government agencies may 
also incur costs in enforcing compliance with the regulation. The 
Department of the Treasury does not currently have estimates for these 
costs, and they are not included in the estimates above.
    The Department of the Treasury plans to monitor compliance with the 
final regulation by leveraging a variety of data sources, both internal 
and external. Because the external data sources may include third 
parties, the Department of the Treasury requests comment on what 
external data sources would be appropriate to leverage in identifying 
non-compliance with respect to the regulations and what potential costs 
may be incurred by such third parties. If the external data sources 
include third party commercial data, the Department of the Treasury 
assesses that the cost associated with accessing these databases would 
be modest and incremental, given that the Department of the Treasury 
regularly maintains access to such databases in the course of other 
work but may need to request additional licenses for employees. After 
identifying an instance of apparent non-compliance, the Department of 
the Treasury may initiate outreach to the involved entity, work with 
law enforcement to investigate the apparent non-compliance, or initiate 
an enforcement action. The Department of the Treasury's enforcement of 
the proposed regulation would also involve coordination with law 
enforcement agencies. These law enforcement

[[Page 55868]]

agencies may also incur costs (time and resources) while conducting 
investigations into potential non-compliance.

C. Benefits

    The President found in the Outbound Order that the advancement by 
countries of concern in sensitive technologies and products critical 
for the military, intelligence, surveillance, or cyber-enabled 
capabilities of such countries constitutes an unusual and extraordinary 
threat to the national security of the United States, which has its 
source in whole or substantial part outside the United States, and that 
certain United States investments risk exacerbating this threat. The 
potential military, intelligence, surveillance, or cyber-enabled 
applications of these technologies and products pose risks to U.S. 
national security particularly when developed by a country of concern 
in which the government seeks to (1) direct entities to obtain 
technologies to achieve national security objectives; and (2) compel 
entities to share with or transfer these technologies to the 
government's military, intelligence, surveillance, or security 
apparatuses. As part of their strategy of advancing the development of 
these sensitive technologies and products, countries of concern are 
exploiting or could exploit certain United States outbound investments, 
including certain intangible benefits that often accompany United 
States investments and that help companies succeed, such as enhanced 
standing and prominence, managerial assistance, investment and talent 
networks, market access, and enhanced access to additional financing. 
Such investments, therefore, risk exacerbating this threat to U.S. 
national security. Although the United States has undertaken efforts to 
enhance existing policy tools and develop new policy initiatives aimed 
at maintaining U.S. leadership in technologies critical to national 
security, there remain instances where the risks presented by U.S. 
investments enabling countries of concern to develop critical military, 
intelligence, surveillance, or cyber-enabled capabilities are not 
sufficiently addressed by existing tools.
    The proposed rule is designed to complement our existing tools and 
effectively address the threat to the national security of the United 
States described in the Outbound Order. The benefit of protecting 
national security is difficult to quantify. Furthermore, the 
notification component of the proposed rule is intended to provide key 
information that the Department of the Treasury could use to better 
inform the development and implementation of the program. These 
notifications would increase the U.S. Government's visibility into 
transactions by U.S. persons or their controlled foreign entities and 
involving technologies and products relevant to the threat to the 
national security of the United States due to the policies and actions 
of countries of concern. These notifications would be helpful in 
highlighting trends with respect to related capital flows and would 
inform future policy development. The Department of the Treasury 
expects that the national security benefits, while qualitative, will 
outweigh the compliance costs of the proposed rule. The Department of 
the Treasury requests comment on data or methods that may inform 
estimates of potential costs of the proposed rule.

D. Alternatives

    The Outbound Order requires the Secretary of the Treasury to issue 
implementing regulations subject to public notice and comment. As a 
result, the Department of the Treasury did not have the discretion to 
refrain from promulgating the proposed rule or to promulgate it without 
notice and comment. However, the Department of the Treasury considered 
different approaches to the proposed rule that would be available under 
the Outbound Order. Specifically, the Department of the Treasury 
considered the following potential alternatives to the proposed rule:
     Scope of covered transaction and excepted transaction. The 
Department of the Treasury could have proposed a broader definition of 
covered transaction and/or fewer exceptions and considered certain 
alternatives to the scope of covered transaction and excepted 
transaction in developing the proposed rule. This discussion does not 
cover each alternative considered for the scope of covered transaction 
but provides a summary of a few alternatives the Department of the 
Treasury considered.
    The Department of the Treasury considered and selected regulatory 
approaches that maximize net benefits (including effectively addressing 
the national security threat identified in the Outbound Order) while 
balancing potential compliance and implementation costs. For example, 
an alternative that the Department of the Treasury considered in 
relation to contingent equity interests in particular was to limit the 
scope of covered transaction to just the acquisition of a contingent 
equity interest and not separately cover the conversion of the 
contingent equity interest. This would have reduced some of the 
compliance and resource burden on a U.S. person, who would have, in the 
context of a notifiable transaction, been required to submit a 
notification only at the time of acquisition rather than a notification 
at the time of acquisition and another notification at the time of 
conversion of contingent equity. However, this alternative would have 
reduced the ability of the U.S. Government to observe the frequency and 
instances in which the relevant contingent interests convert. 
Additionally, it would not have scoped in circumstances where the 
acquisition of a contingent equity interest did not involve a covered 
foreign person but then a covered foreign person was involved at the 
time of the conversion of a contingent equity interest, which would 
have limited the proposed rule's reach and ability to address the 
national security threat identified in the Outbound Order. Another 
example is with respect to the exception for LP investments where the 
proposed rule puts forth two proposed alternatives. As discussed above 
in the section-by-section analysis with respect to Sec.  850.501 of the 
proposed rule, the Department of the Treasury, after consulting with 
the heads of other agencies, is offering and seeking comment on two 
alternates for this exception. Under proposed Alternate 1, a U.S. 
person's investment made as an LP in a pooled investment fund would 
constitute an excepted transaction if (1) the LP's rights are 
consistent with a passive investment and (2) the LP's committed capital 
is not more than 50 percent of the total assets under management of the 
pooled fund. If the U.S. person LP's committed capital were to 
constitute more than 50 percent of the total assets under management of 
the pooled fund, its investment would qualify as an excepted 
transaction only if the U.S. person secured a binding agreement that 
the pooled fund would not use its capital for a prohibited transaction. 
This approach would address situations where the U.S. person's LP 
investment falls below the threshold but contains one of several 
indicia of control or influence over the pooled fund or the ultimate 
covered foreign person investment target. Compared to Alternate 2, 
Alternate 1 would scope in fewer LP investments as covered transactions 
but could potentially be more challenging for a U.S. person to comply 
with, as it requires a multi-factor analysis for assessing whether a 
U.S. person's LP investment is an excepted transaction. Under Alternate 
2, a U.S. person LP's

[[Page 55869]]

committed capital in a pooled fund that then invests in a covered 
foreign person would be an excepted transaction only if the committed 
capital was not more than $1,000,000. Although this alternate would 
likely scope in a greater number of LP investments as covered 
transactions compared to Alternate 1 (and potentially increase the 
compliance costs of this program), the bright-line approach may be 
easier for U.S. persons to comply with than Alternate 1.
     Covered national security technologies using broad 
definition of sectors rather than specific activities and technologies. 
In the proposed rule, the Department of the Treasury proposed to define 
notifiable transaction and prohibited transaction in Sec.  850.217 and 
Sec.  850.224, respectively, by reference to certain technologies and 
activities, and in some instances, end uses. Alternatively, the 
Department of the Treasury could have opted for a broad sectoral 
categorization, such as, for example, all technologies and products in 
the artificial intelligence sector, regardless of the end use of such 
artificial intelligence related technologies or products. If the 
Department of the Treasury had proposed that approach, the Department 
of the Treasury estimates that the economic impact for U.S. persons 
subject to the rule, and for the overall U.S. economy, would be 
significantly greater than under the proposed rule. Instead, the 
Department of the Treasury, along with other relevant agencies, 
carefully tailored the covered activities and technical descriptions 
under the definitions of notifiable transaction and prohibited 
transaction. In the case of AI systems, the proposed rule addresses 
covered activities related to certain AI systems that would have 
applications that pose or have the potential to pose national security 
risks without broadly capturing AI systems intended only for commercial 
applications or other civilian end uses that do not have potential 
national security consequences, thereby limiting the additional 
compliance and implementation burden on U.S. persons.
    The Department of the Treasury intends that the proposed rule would 
provide a U.S. person with clarity and guidance regarding its 
obligations with respect to a covered transaction, while effectively 
addressing the national emergency identified in the Outbound Order in a 
targeted manner. The Department of the Treasury expects that the 
national security benefits, while qualitative, will outweigh the 
compliance costs of the proposed rule.

Paperwork Reduction Act

    The collections of information contained in this notice of proposed 
rulemaking have been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)) (PRA).
    The proposed rule would require a U.S. person to submit a 
notification with respect to (1) any notifiable transaction; (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 knowledge after the completion date 
of the transaction that the transaction would have been a prohibited 
transaction or a notifiable transaction if knowledge 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 
covered 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 Department of the Treasury related to the 
transaction or compliance with the proposed rule; any information or 
documents provided to the Department of the Treasury 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 Department of the Treasury in writing of 
any material omission or inaccuracy in such representation, statement, 
or certification. Finally, the proposed rule would also require any 
U.S. person seeking a national interest exemption to submit information 
to the Department of the Treasury 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 
Department of the Treasury and the Department of Commerce, and, as 
appropriate, other relevant agencies, in connection with the analysis 
of notifiable transactions pursuant to the Outbound Order. The 
information provided in the notifications would increase the U.S. 
Government's visibility into the volume and nature of U.S. person 
transactions involving the defined technologies and products that may 
contribute to the threat to the national security of the United States. 
The information in the notifications will be helpful in highlighting 
trends with respect to related capital flows. It would also inform 
future policy development and decisions, including any modifications to 
the scope of notifiable transactions and prohibited transactions. 
Additionally, the information would assist the Secretary in complying 
with the report requirements in section 4 of the Outbound Order and in 
determining whether to grant a national interest exemption to a 
particular covered transaction. The proposed rule would prohibit the 
Department of the Treasury from making public any information or 
documentary materials submitted to or filed with the Department of the 
Treasury under the proposed rule unless required by law or otherwise 
provided in the proposed rule.
    Written comments and recommendations for the proposed information 
collections can be submitted by visiting https://www.reginfo.gov/public/do/PRAMain. 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 August 4, 2024.
    The Department of the Treasury 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 Department of the Treasury estimates that the annual hourly 
burden would be up to 19,080 hours. This annual total is based on the 
Department of the Treasury's assumption that: (1) 120 entities per year 
would respond to the information collections in this proposed rule and 
each entity would submit an average of 1.77 notifications annually, 
meaning these respondents would file a total 212 responses to the 
information collections annually; and (2) each respondent would spend 
an estimated 50 to 90 person hours per response. The Department of the 
Treasury estimates that the annual cost burden associated with the 
information collections and recordkeeping in the proposed rule would 
range between $2,342,600 and $5,533,200.
    In accordance with 5 CFR 1320.8(d)(1), the Department of the 
Treasury is soliciting comments from

[[Page 55870]]

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 
(5 U.S.C. 601 et seq.).
    The proposed rule may impact any U.S. person, including a small 
business that engages in a covered transaction with a covered foreign 
person. The Department of the Treasury does not anticipate that the 
proposed rule would affect ``small organizations'' or ``small 
governmental jurisdiction[s],'' as defined in the RFA.
    The Department of the Treasury expects the proposed rule to have a 
negligible baseline impact on small businesses because the proposed 
rule's obligations on U.S. persons target investments generally 
associated with larger institutions that more often are involved in 
cross-border investments related to the sectors under the proposed 
rule. These larger institutions are more likely to enter into 
transactions that will trigger the definition of covered transaction. 
The proposed rule would except specific types of transactions that may 
be more attractive or accessible to small business investors. And, as 
discussed below, the Department of the Treasury has assessed that small 
businesses would be likely to enter into transactions that constitute 
excepted transactions. As an example, the Small Business 
Administration's (SBA's) Table of Size Standards with respect to NAICS 
U.S. Industry Sector 52 ``Finance and Insurance'' defines a small 
business in this sector by dollar value of assets or revenue rather 
than by number of employees. As discussed below, the Department of the 
Treasury believes that the relevant SBA thresholds are too low to 
capture the type of U.S. investor likely to actively invest in an 
entity that engages in the identified activities related to 
technologies and products in the semiconductors and microelectronics, 
quantum information technologies, and artificial intelligence sectors 
that are critical for the military, intelligence, surveillance, or 
cyber-enabled capabilities of a country of concern. 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. As a reference point, IBISWorld reports 
that for NAICS Industry Code 52591 ``Open-End Investment Funds,'' for 
years 2018 to 2023, there were 825 businesses in this category and a 
total 2023 revenue across those businesses of $191.1 billion.\4\ 
Extrapolating from this data, the average 2023 revenue per firm in this 
category would have been $231.5 million.
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    \4\ IBIS World, https://www.ibisworld.com/united-states/market-research-reports/open-end-investment-funds-industry/#IndustryStatisticsAndTrends (last visited Mar. 15, 2024).
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    In fact, the total number of potential investors subject to the 
regulation is likely limited to a small set of relatively large and 
sophisticated investors. As discussed above, the Department of the 
Treasury considered PitchBook Data from approximately 2021 through 
2023. Notably, the most common type of U.S. based investors in this 
survey were identified by PitchBook Data as a venture capital business, 
corporation, private equity or buyout firm, or comparable investor 
types.
    Given the applications of technologies and products in these 
sectors, the Department of the Treasury 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 securities issued by an investment 
company, such as an index fund, mutual fund, or exchange traded fund, 
where a small business is more likely to consider investing. Given the 
narrow scoping of what constitutes a covered transaction under the 
proposed rule, the Department of the Treasury 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 program, such entity would be expected to incur the 
costs described in the separate cost benefit analysis above. For 
submission of notifications, the Department of the Treasury 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 who will be able to submit directly to the Department of the 
Treasury through an online portal.
    Notwithstanding this certification, the Department of the Treasury 
invites comments from the public about the impact the proposed rule on 
small entities. The proposed rule will be submitted to the Chief 
Counsel for the Office of Advocacy of the Small Business Administration 
for comment on its impact on small business.

List of Subjects in 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.

0
For the reasons set forth in the preamble, the Department of the 
Treasury proposes to add part 850 of title 31 of the Code of Federal 
Regulations as follows:

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

Subpart A--General
Sec.
850.101 Scope.
850.102 Relation of this part to other laws and regulations.
850.103 Rules of construction and interpretation.
850.104 Knowledge standard.

[[Page 55871]]

Subpart B--Definitions
850.201 Advanced packaging.
850.202 AI system.
850.203 Certification.
850.204 Completion date.
850.205 Contingent equity interest.
850.206 Controlled foreign entity.
850.207 Country of concern.
850.208 Covered activity.
850.209 Covered foreign person.
850.210 Covered transaction.
850.211 Develop.
850.212 Entity.
850.213 Excepted transaction.
850.214 Fabricate.
850.215 Knowingly directing.
850.216 Knowledge.
850.217 Notifiable transaction.
850.218 Package.
850.219 Parent.
850.220 Person.
850.221 Person of a country of concern.
850.222 Principal place of business.
850.223 Produce.
850.224 Prohibited transaction.
850.225 Quantum computer.
850.226 Relevant agencies.
850.227 Subsidiary.
850.228 United States.
850.229 U.S. person.
Subpart C--Prohibited Transactions and Other Prohibited Activities
850.301 Undertaking a prohibited transaction.
850.302 Actions of a controlled foreign entity.
850.303 Knowingly directing an otherwise prohibited transaction.
Subpart D--Notifiable Transactions and Other Notifiable Activities
850.401 Undertaking a notifiable transaction.
850.402 Notification of actions of a controlled foreign entity.
850.403 Notification of post-transaction knowledge.
850.404 Procedures for notifications.
850.405 Content of notifications.
850.406 Notice of material omission or inaccuracy.
Subpart E--Exceptions and Exemptions
850.501 Excepted transaction.
850.502 National interest exemption.
850.503 IEEPA statutory exception.
Subpart F--Violations
850.601 Taking actions prohibited by this part.
850.602 Failure to fulfill requirements.
850.603 Misrepresentation and concealment of facts.
850.604 Evasions; attempts; causing violations; conspiracies.
Subpart G--Penalties and Disclosures
850.701 Penalties.
850.702 Administrative collection; referral to United States 
Department of Justice.
850.703 Divestment.
850.704 Voluntary self-disclosure.
Subpart H--Provision and Handling of Information
850.801 Confidentiality.
850.802 Language of information.
Subpart I--Other Provisions
850.901 Delegation of authorities of the Secretary of the Treasury.
850.902 Amendment, modification, or revocation.
850.903 Severability.
850.904 Reports to be furnished on demand.

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

Subpart A--General


Sec.  850.101  Scope.

    (a) This part implements Executive Order 14105 of August 9, 2023, 
``Addressing United States Investments in Certain National Security 
Technologies and Products in Countries of Concern'' (the Order), 
directing the Secretary of the Treasury (the Secretary), in 
consultation with the Secretary of Commerce and, as appropriate, the 
heads of other relevant executive departments and agencies, to issue, 
subject to public notice and comment, regulations that require U.S. 
persons to provide notification of information relative to certain 
transactions involving covered foreign persons and that prohibit U.S. 
persons from engaging in certain other transactions involving covered 
foreign persons.
    (b) The regulations identify certain types of transactions that are 
covered transactions--that is, transactions that are either notifiable 
or prohibited. Additionally, the regulations identify other instances 
where a U.S. person has obligations with respect to certain 
transactions. The regulations prescribe exceptions to the definition of 
covered transaction. A transaction that meets an exception is not a 
covered transaction and is referred to as an excepted transaction. 
Finally, the regulations prescribe a process for the Secretary to 
exempt certain covered transactions from the rules otherwise 
prohibiting or requiring notification of covered transactions on a 
case-by-case basis.
    (c) The regulations identify categories of covered transactions 
that are notifiable transactions. A notifiable transaction is a 
transaction by a U.S. person or its controlled foreign entity with or 
resulting in the establishment of a covered foreign person that engages 
in a covered activity or a person of a country of concern's engagement 
in a new covered activity that the Secretary, in consultation with the 
Secretary of Commerce and, as appropriate, the heads of other relevant 
agencies, has determined may contribute to the threat to the national 
security of the United States identified in the Order. The regulations 
require 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. The regulations also require 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 
transaction if the U.S. person had had such knowledge on the completion 
date. Additionally, any person who makes a representation, statement, 
or certification under to 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) The regulations identify categories of covered transactions 
that are prohibited transactions. A prohibited transaction is a 
transaction by a U.S. person with or resulting in the establishment of 
a covered foreign person that engages in a covered activity or a person 
of a country of concern's engagement in a new covered activity that the 
Secretary, in consultation with the Secretary of Commerce and, as 
appropriate, the heads of other relevant agencies, has determined poses 
a particularly acute national security threat because of its potential 
to significantly advance the military, intelligence, surveillance, or 
cyber-enabled capabilities of a country of concern. The regulations 
prohibit a U.S. person from engaging in a prohibited transaction and 
also prohibit a U.S. person from knowingly directing a transaction that 
the U.S. person knows would be a prohibited transaction if engaged in 
by a U.S. person. The regulations also require 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) Pursuant to the Order, the Secretary shall, as appropriate:
    (1) Communicate with the Congress and the public with respect to 
the
    implementation of the Order;
    (2) Consult with the Secretary of Commerce on industry engagement 
and analysis of notifiable transactions;
    (3) Consult with the Secretary of State, the Secretary of Defense, 
the Secretary of Commerce, the Secretary of Energy, and the Director of 
National Intelligence on the implications for military, intelligence, 
surveillance, or cyber-enabled capabilities of covered national 
security technologies and products in the Order and potential

[[Page 55872]]

covered national security technologies and products;
    (4) Engage, together with the Secretary of State and the Secretary 
of Commerce, with allies and partners regarding the national security 
risks posed by countries of concern advancing covered national security 
technologies and products;
    (5) Consult with the Secretary of State on foreign policy 
considerations related to the implementation of the Order, including 
but not limited to the issuance and amendment of regulations; and
    (6) Investigate, in consultation with the heads of relevant 
agencies, as appropriate, violations of the Order or the regulations in 
this part and pursue available civil penalties for such violations.


Sec.  850.102  Relation of this part to other laws and regulations.

    Nothing in this part shall be construed as altering or affecting 
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 (50 U.S.C. 1701 et seq.) (IEEPA), 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 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 the involved parties from 
complying with any other applicable laws or regulations.


Sec.  850.103  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.  850.104  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.  
850.216. 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 transaction.
    (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, its legal counsel, or its 
representatives have made on behalf of the U.S. person regarding an 
investment target or relevant counterparty, including questions asked 
of the investment target or relevant counterparty, 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 
relevant counterparty with respect to the determination of a 
transaction's status as a covered transaction and an investment target 
or relevant counterparty's status as a covered foreign person;
    (3) The effort by the U.S. person at the time of the transaction to 
obtain available non-public information relevant to the determination 
of a transaction's status as a covered transaction and an investment 
target or relevant counterparty's status as a covered foreign person, 
and the efforts undertaken by the U.S. person to obtain and review such 
information;
    (4) Available public information, the efforts undertaken by the 
U.S. person to obtain and review such information, and the degree to 
which other information available to the U.S. person at the time of the 
transaction is consistent or inconsistent with such publicly available 
information;
    (5) Whether the U.S. person, its legal counsel, or its 
representatives have purposefully avoided learning or sharing relevant 
information;
    (6) The presence or absence of warning signs, which may include 
evasive responses or non-responses from an investment target or 
relevant counterparty to questions or a refusal to provide information, 
contractual representations, or warranties; and
    (7) The use of public and commercial databases to identify and 
verify relevant information of an investment target or relevant 
counterparty.

Subpart B--Definitions


Sec.  850.201  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.  850.202  AI system.

    The term AI system means:
    (a) A machine-based system that can, for a given set of human-
defined objectives, make predictions, recommendations, or decisions 
influencing real or virtual environments--i.e., a system that uses data 
inputs to:
    (1) Perceive real and virtual environments;
    (2) Abstract such perceptions into models through automated or 
algorithmic statistical analysis; and
    (3) Use model inference to make a classification, prediction, 
recommendation, or decision.
    (b) Any data system, software, hardware, application, tool, or 
utility that operates in whole or in part using a system described in 
(a).


Sec.  850.203  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:

[[Page 55873]]

    (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 paragraphs (b)(1) through (3) 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.  850.203: A template for certifications may be 
found at the Outbound Investment Security Program section of the 
Department of the Treasury website.

Sec.  850.204  Completion date.

    The term completion date means:
    (a) With respect to a covered transaction other than under Sec.  
850.210(a)(6), 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 transaction under Sec.  
850.210(a)(6), 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.  850.205  Contingent equity interest.

    The term contingent equity interest means a financial instrument 
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.


Sec.  850.206  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 this term, 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 this 
definition, and any holdings of voting power of the board shall be 
aggregated for the purposes of applying this definition. Voting 
interest shall not be aggregated with voting power of the board for the 
purposes of applying this definition.


Sec.  850.207  Country of concern.

    The term country of concern has the meaning given to it in the 
Annex to the Order.


Sec.  850.208  Covered activity.

    The term covered activity means, in the context of a particular 
transaction, any of the activities referred to in the definition of 
notifiable transaction in Sec.  850.217 or prohibited transaction in 
Sec.  850.224.


Sec.  850.209  Covered foreign person.

    (a) The term covered foreign person means:
    (1) A person of a country of concern that engages in a covered 
activity; or
    (2) A person that directly or indirectly holds any voting interest, 
board seat, or equity interest in any person described in paragraph 
(a)(1) of this section, or holds any power to direct or cause the 
direction of the management or policies of any person described in 
paragraph (a)(1) of this section through one or more contractual 
arrangements, including, for the avoidance of doubt, variable interest 
entities; and where the person, based the relevant financial statement 
described in paragraph (b) of this section:
    (i) Derives more than 50 percent of its revenue from any person 
described in paragraph (a)(1) of this section, individually or in the 
aggregate;
    (ii) Derives more than 50 percent of its net income from any person 
described in paragraph (a)(1) of this section, individually or in the 
aggregate;
    (iii) Incurs more than 50 percent of its capital expenditure 
through any person described in paragraph (a)(1) of this section, 
individually or in the aggregate; or
    (iv) Incurs more than 50 percent of its operating expenses through 
any person described in paragraph (a)(1) of this section, individually 
or in the aggregate.
    (3) With respect to a covered transaction described in Sec.  
850.210(a)(5), the person of a country of concern that participates in 
the joint venture is deemed to be a covered foreign person by virtue of 
its participation in the joint venture.
    (b) Determination of whether a person is a covered foreign person 
within the meaning of paragraph (a)(2) of this section shall be made 
based on an annual financial statement from the most recent year for 
which an audited financial statement of such person is available at the 
time of a given transaction. If an audited financial statement is not 
available, the most recent unaudited financial statement shall be used 
instead.


Sec.  850.210  Covered transaction.

    (a) The term covered transaction means a U.S. person's direct or 
indirect:
    (1) Acquisition of an equity interest or a contingent equity 
interest (or interest equivalent to an equity or contingent equity 
interest) in a person that the U.S. person knows at the time of the 
acquisition is a covered foreign person;
    (2) Provision of a loan or a similar debt financing arrangement to 
a person that the U.S. person knows at the time of the provision is a 
covered foreign person, where such debt financing:
    (i) Is convertible to an equity interest; or
    (ii) Affords or will afford the U.S. person the right to make 
management decisions with respect to or on behalf of the covered 
foreign person or the right to appoint members of the board of 
directors (or equivalent) of the covered foreign person;
    (3) Conversion of a contingent equity interest (or interest 
equivalent to a contingent equity interest) or conversion of debt to an 
equity interest in a person that the U.S. person knows at the time of 
the conversion is a covered foreign person;
    (4) Acquisition, leasing, or other development of operations, land, 
property, or other assets in a country of concern that the U.S. person 
knows at the time of such acquisition, leasing, or other development 
will result in, or that the U.S. person intends to result in:
    (i) The establishment of a covered foreign person; or
    (ii) The engagement of a person of a country of concern in a 
covered activity where it was not previously engaged in such covered 
activity;

[[Page 55874]]

    (5) Entrance into a joint venture, wherever located, that is formed 
with a person of a country of concern and that the subject U.S. person 
knows at the time of entrance into the joint venture will engage in or 
the U.S. person intends to engage in a covered activity; or
    (6) Acquisition of a limited partner or equivalent interest in a 
venture capital fund, private equity fund, fund of funds, or other 
pooled investment fund (in each case where the fund is not a U.S. 
person) that a U.S. person knows at the time of the acquisition likely 
will invest in a person of a country of concern that is in the 
semiconductors and microelectronics, quantum information technologies, 
or artificial intelligence sectors, and such fund undertakes a 
transaction that would be a covered transaction if undertaken by a U.S. 
person.
    (b) Notwithstanding paragraph (a) of this section, a transaction is 
not a covered transaction if it is:
    (1) An excepted transaction as set forth in Sec.  850.501; or
    (2) For the conduct of the official business of the United States 
Government by employees, grantees, or contractors thereof.
    (c) The acquisition of a convertible or contingent interest 
described in paragraph (a)(1) or (2) of this section may constitute a 
covered transaction, and the subsequent occurrence of a conversion 
event described in paragraph (a)(3) of this section may constitute a 
separate covered transaction. A U.S. person should assess each of the 
acquisition and the conversion to determine the applicability of this 
part.

    Note 1 to Sec.  850.210: For the avoidance of doubt, in the 
context of a debt financing, a lender's foreclosure on collateral 
that constitutes an equity interest is an acquisition of such equity 
interest by the lender.

Sec.  850.211  Develop.

    The term develop means to engage in any stages prior to serial 
production, such as design or modification, design research, design 
analyses, design concepts, assembly and testing of prototypes, pilot 
production schemes, design data, process of transforming design data 
into a product, configuration design, integration design, and layouts.


Sec.  850.212  Entity.

    The term entity means any branch, partnership, association, estate, 
joint venture, trust, corporation or division of a corporation, group, 
sub-group, or other organization (whether or not organized under the 
laws of any State or foreign state).


Sec.  850.213  Excepted transaction.

    The term excepted transaction means a transaction that meets the 
criteria in Sec.  850.501.


Sec.  850.214  Fabricate.

    The term fabricate means to form devices such as transistors, poly 
capacitors, non-metal resistors, and diodes on a wafer of semiconductor 
material.


Sec.  850.215  Knowingly directing.

    The term knowingly directing has the definition set forth in Sec.  
850.303.


Sec.  850.216  Knowledge.

    Knowledge of a fact or circumstance (the term may be a variant, 
such as ``know'') means:
    (a) Actual knowledge that a fact or circumstance exists or is 
substantially certain to occur;
    (b) An awareness of a high probability of a fact or circumstance's 
existence or future occurrence; or
    (c) Reason to know of a fact or circumstance's existence.

    Note 1 to Sec.  850.216: See the discussion of the knowledge 
standard in Sec.  850.104 for more information about how this term 
is applied in this part.

Sec.  850.217  Notifiable transaction.

    The term notifiable transaction means a covered transaction (that 
is not a prohibited transaction) in which the relevant covered foreign 
person or, with respect to a covered transaction described in Sec.  
850.210(a)(5), the relevant joint venture:
    (a) Designs any integrated circuit that is not described in Sec.  
850.224(c);
    (b) Fabricates any integrated circuit that is not described in 
Sec.  850.224(d);
    (c) Packages any integrated circuit that is not described in Sec.  
850.224(e); or
    (d) Develops any AI system that is not described in Sec.  
850.224(j) or (k) and that is:
    (1) Designed to be used for any government intelligence or mass-
surveillance end use (e.g., through mining text, audio, or video; image 
recognition; location tracking; or surreptitious listening devices) or 
military end use (e.g., for weapons targeting, target identification, 
combat simulation, military vehicle or weapons control, military 
decision-making, weapons design, or combat system logistics and 
maintenance);
    (2) Intended by the covered foreign person to be used for 
cybersecurity applications, digital forensics tools, and penetration 
testing tools, or the control of robotic systems; or

Alternate 1

    (3) Trained using a quantity of computing power greater than 
10[supcaret]23 computational operations (e.g., integer or floating-
point operations).

Alternate 2

    (3) Trained using a quantity of computing power greater than 
10[supcaret]24 computational operations (e.g., integer or floating-
point operations).

Alternate 3

    (3) Trained using a quantity of computing power greater than 
10[supcaret]25 computational operations (e.g., integer or floating-
point operations).

    Note 1 to Sec.  850.217:  Consistent with section 3 of the 
Order, the Secretary, in consultation with the Secretary of 
Commerce, and, as appropriate, the heads of other relevant agencies, 
shall periodically assess whether the quantity of computing power 
described in paragraph (d)(3) remains effective in addressing 
threats to the national security of the United States described in 
the Order and make updates, as appropriate, through public notice.

Sec.  850.218  Package.

    The term package means to assemble various components, such as the 
integrated circuit die, lead frames, interconnects, and substrate 
materials to safeguard the semiconductor device and provide electrical 
connections between different parts of the die.


Sec.  850.219  Parent.

    The term parent means, with respect to an entity:
    (a) A person who or which directly or indirectly holds more than 50 
percent of:
    (1) The outstanding voting interest in the entity; or
    (2) The voting power of the board of the entity;
    (b) The general partner, managing member, or equivalent of the 
entity; or
    (c) 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)).


Sec.  850.220  Person.

    The term person means any individual or entity.


Sec.  850.221  Person of a country of concern.

    The term person of a country of concern means:
    (a) Any individual that:
    (1) Is a citizen or permanent resident of a country of concern;
    (2) Is not a U.S. citizen; and
    (3) Is not a permanent resident of the United States.
    (b) An entity with a principal place of business in, headquartered 
in, or

[[Page 55875]]

incorporated in or otherwise organized under the laws of, a country of 
concern;
    (c) The government of a country of concern, including any political 
subdivision, political party, agency, or instrumentality thereof; any 
person acting for or on behalf of the government of such country of 
concern; or any entity with respect to which the government of such 
country of concern holds individually or in the aggregate, directly or 
indirectly, 50 percent or more of the entity's outstanding voting 
interest, voting power of the board, or equity interest, or otherwise 
possesses the power to direct or cause the direction of the management 
and policies of such entity (whether through the ownership of voting 
securities, by contract, or otherwise);
    (d) Any entity in which one or more persons identified in paragraph 
(a), (b), or (c) 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
    (e) Any entity in which one or more persons identified in paragraph 
(d) 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.


Sec.  850.222  Principal place of business.

    The term principal place of business means the primary location 
where an entity's management directs, controls, or coordinates the 
entity's activities, or, in the case of an investment fund, where the 
fund's activities are primarily directed, controlled, or coordinated by 
or on behalf of the general partner, managing member, or equivalent.


Sec.  850.223  Produce.

    The term produce means to engage in any of the post-development 
stages of realizing the relevant technology or product, such as 
engineering, manufacture, integration, assembly, inspection, testing, 
and quality assurance.


Sec.  850.224  Prohibited transaction.

    The term prohibited transaction means a covered transaction in 
which the relevant covered foreign person or, with respect to a covered 
transaction described in Sec.  850.210(a)(5), the relevant joint 
venture:
    (a) Develops or produces any electronic design automation software 
for the design of integrated circuits or advanced packaging;
    (b) Develops or produces any:
    (1) Front-end semiconductor fabrication equipment designed for 
performing the volume fabrication of integrated circuits, including 
equipment used in the production stages from a blank wafer or substrate 
to a completed wafer or substrate (i.e., the integrated circuits are 
processed but they are still on the wafer or substrate);
    (2) Equipment for performing volume advanced packaging; or
    (3) Commodity, material, software, or technology designed 
exclusively for use in or with extreme ultraviolet lithography 
fabrication equipment.
    (c) Designs any integrated circuit that meets or exceeds the 
performance parameters in Export Control Classification Number 3A090.a 
in supplement No. 1 to 15 CFR part 774, or integrated circuits designed 
for operation at or below 4.5 Kelvin;
    (d) Fabricates any integrated circuit that meets any of the 
following criteria:
    (1) Logic integrated circuits using a non-planar transistor 
architecture or with a production technology node of 16/14 nanometers 
or less, including fully depleted silicon-on-insulator (FDSOI) 
integrated circuits;
    (2) NOT-AND (NAND) memory integrated circuits with 128 layers or 
more;
    (3) Dynamic random-access memory (DRAM) integrated circuits using a 
technology node of 18 nanometer half-pitch or less;
    (4) Integrated circuits manufactured from a gallium-based compound 
semiconductor;
    (5) Integrated circuits using graphene transistors or carbon 
nanotubes; or
    (6) Integrated circuits designed for operation at or below 4.5 
Kelvin;
    (e) Packages any integrated circuit using advanced packaging 
techniques;
    (f) Develops, installs, sells, or produces 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;
    (g) Develops a quantum computer or produces any of the critical 
components required to produce a quantum computer such as a dilution 
refrigerator or two-stage pulse tube cryocooler;
    (h) Develops or produces any quantum sensing platform designed for, 
or which the relevant covered foreign person intends to be used for, 
any military, government intelligence, or mass-surveillance end use;
    (i) Develops or produces any quantum network or quantum 
communication system designed for, or which the relevant covered 
foreign person intends to be used for:
    (1) Networking to scale up the capabilities of quantum computers, 
such as for the purposes of breaking or compromising encryption;
    (2) Secure communications, such as quantum key distribution; or
    (3) Any other application that has any military, government 
intelligence, or mass-surveillance end use;
    (j) Develops any AI system that is designed to be exclusively used 
for, or which the relevant covered foreign person intends to be used 
for, any:
    (1) Military end use (e.g., for weapons targeting, target 
identification, combat simulation, military vehicle or weapon control, 
military decision-making, weapons design, or combat system logistics 
and maintenance); or
    (2) Government intelligence or mass surveillance end use (e.g., 
through mining text, audio, or video; image recognition; location 
tracking; or surreptitious listening devices);
    (k) Develops any AI system that is trained using a quantity of 
computing power greater than:

Alternate 1 for paragraph (k)(1)

    (1) 10[supcaret]24 computational operations (e.g., integer or 
floating-point operations); or

Alternate 2 for paragraph (k)(1)

    (1) 10[supcaret]25 computational operations (e.g., integer or 
floating-point operations); or

Alternate 3 for paragraph (k)(1)

    (1) 10[supcaret]26 computational operations (e.g., integer or 
floating-point operations); or

Alternate 1 for paragraph (k)(2)

    (2) 10[supcaret]23 computational operations (e.g., integer or 
floating-point operations) using primarily biological sequence data;

Alternate 2 for paragraph (k)(2)

    (2) 10[supcaret]24 computational operations (e.g., integer or 
floating-point operations) using primarily biological sequence data;
    (l) Meets the conditions set forth in Sec.  850.209(a)(2) because 
of its relationship to one or more covered foreign persons engaged in 
any covered activity described in any of paragraphs (a) through (k) of 
this section; or
    (m) Engages in a covered activity, whether referenced in this 
section or Sec.  850.217 and is:
    (1) Included on the Bureau of Industry and Security's Entity List 
(15 CFR part 744, supplement no. 4);
    (2) Included on the Bureau of Industry and Security's Military End 
User List (15 CFR part 744, supplement no. 7);
    (3) Meets the definition of ``Military Intelligence End-User'' by 
the Bureau of

[[Page 55876]]

Industry and Security in 15 CFR 744.22(f)(2);
    (4) Included on the Department of the Treasury's list of Specially 
Designated Nationals and Blocked Persons (SDN List), or is an entity in 
which one or more individuals or entities included on the SDN List, 
individually or in the aggregate, directly or indirectly, own a 50 
percent or greater interest;
    (5) Included on the Department of the Treasury's list of Non-SDN 
Chinese Military-Industrial Complex Companies (NS-CMIC List); or
    (6) Designated as a foreign terrorist organization by the Secretary 
of State under 8 U.S.C. 1189.

    Note 1 to Sec.  850.224: Consistent with section 3 of the Order, 
the Secretary, in consultation with the Secretary of Commerce and, 
as appropriate, the heads of other relevant agencies, shall 
periodically assess whether the quantities of computing power 
described in paragraph (k) of this section remain effective in 
addressing threats to the national security of the United States 
described in the Order and make updates, as appropriate, through 
public notice.

Sec.  850.225  Quantum computer.

    The term quantum computer means a computer that performs 
computations that harness the collective properties of quantum states, 
such as superposition, interference, or entanglement.


Sec.  850.226  Relevant agencies.

    The term relevant agencies means the Departments of State, Defense, 
Justice, Commerce, Energy, and Homeland Security, the Office of the 
United States Trade Representative, the Office of Science and 
Technology Policy, the Office of the Director of National Intelligence, 
the Office of the National Cyber Director, and any other department, 
agency, or office the Secretary determines appropriate.


Sec.  850.227  Subsidiary.

    The term subsidiary means, with respect to a person, an entity of 
which such person is a parent.


Sec.  850.228  United States.

    The term United States or U.S. means the United States of America, 
the States of the United States of America, the District of Columbia, 
and any commonwealth, territory, dependency, or possession of the 
United States of America, or any subdivision of the foregoing, and 
includes the territorial sea of the United States of America. For 
purposes of this part, an entity organized under the laws of the United 
States of America, one of the States, the District of Columbia, or a 
commonwealth, territory, dependency, or possession of the United States 
is an entity organized ``in the United States.''


Sec.  850.229  U.S. person.

    The term U.S. person means any United States citizen, lawful 
permanent resident, entity organized under the laws of the United 
States or any jurisdiction within the United States, including any 
foreign branch of any such entity, or any person in the United States.

Subpart C--Prohibited Transactions and Other Prohibited Activities


Sec.  850.301  Undertaking a prohibited transaction.

    A U.S. person may not engage in a prohibited transaction unless an 
exemption for that transaction has been granted under Sec.  850.502.


Sec.  850.302  Actions of a controlled foreign entity.

    (a) A U.S. person shall 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.
    (b) If a controlled foreign entity engages in a transaction that 
would be a prohibited transaction if engaged in by a U.S. person, in 
determining whether the relevant U.S. person took all reasonable steps 
to prohibit and prevent such transaction, the Department of the 
Treasury will consider, among other factors, any of the following with 
respect to a U.S. person and its controlled foreign entity:
    (1) The execution of agreements with respect to compliance with 
this part between the subject U.S. person and its controlled foreign 
entity;
    (2) The existence and exercise of governance or shareholder rights 
by the U.S. person with respect to the controlled foreign entity, where 
applicable;
    (3) The existence and implementation of periodic training and 
internal reporting requirements by the U.S. person and its controlled 
foreign entity with respect to compliance with this part;
    (4) The implementation of appropriate and documented internal 
controls, including internal policies, procedures, or guidelines that 
are periodically reviewed internally, by the U.S. person and its 
controlled foreign entity; and
    (5) Implementation of a documented testing and/or auditing process 
of internal policies, procedures, or guidelines.

    Note 1 to Sec.  850.302:  Findings of violations of this section 
and decisions related to enforcement and penalties will be made 
based on a consideration of the totality of relevant facts and 
circumstances, including whether the U.S. person has taken the steps 
described in paragraph (b) of this section and whether such steps 
were reasonable given the size and sophistication of the U.S. 
person.

Sec.  850.303  Knowingly directing an otherwise prohibited transaction.

    (a) A U.S. person is prohibited from knowingly directing a 
transaction by a non-U.S. person that the U.S. person knows at the time 
of the transaction would be a prohibited transaction if engaged in by a 
U.S. person. For purposes of this section, a U.S. person ``knowingly 
directs'' a transaction when the U.S. person has authority, 
individually or as part of a group, to make or substantially 
participate in decisions on behalf of a non-U.S. person, and exercises 
that authority to direct, order, decide upon, or approve a transaction. 
Such authority exists when a U.S. person is an officer, director, or 
senior advisor, or otherwise possesses senior-level authority at a non-
U.S. person.
    (b) A U.S. person that has the authority described in paragraph (a) 
of this section and recuses themself from an investment will not be 
considered to have exercised their authority to direct, order, decide 
upon, or approve a transaction.

Subpart D--Notifiable Transactions and Other Notifiable Activities


Sec.  850.401  Undertaking a notifiable transaction.

    A U.S. person that undertakes a notifiable transaction shall file a 
notification of that transaction with the Department of the Treasury 
pursuant to Sec.  850.404.


Sec.  850.402  Notification of actions of a controlled foreign entity.

    A U.S. person shall file a notification with the Department of the 
Treasury pursuant to Sec.  850.404 with respect to any transaction by a 
controlled foreign entity of that U.S. person that would be a 
notifiable transaction if engaged in by a U.S. person.


Sec.  850.403  Notification of post-transaction knowledge.

    A U.S. person that acquires actual knowledge after the completion 
date of a transaction of a fact or circumstance such that the 
transaction would have been a covered transaction if such knowledge had 
been possessed by the relevant U.S. person at the time of the 
transaction shall promptly, and in no event later than 30 calendar days 
following the acquisition of such

[[Page 55877]]

knowledge, submit a notification pursuant to Sec.  850.404. This 
requirement applies regardless of whether the transaction would have 
been a notifiable transaction or a prohibited transaction.

    Note 1 to Sec.  850.403: For the avoidance of doubt, a U.S. 
person's submission of a notification pursuant to this section shall 
not preclude a finding by the Department of the Treasury that as a 
factual matter the U.S. person had relevant knowledge of the 
transaction's status at the time of the transaction.

Sec.  850.404  Procedures for notifications.

    (a) A U.S. person that has an obligation under Sec. Sec.  850.401, 
850.402, or 850.403 shall file an electronic copy of the notification 
of the transaction with the Department of the Treasury including the 
information set out in Sec.  850.405 and the certification referred to 
in Sec.  850.203. The U.S. person shall follow the electronic filing 
instructions posted on the Department of the Treasury's Outbound 
Investment Security Program website. No communications or submissions 
other than those described in this section shall constitute the filing 
of a notification for purposes of this part.
    (b) The Department of the Treasury may contact a U.S. person that 
has filed a notification with questions or document requests related to 
the transaction or compliance with this part. The U.S. person shall 
respond to any such questions or requests within the time frame and in 
the manner specified by the Department of the Treasury. Information and 
other documents provided by the U.S. person to the Department of the 
Treasury after the filing of the notification under this section shall 
be deemed part of the notification and shall be subject to the 
certification referred to in Sec.  850.203.
    (c) A U.S. person shall file a notification under Sec.  850.401 or 
Sec.  850.402 with the Department of the Treasury no later than 30 
calendar days following the completion date of a notifiable 
transaction. A U.S. person shall file a notification required under 
Sec.  850.403 with the Department of the Treasury no later than 30 
calendar days after it acquires the knowledge referred to in Sec.  
850.403.
    (d) If a U.S. person files a notification prior to the completion 
date of the notifiable transaction, the U.S. person shall update such 
notification no later than 30 calendar days following the completion 
date of the notifiable transaction if information in the original 
filing has materially changed.
    (e) A U.S. person shall inform the Department of the Treasury in 
writing no later than 30 calendar days following the acquisition of 
previously unavailable information required under Sec.  850.405.

    Note 1 to Sec.  850.404: While the Department of the Treasury 
may engage with the U.S. person following notification, it is also 
possible the U.S. person will receive no communication from the 
Department of the Treasury other than an electronic acknowledgment 
of receipt after notification is submitted.

Sec.  850.405  Content of notifications.

    (a) A U.S. person that has an obligation under this part to file a 
notification shall provide the information set forth in this section, 
which must be accurate and complete in all material respects.
    (b) A notification shall provide, as applicable:
    (1) The contact information of a representative of the U.S. person 
filing the notification who is available to communicate with the 
Department of the Treasury about the notification including such 
representative's name, title, email address, mailing address, phone 
number, and employer;
    (2) A description of the U.S. person, including name, and as 
applicable, principal place of business and place of incorporation or 
legal organization, company address, website, and, if the U.S. person 
is an entity, such U.S. person's ultimate owner;
    (3) A post-transaction organizational chart of the U.S. person that 
includes its relationship with any controlled foreign entity or 
entities of the U.S. person and that identifies the covered foreign 
person and other relevant persons involved in the transaction;
    (4) A brief description of the commercial rationale for the 
transaction;
    (5) A brief description of why the U.S. person has determined the 
transaction is a covered transaction that includes a discussion of the 
nature of the transaction, its structure, reference to the paragraph of 
Sec.  850.210(a) that best describes the transaction type, and whether 
the notification is being submitted pursuant to Sec. Sec.  850.401, 
850.402, or 850.403;
    (6) The status of the transaction, including the actual or expected 
completion date of the transaction;
    (7) The total transaction value in U.S. dollars or U.S. dollar 
equivalent, an explanation of how the transaction value was determined, 
and a description of the consideration for the transaction (including 
cash, securities, other assets, and debt forgiveness);
    (8) The aggregate equity interest, voting interest, board seats (or 
equivalent holdings) of the U.S. person and its affiliates in the 
covered foreign person (or in the joint venture, as applicable) 
following the completion date of the transaction, including a 
description of any agreements or commitments for future investment or 
options to make future investments in the covered foreign person (or 
joint venture);
    (9) Information about the covered foreign person, including its 
name, and as applicable, principal place of business and place of 
incorporation or legal organization, company address, website, and if 
the covered foreign person is an entity, such covered foreign person's 
ultimate owner, and the full legal names and titles of each officer, 
director, and other member of management of the covered foreign person, 
and a post-transaction organizational chart of the covered foreign 
person;
    (10) Identification and description of each of the covered activity 
or activities undertaken by the covered foreign person that makes the 
transaction a covered transaction, as well as a brief description of 
the known end use(s) and end user(s) of the covered foreign person's 
technology, products, or services;
    (11) A statement describing the attributes that cause the entity to 
be a covered foreign person, and any other relevant information 
regarding the covered foreign person and covered activity or 
activities;
    (12) If a transaction involves a covered activity identified in 
Sec.  850.217(a), (b), or (c), identification of the technology node(s) 
at which any applicable product is produced; and;
    (13) If the notification is required under Sec.  850.403:
    (i) Identification of the fact or circumstance of which the U.S. 
person acquired knowledge post-transaction;
    (ii) The date upon which the U.S. person acquired such knowledge;
    (iii) A statement explaining why the U.S. person did not possess or 
obtain such knowledge at the time of the transaction; and
    (iv) A description of any pre-transaction diligence undertaken by 
the U.S. person, including, as applicable, any steps described in Sec.  
850.104(c).
    (c) The U.S. person shall maintain a copy of the notification filed 
and supporting documentation for a period of ten years from the date of 
the filing. Such supporting documentation shall include, as applicable, 
any pitch decks, marketing letters, and offering memorandums; 
transaction documents including side letters and investment agreements; 
and due diligence materials related to the transaction. The U.S. person 
shall make all supporting

[[Page 55878]]

documentation available upon request by the Department of the Treasury.
    (d) If the U.S. person does not provide responses to the 
information required in paragraph (b) of this section, the U.S. person 
shall provide sufficient explanation for why the information is 
unavailable or otherwise cannot be obtained and explain the U.S. 
person's efforts to obtain such information. If such information 
subsequently becomes available, the U.S. person shall provide such 
information to the Department of the Treasury promptly, and in no event 
later than 30 calendar days following the availability of such 
information.


Sec.  850.406  Notice of material omission or inaccuracy.

    A person who has made any representation, statement, or 
certification subject to this part shall inform the Department of the 
Treasury in writing promptly, and in no event later than 30 calendar 
days after learning of a material omission or inaccuracy in such 
representation, statement, or certification.

Subpart E--Exceptions and Exemptions


Sec.  850.501  Excepted transaction.

    A transaction that would be either a prohibited transaction or a 
notifiable transaction if engaged in by a U.S. person but for this 
section is not a prohibited transaction or a notifiable transaction if 
the conditions set forth in this section are met. In that case, the 
transaction is an excepted transaction.
    (a) The following transactions are excepted transactions:
    (1) An investment by a U.S. person:
    (i) In any publicly traded security, with ``security'' as defined 
in section 3(a)(10) of the Securities Exchange Act of 1934, as amended, 
at 15 U.S.C. 78c(a)(10), denominated in any currency, and that trades 
on a securities exchange or through the method of trading that is 
commonly referred to as ``over-the-counter,'' in any jurisdiction;
    (ii) In a security issued by (1) any ``investment company'' as 
defined in section 3(a)(1) of the Investment Company Act of 1940, as 
amended, at 15 U.S.C. 80a-3(a)(1), that is registered with the U.S. 
Securities and Exchange Commission, such as index funds, mutual funds, 
or exchange traded funds, or (2) any company that has elected to be a 
business development company pursuant to section 54 of the Investment 
Company Act of 1940 (15 U.S.C. 8a-54); or any derivative thereon; or

Alternate 1 for paragraph (a)(1)(iii)

    (iii) Made as a limited partner or equivalent in a venture capital 
fund, private equity fund, fund of funds, or other pooled investment 
fund other than as described in paragraph (a)(1)(ii) of this section 
where:
    (A) The limited partner's contribution is solely capital and the 
limited partner:
    (1) Is not responsible for any debts or other financial obligations 
with respect to the fund beyond its investment including any uncalled 
capital commitments related thereto;
    (2) Cannot approve, disapprove, or otherwise influence or 
participate in the investment decisions of the fund;
    (3) Cannot approve, disapprove, or otherwise influence or 
participate in the decisions made by the general partner, managing 
member, or equivalent related to entities in which the fund is 
invested;
    (4) Cannot unilaterally dismiss, prevent the dismissal of, select, 
or determine the compensation of the general partner, managing member, 
or equivalent of the fund; and
    (5) Cannot participate in, and has no right or ability, by virtue 
of its status as a limited partner or any other contractual 
relationship, to influence the decision-making or operations of any 
covered foreign person in which the fund is invested; and;
    (B)(1) The limited partner's committed capital is not more than 50 
percent of the total assets under management of the fund, aggregated 
across any investment and co-investment vehicles that comprise the 
fund; or,
    (2) Where the fund is not a U.S. person or a controlled foreign 
entity, the limited partner has secured a binding contractual assurance 
that its capital will not be used to engage in a transaction that would 
cause the limited partner to have made an indirect prohibited 
transaction.

Alternate 2 for paragraph (a)(1)(iii)

    (iii) Made as a limited partner or equivalent in a venture capital 
fund, private equity fund, fund of funds, or other pooled investment 
fund other than as described in paragraph (a)(1)(ii) of this section 
where the limited partner's committed capital is not more than 
$1,000,000, aggregated across any investment and co-investment vehicles 
that comprise the fund.
    (2) Notwithstanding paragraph (a)(1) of this section, an investment 
is not an excepted transaction if it affords the U.S. person rights 
beyond standard minority shareholder protections with respect to the 
covered foreign person. Such protections include:
    (i) The power to prevent the sale or pledge of all or substantially 
all of the assets of an entity or a voluntary filing for bankruptcy or 
liquidation;
    (ii) The power to prevent an entity from entering into contracts 
with majority investors or their affiliates;
    (iii) The power to prevent an entity from guaranteeing the 
obligations of majority investors or their affiliates;
    (iv) The right to purchase an additional interest in an entity to 
prevent the dilution of an investor's pro rata interest in that entity 
in the event that the entity issues additional instruments conveying 
interests in the entity;
    (v) The power to prevent the change of existing legal rights or 
preferences of the particular class of stock held by minority 
investors, as provided in the relevant corporate documents governing 
such stock; and
    (vi) The power to prevent the amendment of the Articles of 
Incorporation, constituent agreement, or other organizational documents 
of an entity with respect to the matters described in paragraphs 
(a)(2)(i) through (v) of this section;
    (b) The acquisition by a U.S. person of equity or other interests 
in an entity held by one or more persons of a country of concern; 
provided that:
    (1) The U.S. person is acquiring all equity or other interests in 
such entity held by all persons of a country of concern; and
    (2) Following such acquisition, the entity does not constitute a 
covered foreign person.
    (c) A transaction that, but for this paragraph, would be a covered 
transaction between a U.S. person and its controlled foreign entity 
that supports ongoing operations or other activities that are not 
covered activities as defined in Sec.  850.208; provided that this 
exception shall not apply when the transaction is a covered transaction 
pursuant to Sec.  850.210(a)(4) or (a)(5);
    (d) A transaction made after the effective date of this part 
pursuant to a binding, uncalled, capital commitment entered into before 
August 9, 2023; or
    (e) The acquisition of a voting interest in a covered foreign 
person by a U.S. person upon default or other condition involving a 
loan or a similar financing arrangement, where the loan was made by a 
syndicate of banks in a loan participation where the U.S. person 
lender(s) in the syndicate:
    (1) Cannot on its own initiate any action vis-[agrave]-vis the 
debtor; and
    (2) Does not have a lead role in the syndicate; or
    (f)(1) A transaction that is:
    (i) With or involving a person of a country or territory outside of 
the United States designated by the Secretary, after taking into 
account whether the country or territory is

[[Page 55879]]

addressing national security concerns posed by outbound investment; and
    (ii) Of a type for which the Secretary has determined that the 
related national security concerns are likely to be adequately 
addressed by measures taken or that may be taken by the government of 
the relevant country or territory.
    (2) Prior to making a designation or determination under this 
paragraph (f), the Secretary shall consult with the Secretary of State, 
the Secretary of Commerce, and, as appropriate, the heads of other 
relevant agencies.
    (3) The Secretary's designations and determinations under paragraph 
(f) of this section shall be made available through public notice.

    Note 1 to Sec.  850.501:  A limited partner's participation on 
an advisory board or a committee of an investment fund shall not 
constitute having the ability to undertake the actions referred to 
in Alternate 1 paragraphs (a)(1)(iii)(A)(1) to (5) of this section 
if the advisory board or committee does not have the ability to 
approve, disapprove, or otherwise control: (i) investment decisions 
of the investment fund; or (ii) decisions made by the general 
partner, managing member, or equivalent related to entities in which 
the investment fund is invested.

Sec.  850.502  National interest exemption.

    (a) The Secretary, in consultation with the Secretary of Commerce, 
the Secretary of State, and the heads of relevant agencies, as 
appropriate, may determine that a covered transaction is in the 
national interest of the United States and therefore is exempt from 
applicable provisions in Subparts C and D of this part (excluding 
Sec. Sec.  850.406, 850.603, and 850.604). Such a determination may be 
made following a request by a U.S. person on its own behalf or on 
behalf of its controlled foreign entity.
    (b) Any determination pursuant to paragraph (a) of this section 
will be based on a consideration of the totality of the relevant facts 
and circumstances and may be informed by, among other considerations, 
the transaction's effect on critical U.S. supply chain needs; domestic 
production needs in the United States for projected national defense 
requirements; United States' technological leadership globally in areas 
affecting U.S. national security; and impact on U.S. national security 
if the U.S. person is prohibited from undertaking the transaction.
    (c) A U.S. person seeking a national interest exemption shall 
submit relevant information to the Department of the Treasury regarding 
the transaction and shall articulate the basis for the request, 
including the U.S. person's analysis of the transaction's potential 
impact on the national interest of the United States. The Department of 
the Treasury may request additional information that may include some 
or all of the information required under Sec.  850.405.
    (d) A determination that a covered transaction is exempt under this 
section may be subject to binding conditions.
    (e) No determination pursuant to paragraph (a) of this section will 
be valid unless provided to the subject U.S. person in writing and 
signed by the Assistant Secretary or Deputy Assistant Secretary of the 
Treasury for Investment Security.

    Note 1 to Sec.  850.502: A process and related information for 
exemption requests will be made available on the Department of the 
Treasury's Outbound Investment Security Program website.

Sec.  850.503  IEEPA statutory exception.

    Conduct referred to in 50 U.S.C. 1702(b) shall not be regulated or 
prohibited, directly or indirectly, by this part.

Subpart F--Violations


Sec.  850.601  Taking actions prohibited by this part.

    The taking of any action prohibited by this part is a violation of 
this part.


Sec.  850.602  Failure to fulfill requirements.

    Failure to take any action required by this part, and within the 
time frame and in the manner specified by this part, as applicable, is 
a violation of this part.


Sec.  850.603  Misrepresentation and concealment of facts.

    With respect to any information submission to or communication with 
the Department of the Treasury pursuant to any provision of this part, 
the making of any materially false or misleading representation, 
statement, or certification, or falsifying or concealing any material 
fact is a violation of this part.


Sec.  850.604  Evasions; attempts; causing violations; conspiracies.

    (a) Any action on or after the effective date of this part that 
evades or avoids, has the purpose of evading or avoiding, causes a 
violation of, or attempts to violate any of the prohibitions set forth 
in this part is prohibited.
    (b) Any conspiracy formed to violate the prohibitions set forth in 
this part is prohibited.

Subpart G--Penalties and Disclosures


Sec.  850.701  Penalties.

    (a) Section 206 of IEEPA applies to any person subject to the 
jurisdiction of the United States who violates, attempts to violate, 
conspires to violate, or causes a violation of any order, regulation, 
or prohibition issued by or pursuant to the direction or authorization 
of the Secretary pursuant to this part or otherwise under IEEPA.
    (1) A civil penalty not to exceed the maximum amount set forth in 
section 206 of IEEPA may be imposed on any person who violates, 
attempts to violate, conspires to violate, or causes a violation of any 
order, regulation, or prohibition issued under IEEPA, including any 
provision of this part.
    (2) A person who willfully commits, willfully attempts to commit, 
willfully conspires to commit, or aids or abets in the commission of a 
violation, attempt to violate, conspiracy to violate, or causing of a 
violation of any order, regulation, or prohibition issued under IEEPA, 
including any provision of this part, shall, upon conviction, be fined 
not more than $1,000,000, or if a natural person, be imprisoned for not 
more than 20 years, or both.
    (b) The Secretary may refer potential criminal violations of the 
Order, or of this part, to the Attorney General.
    (c) The civil penalties provided for in IEEPA are subject to 
adjustment pursuant to the Federal Civil Penalties Inflation Adjustment 
Act of 1990, as amended (Pub. L. 101-410, 28 U.S.C. 2461 note).
    (d) The criminal penalties provided for in IEEPA are subject to 
adjustment pursuant to 18 U.S.C. 3571.
    (e) The penalties available under this section are without 
prejudice to other penalties, civil or criminal, and forfeiture of 
property, available under other applicable law.
    (f) Pursuant to 18 U.S.C. 1001, whoever, in any matter within the 
jurisdiction of the executive, legislative, or judicial branch of the 
Government of the United States, knowingly and willfully falsifies, 
conceals or covers up by any trick, scheme, or device a material fact; 
makes any materially false, fictitious, or fraudulent statement or 
representation; or makes or uses any false writing or document knowing 
the same to contain any materially false, fictitious, or fraudulent 
statement or entry shall be fined under title 18, United States Code, 
or imprisoned not more than 5 years, or both.


Sec.  850.702  Administrative collection; referral to United States 
Department of Justice.

    The imposition of a monetary penalty under this part creates a debt 
due to the U.S. Government. The Department of the Treasury may take 
action to collect the penalty assessed if not paid. In addition or 
instead, the matter may be

[[Page 55880]]

referred to the Department of Justice for appropriate action to recover 
the penalty.


Sec.  850.703  Divestment.

    (a) The Secretary, in consultation with the heads of relevant 
agencies, as appropriate, may take any action authorized under IEEPA to 
nullify, void, or otherwise compel the divestment of any prohibited 
transaction entered into after the effective date of this part.
    (b) The Secretary may refer any action taken under paragraph (a) of 
this section to the Attorney General to seek appropriate relief to 
enforce such action.


Sec.  850.704  Voluntary self-disclosure.

    (a) Any person who has engaged in conduct that may constitute a 
violation of this part may submit a voluntary self-disclosure of that 
conduct to the Department of the Treasury.
    (b) In determining the appropriate response to any violation, the 
Department of the Treasury will consider the submission and the 
timeliness of any voluntary self-disclosure.
    (c) In assessing the timeliness of a voluntary self-disclosure, the 
Department of the Treasury will consider whether it has learned of the 
conduct prior to the voluntary self-disclosure. The Department of the 
Treasury may consider disclosure of a violation to another government 
agency other than the Department of the Treasury as a voluntary self-
disclosure based on a case-by-case assessment.
    (d) Notwithstanding the foregoing, identification to the Department 
of the Treasury of conduct that may constitute a violation of this part 
may not be assessed to be a voluntary self-disclosure in one or more of 
the following circumstances:
    (1) A third party has provided a prior disclosure to the Department 
of the Treasury of the conduct or similar conduct related to the same 
pattern or practice, regardless of whether the disclosing person knew 
of the third party's prior disclosure;
    (2) The disclosure includes materially false or misleading 
information;
    (3) The disclosure, when considered along with supplemental 
information timely provided by the disclosing person, is materially 
incomplete;
    (4) The disclosure is not self-initiated, including when the 
disclosure results from a suggestion or order of a federal or state 
agency or official;
    (5) The disclosure is a response to an administrative subpoena or 
other inquiry from the Department of the Treasury or another government 
agency;
    (6) The disclosure is made about the conduct of an entity by an 
individual in such entity without the authorization of such entity's 
senior management; or
    (7) The filing is made pursuant to a required notification under 
this part, including Sec.  850.403 or Sec.  850.406.
    (e) A voluntary self-disclosure to the Department of the Treasury 
must take the form of a written notice describing the conduct that may 
constitute a violation and each of the persons involved. A voluntary 
self-disclosure must include, or be followed within a reasonable period 
of time by, a report of sufficient detail to afford a complete 
understanding of the conduct that may constitute the violation. A 
person making a voluntary self-disclosure must respond in a timely 
manner to any follow-up inquiries by the Department of the Treasury.

Subpart H--Provision and Handling of Information


Sec.  850.801  Confidentiality.

    (a) Except to the extent required by law or otherwise provided in 
paragraphs (b) and (c) of this section, information or documentary 
materials not otherwise publicly available that are submitted to the 
Department of the Treasury under this part shall not be disclosed to 
the public.
    (b) Notwithstanding paragraph (a) of this section, except to the 
extent prohibited by law, the Department of the Treasury may disclose 
information or documentary materials that are not otherwise publicly 
available, subject to appropriate confidentiality and classification 
requirements, when such information or documentary materials are:
    (1) Relevant to any judicial or administrative action or 
proceeding;
    (2) Provided to Congress or to any duly authorized committee or 
subcommittee of Congress; or
    (3) Provided to any domestic governmental entity, or to any foreign 
governmental entity of a United States partner or ally, where the 
information or documentary materials are important to the national 
security analysis or actions of such governmental entity or the 
Department of the Treasury.
    (c) Notwithstanding paragraph (a) of this section, the Department 
of the Treasury may disclose to third parties information or 
documentary materials that are not otherwise publicly available when 
the person who submitted or filed the information or documentary 
materials has consented to its disclosure to such third parties.
    (d) The Department of the Treasury may use the information gathered 
pursuant to this part to fulfill its obligations under the Order, which 
may include publication of anonymized data.


Sec.  850.802  Language of information.

    All materials or information filed with the Department of the 
Treasury under this part shall be submitted in English. If 
supplementary or additional materials were originally written in a 
foreign language, they shall be submitted in their original language. 
Where English versions of those documents exist, they shall also be 
submitted.

Subpart I--Other Provisions


Sec.  850.901  Delegation of authorities of the Secretary of the 
Treasury.

    Any action that the Secretary is authorized to take pursuant to the 
Order and any further executive orders relating to the national 
emergency declared in the Order may be taken by the Assistant Secretary 
of the Treasury for Investment Security or their designee or by any 
other person to whom the Secretary has delegated the authority so to 
act, as appropriate.


Sec.  850.902  Amendment, modification, or revocation.

    (a) Except as otherwise provided by law, and in consultation with 
the Secretary of Commerce and, as appropriate, the heads of other 
relevant agencies, the Secretary may amend, modify, or revoke 
provisions of this part at any time.
    (b) Except as otherwise provided by law, any instructions, orders, 
forms, regulations, or rulings issued pursuant to this part may be 
amended, modified, or revoked at any time.
    (c) Unless otherwise specifically provided, any amendment, 
modification, or revocation of any provision in or appendix to this 
part does not affect any act done or omitted, or any civil or criminal 
proceeding commenced or pending, prior to such amendment, modification, 
or revocation. All penalties, forfeitures, and liabilities under any 
such instructions, orders, forms, regulations, or rulings pursuant to 
this part continue and may be enforced as if such amendment, 
modification, or revocation had not been made.


Sec.  850.903  Severability.

    The provisions of this part are separate and severable from one 
another. If any of the provisions of this part, or the application 
thereof to any person or circumstance, is held to be invalid, such 
invalidity shall not affect other provisions or application of such 
provisions to other persons or circumstances that can be given effect

[[Page 55881]]

without the invalid provision or application.


Sec.  850.904  Reports to be furnished on demand.

    (a) Any person is required to furnish under oath, in the form of 
reports or otherwise, at any time as may be required by the Department 
of the Treasury, complete information regarding any act or transaction 
subject to the provisions of this part, regardless of whether such act 
or transaction is effected pursuant to a national interest exemption 
under Sec.  850.502. Except as provided otherwise, the Department of 
the Treasury may, through any person or agency, conduct investigations, 
hold hearings, administer oaths, examine witnesses, receive evidence, 
take depositions, and require by subpoena the attendance and testimony 
of witnesses and the production of any books, contracts, letters, 
papers, and other hard copy or electronic documents relating to any 
matter under investigation, regardless of whether any report has been 
required or filed under this section.
    (b) For purposes of paragraph (a) of this section, the term 
document includes any written, recorded, or graphic matter or other 
means of preserving thought or expression (including in electronic 
format), and all tangible things stored in any medium from which 
information can be processed, transcribed, or obtained directly or 
indirectly.
    (c) Persons providing documents to the Department of the Treasury 
pursuant to this section must do so in a usable format agreed upon by 
the Department of the Treasury.

Paul M. Rosen,
Assistant Secretary for Investment Security.
[FR Doc. 2024-13923 Filed 7-3-24; 8:45 am]
BILLING CODE 4810-AK-P