90398 Federal Register / Vol. 89, No. 221 / Friday, November 15, 2024 / Rules and Regulations 

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: Final rule. 

SUMMARY: This final rule sets forth the 

regulations that 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 that seek to develop and exploit 

sensitive technologies or products 

critical for military, intelligence, 

surveillance, or cyber-enabled 

capabilities. The final rule requires 

United States persons to provide 

notification to the U.S. Department of 

the Treasury regarding certain 

transactions involving persons of a 

country of concern that 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 prohibits United States persons 

from engaging in certain other 

transactions involving persons of a 

country of concern that are engaged in 

activities involving certain other 

national security technologies and 

products that pose a particularly acute 

national security threat to the United 

States. 

DATES: This final rule is effective on 

January 2, 2025. 

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: OIS.Outbound.Regulations@

treasury.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Outbound Order 

On August 9, 2023, the President 

issued Executive Order 14105 (88 FR 

54867), ‘‘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 (NEA), 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. On August 6, 2024, the President 

continued the national emergency (89 

FR 65163) declared in the Outbound 

Order. 

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 (Hong Kong) and the Special 

Administrative Region of Macau 

(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 cyberenabled 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 cyberenabled 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 

public or private 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 their 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 

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 outlines 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 


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U.S. Department of the Treasury 

(Treasury Department) 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. 

B. Advance Notice of Proposed 

Rulemaking 

Concurrent with the issuance of the 

Outbound Order, on August 9, 2023, the 

Treasury Department issued an Advance 

Notice of Proposed Rulemaking, 88 FR 

54961 (published 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 Treasury Department received 60 

comment letters in response to the 

ANRPM, many from business 

associations that represented a wide 

variety of stakeholders across industries 

as well as from individuals and 

companies in the financial services, 

legal, and technology sectors. (The 

comments to the ANPRM are available 

on the public rulemaking docket at 

https://www.regulations.gov (Docket 

TREAS–DO–2023–0009)). In general, 

the 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 Treasury 

Department considered each comment 

in developing the Notice of Proposed 

Rulemaking discussed in the next 

section. 

C. Notice of Proposed Rulemaking 

On June 21, 2024, the Treasury 

Department issued a Notice of Proposed 

Rulemaking, 89 FR 55846 (published 

July 5, 2024) (Proposed Rule), setting 

forth the full proposed regulations for 

implementing the Outbound Order. The 

Proposed Rule built on the ANPRM and 

reflected the Treasury Department’s 

consideration of comments received in 

response to the ANPRM. The Proposed 

Rule included the full draft regulations 

and explanatory discussion regarding 

the intent of the proposal. It also 

solicited additional comments from the 

public. 

Obligations on U.S. Persons 

The Proposed Rule would have 

placed obligations on U.S. persons, 

including a notification requirement for 

certain transactions and prohibition of 

certain other transactions. A U.S. person 

was defined to 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, and any person in the 

United States. 

Knowledge Standard 

The obligations of a U.S. person under 

the Proposed Rule would have applied 

if such person had knowledge of 

relevant facts or circumstances related 

to a transaction. Under the proposed 

standard, a U.S. person may have been 

assessed to have had knowledge if the 

U.S. person possessed actual knowledge 

that a fact or circumstance existed or 

was substantially certain to occur, if the 

U.S. person possessed an awareness of 

a high probability of a fact or 

circumstance’s existence or future 

occurrence, or if the U.S. person could 

have possessed such information 

through a ‘‘reasonable and diligent 

inquiry.’’ To provide clarity, the 

Proposed Rule listed factors that the 

Treasury Department would consider in 

assessing whether a U.S. person 

undertook a ‘‘reasonable and diligent 

inquiry.’’ Such factors reflected 

information that should have been 

ascertainable and/or contractual 

assurances that should have been 

obtainable through reasonable due 

diligence. 

Specific Categories of Covered 

Transaction 

The Proposed Rule would have 

applied to certain transactions by U.S. 

persons, including the acquisition of an 

equity interest or contingent equity 

interest; certain debt financing 

convertible to an equity interest or that 

afforded certain rights to the lender; the 

conversion of a contingent equity 

interest; a greenfield investment or other 

corporate expansion; a joint venture; 

and certain investments as a limited 

partner or equivalent (LP) in a non-U.S. 

person pooled investment fund. 

Involving a Covered Foreign Person 

The Proposed Rule would have 

applied to certain transactions by a U.S. 

person that also involved a covered 

foreign person—that is, a person of a 

country of concern engaged in a covered 

activity related to defined subsets of 

technologies and products or a person 

that had a specified relationship with 

such a person. Under the Proposed 

Rule, a person of a country of concern 

included an individual who is a citizen 

or permanent resident of a country of 

concern (and not a U.S. citizen or 

permanent resident of the United 

States); an entity organized under the 

laws of a country of concern, or 

headquartered in, incorporated in, or 

with a principal place of business in a 

country of concern; the government of a 

country of concern; or an entity that is 

directly or indirectly owned 50 percent 

or more by any persons in any of the 

aforementioned categories. 

Additionally, the Proposed Rule would 

have applied to certain transactions 

involving an entity that had a voting 

interest, board seat, or equity interest in 

a covered foreign person where more 


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than 50 percent of one of several key 

financial metrics of the entity was 

attributable to such covered foreign 

person. 

Excepted Transaction 

The Proposed Rule would have 

excepted certain types of transactions 

from coverage, provided that such 

transactions did not afford a U.S. person 

certain rights that were not standard 

minority shareholder protections. These 

included: investments in publicly 

traded securities, certain LP 

investments, buyouts of country of 

concern ownership; intracompany 

transactions; investments made 

pursuant to pre-Outbound Order 

binding commitments; certain 

syndicated debt financings; and certain 

transactions involving a person of a 

country or territory outside of the 

United States based on a determination 

by the Secretary. 

National Interest Exemption 

Under the Proposed Rule, a U.S. 

person could have sought an exemption 

from the application of the prohibition 

or notification requirement on the basis 

that a transaction was in the national 

interest of the United States. 

Notification Requirement 

A U.S. person subject to the 

notification requirement under the 

Proposed Rule would have been 

required to file a notification form with 

the Treasury Department that included 

information related to the transaction 

such as details about the U.S. person, 

the covered transaction, relevant 

national security technologies and 

products, and the covered foreign 

person. The Proposed Rule would have 

required that such notification be filed 

no later than 30 days after a transaction 

is completed or, where a U.S. person 

acquires actual knowledge after the 

completion date of a transaction that the 

transaction would have been a covered 

transaction if such knowledge had been 

possessed at the time of the transaction, 

no later than 30 days after the U.S. 

person’s acquisition of such knowledge. 

National Security Technologies and 

Products 

The Proposed Rule identified the 

subsets of national security technologies 

and products identified in the 

Outbound Order that would have been 

subject to the Proposed Rule. 

• Semiconductors and 

microelectronics. Covered transactions 

related to electronic design automation 

software; certain fabrication and 

advanced packaging tools; the design, 

fabrication, or packaging of certain 

advanced integrated circuits; and 

supercomputers would have been 

prohibited. Covered transactions related 

to the design, fabrication, or packaging 

of integrated circuits not otherwise 

covered by the prohibited transaction 

definition would have been subject to 

the notification requirement. 

• Quantum information technologies. 

Covered transactions related to the 

development of quantum computers and 

production of critical components; the 

development or production of certain 

quantum sensing platforms; and the 

development or production of quantum 

networking and quantum 

communication systems would have 

been prohibited. 

• Artificial intelligence (AI) systems. 

Covered transactions related to the 

development of any AI system designed 

to be exclusively used for, or intended 

to be used for, certain end uses would 

have been prohibited. The Proposed 

Rule also included proposed 

alternatives for a prohibition on covered 

transactions related to the development 

of any AI system that was trained using 

a specified quantity of computing 

power, and trained using a specified 

quantity of computing power using 

primarily biological sequence data. 

Covered transactions related to the 

development of any AI system not 

otherwise covered by the prohibited 

transaction definition, where such AI 

system was designed or intended to be 

used for certain end uses or was trained 

using a specified quantity of computing 

power (set below the levels in the 

prohibited transaction definition), 

would have been subject to the 

notification requirement. 

Violations 

The Proposed Rule outlined the 

penalty and disclosure framework for 

violations. A violation would have been 

subject to civil and criminal penalties as 

set forth in IEEPA. In the event of a 

violation, the Treasury Department 

would have been authorized to impose 

civil penalties and could also have 

referred criminal violations to the 

Attorney General. The Secretary also 

could have taken any action authorized 

under IEEPA to nullify, void, or 

otherwise require divestment of any 

prohibited transaction. The Proposed 

Rule would have provided a process for 

a U.S. person to submit a voluntary selfdisclosure if they believed their conduct 

may have resulted in a violation of any 

part of the Proposed Rule. Such selfdisclosure would have been taken into 

consideration during the Treasury 

Department’s determination of the 

appropriate response to the selfdisclosed violation. 

II. Overview of Comments on the 

Proposed Rule 

The public was given an opportunity 

to comment on the Proposed Rule, and 

comments were due by August 4, 2024. 

The public comments received are 

available on the rulemaking docket at 

https://www.regulations.gov (Docket 

TREAS–DO–2024–0012). The Treasury 

Department received over 40 comment 

letters in response to the Proposed Rule 

reflecting a range of views. The Treasury 

Department considered each comment 

before issuing this final rule (Final 

Rule). Discussed below are the 

comments received and the Treasury 

Department’s responses in consideration 

of the comments. 

III. Discussion of the Final Rule 

A. Scope and Objective of the Final Rule 

The preamble to the Proposed Rule 

noted that its focus was on the types of 

U.S. investments that presented a 

likelihood of conveying both capital and 

intangible benefits that could be 

exploited by countries of concern to 

accelerate the development of sensitive 

technologies or products 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 cyberenabled capabilities, the Proposed Rule 

included 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 sought to avoid loopholes that 

could have undermined the national 

security objectives of the Outbound 

Order. 

Several commenters noted their 

support for the overall goals of the 

Outbound Order and Proposed Rule. 

One commenter commended the 

Treasury Department for taking action to 

stop U.S. investment in entities backed 

by the Chinese Communist Party that 

threaten U.S. national security. Another 

commenter endorsed U.S. Government 

efforts to ensure entities that pose 

national security threats are denied 

access to all U.S. investors and U.S. 

capital markets. Several commenters 

expressed support for the Treasury 

Department’s goal of restricting 

investment that would accelerate the 

development of military, intelligence, 

surveillance, and cyber-enabled 

capabilities in countries of concern. 

Another commenter emphasized the 

importance and difficulty of countering 


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the undesired transfer of emerging 

technologies. One commenter 

commended the Treasury Department’s 

recognition that U.S. leadership in 

emerging technologies is critical to longterm U.S. interests, while another noted 

that maintaining a healthy U.S. 

semiconductor industry is an essential 

component to protecting national 

security. 

Several commenters noted the 

importance of balancing the protection 

of national security with the 

maintenance of economic 

competitiveness and an open 

investment policy. One commenter 

stated that a well-designed rule would 

have actionable requirements that 

achieve the Treasury Department’s goals 

while mitigating unintended 

consequences. 

Several commenters highlighted the 

importance of clarity in the Proposed 

Rule, especially in the definitions, or 

requested further clarification. Other 

commenters requested that the rule be 

no more burdensome than necessary to 

achieve its aims. One commenter 

encouraged the Treasury Department to 

be mindful of the implications of the 

U.S. Supreme Court decision in LoperBright v. Raimondo, 144 S. Ct. 2244 

(2024), particularly related to 

implementation of broad authorities and 

industry’s reliance on a stable, clear, 

and predictable regulatory environment. 

One commenter highlighted a think 

tank report about outbound investment 

that encouraged authorities to target the 

highest risk transactions and 

recommended establishing a rule that is 

proportionate, easy to understand, 

nonduplicative of existing tools, and 

that enables dialogue with allies about 

adopting similar regimes. 

Other commenters expressed the view 

that the Proposed Rule was too broad or 

not designed to address the threat 

identified in the Outbound Order. Some 

commenters requested the notification 

requirement be removed from the rule, 

with one commenter expressing the 

view that the notification requirement 

would not address the threat identified 

in the Outbound Order. One commenter 

asserted that the investment restriction 

in the Proposed Rule was based on 

misconceptions and assumptions about 

the PRC government and PRC 

businesses that are not supported by 

evidence. Another commenter asserted 

that the Proposed Rule represents a 

departure from the United States’ 

traditional support for free and open 

capital flows. Another commenter 

characterized the Proposed Rule as 

unreasonable and contrary to principles 

of free and fair trade. The commenter 

alleged that the Proposed Rule would 

obstruct opportunities for PRC 

companies, limit the innovation 

capacity of the United States, and 

destroy the global industrial supply 

chain. Another commenter expressed 

concern that the Proposed Rule is overly 

broad and that it underestimates the 

potential negative impacts on 

investment managers. 

In response to these comments, the 

Treasury Department notes that the 

United States has long maintained an 

open investment policy and supported 

cross-border investment where 

consistent with U.S. national security 

interests. In developing the Final Rule, 

the Treasury Department has sought to 

maintain the goals of both open 

investment and protection of national 

security by focusing on 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 countries 

of concern in ways that threaten the 

national security of the United States. 

The Treasury Department also 

recognizes the potential for unintended 

consequences that may arise under the 

Final Rule and has sought to further 

minimize the impact of those 

consequences, including through 

changes to the definitions of covered 

transaction and excepted transaction in 

the Final Rule that are described below. 

The Treasury Department made these 

changes to provide additional clarity, 

improve administrability, and facilitate 

compliance by U.S. persons, while also 

cognizant of the need to close loopholes 

that could undermine the national 

security objectives of the Outbound 

Order. In addition, as discussed further 

below, the Treasury Department 

anticipates providing additional 

information on its Outbound Investment 

Security Program website to facilitate 

compliance by U.S. persons. 

Similar to the Proposed Rule, the 

Final Rule seeks to complement existing 

authorities and tools of the U.S. 

Government, such as export controls 

and inbound investment reviews. The 

Final Rule addresses the complex and 

evolving national security threat 

identified in the Outbound Order. 

The Treasury Department also notes 

that the Final Rule is based on the 

President’s finding in the Outbound 

Order that countries of concern are 

‘‘engaged in comprehensive, long-term 

strategies that direct, facilitate, or 

otherwise support advancements in 

sensitive technologies and products that 

are critical to such countries’ military, 

intelligence, surveillance, or cyberenabled capabilities.’’ The President’s 

finding also notes that ‘‘[a]s part of this 

strategy of advancing the development 

of these sensitive technologies and 

products, countries of concern are 

exploiting or have the ability to exploit 

certain United States outbound 

investments, including certain 

intangible benefits that often accompany 

United States investments and that help 

companies succeed.’’ The Treasury 

Department assesses that the 

requirements of the Final Rule are 

narrowly scoped to focus on a limited 

subset of investment activity and to 

avoid unintended impacts in broader 

sectors of the U.S. or global economies. 

The Treasury Department also notes that 

imposing targeted measures to address 

acute national security risks is 

consistent with trade and investment 

agreements to which the United States 

is a party. The Treasury Department 

further notes that the two components 

of the program—that is, requiring 

notification of certain transactions and 

prohibiting other transactions—helps 

limit the impact on market participants 

while providing the Treasury 

Department with visibility into the 

volume and nature of U.S. person 

covered transactions and informing 

future policy development and 

decisions. Finally, regarding the 

potential unintended impact on asset 

managers, the Treasury Department 

notes that some modifications made to 

the Final Rule are specifically intended 

to limit the applicability to certain 

routine cross-border financial activity 

that the Treasury Department has 

determined is unlikely to result in the 

transfer of intangible benefits along with 

capital that can be exploited to threaten 

U.S. national security. 

B. Statutory Authority 

As described above, the Outbound 

Order was issued by the President 

pursuant to his authority under the 

Constitution and the laws of the United 

States, including IEEPA, the NEA, and 

section 301 of title 3, U.S.C. 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 Treasury Department 

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 


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Order. The Secretary’s issuance of the 

Proposed Rule and this Final Rule 

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). 

One commenter raised questions 

about whether the Treasury Department 

had appropriate authority to issue and 

administer the rule. The commenter 

noted that Congress did not explicitly 

authorize the Assistant Secretary of the 

Treasury for Investment Security to 

oversee an outbound investment 

program in the Foreign Investment Risk 

Review Modernization Act of 2018 

(FIRRMA; Subtitle A of Title XVII of 

Pub. L. 115–232, 132 Stat. 2173), the 

legislation that established the position 

of Assistant Secretary of the Treasury 

for Investment Security. The commenter 

noted that the establishment of the 

Outbound Investment Security Program 

would mean that the Assistant 

Secretary’s duties would no longer be 

principally related to the Committee on 

Foreign Investment in the United States 

(CFIUS) as FIRRMA requires. The 

commenter also asserted that personnel 

hired under FIRRMA’s hiring authority 

likewise must have CFIUS-related work 

as their primary responsibility, which in 

the commenter’s view, does not 

encompass the rulemaking to 

implement the Outbound Order. The 

commenter also expressed the view that 

IEEPA could not be a source of authority 

for the Proposed Rule. The commenter 

expressed that in practice, the Proposed 

Rule sought to regulate access to 

expertise and professional networks, 

and that this was ‘‘sharing of 

information’’ that could not be 

prohibited under IEEPA unless such 

information was subject to espionage or 

export control laws. 

The Treasury Department appreciates 

these comments and the opportunity to 

respond to the legal points they raise. 

IEEPA (50 U.S.C. 1701 et seq.) 

authorizes the President to deal with 

any unusual and extraordinary threat, 

which has its source in whole or 

substantial part outside the United 

States, to the national security, foreign 

policy, or economy of the United States, 

if the President declares a national 

emergency with respect to such threat. 

Nothing in FIRRMA limits the 

President’s authority under IEEPA. As 

described in more detail above, 

consistent with the framework of the 

NEA and IEEPA, the President declared 

a national emergency in the Outbound 

Order and directed the Secretary to 

issue regulations to address that 

emergency. As noted, 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). 

As directed by the President, the Final 

Rule addresses the declared national 

emergency and threat to national 

security by prohibiting certain 

transactions and requiring notification 

of certain other transactions by U.S. 

persons involving subsets of sensitive 

technologies and products critical for 

military, intelligence, surveillance, or 

cyber-enable capabilities of countries of 

concern. 

The commenter states that a provision 

of IEEPA exempting from regulation 

‘‘the importation from any country, or 

the exportation to any country . . . of 

any information or informational 

materials’’ (50 U.S.C. 1702(b)(3)) 

forecloses the Treasury Department 

from issuing the rule under IEEPA. 

Consistent with the statute, neither the 

Proposed Rule nor the Final Rule 

regulates the export of ‘‘information or 

informational materials.’’ Section 

850.503 of the Final Rule explicitly 

provides that conduct referred to in 50 

U.S.C. 1702(b) shall not be regulated or 

prohibited, directly or indirectly, by this 

part. Instead, the Proposed Rule would 

have regulated, and the Final Rule will 

regulate, covered transactions. 

Consistent with the national emergency 

framework described above, IEEPA 

unambiguously authorizes the President 

to, among other things, ‘‘regulate . . . 

transactions involving[ ] any property in 

which any foreign country or a national 

thereof has any interest by any person, 

or with respect to any property, subject 

to the jurisdiction of the United States’’ 

(50 U.S.C. 1702(a)(1)(B)), and the 

Outbound Order, ANPRM, Proposed 

Rule, and Final Rule rely on this 

authority. The existence of a covered 

transaction is a fundamental 

prerequisite for the application of the 

notification requirement and 

prohibitions under the Proposed Rule or 

Final Rule, and the concept of a covered 

transaction has been crafted in a 

manner consistent with both section 

1702(b) of IEEPA and section 850.503 of 

the Final Rule. Notifiable transactions 

and prohibited transactions are each 

defined as covered transactions in 

which the relevant covered foreign 

person undertakes (or in certain 

instances, the U.S. person knows will or 

plans to undertake) specified covered 

activities. The types of transactions that 

may constitute a covered transaction are 

the acquisition of an equity interest or 

contingent equity interest; certain debt 

financing that affords certain rights to 

the lender; the conversion of a 

contingent equity interest; a greenfield 

investment or other corporate 

expansion; a joint venture; and certain 

investments as an LP in a non-U.S. 

person pooled investment fund. 

Granting access to expertise or 

professional networks via a U.S. person 

is not a covered transaction, and thus is 

not subject to regulation under the Final 

Rule. 

The commenter observes that the 

duties of the Assistant Secretary of the 

Treasury for Investment Security, as 

defined in 50 U.S.C. 4565(k)(4)(A)(ii)(II), 

must be ‘‘principally related to 

[CFIUS].’’ The Final Rule and the 

establishment of the Outbound 

Investment Security Program within the 

Treasury Department’s Office of 

Investment Security are consistent with 

this requirement. Taking into account 

factors such as budget, personnel, and 

allocation of time, the Assistant 

Secretary for Investment Security’s 

duties, and those of relevant Treasury 

Department staff, will remain 

principally related to CFIUS, even with 

the Outbound Investment Security 

Program coming under the Assistant 

Secretary’s purview. 

C. Summary of Comments to the 

Proposed Rule and Changes From the 

Proposed Rule 

The discussion below summarizes 

comments submitted to the Proposed 

Rule and the Treasury Department’s 

responses to those comments. For 

provisions that are not discussed below, 

the Treasury Department did not receive 

any substantive comments on those 

provisions and is implementing them in 

the Final Rule without substantive 

change from the Proposed Rule. 

Subpart A—General 

§ 850.101—Scope 

Section 850.101 of the Proposed Rule 

outlined the scope of the Proposed Rule. 

Section 850.101(a) explained that the 

Proposed Rule implemented the 

Outbound Order, and § 850.101(b), (c), 

and (d) discussed at a high level certain 

key terms and requirements in the 


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Proposed Rule, namely covered 

transactions and excepted transactions, 

along with notifiable and prohibited 

transactions and the requirements for 

U.S. persons and controlled foreign 

entities regarding notifiable and 

prohibited transactions. Section 

850.101(e) described requirements in 

the Outbound Order for the Secretary to 

communicate with Congress and the 

public with respect to implementation 

of the Outbound Order and consult with 

specified departments and agencies on 

various aspects of the Outbound Order 

and regulations. 

The Treasury Department did not 

receive any comments on § 850.101 of 

the Proposed Rule. The Final Rule 

adopts § 850.101 in a form nearly 

identical to that in the Proposed Rule 

but makes some non-substantive edits to 

the structure of paragraphs (c) and (d) to 

clarify the requirements applicable to 

the Secretary’s determination with 

respect to covered activities. 

§ 850.104—Knowledge Standard 

Under § 850.104 of the Proposed Rule, 

certain provisions, including in the 

definition of covered transaction, would 

have applied only if a U.S. person knew 

of a relevant fact or circumstance. The 

definition of knowledge in the Proposed 

Rule at § 850.216 included the 

following: actual knowledge that a fact 

or circumstance existed or was 

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 

definition of covered transaction in the 

Proposed Rule at § 850.210 generally 

would have required the U.S. person to 

know (or in some circumstances, to 

intend) at the time of a transaction that 

the transaction involved a covered 

foreign person, would have resulted in 

the establishment of a covered foreign 

person (in the case of a greenfield, 

brownfield, or a joint venture 

investment), or would have resulted in 

a person of a country of concern’s 

engagement in a new covered activity 

(in the case of a business pivot). The 

Proposed Rule noted that the Treasury 

Department was not proposing to hold 

a U.S. person liable for a transaction 

that had all of the other attributes of a 

covered transaction but that the U.S. 

person did not know at the time (which 

would have included not having 

‘‘reason to know’’ at the time) was 

involved with or would have resulted in 

a covered foreign person. As discussed 

in the Proposed Rule, 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 Treasury 

Department might have found 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 further clarity, the Proposed 

Rule, in § 850.216, included some of the 

factors that the Treasury Department 

would have considered in assessing 

whether a U.S. person undertook such 

an inquiry, as applicable. These 

included efforts to obtain contractual 

assurances and information that should 

have been 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 Treasury Department received 

comments on several aspects of 

§ 850.104 of the Proposed Rule. In 

response, the Treasury Department has 

made changes to clarify this provision 

in the Final Rule and discusses other 

issues below. 

Commenters sought clarification or 

guidance on how the Treasury 

Department will evaluate the sufficiency 

of a U.S. person’s due diligence as part 

of determining whether a ‘‘reasonable 

and diligent inquiry’’ occurred, citing 

potential obstacles to conducting due 

diligence in the PRC. Several 

commenters asked that the Treasury 

Department explicitly acknowledge the 

challenges of conducting due diligence 

in foreign jurisdictions and provide 

specific due diligence guidance, include 

language in the rule that makes clear 

that it will evaluate a U.S. person’s due 

diligence efforts based on the totality of 

the facts and circumstances, and/or 

provide a safe harbor from enforcement 

if the U.S. person takes specific due 

diligence steps, such as soliciting or 

securing representations and warranties 

or using representative due diligence 

questions that some commenters 

requested be provided by the Treasury 

Department. A few commenters 

suggested that, with respect to the 

language in the Proposed Rule regarding 

a ‘‘relevant counterparty,’’ a U.S. 

person’s due diligence obligations 

should be limited to obtaining certain 

representations and warranties in the 

relevant investment agreement. 

As in the Proposed Rule, § 850.104(c) 

of the Final Rule sets forth an 

illustrative list of factors that the 

Treasury Department will consider in 

assessing whether a U.S. person has 

undertaken a ‘‘reasonable and diligent 

inquiry’’ with respect to a particular 

transaction. The Treasury Department 

recognizes that some of the 

considerations in 850.104(c) may be 

inapplicable to a given transaction. In 

response to comments seeking clarity 

regarding how the Treasury Department 

will evaluate the sufficiency of a U.S. 

person’s due diligence, the Treasury 

Department has added a new paragraph 

(d) to § 850.104 of the Final Rule to 

clarify that the Treasury Department’s 

assessment of whether a U.S. person has 

undertaken a ‘‘reasonable and diligent 

inquiry’’ will be made based on a 

consideration of the totality of relevant 

facts and circumstances. This new 

language accounts for the circumstance 

where a U.S. person may face obstacles 

to conducting due diligence, while 

preserving the necessary flexibility to 

consider the individual facts and 

circumstances of a transaction when 

assessing whether a ‘‘reasonable and 

diligent inquiry’’ has occurred. 

The Treasury Department declines to 

include a safe harbor provision or to 

prescribe specific due diligence 

obligations in the Final Rule. Rather, the 

Final Rule is designed to address the 

fact-specific and individualized nature 

of each transaction by offering an 

illustrative list of considerations at 

§ 850.104(c), in combination with 

§ 850.104(d), as described above. 

One commenter stated that the 

Treasury Department should not 

consider an entity’s refusal to make 

representations or warranties to be a 

warning sign, by itself, while another 

commenter stated that they did not 

believe they would be able to credibly 

assess information received from an 

investment target for warning signs. 

Given the variety of forms a warning 

sign could take, the Final Rule does not 

prescribe what a warning sign or red 

flag would be, but § 850.104(d) 

addresses commenter concerns by 

stating that the totality of the relevant 

facts and circumstances shall be 

considered in determining if the U.S. 

person has undertaken a ‘‘reasonable 

and diligent inquiry.’’ If, for example, a 

U.S. person is unable to obtain certain 

information from a transaction 

counterparty, or unable to obtain 

relevant representations or warranties, 

the presence or absence of other 

relevant factors may be relevant to the 

consideration of whether, in totality, the 

U.S. person undertook a ‘‘reasonable 

and diligent inquiry.’’ 

Commenters also requested 

clarification that a U.S. person will not 

be held responsible for an investment 

target’s provision of false or inaccurate 

information or failure to provide 

information, or at least will have safe 


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harbor for good faith reliance on the 

information provided absent warning 

signs or contradictory information. 

Another commenter noted that U.S. 

persons would have to rely on 

unverified responses from prospective 

portfolio companies because much of 

the information would be in the 

exclusive possession of the target 

company and may be proprietary. 

The Treasury Department 

acknowledges that in certain instances, 

information required to assess whether 

a transaction is a covered transaction 

may be difficult to ascertain. In such 

circumstances, and in the absence of 

warning signs, a U.S. person may wish 

to obtain representations or warranties 

from the relevant transaction 

counterparty regarding pertinent 

information such as the investment 

target or counterparty’s ownership, 

investments, and activities. 

Multiple commenters sought 

clarification regarding how the Treasury 

Department will evaluate a U.S. 

person’s efforts to obtain information in 

the context of an assessment of a 

‘‘reasonable and diligent inquiry.’’ One 

commenter asked that the Treasury 

Department not evaluate a U.S. person’s 

efforts to obtain non-publicly available 

information, but merely assess whether 

they evaluated what was in their 

possession. The commenter stated that 

it would be sufficient for the Treasury 

Department to make clear that this 

factor, and others, would be evaluated 

in light of the totality of the facts and 

circumstances, including the 

sophistication of the U.S. person. One 

commenter asked for clarification 

regarding the degree of effort that a U.S. 

person must exert to obtain nonpublicly available information. Another 

questioned what ‘‘available’’ means— 

whether it refers to information in the 

U.S. person’s possession, information 

that the U.S. person could obtain in the 

normal course of business, or 

information that must be sought. A few 

commenters indicated that they did not 

believe they would be able to review all 

publicly available information about a 

target due to the voluminous amount of 

public information often available 

regarding a target, much of it not in 

English, and the timeframes on which 

many venture capital deals occur. One 

commenter asked whether a risk-based 

approach was sufficient. Another 

commenter asked for clarification that 

only U.S. persons who are party to 

covered transactions are obligated to 

conduct the required ‘‘reasonable and 

diligent inquiry.’’ 

Other commenters sought information 

about the degree to which a U.S. person 

must access commercially available 

databases, while another commenter 

requested guidance regarding which 

sources for non-publicly available 

information a U.S. person should 

review. Another commenter suggested 

that, in absence of specific guidance, the 

Treasury Department include a safe 

harbor for good faith reliance on a 

reasonable interpretation of the rule’s 

requirements. 

Under the Final Rule, a U.S. person is 

responsible for knowledge the U.S. 

person had or could have had through 

a ‘‘reasonable and diligent inquiry.’’ The 

Treasury Department expects a U.S. 

person to make a reasonable effort, 

taking into account the context of a 

given transaction and any warning 

signs, among other factors. 

The Final Rule adopts, with minor 

changes, the text of § 850.104(c)(3) and 

(4) from the Proposed Rule regarding 

‘‘available non-public information’’ and 

‘‘available public information’’ as well 

as a U.S. person’s efforts to obtain it. 

The text of § 850.104(c)(3) now refers to 

the ‘‘efforts,’’ rather than effort, of the 

U.S. person, for consistency with 

§ 850.104(c)(4). Both sub-paragraphs 

now focus on the efforts of the U.S. 

person ‘‘as of’’—instead of ‘‘at’’—the 

time of the transaction. The Treasury 

Department assesses that the phrase ‘‘as 

of’’ better describes the process of due 

diligence leading up to and including 

the time of the transaction. Sections 

850.104(c)(3) and 850.104(c)(4) have 

been further revised to describe efforts 

by the U.S. person to ‘‘obtain and 

consider’’ available non-public and 

public information, respectively, 

clarifying that the U.S. person’s 

evaluation or assessment of the 

available public and non-public 

information is relevant. The Treasury 

Department assesses that the language 

in § 850.104(c) is otherwise sufficiently 

clear on its face, particularly in 

combination with the added 

§ 850.104(d) that, as discussed above, 

explains that the ‘‘the totality of the 

relevant facts and circumstances’’ 

should be considered. Limiting 

consideration only to the information 

already in a U.S. person’s possession, as 

one commenter requested, could 

incentivize purposeful blindness and is 

inconsistent with the intent of the Final 

Rule to require reasonable ‘‘inquiry’’ 

where certain relevant facts may not 

already be known to the U.S. person. 

At the same time, § 850.104(c) of the 

Final Rule does not require a U.S. 

person to obtain and consider ‘‘all’’ 

publicly available information, and this 

is clear from the fact that the word ‘‘all’’ 

is not included in this paragraph. 

Instead, the expectation is that a U.S. 

person undertake a reasonable and 

diligent approach to gathering and 

assessing information. The practical 

implication of such an approach may 

mean that, for example, a U.S. person 

investor is generally expected to view a 

transaction counterparty’s responses or 

statements in light of other information 

contained in commercially available 

information sources in addition to 

information that is freely available to 

the general public. Such diligence is 

commonplace when investors are 

considering a transaction—such as 

when conducting diligence with respect 

to risks related to sanctions, bribery and 

corruption, or litigation exposure. 

The Final Rule also includes a related 

technical edit to § 850.104(c)(7), adding 

‘‘available’’ before ‘‘public and 

commercial databases.’’ This edit is 

being made to clarify the scope of 

databases that may be reviewed and to 

be consistent with how other sources of 

information in § 850.104(c) are qualified 

with ‘‘available.’’ It is not intended to 

affect the substance of the requirement. 

One commenter requested that the 

Treasury Department identify specific 

standards or considerations for what 

constitutes a ‘‘reasonable and diligent 

inquiry’’ for an LP in an investment 

fund where the LP cannot reasonably 

know the specific targets of the fund. 

Another commenter asked that the 

Treasury Department publish a list of 

covered foreign persons to 

supplement—not replace—U.S. person 

due diligence efforts. 

The Treasury Department notes that 

the foregoing discussion of the 

knowledge standard and a ‘‘reasonable 

and diligent inquiry’’ is generally 

applicable to an investment by a U.S. 

person and, like the Final Rule’s 

approach to knowledge generally, is 

intended to account for a variety of 

situations and transaction structures. 

This also applies in the context of a U.S. 

person LP’s investment into a non-U.S. 

pooled investment fund. The Treasury 

Department declines to prescribe, in the 

Final Rule, particular assurances for an 

LP to seek from the manager of a fund 

or specific standards or considerations 

in situations where a U.S. person LP 

does not know a fund’s specific 

investment targets at the time of the U.S. 

person LP’s investment. As discussed 

further in the discussion of the 

definition of an excepted transaction 

below, the Treasury Department has 

determined to except U.S. person LP 

investments into funds if the U.S. 

person has obtained a binding 

contractual assurance that its capital in 

the fund will not be used to engage in 

a transaction that would be a notifiable 

transaction or a prohibited transaction, 

as applicable, if engaged in by a U.S. 


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person. Consistent with the Treasury 

Department’s approach to the 

knowledge standard, the Treasury 

Department does not specify the 

particular language of such a binding 

contractual assurance. The Treasury 

Department also declines to provide a 

list of covered foreign persons in 

§ 850.104 or elsewhere for the reasons 

set forth in the discussion of the 

definition of covered foreign person 

below. 

One commenter requested the 

reference to legal counsel in 

§ 850.104(c)(5) be deleted, arguing that 

it would permit an inappropriate 

imputation of knowledge to the U.S. 

person. In response and for consistency 

throughout § 850.104(c), the Treasury 

Department has removed the references 

to ‘‘legal counsel’’ from § 850.104(c)(1) 

and (5) of the Final Rule. Under the 

Final Rule, a U.S. person is responsible 

for information such person knew or 

should have known, following a 

‘‘reasonable and diligent inquiry,’’ 

although the Treasury Department notes 

that due diligence may be conducted on 

behalf of a U.S. person by the U.S. 

person’s legal counsel or other 

representative. 

A number of commenters requested 

clarification regarding the definition of 

‘‘relevant counterparty’’ in § 850.104(c), 

stating that if the term were to include 

other investors of the relevant fund or 

other owners of the target portfolio 

company, then the necessary due 

diligence would be unduly burdensome. 

As such, one commenter asked that the 

term be defined to mean a party to the 

transaction, while others requested 

limiting the required diligence to parties 

participating in the transaction. 

In response, the Treasury Department 

has adopted the suggestion made by 

commenters and modified § 850.104(c) 

to refer to ‘‘an investment target or other 

relevant transaction counterparty (such 

as a joint venture partner)’’ where 

applicable. This change is intended to 

clarify that as a general matter, the 

Treasury Department does not expect 

diligence to be conducted on persons 

who are not parties to the transaction. 

However, inquiries related to nonparties, such as beneficial owners or 

downstream entities that are not 

technically parties to the transaction, 

may be necessary to determine, for 

example, whether a party to a 

transaction is a person of a country of 

concern or a covered foreign person. 

Further, the Treasury Department 

believes the language regarding a 

‘‘reasonable and diligent inquiry’’ is 

clear, as written, in referring to a U.S. 

person that is party to a transaction, 

rather than unrelated U.S. persons. 

Commenters expressed similar views 

with respect to the feasibility of 

conducting due diligence to determine 

whether the criteria for a person of a 

country of concern is met. Some 

commenters expressed concern that the 

definition would require due diligence 

with respect to all investments. One 

commenter requested a standard with 

specific factors for investments in 

private equity or venture capital funds, 

such as researching past investments, 

engaging with the general partner, and 

reviewing a fund’s prospectus. Another 

commenter recommended that the rule 

include factors for identifying a person 

of a country of concern, as well as 

language deeming an inquiry reasonable 

and diligent, ‘‘if and only if, based on 

these factors, it will typically be 

adequate to correctly identify persons of 

concern.’’ 

Given the wide variety of possible 

transaction structures and for the 

reasons stated above, the Treasury 

Department declines to adopt 

prescriptive diligence standards as they 

relate to particular transaction 

structures or the application of a 

particular definition in the Final Rule. 

Instead, the knowledge standard 

discussed in the Final Rule, the specific 

factors enumerated in § 850.104(c), and 

the consideration of the totality of 

relevant facts and circumstances 

described in § 850.104(d) explain the 

obligations and expectations regarding 

due diligence under the Final Rule. 

Knowledge Standard—Final Rule 

Summary 

The Final Rule specifies that certain 

provisions, including § 850.210, which 

defines covered transaction, will apply 

only if a U.S. person has knowledge of 

the relevant facts or circumstances at 

the time of a transaction. The definition 

of knowledge set out in § 850.216 

includes any of 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 definition of covered transaction 

requires the U.S. person to know at the 

time of a transaction that the transaction 

involves a covered foreign person, will 

result or is planned to result in the 

establishment of a covered foreign 

person (in the case of a greenfield, 

brownfield, or joint venture 

investment), or will result or is planned 

to result in a person of a country of 

concern’s engagement in a covered 

activity (in the case of a brownfield 

investment). The Treasury Department 

will not consider a transaction that has 

all of the other attributes of a covered 

transaction but that the U.S. person 

does not know at the time of the 

transaction (which includes not having 

‘‘reason to know’’ at the time of the 

transaction) involves or will result in a 

covered foreign person to be a covered 

transaction subject to the notification 

requirement or prohibition, as 

applicable. The Treasury Department 

notes, however, that if the U.S. person 

subsequently acquires actual knowledge 

of a fact or circumstance that, if known 

at the time of the transaction, would 

have caused the transaction to be a 

covered transaction, the U.S. person is 

required to notify the Treasury 

Department pursuant to § 850.403 of the 

Final Rule. If a U.S. person fails to 

conduct a ‘‘reasonable and diligent 

inquiry’’ at the time of a transaction and 

undertakes the transaction where a 

particular fact or circumstance 

indicative of a covered transaction is 

present, the Treasury Department may 

find in the course of determining 

compliance with the Final Rule that the 

U.S. person had reason to know (and 

therefore, for purposes of the proposed 

rule, knew) of such fact or circumstance. 

To provide clarity, § 805.104 of the 

Final Rule includes some of the factors 

that the Treasury Department will 

consider in assessing whether a U.S. 

person undertook such an inquiry. That 

inquiry will be based on a consideration 

of the totality of the facts and 

circumstances. 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. Accordingly, the Final Rule 

adds a new provision clarifying that an 

assessment of whether a U.S. person has 

undertaken a ‘‘reasonable and diligent 

inquiry’’ will be made based on a 

consideration of the totality of relevant 

facts and circumstances. 

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 will result in a 

covered foreign person in a way that 

will render the transaction a covered 

transaction, the knowledge 

requirements in § 850.210 are not met. 

The Treasury Department anticipates 

making additional information available 

on its Outbound Investment Security 

Program website regarding topics such 

as the application of the knowledge 

standard. 


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Subpart B—Definitions 

§ 850.202—AI System 

As discussed in the Proposed Rule, 

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—and those that have 

applications in areas such as 

cybersecurity and robotics. 

Additionally, the U.S. Government is 

concerned with software and hardware, 

among other things, that incorporate 

such AI systems. The policy objective of 

the definition is to cover U.S. 

investment into entities that develop AI 

systems with 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 with no potential national 

security consequences. To address these 

concerns, the Proposed Rule included a 

notification requirement and a 

prohibition with respect to investments 

into entities engaged in certain covered 

activities involving AI systems. 

Under the Proposed Rule, AI system 

was defined in § 850.202(a) as a 

machine-based system with certain 

specified functions and characteristics. 

Section 850.202(b) of the Proposed Rule 

included within the definition of the 

term any data system, software, 

hardware, application, tool, or utility 

that operated in whole or in part using 

such a machine-based system. As noted 

in the Proposed Rule, this definition 

combined the definitions of ‘‘artificial 

intelligence’’ and ‘‘AI system’’ from 

Executive Order 14110, ‘‘Safe, Secure, 

and Trustworthy Development and Use 

of Artificial Intelligence’’ issued on 

October 30, 2023 (the AI Order). 

Several commenters expressed 

concern about the breadth of the 

definition in the Proposed Rule. One 

commenter argued that the definition 

did not differentiate products that pose 

a national security risk from those that 

do not. Others requested the removal of 

§ 850.202(b) from the definition of AI 

system, noting that its inclusion would 

cover products, services, or applications 

that incorporate AI for internal or 

commercial use, which may not pose 

national security risks. Commenters 

cited the recent practice among 

technology firms to leverage, rather than 

develop, AI by incorporating AI 

capability into existing systems. 

Commenters suggested narrowing the 

definition of AI system to limit the 

impact on such firms and also make the 

rule more administrable. One 

commenter requested that AI systems 

for medical use be excluded from the 

definition. 

The Final Rule makes clarifying edits 

to the definition of AI system at 

§ 850.202(a) by moving the clause ‘‘uses 

data inputs to’’ from (a) to (a)(1) in order 

to be consistent with the definition in 

the AI Order, and adjusts the first word 

at the beginning of each of (a)(2) and 

(a)(3) accordingly. Otherwise, the Final 

Rule adopts the text of § 850.202 from 

the Proposed Rule. The Treasury 

Department considered the comments 

requesting a narrower definition of AI 

system and the Final Rule adopts the 

text of § 850.202 from the Proposed 

Rule. However, in response to the 

comments, the Final Rule adds two 

notes to each of §§ 850.217 and 850.224. 

Note 2 clarifies how AI systems defined 

at § 850.202(b) are implicated by the 

criteria of notifiable and prohibited 

transactions. The Treasury Department 

notes that the scope of the AI systems 

definition is intentional, since a covered 

transaction involving an AI system, 

whether that system is an AI model or 

machine-based system described at 

§ 850.202(a) or a system operating in 

whole or in part using a system 

described at § 850.202(a), that meets one 

or more of the listed end-use or 

computing power thresholds could 

contribute to the advancement of 

military, intelligence, surveillance, or 

cyber-enabled capabilities by a country 

of concern. While the scope of AI 

systems as defined at § 850.202(b) may 

implicate a range of persons who use 

third-party AI models or machine-based 

systems in a data system, software, 

hardware, application, tool, or utility, 

the Treasury Department notes that such 

persons would be implicated by the 

Final Rule only to the extent they 

develop the AI system defined at 

§ 850.202(b) by engaging in the activities 

enumerated in § 850.211, such as design 

or substantive modification, with 

respect to the relevant third-party AI 

model or machine-based system being 

used. For example, a person engaging in 

substantive modifications of a thirdparty AI model that is being used by a 

data system, software, hardware, 

application, tool, or utility to operate in 

whole or in part, such as removing 

security measures or safeguards of the 

third-party AI model, would be 

developing an AI system. The addition 

of Note 2 clarifies this point, consistent 

with the definition for develop at 

§ 850.211. The Final Rule also adds a 

Note 3 to each of §§ 850.217 and 

850.224 to provide a carve-out for 

customizing, configuring, or fine-tuning 

a third-party AI model or machinebased system that is being used by a 

data system, software, hardware, 

application, tool, or utility to operate in 

whole or in part, where such 

customization, configuration, or finetuning of the third-party AI model or 

machine-based system is strictly for a 

person’s own internal, non-commercial 

use. Such activity would not itself 

trigger the notification requirements or 

prohibition delineated in § 850.217 or 

§ 850.224, respectively, for covered 

transactions involving AI systems, 

unless it has government intelligence, 

mass-surveillance, or military end use, 

or is for digital forensics tools, 

penetration testing tools, or the control 

of robotic systems. 

One commenter requested that the 

Treasury Department clarify that the 

computing power thresholds for a 

notifiable transaction or prohibited 

transaction involving an AI system 

pertain to the combined computing 

power required to train a given AI 

system, including computing power 

used to train relevant sub-models or 

generate inputs to inform such an AI 

system. The purpose of this clarification 

would be to prevent undercounting of 

computing power for an AI system 

where a covered foreign person may 

develop an AI system by combining 

smaller models or the learnings of other 

models. The same commenter also 

requested clarification regarding 

whether different versions of an AI 

system would be considered one system 

or multiple AI systems, and if 

adaptations of an AI system would be 

considered a new or distinct AI system. 

The Treasury Department notes that 

the computing power thresholds refer to 

the aggregate or combined computing 

power required to train a given AI 

system. For example, the computing 

power required to train an AI system 

that is a combination of smaller, pretrained AI models would be the 

summation of computing power 

required to train and combine each 

component model of the AI system. 

Similarly, developing an AI model 

based on the transfer of knowledge from 

one model to another would include the 

computing power required to train both 

models. The Treasury Department 

intends persons employing techniques 

to develop AI systems that are derived 

from, or are a combination of, other AI 

systems to evaluate the aggregate 

computing power required for training 

when assessing whether the AI system 

meets the criteria set forth in 

§§ 850.217(d)(3) and 850.224(k). For the 

purposes of assessing whether an AI 

system has any of the end-use 

applications set forth in §§ 850.217(d) 

and 850.224(j), the Treasury Department 


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notes that different versions of an AI 

system, including adaptations, 

derivatives, subsequent generations, or 

successor systems, should be assessed 

as distinct AI systems since the 

designed end-use or capabilities of a 

successor system could vary from a 

prior version. 

One commenter stated the Treasury 

Department would need to hire 

technical staff to monitor changes in the 

AI marketplace and suggested the 

Treasury Department leverage technical 

talent at other U.S. Government 

agencies if the roles cannot be 

maintained within the Treasury 

Department. In response to this 

comment, the Treasury Department 

notes that the Outbound Order directs 

the Treasury Department to consult with 

relevant U.S. Government agencies on 

the implications for military, 

intelligence, surveillance, or cyberenabled capabilities of covered national 

security technologies and products and 

potential covered national security 

technologies and products. The 

Treasury Department has leveraged the 

expertise of other U.S. Government 

agencies through the rulemaking 

process and will continue to do so in 

the implementation and administration 

of the Final Rule. 

§ 850.205—Contingent Equity Interest 

The Proposed Rule defined a 

contingent equity interest as 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.’’ While the Treasury Department 

did not receive any comments to the 

Proposed Rule’s definition of contingent 

equity interest, there were several 

comments that sought additional clarity 

on what types of contingent or 

convertible equity interests would be 

included in the definition of covered 

transaction at § 850.210(a)(1) and (3) of 

the Proposed Rule (defining covered 

transactions involving the acquisition or 

conversion of a contingent equity 

interest). 

In response to these comments, the 

Final Rule modifies the definition of 

contingent equity interest at § 850.205 of 

the Proposed Rule. The definition of 

contingent equity interest in the Final 

Rule refers to a ‘‘financial interest,’’ 

rather than a ‘‘financial instrument’’ as 

in the Proposed Rule. As described 

below in the discussion to § 850.210 of 

the Final Rule, this change is intended 

to more accurately reflect the Treasury 

Department’s intent to cover the 

acquisition or conversion of interests 

that are convertible into an equity 

interest, or provide the right to acquire 

equity interests. The definition of 

contingent equity interest in the Final 

Rule also clarifies that debt can 

constitute a financial interest that is 

convertible into, or provides the right to 

acquire, an equity interest. 

§ 850.206—Controlled Foreign Entity 

The Proposed Rule defined controlled 

foreign entity as an entity incorporated 

in, or organized under the law of, a 

country other than the United States of 

which a U.S. person was a parent. 

Section 850.219 of the Proposed Rule 

defined parent as a U.S. person that 

directly or indirectly held more than 50 

percent of the outstanding voting 

interest or voting power of the board of 

the entity; was a general partner, 

managing member, or equivalent of the 

entity; or, if the entity was a pooled 

investment fund, was an investment 

adviser to any such fund. Section 

850.302 of the Proposed Rule would 

have placed 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 have been a prohibited 

transaction if undertaken by a U.S. 

person, and § 850.402 would have 

required a U.S. person to notify the 

Treasury Department if its controlled 

foreign entity undertook a transaction 

that would have been a notifiable 

transaction if undertaken by a U.S. 

person. The Treasury Department 

proposed defining controlled foreign 

entity using a bright line so that a U.S. 

person could easily ascertain whether 

an entity was its controlled foreign 

entity. The Treasury Department invited 

comments regarding this definition, 

including considerations with respect to 

the definition’s inclusion of entities 

established outside of the United States. 

The Treasury Department received 

several comments on the definition of 

controlled foreign entity. After 

considering these comments, the Final 

Rule adopts § 850.206 as in the 

Proposed Rule without changes. 

One commenter expressed support for 

the 50 percent threshold set forth in the 

definition of parent in § 850.219 of the 

Proposed Rule (and referred to in the 

definition of controlled foreign entity in 

§ 850.206(a)) because it would provide a 

bright line framework to assist industry 

in complying with the rule’s 

requirements. The Treasury Department 

notes that paragraph 850.206(b) of the 

Proposed Rule delineated how the 

holdings of voting interest or voting 

power of the board of a subsidiary 

would have been attributed to the 

parent. Where the relationship between 

one entity and another would have been 

that of parent and subsidiary, 

attribution would have been full. Where 

the relationship between an entity and 

another entity would have not been that 

of parent and subsidiary (i.e., because 

the holdings of voting interest or voting 

power of the board of the first entity in 

the second entity would be 50 percent 

or less), then the indirect downstream 

holdings of voting interest or voting 

power of the board would have been 

attributed proportionately to the first 

entity. 

Another commenter stated that the 

Proposed Rule’s definition of controlled 

foreign entity applied the 50 percent 

threshold to voting interest, which the 

commenter argued ‘‘deviates 

significantly from ANPRM, which had 

proposed basing the 50% calculation on 

revenue, income, expenditure and 

operating expense.’’ The commenter 

questioned whether a U.S. person with 

a 51 percent voting interest would be 

able to prevent its controlled foreign 

entity from entering into a prohibited 

transaction and suggested that the 

requirement would ‘‘impose an 

unrealistic knowledge standard’’ on the 

U.S. person, particularly in certain roles 

such as an investment adviser. This 

commenter appears to have conflated 

the ANPRM’s discussion of the term 

controlled foreign entity with its 

discussion of the term covered foreign 

person, a distinct term with a distinct 

definition, where revenue, income, 

expenditure, and operating expenses 

were discussed as part of the definition 

in the ANPRM and the NPRM. (See 

more below regarding the definition of 

covered foreign person.) Additionally, 

with a threshold above 50 percent of the 

‘‘outstanding voting interest’’ or ‘‘voting 

power of the board’’ of an entity, it is 

reasonable to expect the U.S. person 

parent to have the power to influence 

the compliance infrastructure of its 

subsidiary. For a non-U.S. pooled 

investment fund of which a U.S. person 

is an adviser (meaning again that the 

U.S. person is a parent and the fund is 

its controlled foreign entity), investment 

advisers often manage the investment 

portfolios of such pooled investment 

funds. 

Commenters requested that the 

Treasury Department clarify that the 

U.S. person parent under 850.206(a) 

must be the ultimate parent entity and 

not an intermediary U.S. person without 

ultimate decision-making authority. In 

response, the Treasury Department has 

added a note (Note 1) to the definition 

of parent at § 850.219 of the Final Rule 

to clarify that a U.S. person that meets 

the definitional requirements of parent 

under § 850.219 constitutes a parent, 

including a U.S. person that is an 


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intermediate entity. Further information 

on the definition of parent is below in 

the discussion of § 850.219. 

Controlled Foreign Entity—Final Rule 

Summary 

The Final Rule defines controlled 

foreign entity as an entity incorporated 

in, or otherwise organized under the 

laws of, a country other than the United 

States of which a U.S. person is a 

parent. Section 850.219 of the Final 

Rule defines parent as a U.S. person that 

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. 

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 

section of the Final Rule, 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 will 

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 

will 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, will be 

aggregated. For the avoidance of doubt, 

each of these metrics (voting interest or 

voting power of the board) will 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 will 

not be combined to equal 35 percent. 

Section 850.206 should be read in 

connection with §§ 850.302 and 

850.402, which 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 Treasury 

Department if the controlled foreign 

entity undertakes a transaction that 

would be a notifiable transaction if 

undertaken by a U.S. person, 

respectively. 

§ 850.208—Covered Activity 

The Proposed Rule identified 

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 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’’ were covered activity, 

notifiable transaction, and prohibited 

transaction. The term covered activity 

meant, in the context of a particular 

transaction, any of the activities referred 

to in the definition of notifiable 

transaction in § 850.217 or prohibited 

transaction in § 850.224. 

The definitions of notifiable 

transaction and prohibited transaction 

in the Proposed Rule identified specific 

covered activities relevant to the 

technologies or products within each 

category. Some such covered activities 

related to semiconductors and 

microelectronics technology, 

equipment, and capabilities that 

enabled the production and certain uses 

of integrated circuits that underpin 

current and future military innovations 

that improved the speed and accuracy of 

military decision-making, planning, and 

logistics, among other things; as well as 

that enabled mass surveillance or other 

cyber-enabled capabilities. The 

Proposed Rule also addressed covered 

activities related to quantum 

information technologies and products 

that enabled capabilities that could have 

compromised encryption and other 

cybersecurity controls and jeopardize 

military communications, among other 

things. In the case of a quantum sensing 

platform or quantum network, the enduse provision would have avoided 

covering use cases in strictly civilian 

fields. Finally, the Proposed Rule 

addressed covered activities related to 

certain AI systems with applications 

that posed or had the potential to pose 

significant national security risks. The 

Proposed Rule did not seek to broadly 

capture AI systems intended only for 

commercial applications or other 

civilian end-uses that did not have 

potential national security 

consequences. 

The Treasury Department received 

several comments related to the 

definition of covered activity that 

focused on certain aspects of the 

definitions of notifiable transaction and 

prohibited transaction. Those comments 

are discussed in the sections below on 

notifiable transaction and prohibited 

transaction. 

In the Final Rule, the Treasury 

Department adopts § 850.208 without 

change from the Proposed Rule. Covered 

activity means, in the context of a 

particular transaction, any of those 

activities included in the definition of 

notifiable transaction in § 850.217 or 

prohibited transaction in § 850.224. The 

term covered activity encompasses 

technologies and products that may 

contribute to the threat to the national 

security of the United States by crossreferencing the definition of notifiable 

transaction and also incorporates those 

technologies and products that pose a 

particularly acute national security 

threat by cross-referencing the 

definition of prohibited transaction. The 

scope of notifiable transaction and the 

scope of prohibited transaction are 

intended to be distinct and not overlap. 

The Treasury Department intends the 

notification requirement to increase the 

U.S. Government’s visibility into U.S. 

person transactions involving the 

relevant technologies and products and 

expects that these notifications will be 

helpful in highlighting aggregate sector 

trends and related capital flows as well 

as informing future policy development. 

The prohibitions are 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 Final Rule 

were scoped with these objectives in 

mind. 

§ 850.209—Covered Foreign Person 

The Outbound Order requires the 

Treasury Department 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 


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technologies and products.’’ The 

definition of covered foreign person in 

the Proposed Rule described three sets 

of circumstances that would have 

caused a person to be a covered foreign 

person: 

• A person of a country of concern 

that engages in a covered activity 

(§ 850.209(a)(1)); 

• Any person that has a particular 

relationship with a person of a country 

of concern that engages in a covered 

activity—i.e., where (1) the person holds 

a specific interest in such person of a 

country of concern, such as a voting 

interest, board seat, 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); and 

if there is such an interest, (2) more than 

50 percent of the first person’s revenue, 

net income, capital expenditure, or 

operating expenses is attributable to 

such person of a country of concern, 

individually or in the aggregate 

(§ 850.209(a)(2)); or 

• A person of a country of concern 

that participates in a joint venture with 

a U.S. person if such joint venture 

engages or intends to engage in a 

covered activity (§ 850.209(a)(3)). 

One commenter stated that the 

definition of a covered foreign person in 

§ 850.209(a)(1) would impact a broad 

range of businesses and activities 

because the definition of ‘‘national 

security technologies and products’’ in 

the Proposed Rule was ‘‘obscure.’’ The 

Treasury Department notes that 

‘‘national security technologies and 

products’’ was not a defined term in the 

Proposed Rule, although the Outbound 

Order does refer to ‘‘covered national 

security technologies and products’’ as 

noted above in the discussion of 

§ 850.208. The Outbound Order directs 

the Treasury Department to issue 

regulations that identify categories of 

notifiable transactions as well as 

categories of prohibited transactions 

that involve ‘‘covered national security 

technologies and products.’’ Both the 

Proposed Rule and this Final Rule 

define notifiable transaction and 

prohibited transaction, and the 

definition of a covered activity in 

§ 850.208 of the Final Rule specifies that 

it refers to ‘‘any of the activities referred 

to’’ in those definitions. The commenter 

did not offer concrete suggestions 

regarding where or how any of the 

foregoing defined terms could be 

modified. 

Covered Foreign Person—‘‘Engages In’’ 

A number of commenters suggested 

that the term ‘‘engages in,’’ as used in 

§ 850.209(a)(1) of the Proposed Rule to 

connect a person of a country of concern 

to a covered activity, should be further 

defined or clarified. One commenter 

stated that without further clarification, 

‘‘engages in’’ could include ancillary 

activities such as the ownership of 

intellectual property, the direction of 

other companies’ or entities’ activities, 

or involvement in covered activities by 

an affiliate of the investment target. 

Another commenter requested clearer 

criteria linked to financial or business 

activities to avoid overbreadth. 

As used in § 850.209(a)(1), the 

function of ‘‘engages in’’ is simply 

intended to provide a link between the 

person of a country of concern and the 

specified activities described in detail in 

§§ 850.217 (notifiable transaction) and 

850.224 (prohibited transaction) (which, 

taken together, comprise the definition 

of covered activity in § 850.208). In 

other words, the language ‘‘engages in’’ 

is a succinct way to capture the 

activities described in §§ 850.217 and 

850.224, such as designs, fabricates, 

packages, develops, and produces, 

among other things. The Treasury 

Department therefore considers the 

criteria for a covered activity to be 

sufficiently clear given the specificity 

with which the enumerated covered 

activities are described in relevant part 

in §§ 850.217 and 850.224 of the Final 

Rule. Similarly, various ancillary 

activities noted by commenters in 

response to this provision, as well as in 

response to the definition of covered 

transaction in § 850.210 (see the 

discussion of covered transaction 

below), would not be within the scope 

of the Final Rule if they do not meet the 

criteria set forth in the definition of a 

covered transaction (including the terms 

used in that definition). 

One commenter asked that the rule 

distinguish between activities that are 

legitimately part of a person of a country 

of concern’s normal operations and 

those activities that might be conducted 

by individual employees or without the 

guidance or supervision of a person of 

a country of concern’s management. 

One commenter asked that the Treasury 

Department clarify that an entity must 

directly implement the covered activity. 

Regarding the distinction that one 

commenter raised between a covered 

activity that is known to a person of a 

country of concern investment target 

and employee-level activity that is not 

authorized by or not known to an 

investment target’s management, under 

the Final Rule, whether or not a 

transaction is a covered transaction 

depends in part on whether the U.S. 

person knows, based on a reasonable 

and diligent inquiry, that the investment 

target or relevant transaction 

counterparty (such as a joint venture) is 

a covered foreign person. It may be the 

case that if the investment target itself 

was unaware that its employees were 

engaging in a covered activity, the U.S. 

person would not have reason to know 

that the investment target was engaging 

in a covered activity, particularly if no 

other information was available to 

indicate the presence of such activity. In 

response to one commenter’s question 

about whether an entity must ‘‘directly 

implement’’ a covered activity, absent 

other facts (such as an intent to evade 

the Final Rule), to be assessed to be 

‘‘engaging in’’ a covered activity, a 

person of a country of concern would 

need to perform one of the specific 

actions set forth in either § 850.217 or 

§ 850.224. To be assessed to be 

‘‘engaging in’’ a covered activity 

described in § 850.217(a), for example, 

would require that the relevant person 

of a country of concern itself designs the 

integrated circuit, as described in that 

paragraph. 

One commenter suggested that a 

person of a country of concern should 

be considered to ‘‘engage’’ in a covered 

activity only if it either conducts or 

participates in a covered activity or has 

a ‘‘demonstrated business objective’’ to 

conduct or participate in a covered 

activity. The Treasury Department 

declines to make the changes suggested 

in this comment. The use of the 

language ‘‘conducts or participates’’ in 

place of ‘‘engages in’’ is not necessary 

given the Treasury Department’s 

explanation of the role of ‘‘engages in’’ 

above, and the use of two verbs instead 

of one could introduce ambiguity. 

Regarding a ‘‘demonstrated business 

objective,’’ under the Final Rule, a U.S. 

person is responsible for information 

such person knew or should have 

known, following its own ‘‘reasonable 

and diligent inquiry,’’ as to whether a 

person of a country of concern ‘‘engages 

in’’ a covered activity. While such 

inquiry may take into account any 

‘‘demonstrated business objectives,’’ 

identification of a ‘‘demonstrated 

business objective’’ is not necessary for 

a person of a country of concern to 

‘‘engage’’ in a covered activity, nor is the 

identification of such an objective 

necessarily part of a ‘‘reasonable and 

diligent inquiry.’’ In addition, and 

independently, the Treasury 

Department believes that a person of a 

country of concern ‘‘engaging in’’ a 

covered activity raises national security 


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concerns regardless of whether such 

activity comprises a ‘‘business 

objective’’ at that time. For example, 

early-stage entities may develop certain 

technologies that are not yet part of a 

‘‘business objective,’’ but might become 

so later. In addition, and independently, 

a ‘‘demonstrated business objective’’ can 

frequently refer to future intent, while 

‘‘engages in’’ as used in § 850.209(a)(1) 

refers to the underlying activities of an 

investment target at the time of the 

covered transaction, although this does 

not remove from coverage certain 

transactions intended to evade the Final 

Rule, such a covered foreign person’s 

raising capital from a U.S. person 

investor for the specific purpose of 

‘‘engaging in’’ a covered activity. (See 

further discussion of this issue below.) 

Commenters asked about the temporal 

aspects of ‘‘engages in.’’ One 

recommended that ‘‘engages in’’ require 

that engagement in a covered activity be 

‘‘active and ongoing,’’ while another 

commenter asked whether past activity, 

ceased at the time of a transaction, 

would be covered. One suggested a 

definition of ‘‘engages in’’ to address 

both their questions about the temporal 

scope of ‘‘engages in’’ as well as their 

requested inclusion of a de minimis 

threshold (discussed further below), 

which would define ‘‘engages in’’ as: 

‘‘(a) conducts or participates in a 

covered activity or (b) has a 

demonstrated business objective to 

conduct or participate in a covered 

activity.’’ 

The Treasury Department has 

determined not to change 

§ 850.209(a)(1) in the Final Rule. The 

Treasury Department notes that in the 

context of § 850.209(a)(1), ‘‘engages in,’’ 

which is phrased in the present tense, 

refers to a person performing the 

specific actions described in detail in 

§§ 850.217 and 850.224 at the time of a 

transaction, and does not have 

retroactive applicability. A person of a 

country of concern ‘‘engaging in’’ the 

covered activity described in 

§ 850.217(a), for example, would require 

that the person of a country of concern 

itself designs the integrated circuit, as 

described in that paragraph, at the time 

of a covered transaction. While the use 

of the present tense of the verb 

‘‘engages’’ is deliberate, a person of a 

country of concern cannot avoid 

application of the Final Rule simply by 

ceasing the covered activity during 

fundraising only to resume the covered 

activity following the fundraising (see 

§ 850.604). Nor does the present tense 

remove from coverage a person of a 

country of concern that, for example, is 

raising capital from a U.S. person 

investor for the specific purpose of 

‘‘engaging in’’ a covered activity. In 

other words, ‘‘engages in’’ refers to an 

attribute of an entity’s business, not a 

condition that it be continuously 

occupied with a particular activity. 

Several commenters requested that 

the Treasury Department consider a de 

minimis activity threshold in the 

definition of a covered foreign person as 

it relates to their ‘‘engagement’’ in a 

covered activity, below which the 

definition of covered foreign person 

would not apply. Several commenters 

stated that compliance challenges could 

arise without such a threshold, 

including ambiguity in the definition of 

covered foreign person. One commenter 

noted that such a threshold would be 

necessary to avoid unintended 

consequences for transactions that have 

no nexus to national security because 

the covered activity ‘‘engaged in’’ by the 

investment target may be unrelated to 

the transaction itself. 

The Treasury Department declines to 

institute a de minimis exception with 

respect to the ‘‘engages in’’ language of 

§ 850.209(a)(1). Setting a de minimis 

threshold based on the level of activity 

involving a covered technology or 

product would be challenging from a 

regulatory and administrative 

perspective and would likely introduce 

ambiguity. In response to comments 

regarding ambiguity in the Proposed 

Rule’s formulation (which has been 

adopted without changes in the Final 

Rule), the Treasury Department 

reiterates that any amount of a covered 

activity by a person of a country of 

concern is sufficient for such person to 

be defined as a covered foreign person 

in the Final Rule. This is because the 

Treasury Department has determined 

that national security concerns arise in 

the context of any amount of such 

activity by a person of a country of 

concern, particularly in the context of 

early-stage companies and/or emerging 

technologies, the rapid expansion of 

which could be significantly aided by 

the intangible benefits provided by a 

U.S. person investor. Regarding one 

commenter’s contention that without a 

de minimis threshold transactions that 

lack a national security nexus but where 

the transaction counterparty undertakes 

de minimis covered activities 

completely unrelated to the transaction 

would be prohibited, the commenter 

does not provide a specific suggestion 

for how a de minimis threshold would 

be defined or operationalized, or how 

the Treasury Department could 

ascertain that a transaction is 

‘‘completely unrelated’’ to the covered 

activity given that intangible benefits 

often accompany investments by U.S. 

persons that help companies succeed, 

and there is no apparent mechanism by 

which the company-wide benefits 

conferred by a U.S. person could be 

relegated only to those operations of an 

investment target that do not raise 

national security concerns. However, 

the definitions of covered activities in 

§§ 850.217 and 850.224 are narrow and 

precise, and in the context of 

§ 850.209(a)(1) they apply directly to a 

given person of a country of concern 

and not to an investment target’s 

holding companies or other members of 

a corporate group. 

Section 850.209(a)(2) 

Commenters made suggestions related 

to the scope of § 850.209(a)(2) or 

requested clarification of this 

paragraph’s application. Commenters 

discussed the costs related to 

conducting due diligence to determine 

whether § 850.209(a)(2) applies to a 

person receiving investment from a U.S. 

person. One commenter noted that a 

U.S. person may need to rely on an 

investment target to supply the 

information required to determine the 

applicability of § 850.209(a)(2). The 

Treasury Department has provided 

further information in the discussion of 

the knowledge standard (see discussion 

under Subpart A above) to address a 

‘‘reasonable and diligent inquiry’’ in 

situations where a U.S. person may have 

no source other than an investment 

target to supply information necessary 

to determine the applicability of the 

Final Rule. 

Several commenters requested that 

the Treasury Department clarify 

whether an investment in a parent or 

holding company would be defined as 

an indirect covered transaction only 

when a downstream entity meets one of 

the thresholds set forth in 

§ 850.209(a)(2) and further requested 

that the Treasury Department provide 

additional guidance as to how certain 

transactions, such as acquisitions 

through special purpose vehicles, would 

be treated under the rule. These 

commenters also requested that the 

Treasury Department clarify that if the 

acquisition of a company that is not a 

person of a country of concern does not 

meet the thresholds in § 850.209(a)(2), 

then both the direct acquisition of the 

company and the indirect acquisition of 

its interest in its subsidiary are not 

covered transactions. One such 

commenter wrote that § 850.209(a)(2) 

would be ‘‘meaningless’’ unless the 

definition of an indirect covered 

transaction was clarified to exclude 

investments into targets that have 

subsidiaries that fall short of the 

financial thresholds specified in 

§ 850.209(a)(2)(i) through (iv) because, 


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for example, ‘‘investing in a parent 

company outside a country of concern 

would be ‘indirectly’ investing in any of 

its subsidiaries that was a covered 

company, even if such a subsidiary only 

accounted for 1 percent of its revenues 

and expenses.’’ 

The Treasury Department notes that 

the bright-line criteria set forth in 

§ 850.209(a)(2) are for purposes of 

determining whether a person is a 

covered foreign person but are not 

intended to exclude the possibility that 

other transactions involving 

intermediary entities could be a covered 

transaction under § 850.210, and 

therefore the Treasury Department 

declines to categorically exclude from 

coverage any and all indirect 

transactions through persons falling 

outside of § 850.209(a)(2). As explained 

in the Proposed Rule and as further 

addressed in the Final Rule (see Note 1 

to § 850.210), the definition of covered 

transaction includes indirect 

transactions, including when a U.S. 

person uses an intermediary entity or 

acquisition vehicle to engage in a 

transaction that would be a covered 

transaction if engaged in directly by the 

U.S. person. See the discussion of 

§ 850.210 (covered transaction) below 

for additional discussion of an 

‘‘indirect’’ covered transaction. 

Furthermore, meaningful distinctions 

exist between the scope of 

§ 850.209(a)(2) and an indirect covered 

transaction under § 850.210(a) in both 

the Proposed Rule and in the Final Rule. 

Section 850.209(a)(2) defines certain 

investment targets, wherever located, as 

covered foreign persons given the 

significance of their financial ties with 

one or more covered foreign persons. In 

such a case, absent an exception, a U.S. 

person’s acquisition of an equity interest 

in such entity is a covered transaction. 

One commenter requested 

clarification as to whether the 

application of § 850.209(a)(2) ‘‘goes 

through the group or the portfolio 

company’’ as well as guidance as to the 

treatment of subsidiaries and affiliates 

of the company in which a U.S. person 

invests. Because this comment lacks 

specific information about the 

relationship between and among a 

‘‘group,’’ a ‘‘portfolio company,’’ or 

‘‘subsidiaries and affiliates,’’ the 

Treasury Department is unable to 

provide the specific information 

requested beyond the bright-line 

definitions provided in the Final Rule. 

As to the general topic of a U.S. person 

investment into a ‘‘group’’ but not a 

portfolio company, various parts of the 

Final Rule, including but not limited to 

§ 850.209(a)(2), specify those scenarios 

in which an investment could be a 

covered transaction even if the 

immediate investment target is not itself 

a person of a country of concern 

engaged in a covered activity. 

One commenter asked whether, if a 

U.S. person owns an entity in a country 

of concern that is engaged in a covered 

national security technology or product, 

the U.S. person as well as the entity in 

a country of concern would be a covered 

foreign person and whether ‘‘the 50% 

rule described in the [Proposed Rule]’’ 

would be applicable. This query 

contains insufficient information about 

the relationships between and among 

the U.S. person, the other entity, and a 

country of concern—for example, 

information that would aid 

determination of whether an entity ‘‘in’’ 

a country of concern would meet the 

definition of a person of a country of 

concern, and information that would aid 

determination of whether the U.S. 

person’s relationship with the former 

entity would meet the definition of a 

controlled foreign entity in § 850.206— 

for the Treasury Department to provide 

specific guidance on the hypothetical 

given. However, as a general matter, 

§ 850.209(a)(2) could apply to a U.S. 

person entity that meets the criteria in 

that provision regarding interest in, and 

financial metrics attributable to, a 

covered foreign person. 

Two commenters requested additional 

guidance regarding how the financial 

metrics cited in the Proposed Rule, i.e., 

revenue and operating expenses, are 

calculated for the purposes of the 

application of § 850.209(a)(2). The 

Treasury Department notes that Section 

850.209(b) refers to an ‘‘audited 

financial statement,’’ and the Treasury 

Department anticipates that such 

statements, which typically include 

those financial metrics covered by 

§ 850.209(a)(2), will have been prepared 

in accordance with the applicable 

accounting rules and conventions of the 

relevant jurisdiction. (The Treasury 

Department also notes that § 850.209(b) 

provides for alternatives in the event an 

audited financial statement is 

unavailable.) 

Several commenters suggested that 

the Treasury Department attribute the 

requirement in § 850.209(a)(2) to a 

single entity, rather than aggregating 

among entities, or provide clarification 

for how aggregation would be applied. 

Additionally, commenters requested 

that the rule institute a de minimis 

threshold for a person’s vested interest 

in a covered foreign person that would 

narrow the scope of § 850.209(a)(2). 

Suggested approaches included de 

minimis thresholds for a covered 

activity (discussed above in connection 

with § 850.209(a)(1)) or a de minimis 

threshold connected to the investment 

target’s ownership interest in a covered 

foreign person. One commenter 

suggested excluding from such 

calculations entities in which a U.S. 

person owns less than 10 percent of the 

outstanding voting power or equity 

because a transaction counterparty’s 

finances may aggregate revenues or 

expenses across a substantial number of 

unrelated companies and assets, while 

another suggested that any voting or 

equity interest under 25 percent held by 

an entity be excluded from the 

calculations under § 850.209(a)(2). One 

commenter suggested that as an 

alternative, the Treasury Department 

could draw on certain definitions from 

the CFIUS regulations related to 

controlling transactions and certain 

non-controlling, non-passive 

investments to more clearly explain 

when a person that is not a covered 

foreign person would have a requisite 

interest in a covered foreign person to 

qualify under this provision. 

In response to the comments, the 

Treasury Department has modified 

§ 850.209(a)(2) of the Final Rule to note 

that for the purposes of calculating 

whether one or more persons of a 

country of concern engaged in a covered 

activity exceed the financial thresholds 

enumerated in § 850.209(a)(2)(i) through 

(iv), only those persons of a country of 

concern engaged in a covered activity in 

which the relevant person directly or 

indirectly holds an interest specified in 

(a)(2) will be considered. Such an 

interest as specified in § 850.209(a)(2) is 

any of the following: a board seat on, a 

voting or equity interest (other than 

through securities or interests that 

would satisfy the conditions in 

§ 850.501(a) if held by a U.S. person) in, 

or any contractual power to direct or 

cause the direction of the management 

or policies of such person of a country 

of concern engaged in a covered activity. 

In response to comments on 

considerations for a U.S. person 

conducting due diligence to assess the 

application of § 850.209(a)(2), the Final 

Rule includes in the aggregation 

calculations of the financial thresholds 

in § 850.209(a)(2)(i) through (iv) only 

those persons of a country of concern 

(engaged in a covered activity) that 

account for at least $50,000 (or 

equivalent) of the relevant financial 

metric of the U.S. person’s investment 

target or relevant counterparty (such as 

a JV partner). The $50,000 and above 

threshold for inclusion in the 

calculation for any given financial 

metric is intended to ensure there is a 

meaningful financial relationship 

between the investment target and a 

person of a country of concern and that 


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de minimis contributions to any of the 

financial metrics are not required to be 

included, to address commenter’s stated 

concerns about the diligence burden of 

the calculations required by 

§ 850.209(a)(2)(i) through (iv). 

For example, if an investment target 

holds a board seat on a person of a 

country of concern engaged in a covered 

activity and such person of a country of 

concern contributed $100,000 to the 

investment target’s revenue for the most 

recent year, this contribution will be 

included in determining whether the 50 

percent threshold in § 850.209(a)(2)(i) is 

exceeded. However, if an investment 

target holds a board seat on a person of 

a country of concern engaged in a 

covered activity and such person of a 

country of concern contributed $25,000 

to the investment target’s revenue for 

the most recent year, this contribution 

will not be included in determining 

whether the 50 percent threshold in 

§ 850.209(a)(2)(i) is exceeded. Each 

metric will be evaluated independently 

in applying this rule. For example, if an 

investment target holds a board seat on 

a person of a country of concern 

engaged in a covered activity and such 

person of a country of concern engaged 

in a covered activity contributed 

$25,000 of the investment target’s 

revenue for the most recent year and 

accounted for $100,000 of the 

investment target’s capital expenditure 

for the most recent year, the revenue 

contribution will not be considered for 

purposes of applying § 850.209(a)(2)(i) 

but the capital expenditure allocation 

will be considered for purposes of 

applying § 850.209(a)(2)(iii). 

The Treasury Department determines 

that the above change will make 

necessary information easier for a U.S. 

person to ascertain, and addresses 

issues raised by commenters regarding 

due diligence considerations. Such 

minimum financial thresholds on which 

contributions are to be included in the 

aggregations may reduce the number of 

persons of a country of concern engaged 

in a covered activity that must be 

considered for the purposes of 

aggregating across such persons of a 

country of concern with respect to a 

given financial metric calculation, and, 

consistent with the intent of the 

provision to capture investment targets 

or transaction counterparties with 

substantial ties to persons of a country 

of concern engaged in covered activities, 

such thresholds help ensure that only 

significant financial ties are included. 

The Treasury Department declines to 

adopt a de minimis threshold, as 

suggested by some commenters, for an 

investment target or transaction 

counterparty’s equity or voting interest 

in a person of a country of concern 

engaged in a covered activity. 

Thresholds such as 10 percent or 25 

percent, as suggested by some 

commenters, could exclude downstream 

investments in a covered foreign person 

with which the immediate investment 

target has a significant relationship. A 

minimum financial threshold, rather 

than excluding entities based on an 

investment threshold, addresses this 

issue, and additionally and 

independently, such a financial 

threshold is comparatively difficult to 

manipulate for the purpose of avoiding 

or evading this provision. The Treasury 

Department also declines to incorporate 

the suggested definitions from the 

CFIUS regulations given the differences 

in these programs. For example, the 

concept of ‘‘control’’ in the CFIUS 

context is a heavily fact dependent 

determination that is assessed by CFIUS 

for every transaction filed with CFIUS, 

whereas the Treasury Department uses a 

threshold approach in § 850.209(a)(2) 

for ease of administrability for 

transaction parties who will be 

determining coverage under this rule 

themselves. 

One commenter requested that for the 

purposes of determining covered foreign 

person status under § 850.209(a)(2), a 

person who receives more than 50 

percent of revenue or net income from 

publicly traded securities, or index 

funds, mutual funds, exchange-traded 

funds, or similar instruments (including 

associated derivatives) should be 

excepted. The Treasury Department 

views the likelihood of a U.S. person 

transferring intangible benefits in such a 

situation where an investment target’s 

only relationship with a person of a 

country of concern engaged in a covered 

activity is the holding of certain 

securities identified in the exception set 

forth in § 850.501(a) to be similar to the 

situation where a U.S. person directly 

acquires or holds such securities. The 

Treasury Department has therefore 

modified § 850.209(a)(2) in the Final 

Rule to specify that, for purposes of 

determining whether an entity holds an 

equity or voting interest within the 

meaning of § 850.209(a)(2), the holding 

of securities or interests that would 

satisfy the conditions in § 850.501(a) if 

held by a U.S. person will not be 

included. 

The Treasury Department has made 

additional changes to § 850.209(a)(2) to 

reflect comments and enhance clarity. 

These include the removal of an explicit 

reference to ‘‘one or more contractual 

arrangements, including, for the 

avoidance of doubt, variable interest 

entities’’ from the Proposed Rule, which 

modified the reference to a person’s 

having ‘‘any power to direct or cause the 

direction of the management or policies 

of’’ a person of a country of concern 

engaged in a covered activity. This 

change is to enhance readability and is 

not intended to alter the meaning of this 

provision. The Treasury Department 

emphasizes that ‘‘contractual power to 

direct or cause the direction of the 

management or policies’’ can be granted 

through variable interest entities. 

As modified in the Final Rule, 

§ 850.209(a)(2) continues to focus on the 

significance of the financial relationship 

between an investment target and one or 

more covered foreign persons while 

addressing commenter concerns related 

to diligence of the downstream entities’ 

activities. 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 

Treasury Department expects that 

through a ‘‘reasonable and diligent 

inquiry’’ a U.S. person will be able to 

determine whether a potential 

investment target meets the applicable 

conditions. The Treasury Department 

understands that multiple entities may 

need to be considered in this 

aggregation, but investment targets with 

significant financial ties with 

downstream entities, as demonstrated 

by meeting any of the thresholds in 

850.209(a)(2)(i)-(iv), should be able to 

answer questions from a U.S. person 

investor during due diligence about the 

application of § 850.209(a)(2), and/or to 

provide relevant representations and 

warranties. The Treasury Department 

has also made additional changes to 

§ 850.209(a)(2) for clarity; no additional 

substantive changes were intended. 

One commenter suggested that 

§ 850.209(a)(2) consider only 

consolidated revenue and net income 

because, among other things, they are 

easier to obtain in the ordinary course 

of business than the other metrics. The 

Treasury Department declines to adopt 

this change because information about 

capital expenditure and operating 

expenses should generally be available. 

In addition, and independently, 

considerations related to the ease of 

obtaining this information are 

outweighed by the national security 

concerns that would be implicated by 

not covering an entity under 

§ 850.209(a)(2) that incurs more than 50 

percent of its capital expenditure or 

operating expenses through a covered 

foreign person. In addition, and 

independently, the Treasury 

Department wishes to address situations 

in which a U.S. person is investing in 

an intermediate entity that acts as a 

vehicle for investment into early-stage 


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companies engaged in capital-intensive 

covered activities. Such companies may 

generate little or no revenue or income 

in their early stages, and yet the Final 

Rule is designed to prevent the transfer 

of U.S. person intangible benefits to 

such investment targets given the 

significance of the financial ties that do 

exist between the U.S. person and the 

person of a country of concern engaged 

in a covered activity. 

One commenter suggested that the 

Final Rule ‘‘harmonize’’ the thresholds 

in § 850.209(a)(2) with other parts of the 

rule, such as the threshold for 

determining control in the case of a 

controlled foreign entity, in order to 

avoid confusion. The Treasury 

Department has set bright-line 

thresholds in various provisions in the 

Final Rule and each threshold set forth 

in the Final Rule serves a distinct 

function and is underpinned by distinct 

considerations, such that adjusting them 

to be identical would not serve the 

policy goals of the Final Rule. 

One commenter stated that this 

provision aligned with the policy goals 

of the Proposed Rule and suggested that 

because the thresholds in 850.209(a)(2) 

are based on the most recent available 

financial statement, U.S. persons should 

have a grace period to reduce their 

financial ties with covered foreign 

persons. Because the analysis to 

determine the application of 

§ 850.209(a)(2) must occur at the time of 

a transaction, the Treasury Department 

does not determine that a grace period 

is necessary; if a transaction would be 

a prohibited transaction, it should not 

be entered into, while an investment 

that is permitted at the time of the 

transaction does not need to be divested 

later due merely to post-transaction 

changes in an investment target’s 

finances or activities of which the U.S. 

person did not have knowledge at the 

time of the investment. In addition, and 

independently, an entity into which 

U.S. person investment may be a 

covered transaction under 

§ 850.209(a)(2) that wishes not to meet 

the criteria of § 850.209(a)(2) can take as 

little or as much time as it needs to 

reduce its underlying exposure to 

relevant covered foreign person(s), 

obviating the need for a set grace period. 

Commenters also raised suggestions 

relating to the time at which a 

determination of the applicability of 

§ 850.209(a)(2) is made. One commenter 

noted that the financials of a given 

target company could change over time, 

which could complicate compliance for 

investors that wish to participate in 

multiple funding rounds and could 

‘‘have a dramatic chilling effect.’’ The 

commenter also suggested exempting 

subsequent funding rounds from the 

notification requirements absent a 

material change or allowing an 

amendment of a prior notification. In 

response to this comment, the Treasury 

Department clarifies that because the 

analysis to determine the application of 

§ 850.209(a)(2) must occur at the time of 

a transaction using the information set 

forth in § 850.209(b), in the context of a 

single investment, fluctuations in an 

investment target’s finances prior or 

subsequent to the relevant time period 

are not relevant to the operation of 

§ 850.209(a)(2). With respect to 

notifiable transactions, the Treasury 

Department is interested in 

understanding the volume and nature of 

investments involving the identified 

technologies and products and therefore 

exempting or excepting subsequent 

funding rounds from the notification 

requirement will not serve the 

objectives of the Outbound Order. As 

discussed more below (see content of 

notifications), the Treasury Department 

is exploring the ability to allow followon notifications involving the same U.S. 

person and covered foreign person to be 

able to incorporate information from a 

prior notification within the electronic 

system for submission of notifications. 

The Treasury Department declines to 

create an exemption or exception for a 

transaction simply because it is part of 

a subsequent funding round, in 

§ 850.209(a)(2) or elsewhere. Such an 

exception or exemption could reduce 

U.S. Government visibility into certain 

follow-on investments and open a 

loophole by permitting investments that 

would otherwise be prohibited 

transactions. 

One commenter suggested that the 

measurements set forth in 

§ 850.209(a)(2) be applied at the time of 

final closing in the case of a closed-end 

fund, but at the time of an investment 

by a U.S. person in the case of an openend fund. Due to the ambiguities such 

an approach might introduce, as well as 

the potential for evasion or avoidance 

that such a differentiated approach 

could create, the Treasury Department 

declines to adopt this suggested change 

in the Final Rule. 

One commenter requested that the 

Treasury Department consider making 

U.S. person transactions in entities 

meeting the criteria of § 850.209(a)(2) 

notifiable only, even in cases where an 

underlying entity is engaged in a 

covered activity enumerated in 

§ 850.224 and a prohibition would 

therefore otherwise apply. The Treasury 

Department declines to adopt this 

suggestion, as doing so would open a 

significant loophole whereby the 

intercession of an intermediate entity 

could, in certain circumstances, be used 

to convert an otherwise prohibited 

transaction into a notifiable transaction, 

undermining the national security 

objectives that motivate prohibition of 

certain transactions. 

One commenter suggested striking 

§ 850.209(a)(2) in its entirety. Among 

the reasons given for this suggestion is 

that a U.S. person scoped in as a 

covered foreign person by this prong 

may itself not be directly engaging in a 

covered activity, and because this 

coverage could have adverse effects on 

U.S. companies, including those with 

important commercial sales 

relationships or technology licensing 

agreements with a person of a country 

of concern that is engaged in a covered 

activity. This commenter suggested 

replacing the Proposed Rule’s 

§ 850.209(a)(2) language with the 

following: ‘‘(2) Any entity in which a 

foreign national, foreign government, 

foreign entity, or another covered 

foreign person holds a 50% ownership 

interest and engages in a covered 

activity.’’ In response to this comment, 

the Treasury Department notes that in 

order for a U.S. person to be scoped in 

as a covered foreign person under 

§ 850.209(a)(2), the U.S. person would 

first have to have a specified 

relationship with a person of a country 

of concern that is engaged in a covered 

activity and second, also be significantly 

financially connected, as discussed 

above. The mere fact that a U.S. 

company has commercial sales 

relationships or technology licensing 

agreements, without more, is unlikely to 

meet the criteria. However, where the 

criteria under § 850.209(a)(2) is met 

even in the case of a U.S. person, there 

is a policy desire to address that 

situation given there is a meaningful 

relationship with, one or more persons 

of a country of control engaged in 

covered activities. This approach 

addresses both the potential for evasion 

and accounts for the range of geographic 

and organizational structures commonly 

used by multinational firms to manage 

their business activities. As one 

commenter stated, ‘‘most investments 

are made through holding companies 

and not directly in operating 

companies,’’ underscoring the 

importance of retaining this provision. 

Further, the alternate definition for 

§ 850.209(a)(2) suggested by the 

commenter referring to, e.g., a ‘‘foreign 

national’’ or ‘‘foreign person,’’ could 

regulate transactions that involve a 

person of a third country but do not 

involve a person with any relationship 

to a person of a country of concern and 

therefore exceeds the authorities granted 


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to the Treasury Department by the 

Outbound Order. 

Commenters noted the potential 

extraterritorial application of 

§ 850.209(a)(2). One commenter stated 

that a third-country entity ‘‘should not 

be regarded as the same as a person of 

a country of concern.’’ Another 

commenter stated that including entities 

incorporated outside of a country of 

concern but that have subsidiaries in a 

country of concern could limit 

investments that draw manufacturers of 

semiconductor components and 

suppliers away from the PRC market, 

negatively impacting U.S. competitive 

and national security interests. The 

Treasury Department assesses that 

certain transactions with an entity that 

is not a person of country of concern 

engaged in a covered activity but 

nevertheless has an interest in, as well 

as a significant financial relationship 

with, a person of country of concern 

engaged in a covered activity, have a 

similar potential of exacerbating the 

threat identified in the Outbound Order 

as do transactions with persons of a 

country of concern engaged in a covered 

activity, and notes that § 850.209(a)(2) 

addresses a common transaction 

structure whereby investments are made 

into parent companies or holding 

companies. In addition, and 

independently, § 850.209(a)(2) does not, 

in fact, treat non-country of concern 

entities the same as country of concern 

entities, because an entity that is not a 

person of a country of concern, and 

engages in a covered activity, would not 

be a covered foreign person under 

§ 850.209(a)(1) of the Final Rule, 

whereas a person of a country of 

concern would be. 

One commenter stated that 

§ 850.209(a)(2) may prevent a U.S. 

person from making investments in the 

national security interest of the United 

States, and multiple commenters 

suggested the Treasury Department may 

wish to create a licensing regime to 

facilitate the approval of investments 

where appropriate. In response, the 

Treasury Department notes that a U.S. 

person could seek a national interest 

exemption from the notification 

requirement or prohibition set out in the 

Final Rule by following the process 

described in § 850.502 and further 

discussed below. The Treasury 

Department anticipates that this 

exemption of a covered transaction 

where in the national interest would be 

granted by the Secretary in exceptional 

circumstances, unlike a licensing regime 

which is typically more frequent. 

The Final Rule also makes changes to 

§ 850.209(b), which establishes how a 

person’s revenue, net income, capital 

expenditure, and operating expenses are 

to be ascertained. One commenter 

suggested that where an annual 

financial statement is unavailable, a 

U.S. person could be permitted to rely 

on independent appraisals or good faith 

estimates. The Treasury Department has 

adopted language similar to this 

suggestion in § 850.209(b)(1) of the Final 

Rule, as it pragmatically addresses 

situations in which no financial 

statement is available. Under 

§ 850.209(b)(1) of the Final Rule, for 

purposes of identifying any of a person’s 

overall revenue, net income, capital 

expenditure, operating expenses, and 

the relevant contributions of one or 

more covered foreign persons, 

calculations are to be based on an 

audited financial statement from the 

most recent year. If an audited financial 

statement is not available, the most 

recent unaudited financial statement is 

to be used instead. If no financial 

statement is available, an independent 

appraisal is to be used instead. If no 

independent appraisal is available, a 

good-faith estimate is to be used instead. 

This provision is intended to apply 

independently to the ascertainment of 

each metric or figure. For example, if 

overall revenue is available in an 

audited financial statement from the 

most recent year, but the specific 

contributions of persons of a country of 

concern engaged in a covered activity 

are only available via good-faith 

estimates, then an audited financial 

statement is to be used to calculate 

overall revenue, but a good-faith 

estimate is to be used to calculate the 

individual revenue contributions of 

such persons of a country of concern 

engaged in a covered activity. 

The Final Rule also adds 

§ 850.209(b)(2) to address the 

calculation of exchange rates for the 

purpose of determining whether the 

contribution of a person of a country of 

concern engaged in a covered activity 

falls beneath the $50,000 (or equivalent) 

threshold in cases where the relevant 

amounts were not in U.S. dollars or 

where a financial statement did not 

already convert such figures into U.S. 

dollar equivalent. In such cases, the 

most recent published rate of exchange 

available on the Department of the 

Treasury’s website is to be used instead. 

Such rates are published quarterly and 

are not spot exchange rates. 

Finally, the Final Rule adds a Note 1 

to § 850.209 to clarify that references in 

that section to revenue, net income, 

capital expenditure, or operating 

expenses refer to overall revenue, net 

income, capital expenditure, or 

operating expenses, as applicable, 

without subtracting amounts 

attributable to a person of a country of 

concern engaged in a covered activity of 

less than $50,000 (or equivalent). 

A number of commenters requested 

the Treasury Department reconsider its 

decision in the Proposed Rule not to 

issue a list of entities that are covered 

foreign persons. The Treasury 

Department has further considered these 

commenter requests and declines to 

issue such a list in the Final Rule. 

Compiling and then publishing 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. 

For example, such a list may not capture 

early-stage companies that would meet 

the definition of a covered foreign 

person but may not have come to the 

attention of the Treasury Department. 

Even if such a list were illustrative or 

non-exhaustive, market actors may 

incorrectly determine that entities not 

listed are therefore not covered foreign 

persons and may decline to undertake 

the ‘‘reasonable and diligent inquiry’’ 

described in the Final Rule. Another 

independent reason for this decision is 

that providing a list of covered foreign 

persons could also result in attempts to 

evade the Final Rule through corporate 

restructuring, creating a greater 

enforcement burden, undermining the 

national security goals of the Outbound 

Order, and adding the burden of 

maintaining such a list. Additionally, a 

list of entities may be misleading, 

because some investments in a given 

entity may be permitted (e.g., a purchase 

of a small number of publicly traded 

shares in such entity) while another 

investment in the same entity (e.g., a 

controlling stake) may be prohibited. 

Finally, the Treasury Department has 

determined that in the case of earlystage companies, market actors making 

investments have access to more 

detailed and up to date information than 

the U.S. Government and are therefore 

in a better position to determine 

whether a transaction is covered under 

the Final Rule, including whether any 

covered foreign person is involved. 

Covered Foreign Person—Final Rule 

Summary 

The definition of covered foreign 

person in the Final Rule describes three 

sets of circumstances that will cause a 

person to be a covered foreign person. 

First, under § 850.209(a)(1), a person 

is a covered foreign person if it is a 

person of a country of concern that is 

engaged in a covered activity. 

Second, under § 850.209(a)(2), a 

person is a covered foreign person even 


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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 must meet two conditions. 

First, the relevant person must hold a 

specified interest in a person of a 

country of concern that engages in a 

covered activity. That interest can take 

the form of a voting interest or equity 

interest (other than through securities or 

interests that would satisfy the 

conditions in § 850.501(a) if held by a 

U.S. person), board seat (voting or 

observer), or the contractual power to 

direct or cause the direction of the 

management or policies of the person of 

a country of concern (this could occur, 

for example, through any contractual 

arrangement with respect to a variable 

interest entity). 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 need to be 

attributable to the person of a country of 

concern for § 850.209(a)(2) to apply. The 

first person also meets this condition if 

the person holds a specified 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. However, any 

contributions of less than $50,000 (or 

equivalent) to any given financial metric 

from any given person of a country of 

concern engaged in a covered activity 

are not included in the relevant 

calculations as they relate to 

contributions from such persons toward 

the relevant 50 percent thresholds. 

Relatedly, the Treasury Department 

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 

holds a specified interest in a person of 

a country of concern and such person of 

a country of concern represents 20 

percent of the first person’s revenue and 

31 percent of its capital expenditure, 

these metrics will be evaluated 

independently and not combined to 

equal 51 percent. 

Under § 850.209(a)(2), the Treasury 

Department 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 Treasury Department 

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 Treasury Department 

considers that the investment target 

itself shall be treated as a covered 

foreign person. Moreover, in setting the 

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 

Treasury Department expects that 

through a ‘‘reasonable and diligent 

inquiry’’ a U.S. person will be able to 

determine whether a potential 

investment target meets the applicable 

conditions. 

Lastly, under § 850.209(a)(3), a person 

of a country of concern will 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. 

§ 850.210—Covered Transaction 

The Proposed Rule defined a covered 

transaction to include a U.S. person’s 

direct or indirect: 

D Acquisition of an equity interest or 

contingent equity interest, or their 

equivalent, in a covered foreign person; 

D 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; 

D Conversion of a contingent equity 

interest or convertible debt in a covered 

foreign person; 

D 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 engage in a 

covered activity; 

D 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 

D Investment as an LP into a non-U.S. 

person pooled investment fund that 

invests in a covered foreign person. 

Importantly, for each of the above 

transaction types, the Proposed Rule 

included a specific requirement for 

what a U.S. person would have needed 

to know or intend for a transaction to be 

a covered transaction. As set forth in the 

Proposed Rule, a transaction that 

otherwise had the attributes of a covered 

transaction ordinarily would have been 

treated as a covered transaction only if 

the relevant U.S. person knew at the 

time of the transaction that the 

transaction involved, or would have 

resulted in the establishment of, a 

covered foreign person (or would have 

resulted in a person of a country of 

concern’s engagement in a new covered 

activity). Knowledge for this purpose 

included both actual knowledge and 

‘‘reason to know’’ of the relevant facts 

or circumstances, as set forth in 

§ 850.216. 

Covered Transaction—General Scope 

A few commenters expressed the view 

that the Proposed Rule expanded the 

scope of transactions that would have 

been considered covered transactions as 

compared to the ANPRM, with one such 

commenter noting the inclusion of 

brownfield investment and joint 

ventures in particular. The scope of 

covered transactions in the Proposed 

Rule addressed a set of circumstances in 

which a U.S. person could have 

provided intangible benefits to a 

covered foreign person. Brownfield 

investment was included within the 

scope of the Proposed Rule because the 

Treasury Department assessed that such 

an investment, that is, an investment 

into an existing entity that shifts its 

operations into a new covered activity, 

risked undermining the national 

security goals of the Outbound Order. 

Similar to brownfield investment, a 

joint venture was included within the 

scope of covered transaction to cover 

situations in which the transaction 

structure presented 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. 

Acquisition of Equity Interest or 

Contingent Equity Interest; Conversion 

of Contingent Equity Interest 

The proposed definition of covered 

transaction in the Proposed Rule 

included the acquisition of an equity 

interest (or equivalent) in a covered 

foreign person and the acquisition of a 

contingent equity interest, which was 

defined in 850.205 as a financial 

instrument that did not constitute an 


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equity interest at the time of the covered 

transaction but was convertible into, or 

provided the right to acquire, an equity 

interest in a covered foreign person 

upon the occurrence of a contingency or 

defined event. 

The proposed definition of covered 

transaction included as a separate basis 

of coverage the conversion of a 

contingent equity interest or convertible 

debt in a person that the U.S. person 

knew at the time of conversion was a 

covered foreign person. As discussed in 

the Proposed Rule, 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 

was to gain visibility into the 

circumstances in which contingent 

interests in a covered foreign person 

would convert. Including the 

conversion of a contingent equity 

interest or convertible debt in the scope 

of covered transaction would also have 

addressed circumstances where the 

investment target or borrower was not a 

covered foreign person at the time of the 

acquisition of the relevant interest but 

was 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 new relationship 

with a person of a country of concern 

engaged in a covered activity). 

The Treasury Department received a 

number of comments in connection 

with § 850.210(a)(1) and (3) of the 

Proposed Rule, which covered the 

acquisition or conversion of a 

contingent equity interest. One 

commenter indicated that 

§ 850.210(a)(1) of the Proposed Rule, via 

the coverage of indirect acquisitions, 

could apply to LP investments into U.S. 

funds that are not captured by 

§ 850.210(a)(6). The Final Rule clarifies 

in Note 1 to § 850.210 that for purposes 

of § 850.210(a)(1), a U.S. person is not 

considered to have indirectly acquired 

an equity interest or contingent equity 

interest in a covered foreign person 

when the U.S. person acquires an LP 

interest in a venture capital fund, 

private equity fund, fund of funds, or 

other pooled investment fund and that 

fund then acquires an equity interest or 

contingent equity interest in a covered 

foreign person. Accordingly, absent 

other facts (such as an intent to evade 

this rule), a U.S. person LP’s investment 

into a U.S. person pooled investment 

fund would not itself be assessed to be 

a covered transaction. The U.S. person 

pooled investment fund’s transaction 

with or involving a covered foreign 

person is, however, covered by this rule 

if such a transaction meets the 

definition of a covered transaction, and 

hence the U.S. person pooled 

investment fund is responsible for 

making any required notification and for 

refraining from engaging in any 

prohibited transaction. The Treasury 

Department further clarifies that 

§ 850.210(a)(6), and not § 850.210(a)(1), 

describes the types of investment made 

as an LP in a pooled investment fund 

that are defined as a covered 

transaction, namely acquisitions of an 

LP interest in a venture capital fund, 

private equity fund, fund of funds, or 

other pooled investment fund where the 

fund is not a U.S. person and where the 

other criteria set out in § 850.210(a)(6) 

are met. 

Several commenters requested that 

the Treasury Department either delete or 

clarify the phrase ‘‘interest equivalent to 

an equity or contingent equity interest.’’ 

In response, the Treasury Department is 

removing references to an ‘‘interest 

equivalent to an equity or contingent 

equity interest’’ from § 850.210(a)(1) and 

(3) of the Final Rule. 

One commenter stated that the 

Treasury Department should revise the 

definition of a covered transaction such 

that it does not include a transaction 

whereby a U.S. person underwriter of an 

initial public offering (IPO) takes a 

‘‘short-term residual position in the 

issuer’s shares in the event of a shortfall 

in demand’’ where the issuer is a 

covered foreign person or otherwise 

takes possession of the shares of a 

covered foreign person as a marketmaker in connection with an IPO. 

(Other commenters requested that 

similar transactions be excepted 

transactions in the rule; see also 

discussion of an excepted transaction 

below.) In response to this comment, the 

Treasury Department emphasizes that a 

U.S. person’s acquisition of an equity 

interest in a covered foreign person that 

is not yet publicly traded for the 

purpose of facilitating an IPO, such as 

a purchase with the intent to create a 

market for the security or to resell the 

security on a secondary market (e.g., as 

part of an underwriting arrangement), is 

a covered transaction. The Treasury 

Department declines to modify the 

definition of covered transaction to 

exclude such fact patterns, which 

combine the acquisition of an equity 

interest with the transfer of intangible 

benefits, including enhanced standing 

and prominence, managerial assistance, 

access to investment and talent 

networks, market access, and enhanced 

access to additional financing. However, 

absent additional facts, the provision of 

a service ancillary to an IPO that does 

not include the acquisition of an equity 

interest (or other interests set forth in 

the definition of § 850.210) is not a 

covered transaction. 

The Treasury Department is 

modifying the definition of contingent 

equity interest at § 850.205 of the Final 

Rule, which is referenced in 

§ 850.210(a)(1) and (3). (See discussion 

above under Contingent equity interest.) 

The definition of contingent equity 

interest in the Final Rule refers to a 

‘‘financial interest,’’ rather than a 

‘‘financial instrument’’ as in the 

Proposed Rule. This change is intended 

to more accurately reflect the Treasury 

Department’s intent to cover the 

acquisition or conversion of interests 

that are convertible into an equity 

interest or provide the right to acquire 

equity interests. The definition of 

contingent equity interest in the Final 

Rule also clarifies that debt can 

constitute a financial interest that is 

convertible into, or provides the right to 

acquire, an equity interest. Because the 

definition of a contingent equity interest 

now explicitly refers to debt, the 

reference to the ‘‘conversion of debt to 

an equity interest’’ has been removed 

from § 850.210(a)(3) of the Final Rule. 

Accordingly, to avoid duplication, the 

Final Rule deletes § 850.210(a)(2)(i) (i.e., 

the reference to the provision of debt 

financing that is convertible to an equity 

interest, as was included in the 

Proposed Rule) since such a transaction 

is now covered in the Final Rule by 

§ 850.210(a)(1) as an acquisition of a 

contingent equity interest. 

Several commenters stated that the 

rule should not apply to convertible 

debt financing more broadly or, in the 

alternative, should include a safe harbor 

for any debt financing provided prior to 

the effective date of the rule. One 

commenter recommended that debt 

financing should be a covered 

transaction only if the borrower/ 

recipient receives proceeds from the 

transaction or if the debt automatically 

converts upon the occurrence of a 

specific event. One commenter 

indicated appreciation for the Proposed 

Rule’s clarity that the acquisition of a 

contingent equity interest and 

subsequent conversion of that interest 

are separate covered transactions. 

Another commenter highlighted that 

because the acquisition of a contingent 

equity interest and the conversion of 

that interest are each a covered 

transaction, a U.S. person investor may 

find itself unable to convert its interest 

if an investment target that is a person 

of a country of concern begins engaging 

in a covered activity described in 

§ 850.224 (which defines a prohibited 

transaction) after the interest was 

initially acquired, such that the 

conversion would now be prohibited. 


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Another commenter asserted that 

covering both the acquisition and the 

conversion of a contingent interest 

would have a chilling effect on 

acquisitions of contingent equity that 

would be notifiable transactions, as a 

U.S. person investor would be uncertain 

whether it would be able to convert its 

interest in cases in which the covered 

foreign person investment target 

subsequently pivots to a covered 

activity. The commenter also noted that 

venture capital firms generally begin 

providing non-monetary benefits as 

soon as they acquire a contingent equity 

interest and thus, any conversion would 

not trigger the provision of additional 

intangible benefits. For these reasons, 

the commenter requested that the 

Treasury Department provide a safe 

harbor (or, in the alternative, a licensing 

regime) that would permit conversion of 

a contingent equity interest provided 

that, at the time the contingent interest 

was acquired, the U.S. person did not 

have knowledge that the target intended 

to engage in covered activities that 

would make conversion of the 

instrument prohibited. 

The Treasury Department recognizes 

that the activities of an investment 

target in which a U.S. person holds a 

contingent equity interest could change 

during the period between a U.S. 

person’s acquisition and conversion 

thereof, and that this could cause a U.S. 

person either to decide not to enter into 

an investment or to be unable to convert 

an existing contingent interest. To avoid 

a situation in which a U.S. person is 

prohibited from converting a contingent 

equity interest that was obtained prior to 

the effective date of the Final Rule, the 

Final Rule provides in § 850.210(a)(3) 

that conversion of a contingent equity 

interest into an equity interest in a 

person that the U.S. person knows at the 

time of conversion is a covered foreign 

person is a covered transaction only 

where the contingent equity interest was 

acquired by the U.S. person on or after 

the effective date of the Final Rule. 

Permitting a U.S. person to acquire an 

equity interest in a covered foreign 

person engaged in one of the specific 

covered activities described in the 

definition of a prohibited transaction as 

a result of converting a contingent 

equity interest acquired on or after the 

effective date of the Final Rule would 

create a significant loophole that could 

be exploited and would run counter to 

the goals of the Outbound Order. Like 

a U.S. person that has obtained an 

equity interest directly, a U.S. person 

that has obtained an equity interest as 

a result of converting a contingent 

equity interest is positioned to provide 

intangible benefits that often accompany 

investments by U.S. persons and that 

help companies succeed. Given this 

outcome, neither a safe harbor beyond 

the cutoff date for acquisitions specified 

above and in the Final Rule nor a 

licensing regime would be appropriate. 

The Treasury Department also 

recognizes that an investor that acquires 

a contingent equity interest in an 

investment target may be able to obtain 

contractual assurances from the 

investment target as to the nature of its 

future activities, addressing a situation 

where the activities of the investment 

target change such that the U.S. person 

would be unable to convert its interest 

and the target could obtain a windfall. 

In response to one commenter’s 

contention that venture capital firms 

generally begin providing non-monetary 

benefits as soon as they acquire a 

contingent equity interest, even if this 

statement is descriptively correct as it 

relates to some investments, it does not 

mean that the Final Rule should not also 

cover conversions of contingent 

interests given the direct channel for the 

transfer of intangible benefits that such 

conversions establish between a U.S. 

person and a covered foreign person in 

many transaction structures. 

Accordingly, the Treasury Department 

declines to adopt such a 

recommendation. 

Provision of Debt Financing 

The Proposed Rule provided that a 

U.S. person’s provision of a loan or 

similar debt financing arrangement to a 

person that the U.S. person knew at the 

time of the provision was a covered 

foreign person would have been a 

covered transaction when the debt 

financing was convertible to an equity 

interest or afforded or would have 

afforded 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. The intent of this provision was 

to capture lending by a U.S. person 

lender only where such lending 

involved the acquisition of equity or 

equity-like rights by the U.S. person 

lender with respect to a covered foreign 

person. 

The Proposed Rule explained that 

while the issuance of debt secured by 

equity in a covered foreign person 

would not, absent other circumstances, 

have been a covered transaction, 

foreclosure on collateral that constituted 

an equity interest in a covered foreign 

person would have constituted the 

acquisition of an equity interest under 

the Proposed Rule and would have been 

a covered transaction. 

Several commenters provided input 

on § 850.210(a)(2) of the Proposed Rule. 

Several commenters focused on a 

scenario whereby a U.S. person lender 

issues debt for which equity is pledged 

as collateral and forecloses on that 

collateral at some subsequent point. 

Some commenters urged that the rule 

not apply to either debt financing 

secured by equity or to foreclosure on 

such equity. One commenter requested 

the Final Rule permit U.S. lenders to 

foreclose on or restructure existing debt 

that may be otherwise prohibited if the 

lender provides a notification under the 

program and attempts to divest as soon 

as practicable. One commenter 

suggested that the Treasury Department 

clarify that a loan or similar debt 

financing that is secured using equity 

held as collateral not be considered 

‘‘convertible to an equity interest’’ 

under § 850.210(a)(2)(i). One commenter 

indicated appreciation for the Proposed 

Rule’s clarity that foreclosure on equity 

in a covered foreign person that secures 

debt would have been a covered 

transaction. A few commenters 

recommended that the Treasury 

Department make explicit in the rule 

that foreclosure on equity used as 

collateral for debt is not a covered 

transaction. 

One commenter noted that the 

Proposed Rule could have limited the 

ability of U.S. persons to create supplier 

relationships with counterparts in 

whom investment was not otherwise 

prohibited by the Proposed Rule—e.g., 

where convertible equity interests were 

used for purposes of commercial risk 

mitigation—and requested that supply 

contracts secured through convertible 

equity interests be carved out of the 

rule. 

Other commenters requested that the 

rule not apply to secondary debt market 

transactions involving debt secured by 

equity. A few commenters highlighted 

that purchasers in the debt market do 

not have access to diligence materials or 

the power to negotiate representations 

from the underlying issuer, while 

another commenter stated that 

secondary debt market transactions 

should be carved out because the 

borrower would not receive any 

proceeds from that secondary 

transaction. 

Commenters also discussed the 

description in § 850.210(a)(2)(ii) of the 

Proposed Rule regarding a lender’s 

ability to make management decisions. 

Several commenters argued that when a 

lender seeks to restructure a delinquent 

loan, for example to change the 

borrower’s management or appoint a 


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board member, such actions should not 

be considered a covered transaction. 

Another commenter sought clarification 

regarding the phrase ‘‘make 

management decisions’’ and inquired as 

to whether this language would 

encompass standard debt covenants. 

The commenter asked that either such 

covenants be carved out of the rule or 

that the rule provide further clarity with 

respect to what activities constitute 

‘‘mak[ing] management decisions.’’ In 

response to the above comments, the 

Final Rule contains changes to 

§ 850.210(a)(2) as well as to Note 2 to 

§ 850.210. Note 2 to § 850.210 of the 

Final Rule clarifies that neither the 

issuance of debt financing secured by 

equity collateral nor the acquisition of 

such secured debt on the secondary 

market is an ‘‘acquisition of an equity or 

contingent equity interest’’ and hence 

will not, absent other facts, constitute a 

covered transaction. That note also 

further clarifies, however, that 

foreclosure on collateral where the 

debtholder takes possession of the 

pledged equity does constitute an 

acquisition of an equity interest. This is 

so because where a U.S. person obtains 

an equity interest in a covered foreign 

person, whether as a result of the 

conversion of a convertible interest or 

foreclosure on collateral that was 

pledged as security, the U.S. person 

assumes the position of an equity holder 

in the covered foreign person and 

therefore has the opportunity and 

incentive to provide the types of 

intangible benefits that the Outbound 

Order and this rule are intended to 

address. 

As such, foreclosure on equity taken 

as collateral continues to be considered 

an acquisition of equity for purposes of 

§ 850.210. However, in response to 

relevant comments, Note 2 further 

clarifies that foreclosure on collateral 

where the U.S. person does not know at 

the time of issuing or acquiring the 

secured debt that the pledged equity 

was in a covered foreign person does not 

constitute a covered transaction. This 

addresses the concerns raised by 

commenters that a debtholder may be 

prevented from foreclosing on equity 

that was pledged as collateral if the 

entity whose equity was pledged was 

not engaged in a covered activity at the 

time the debt financing was provided 

but pivots into a covered activity while 

the debt is outstanding. With this 

change, foreclosure on equity pledged as 

collateral will constitute a covered 

transaction when a U.S. person has 

knowledge at both the time of the 

issuance or acquisition of the secured 

debt, and at the time of foreclosure, that 

the equity is that of a covered foreign 

person. 

Further, as highlighted by the 

comments, the Treasury Department 

does not intend to define as a covered 

transaction foreclosure on equity that 

was taken as collateral prior to the 

effective date of the Final Rule. As such, 

Note 2 to § 850.210 of the Final Rule 

clarifies that foreclosure on equity 

pledged prior to the effective date of the 

Final Rule as collateral for secured debt 

is not a covered transaction. Therefore, 

‘‘existing’’ debt as highlighted by one 

commenter, i.e., a convertible interest 

acquired in connection with debt 

financing provided prior to the effective 

date of the Final Rule, could be 

restructured in ways that involve the 

conversion of such an interest without 

triggering the definition of a covered 

transaction. 

The Treasury Department agrees with 

commenters’ request for clarification of 

the Proposed Rule’s reference to 

‘‘mak[ing] management decisions’’ in 

§ 850.210(a)(2)(ii). The Final Rule 

revises § 850.210(a)(2) to specify that the 

provision of debt financing to a person 

that the U.S. person knows at the time 

of the provision is a covered foreign 

person is a covered transaction where 

the debt financing affords or will afford 

the U.S. person an interest in profits of 

the covered foreign person, the right to 

appoint members of the board of 

directors (or equivalent) of the covered 

foreign person, or other comparable 

financial or governance rights 

characteristic of an equity investment 

but not typical of a loan. In the Final 

Rule, the Treasury Department does not 

intend to cover debt financing unless it 

has these equity-like characteristics or is 

convertible into an equity interest. As 

noted above, to avoid duplication in 

light of the revision in the Final Rule to 

the definition of contingent equity 

interest in § 850.205, the Final Rule 

removes from § 850.210(a)(2) the 

reference to the provision of debt 

financing that is convertible to an equity 

interest, as was included in the 

Proposed Rule, since such a transaction 

is covered in the Final Rule by 

§ 850.210(a)(1) as an acquisition of a 

contingent equity interest. 

Greenfield or Brownfield Investment 

Under § 850.210(a)(4) of the Proposed 

Rule, the definition of covered 

transaction included 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 knew that such acquisition, 

leasing, or development would, or the 

U.S. person intended it to, either (1) 

establish a covered foreign person, such 

as the acquisition of land in a country 

of concern with the intent to build 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 volume 

advanced packaging. A U.S. person’s 

intent (as distinct from knowledge) 

would have been sufficient in these 

cases for the transaction to be a covered 

transaction. This was because in the 

greenfield and brownfield context, a 

U.S. person may not have known at the 

time of the transaction that the 

investment would result in a covered 

activity, yet the Treasury Department 

nevertheless sought 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 was 

likely to convey intangible benefits from 

the U.S. person to a covered foreign 

person. That a covered foreign person 

ultimately would have resulted from a 

greenfield or brownfield investment 

would not have been necessary for 

coverage under the Proposed Rule, as 

long as the intent to establish a covered 

foreign person was present at the time 

of the transaction. The Treasury 

Department 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 would have risked 

undermining the national security goals 

of the program. For the avoidance of 

doubt, the Treasury Department did not 

intend to scope in a real estate 

transaction where the U.S. person did 

not have the requisite knowledge or 

intent. 

One commenter requested 

clarification that the word 

‘‘development’’ in § 850.210(a)(4) does 

not encompass a U.S. person’s 

modification, configuration, or testing of 

a piece of technology acquired from a 

third-party for the company’s own use. 

This request reflects confusion about the 

way in which develop, as a defined term 

relating to the activities of a person of 

a country of concern (see § 850.211), 

interacts with the use of the word 

‘‘development’’ in § 850.210(a)(4) 

related to greenfield and brownfield 

investments. The latter usage is 

intended to refer to the plain English 

meaning of the term in the greenfield 

and brownfield context, i.e., to refer to 

activities such as the build-out, 


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expansion, or retrofitting of facilities or 

land, and not carry the meaning set 

forth in § 850.211. In response to this 

comment, the Treasury Department 

made a change to the definition of 

develop in § 850.211 of the Final Rule 

to expressly carve out § 850.210(a)(4) 

from its application. 

Multiple commenters asked for 

clarification regarding what constitutes 

a change in activity under 

§ 850.210(a)(4)(ii). One commenter 

stated that an activity ‘‘not previously 

engaged in’’ should refer to a person 

engaging in a new category of covered 

activity, rather than engaging in a new 

activity within the same category. 

Another commenter sought clarification 

as to when a person that engaged in a 

covered activity prior to the issuance of 

the Outbound Order would be deemed 

to have shifted to a new activity. 

One commenter requested that the 

Treasury Department justify its 

assessment that including investments 

intended to result in the establishment 

of a covered foreign person or the 

engagement of a new covered activity is 

necessary to accomplish the national 

security goals of the Outbound Order. 

That commenter stated that the Treasury 

Department should eliminate the 

‘‘intent’’ element from the relevant 

section of the rule and cover only 

transactions resulting in the 

establishment of a covered foreign 

person. Several other commenters 

requested that the text of the rule 

explicitly include objective criteria, 

such as the commitment of capital, as 

evidence of an intent on the part of a 

U.S. person that its investment result in 

the engagement of a person of a country 

of concern in a covered activity in 

which it was not previously engaged. A 

few commenters requested clarification 

regarding the intent element of 

§ 850.210(a)(4), including how it differs 

from the knowledge standard described 

in § 850.104. One commenter noted 

ambiguity as to whose intent is relevant 

and how intent is to be established. 

In response to the above comments, 

the Treasury Department has revised 

§ 850.210(a)(4) in the Final Rule. Rather 

than referring to the ‘‘intent’’ of the U.S. 

person, the Final Rule refers to the 

‘‘plans’’ of the U.S. person. In assessing 

whether a U.S. person ‘‘plans’’ for its 

actions to result in the establishment of 

a covered foreign person or to shift an 

existing entity’s operations into a 

covered activity, the U.S. person is 

responsible for the information it had or 

could have had through a ‘‘reasonable 

and diligent inquiry’’ at the time of the 

transaction. Indicators relevant to what 

the U.S. person plans include, for 

example, correspondence with the 

investment target or relevant 

government, business plans, and 

presentations to potential investors. 

In addition, the Treasury Department 

responds to the comments through 

modification to § 850.210(a)(4)(ii) of the 

Final Rule to specify that it relates to the 

‘‘engagement of a person of a country of 

concern in a covered activity.’’ The 

Final Rule’s coverage of a ‘‘brownfield’’ 

investment is intended to capture a U.S. 

person’s acquisition, leasing, or other 

development of operations that the U.S. 

person knows will result in, or the U.S. 

person plans to result in, an existing 

person of a country of concern engaging 

in a covered activity. 

Continuing to capture a forwardlooking element in the context of the 

transactions addressed in § 850.210(a)(4) 

is important to the national security 

goals of the Outbound Order. Without 

such a provision, a U.S. person may not 

be able to invest in an entity that is a 

covered foreign person but could 

instead establish or contribute to the 

engagement of such a person in a 

covered activity. With respect to a 

greenfield or brownfield investment, the 

Treasury Department assesses that 

waiting until such an investment has 

achieved its aims before covering it is 

insufficient to achieve the national 

security aims of the Outbound Order. 

Therefore, the Treasury Department 

declines to eliminate entirely the 

forward-looking element of this 

provision, as one commenter requested. 

Multiple commenters also requested 

clarification of the interplay between 

§ 850.210(a)(4) and the exception for an 

intracompany transfer at § 850.501(c). 

As further discussed regarding the 

definition of an excepted transaction 

(see below), § 850.501(c) of the Final 

Rule provides an exception for certain 

intracompany transfers between a U.S. 

person and its controlled foreign entity 

to support ongoing operations with 

respect to covered activities or other 

ongoing or new activities that are not 

covered activities. Because of this 

change to the text of 850.501(c), the 

Treasury Department determined that 

the Proposed Rule’s reference to 

§ 850.210(a)(4) in § 850.501(c) was no 

longer necessary as the text of 

§ 850.501(c) itself now makes clear that 

the exception does not apply to covered 

transactions involving new covered 

activities, which remain subject to 

§ 850.210(a)(4). 

Entrance Into a Joint Venture 

Several commenters provided views 

on § 850.210(a)(5) of the Proposed Rule, 

which defined as a covered transaction 

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 knew or intended 

that the joint venture would have 

engaged in a covered activity. Like the 

greenfield or brownfield investment 

prong discussed above, this provision 

was intended to capture situations in 

which a covered foreign person did not 

exist at the time of a transaction, but the 

transaction structure presented 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 have 

been sufficient for coverage in the joint 

venture context because a U.S. person 

may not have known at the time of the 

transaction that the joint venture would 

engage in a covered activity, yet the 

Treasury Department sought to capture 

transactions likely to convey intangible 

benefits to a covered foreign person. The 

joint venture would not have had to 

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 intended for it to do so. 

Commenters requested that the 

Treasury Department define ‘‘joint 

venture’’ to provide greater clarity on 

the application of the provision, and 

suggested definitions for the Treasury 

Department’s consideration and urged 

defining this term narrowly. One 

commenter requested clarity on what 

constitutes ‘‘intent’’ for the purposes of 

§ 850.210(a)(5) and whether ‘‘intent’’ 

would be found where a U.S. person 

had a speculative idea versus a formal 

business plan. 

Two commenters suggested that ‘‘joint 

venture’’ should include only the 

acquisition of an equity interest and not 

other forms of commercial cooperation, 

whereas one commenter recommended 

that ‘‘joint venture’’ only include the 

establishment of a new legal entity. Two 

other commenters recommended that 

the Treasury Department list certain 

‘‘routine’’ activities that would not be 

covered as joint ventures. 

Several commenters recommended 

that the Treasury Department provide 

guidance clarifying that certain 

transactions, relationships, or activities 

are not considered to constitute a joint 

venture for purposes of this provision. 

One commenter requested that the 

Treasury Department clarify whether 

certain actions related to existing joint 

ventures are permissible, including 

participation in an existing joint 

venture, acquisition of additional 

interest in an existing joint venture, and 

engagement in a covered activity by an 


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existing joint venture. Another 

commenter expressed concern that the 

coverage of joint ventures would 

negatively impact the ability of U.S. 

companies to acquire majority stakes in 

their competitors in the PRC. 

The Treasury Department declines to 

define the term ‘‘joint venture’’ in the 

Final Rule, after considering whether 

other regulatory regimes define the 

term. Instead, the Treasury Department 

refers to the plain English meaning of 

the term, i.e., as involving the 

contribution of capital and/or assets by 

two parties and the sharing of profits 

and losses. The term as generally 

understood in the market does not cover 

‘‘any business relationship’’ as was of 

concern to one commenter. Indeed, 

most of the activities that commenters 

request be excluded from the 

application of the term ‘‘joint venture’’ 

are prima facie not joint ventures. For 

example, absent other facts, a ‘‘joint 

venture’’ would not ordinarily result 

simply where there is a licensing 

arrangement, the sale or barter of goods 

and services, or resale of goods and 

services. 

In response to the comments to 

§ 850.210(a)(5), the Treasury 

Department is modifying this provision 

by striking ‘‘the U.S. person intends to 

engage in a covered activity.’’ Instead, in 

the Final Rule, § 850.210(a)(5) applies 

when ‘‘the subject U.S. person knows at 

the time of entrance into the joint 

venture that the joint venture will 

engage, or plans to engage, in a covered 

activity.’’ This modification is intended 

to focus on the knowledge of the U.S. 

person with respect to the goals of the 

joint venture at the time the U.S. person 

enters into the joint venture, rather than 

applying the definition of a covered 

transaction to situations where a U.S. 

person may have an intent that is not 

shared by the joint venture. 

The Treasury Department clarifies 

that, as with the Proposed Rule, 

§ 850.210(a)(5) of the Final Rule is 

intended to cover situations in which a 

covered foreign person does not exist 

prior to 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. 

Further, the plain language of the 

provision does not (absent additional 

facts) cover activities related to an 

existing joint venture into which a U.S. 

person has already entered, as the Final 

Rule applies only on a forward-looking 

basis. However, certain transactions 

such as the acquisition of an additional 

equity interest in a joint venture that 

meets the definition of a covered foreign 

person may nevertheless be a covered 

transaction pursuant to other parts of 

the definition of this term, and the fact 

that a U.S. person is acquiring equity in 

a joint venture in which it has already 

entered does not remove all transactions 

with such a joint venture entirely from 

the application of § 850.210. 

Investment Made as an LP 

Several commenters provided views 

on § 850.210(a)(6) of the Proposed Rule, 

which related to an LP interest in 

certain pooled investment funds. One 

commenter expressed doubt with 

respect to the ability of an LP to 

determine whether a pooled investment 

fund is ‘‘likely’’ to invest in a person of 

a country of concern engaged in one or 

more of the three specified sectors and 

sought clarity with respect to the 

meaning of ‘‘likely’’ in this context. 

Commenters requested additional 

clarity with respect to when an LP may 

be deemed to know that a pooled 

investment fund is likely to undertake a 

covered transaction. One such 

commenter suggested that the Treasury 

Department provide a safe harbor for 

LPs that engage in good faith diligence. 

The same commenter took the position 

that a previous covered transaction by a 

general partner (GP) should not in and 

of itself be dispositive in determining 

coverage. Another commenter 

recommended that the Treasury 

Department narrow the application of 

the provision because, according to the 

commenter, it undermines GP controls 

on information disclosure. 

One commenter stated that the 

provision is overbroad and expressed 

concerns with what the commenter 

perceived as burdensome compliance 

requirements, particularly with respect 

to post-closing diligence. This 

commenter also stated that U.S. persons 

might be deterred from investment as an 

LP because they cannot control the postinvestment actions of third parties. 

Two commenters stated that LPs 

should be permitted to rely on the 

assurances of GPs and one commenter 

took the position that the GP should 

bear any and all requirements related to 

compliance with the rule. Another 

commenter requested that the Treasury 

Department issue guidance related to 

this provision. 

One commenter requested clarity with 

respect to requirements for LPs subject 

to agreements made prior to the 

Outbound Order. 

The Final Rule adopts the 

§ 850.210(a)(6) from the Proposed Rule 

without any changes. The Final Rule, as 

with the Proposed Rule, provides that 

an LP investment in a non-U.S. person 

pooled investment fund constitutes a 

covered transaction when two things are 

true: (1) the U.S. person knows at the 

time of the investment that the pooled 

investment fund will likely invest in a 

person of a country of concern that is in 

one or more of the three specified 

sectors, and (2) the fund in fact 

undertakes a transaction that would be 

a covered transaction if undertaken by 

a U.S. person. The Final Rule also 

provides an exception under 

§ 850.501(a)(1)(iii) for certain LP 

investments (see discussion in Subpart 

E below), which is intended to provide 

options for LP investors to obtain clarity 

regarding the application of the Final 

Rule to their investments into pooled 

investment funds. The Treasury 

Department understands that it may not 

be practicable for a U.S. person LP to 

know the specific investment target 

entity or entities of a pooled investment 

fund even following a ‘‘reasonable and 

diligent inquiry’’ at the time of its LP 

investment. However, it is the Treasury 

Department’s understanding that it may 

be possible for such LP to know, through 

a ‘‘reasonable and diligent inquiry,’’ the 

country and general sector in which the 

pooled investment fund is likely to 

invest. Thus, the Treasury Department 

declines to provide a safe harbor related 

to this provision because doing so is 

unnecessary given an LP’s ability to 

engage in a ‘‘reasonable and diligent 

inquiry.’’ Whether an inquiry is a 

‘‘reasonable and diligent inquiry’’ will 

be assessed through the evaluation of 

various considerations described in the 

Final Rule. 

In response to issues commenters 

identified related to post-transaction 

monitoring and compliance in the LP 

context, the Treasury Department 

reiterates that the knowledge standard 

as applied to § 850.210(a)(6) of the Final 

Rule relates to a U.S. person’s 

knowledge at the time of its LP 

investment in the pooled investment 

fund. With respect to whether a U.S. 

person knows at the time of its 

investment that a pooled investment 

fund is likely to invest in a person of a 

country of concern that is in any of the 

three specified sectors, the LP would 

ascertain whether the fund is likely to 

invest in a relevant geographic area and 

sector through engaging in a ‘‘reasonable 

and diligent inquiry’’ at the time of the 

investment into the pooled investment 

fund. 

With respect to whether such pooled 

investment fund actually undertakes a 

transaction that would be a covered 

transaction if undertaken by a U.S. 

person, if the LP knows 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 


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any of the three relevant sectors, and 

such fund subsequently makes an 

investment that would have been a 

notifiable transaction if made by a U.S. 

person, the U.S. person will be required 

to file the relevant notification no later 

than 30 calendar days following the 

earliest date of the pooled investment 

fund’s investment in a covered foreign 

person. If the LP knows 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, and 

such fund subsequently makes an 

investment that would have been a 

prohibited transaction if made by a U.S. 

person, then the LP would have made 

a prohibited transaction, which would 

be a violation of the Final Rule. 

Indirect Covered Transaction 

To address a potential loophole, 

§ 850.210(a) of the Proposed Rule 

defined a U.S. person’s transaction that 

was indirect, as well as direct, to be a 

covered transaction. Under Note 1 to 

§ 850.210 of the Proposed Rule, an 

indirect transaction would have been a 

covered transaction regardless of the 

number of intermediary entities 

involved in such transaction if it met 

the elements of the definition. For 

example, if a U.S. person owned a 

special purpose vehicle organized in a 

non-U.S. jurisdiction, 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 

have been a covered transaction. 

Several commenters provided views 

on § 850.210 as it related to indirect 

transactions. One commenter expressed 

concern that this provision would place 

a significant compliance burden on U.S. 

persons. Another commenter stated that 

this provision would be overbroad and 

suggested that the definition of covered 

transaction not include indirect 

transactions. Instead, the commenter 

recommended utilizing the definition of 

covered foreign person to cover indirect 

transactions. 

One commenter requested that the 

Treasury Department clarify that an 

indirect covered transaction does not 

include an LP investment into a U.S. 

person fund. The commenter requested 

that the Treasury Department clarify 

how intermediate entities are treated in 

tiered ownership structures and further 

requested guidance on how this 

provision is applied with respect to 

certain complex transactions. 

Upon review and consideration of 

these comments, the Treasury 

Department is revising Note 1 to 

§ 850.210. The Final Rule provides that 

an indirect covered transaction includes 

a U.S. person’s use of an intermediary 

(either a legal entity or natural person) 

to engage in a transaction that would be 

a covered transaction if engaged in 

directly by a U.S. person. It is common 

in mergers and acquisitions transactions 

to use one or more intermediary legal 

entities, or so-called ‘‘acquisition 

vehicles,’’ to facilitate a transaction. The 

Final Rule covers both direct and 

indirect transactions such that a U.S. 

person that is investing directly into or 

through an intermediary cannot avoid 

the notification requirement or 

prohibition where that intermediary, to 

facilitate the transaction, then invests in 

a covered foreign person. In such a case, 

as with the Proposed Rule, a U.S. 

person’s investment that is indirect 

would be a covered transaction under 

the Final Rule regardless of the number 

of intermediaries involved in such 

transaction if the transaction meets the 

elements of covered transaction. By 

contrast, absent other facts (such as 

intent to evade the application of the 

Final Rule), where a U.S. person has, for 

example, previously invested in a nonU.S. person entity, and later in time and 

unrelated to the original transaction by 

the U.S. person, that entity subsequently 

invests in a covered foreign person, that 

later transaction will generally not 

constitute an indirect covered 

transaction, subject to §§ 850.210(a)(6), 

850.303, and 850.604. In addition, in 

response to comments, Note 1 to 

§ 850.210 further clarifies that for 

purposes of § 850.210(a)(1), a U.S. 

person is not considered to have 

acquired an indirect equity interest or 

contingent equity interest in a covered 

foreign person when the U.S. person 

acquires an LP interest in a venture 

capital fund, private equity fund, fund 

of funds, or other pooled investment 

fund and that fund then acquires an 

equity interest or contingent equity 

interest in a covered foreign person (see 

the discussion of an acquisition of 

equity interest above). Consistent with 

requests from commenters, the Treasury 

Department anticipates making 

additional information available via the 

Treasury Department’s Outbound 

Investment Security Program website. 

Stock Options and Other Equity-Based 

Compensation 

Several commenters expressed views 

with respect to the scope of the 

definition of covered transaction and 

specifically whether employee 

compensation in the form of equity 

would be covered. Multiple commenters 

stated that compensation in the form of 

equity should not be a covered 

transaction. One commenter requested 

clarity as to whether receipt of equity 

compensation is a covered transaction, 

and several commenters recommended 

that the Treasury Department either 

provide clarification within the 

definition of covered transaction or 

within the definition of excepted 

transaction. 

Multiple commenters also requested 

that carried interest be clarified as 

beyond the scope of covered transaction 

as it is a form of compensation to a U.S. 

person rather than the acquisition of an 

equity interest. 

The Treasury Department agrees with 

commenters that while the receipt of 

compensation by an employee of a 

covered foreign person in the form of 

equity or an option to purchase equity, 

as well as the exercise of such an 

option, would fall within the definition 

of a covered transaction, it should be 

removed from coverage of the Final 

Rule. In accepting or converting 

employee compensation, a U.S. person 

employee is generally not providing 

capital to a covered foreign person 

employer in a manner implicating the 

same policy concerns as covered 

transactions that are within the scope of 

the Final Rule. Considering the 

potential implications for U.S. person 

individuals, such as employment 

prospects and personal finances, that 

could result from the coverage of stock 

options and other equity-based 

compensation under the Final Rule, the 

Treasury Department has added an 

exception to § 850.501(f) to that effect 

(see the discussion of an excepted 

transaction below). 

As to comments regarding carried 

interest, the Treasury Department agrees 

that absent other relevant facts, the 

payment of carried interest to a U.S. 

person would not trigger any of the 

prongs of the definition of covered 

transaction because it ordinarily 

involves a cash payment to a U.S. 

person. However, the fact that carried 

interest is awarded to a U.S. person 

making an investment (or working at a 

U.S. person entity making an 

investment) in a covered foreign person 

does not insulate the transaction giving 

rise to such payments from the 

application of the Final Rule. 

Covered Transaction—Final Rule 

Summary 

The Final Rule defines a covered 

transaction to include a U.S. person’s 

direct or indirect: 

D Acquisition of an equity interest or 

contingent equity interest (including 

convertible debt) in a covered foreign 

person; 


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D Provision of debt financing that 

affords the lender certain management 

or governance rights in a covered foreign 

person that are characteristic of an 

equity investment but not typical of a 

loan; 

D Conversion of a contingent equity 

interest (including convertible debt) in a 

covered foreign person where the 

contingent equity interest was acquired 

on or after the effective date of the Final 

Rule; 

D Acquisition, leasing, or other 

development of land, property or other 

assets that will result in or the U.S. 

person plans to result in the 

establishment of a covered foreign 

person, or the engagement of an existing 

person of a country of concern in a 

covered activity; 

D Entrance into a joint venture, 

wherever located, with a person of a 

country of concern where the joint 

venture will engage in or plans to 

engage in a covered activity; and 

D Acquisition of an LP interest in 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 knows (or plans) 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 and, consistent 

with the Outbound Order and the 

Proposed Rule, does not include a 

transaction for the conduct of the 

official business of the U.S. Government 

by employees, grantees, or contractors 

thereof. Note that the mere act of 

receiving a U.S. Government grant does 

not make a person an employee, grantee, 

or contractor of the U.S. Government. 

Acquisition of Equity Interest or 

Contingent Equity Interest 

The definition of covered transaction 

includes the acquisition of an equity 

interest in a covered foreign person and 

the acquisition of a financial interest, 

including debt, that does not constitute 

an equity interest at the time of 

acquisition but is convertible into, or 

provides the right to acquire, an equity 

interest, either upon the occurrence of a 

contingency or defined event or at the 

discretion of the U.S. person holding the 

interest. As clarified in the Final Rule, 

neither the issuance of a secured loan or 

similar debt financing for which equity 

is pledged as collateral, nor the 

acquisition of such secured debt on the 

secondary market, is an acquisition of 

an equity interest. However, foreclosure 

on collateral where the debtholder takes 

possession of the pledged equity is an 

acquisition of an equity interest; 

provided that such an acquisition is not 

a covered transaction where the equity 

was pledged prior to the effective date 

of the Final Rule or where the U.S. 

person did not know at the time of 

issuing or acquiring the debt that the 

pledged equity was in a covered foreign 

person. 

Debt With Equity-Like Characteristics 

The definition of covered transaction 

includes the provision of a loan or 

similar debt financing arrangement to a 

covered foreign person that affords or 

will afford an interest in profits of the 

covered foreign person, the right to 

appoint members of the board of 

directors (or equivalent), or other 

comparable financial or governance 

rights characteristic of an equity 

investment but not typical of a loan. 

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, including debt, in a covered 

foreign person where the contingent 

equity interest was acquired by the U.S. 

person on or after the effective date of 

the Final Rule. As stated above, in 

addition to the conversion, the original 

acquisition of such an interest is a 

covered transaction. With respect to a 

notifiable transaction, the policy 

objective of including the conversion of 

a contingent equity interest 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 also addresses 

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. The Treasury 

Department anticipates that if the 

original acquisition was a notifiable 

transaction and was timely notified, the 

second notification submitted with 

respect to the conversion will likely be 

similar to the first notification and thus 

less time-consuming to prepare. 

The Treasury Department considered 

alternative approaches such as covering 

only the acquisition and not the 

conversion of contingent interests or 

covering only the conversion. However, 

each alternative is either over- or underinclusive in situations where an 

investment target has pivoted away 

from, or into, a covered activity in the 

interim between acquisition and 

conversion. Because the Final Rule does 

not define a conversion of a contingent 

equity interest as a covered transaction 

in situations where the U.S. person 

acquired the interest prior to the 

effective date of the Final Rule, no U.S. 

person is disadvantaged for having 

acquired a contingent interest without 

first knowing of the scope of the Final 

Rule. 

Greenfield or Brownfield Investment 

The definition of covered transaction 

includes 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 result in, 

or that the U.S. person plans to result in, 

either (1) the establishment of 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 (generally 

known as a ‘‘greenfield’’ investment) or 

(2) a person of a country of concern’s 

engagement in a covered activity 

(generally known as a ‘‘brownfield’’ 

investment). 

A U.S. person’s plans are sufficient in 

these cases for the transaction to be a 

covered transaction. This is so 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 Treasury Department 

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 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 is not necessary for coverage 

under the Final Rule, so long as the 

specified action coupled with the 

specified plan is present at the time of 

the transaction. 

The Treasury Department has 

assessed that requiring a greenfield or 

brownfield investment to result in the 

establishment of a covered foreign 

person before triggering obligations 

associated with covered transaction 

status risks undermining the national 

security goals of the program. For the 

avoidance of doubt, the Treasury 

Department does not intend to scope in 

transactions, including real estate 

transactions, where the U.S. person does 

not have the requisite knowledge or 

plan. The Treasury Department will 


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assess a U.S. person’s plans via 

objective indicators, including, for 

example, correspondence with the 

investment target or relevant 

government, business plans, and any 

presentations to potential investors. 

Entrance Into a Joint Venture 

The definition of covered transaction 

includes 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 knows the joint venture 

either will engage, or plans to engage, in 

a covered activity. Like the greenfield or 

brownfield investment prong discussed 

above, this prong 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, the joint venture 

does need not to engage in a covered 

activity for the establishment of the joint 

venture to be a covered transaction 

under the Final Rule as long as the U.S. 

person knows the joint venture will do 

so, or plans to do so. 

§ 850.211—Develop 

Under the Proposed Rule, develop 

was defined as engagement in any stages 

prior to serial production, including 

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. One 

commenter requested that the Treasury 

Department clarify the meaning of 

‘‘development’’ in § 850.210(a) and 

develop as defined in § 850.211 of the 

Proposed Rule. The same commenter 

also requested that the Treasury 

Department clarify that develop at 

§ 850.211 of the Proposed Rule would 

not include a company’s modification, 

configuration, or testing of a piece of 

technology acquired from a third party 

for the company’s own use. 

In consideration of these comments, 

the Final Rule modifies the definition of 

develop from the Proposed Rule. First, 

the Final Rule now clarifies that the 

definition of develop in § 850.211 

applies to all provisions of the Final 

Rule except for § 850.210(a)(4). This 

change is being made because develop 

as defined at § 850.211 is primarily 

related to the development of 

technologies and products referenced at 

§§ 850.217 and 850.224. As described 

above in the discussion regarding 

§ 850.210(a)(4), the term ‘‘development’’ 

is often used when describing 

brownfield investments and has the 

plain English meaning of the term as 

commonly used in that context (e.g. to 

refer to activities such as the build-out, 

expansion, or retrofitting of physical 

facilities or land). Second, the Final 

Rule adds the term ‘‘substantive’’ to 

qualify ‘‘modification’’ so that making a 

modification to a third-party technology 

or product that is ‘‘substantive’’ 

constitutes developing that technology 

or product, but making a nonsubstantive modification to it does not. 

For example, the Treasury Department 

considers routine maintenance or repair 

of a third-party product to constitute a 

non-substantive modification. In 

contrast, the Treasury Department 

considers modification to advance or 

repurpose the performance, function, or 

capability of a third-party technology or 

product, or impact its security features 

(e.g., by removing security measures or 

safeguards from a third-party AI model), 

to be a substantive modification. 

§ 850.213—Excepted Transaction 

The Proposed Rule included a 

definition of excepted transaction that 

would refer to a transaction that is not 

a covered transaction because it meets 

specified criteria that were described in 

proposed § 850.501. The Treasury 

Department received several comments 

related to the definition of excepted 

transaction that focused on the specific 

criteria described in the operative 

provision for excepted transactions in 

§ 850.501. Those comments are 

discussed below in the discussion 

related to § 850.501. The Final Rule 

adopts § 850.213 without change from 

the Proposed Rule. 

§ 850.216—Knowledge 

The Proposed Rule specified that 

certain provisions, including the 

definition of covered transaction, would 

apply only if a U.S. person had 

knowledge of the relevant facts or 

circumstances at the time of a 

transaction. The Proposed Rule defined 

knowledge as either actual knowledge 

that a fact or circumstance existed or 

was 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. As 

discussed in the Proposed Rule, this 

language was similar to the definition of 

knowledge found in the Export 

Administration Regulations (EAR) at 15 

CFR 772.1. 

The Treasury Department received 

one comment on this section. The 

commenter suggested that the definition 

of knowledge be based on objective 

criteria concerning due diligence efforts 

and stated that including an ‘‘awareness 

of a high probability of a fact or 

circumstance’s . . . future occurrence’’ 

in § 850.216(b) was concerning 

especially in connection with greenfield 

and brownfield investments where new 

facts may come to light throughout the 

lifecycle of a project. 

The Final Rule adopts the definition 

of knowledge in § 850.216 without 

change from the Proposed Rule. As 

noted above, the language of this 

definition is similar to the definition of 

knowledge found in the EAR, and 

retaining this language is consistent 

with the goals and structure of the Final 

Rule, which implicates certain future 

events—for example, in § 850.210(a)(5), 

the entrance into a joint venture where 

the joint venture will engage in a 

covered activity. In addition, where the 

Final Rule implicates knowledge of a 

future event, such as the definition of 

covered transaction in § 850.210, such 

knowledge is to be assessed ‘‘at the 

time’’ of the relevant transaction. This 

language makes clear that the evaluation 

of knowledge as to the relevant facts or 

circumstances—including in the context 

of greenfield or brownfield 

investments—is at the time of the 

transaction. 

§ 850.217—Notifiable Transaction 

As discussed in the Proposed Rule, a 

notifiable transaction would have been 

a covered transaction in which the 

relevant covered foreign person 

undertook (or in the case of certain 

greenfield, brownfield, or joint venture 

investments, the U.S. person knew 

would or intended to undertake) any of 

several specified covered activities 

listed in the proposed definition of 

notifiable transaction. 

In the Proposed Rule, the Treasury 

Department 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 

references to end uses in the proposed 

definition were designed to achieve the 

national security policy objectives of the 

Outbound Order, and the Proposed Rule 

noted that the Treasury Department 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 

Treasury Department regarding a 

notifiable transaction would increase 

the U.S. Government’s visibility into 

transactions involving technologies and 

products relevant to the threat to the 


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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 

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. 

Commenters provided feedback on 

the nature and scope of notifiable 

transactions defined in § 850.217. 

Notifiable Transaction—Integrated 

Circuit Design and Production 

Sections 850.217(a), (b), and (c) of the 

Proposed Rule defined notifiable 

transactions involving integrated 

circuits to include any covered 

transaction in which a relevant covered 

foreign person or joint venture designed, 

fabricated, or packaged any integrated 

circuit that was not described in the 

definition for prohibited transaction 

(i.e., an integrated circuit did not meet 

the performance parameters or criteria 

set forth in paragraphs (c), (d), and (e) 

of § 850.224 of the Proposed Rule, as 

applicable). Commenters suggested that 

the definition for notifiable transaction 

involving integrated circuits was broad 

and could implicate integrated circuits 

at ‘‘legacy’’ or ‘‘mature’’ process nodes 

that are commercially available and 

pose limited national security risk. 

Commenters cited the administrative or 

compliance burden for U.S. 

semiconductor companies adhering to 

the notification requirement, with one 

commenter suggesting that the 

notification and disclosure requirements 

could lead a company to focus on 

compliance at the expense of research 

and development. Commenters 

suggested narrowing the criteria for 

notifiable transactions involving 

integrated circuits by aligning the scope 

of integrated circuits in the rule to 

integrated circuits controlled under the 

EAR. One commenter requested the 

Treasury Department consider 

expanding the scope of notifiable 

transactions to those that do not involve 

a country of concern. One commenter 

also noted the importance of timely 

updates to regulations in the future and 

engagement with the private sector to 

ensure that notification requirements 

involving integrated circuits keep pace 

with technological and industry 

developments. 

The Final Rule implements 

§ 850.217(a) through (c) without change 

from the Proposed Rule. In considering 

comments on the breadth of § 850.217(a) 

through (c), the Treasury Department 

assesses that the design, fabrication, and 

packaging of integrated circuits, 

including those at ‘‘legacy’’ or ‘‘mature’’ 

process nodes, have the potential to 

contribute to and advance the capability 

of countries of concern in sensitive 

technologies and products critical for 

such countries’ military, intelligence, 

surveillance, or cyber-enabled 

capabilities. The potential intangible 

benefits of U.S. investment are 

particularly relevant in the 

semiconductor industry given the 

complex and resource-intensive nature 

of semiconductor research, 

development, manufacturing, and 

scaling, as well as the importance of the 

semiconductor supply chain to national 

security applications. The Treasury 

Department determines that visibility 

into these transactions is important and 

thus maintains a notification 

requirement. The Treasury Department 

also notes that technical thresholds set 

forth in the Final Rule, developed in 

consultation with the Department of 

Commerce and other agencies, are in 

many cases consistent with but may not 

precisely match with the EAR, 

International Traffic in Arms Regulation 

(ITAR), or other export control regimes 

due to differences in policy objectives 

and legal authorities. Addressing the 

threat posed by the advancement by 

countries of concern in areas critical for 

military, intelligence, surveillance, or 

cyber-enabled capabilities may require 

restricting transactions in persons 

engaged in technologies that are 

upstream of, at different technical 

thresholds than, or otherwise distinct 

from those controlled for export. 

Moreover, the definition of country of 

concern is set forth in the Outbound 

Order (listed in the Annex) and is not 

independently defined by the Treasury 

Department in the Proposed Rule. The 

Treasury Department intends to 

continue engaging with stakeholders in 

the semiconductor industry and other 

industries to inform any future updates 

to the notification requirements 

involving integrated circuits or related 

technologies. 

Notifiable Transaction—AI System— 

Overall Approach 

Section 850.217(d) of the Proposed 

Rule defined notifiable transactions 

involving AI systems to include any 

covered transaction in which a relevant 

covered foreign person or joint venture 

developed any AI system that was not 

described in § 850.224(j) or (k) of the 

Proposed Rule and that was designed to 

be used for any government intelligence, 

mass-surveillance, or military end use; 

intended by the covered foreign person 

or joint venture to be used for 

cybersecurity applications, digital 

forensics tools, penetration testing tools, 

or the control of robotic systems; or 

trained using a quantity of computing 

power greater than a numerical 

threshold. A few commenters 

recommended that the Treasury 

Department revise the AI-related 

notification requirements to focus on 

only technical criteria (i.e., the 

computing power thresholds, rather 

than the end-use thresholds) when 

determining whether a target is engaging 

in covered activities involving AI 

systems. One commenter suggested that 

the definition of a notifiable transaction 

involving an AI system revert to the 

language discussed in the ANPRM, 

which focused on AI systems designed 

to be exclusively used for certain nonmilitary applications. Another 

commenter noted that the scope of AI 

systems covered by the notification 

requirement and prohibition should be 

defined to avoid negative impacts on 

investment cooperation between the 

United States and the PRC in certain 

sectors such as healthcare, education, 

and agriculture. 

The definition of a notifiable 

transaction involving an AI system in 

the Final Rule includes both end-use 

thresholds under § 850.217(d)(1) and (2) 

and technical thresholds under 

§ 850.217(d)(3). This approach captures 

for notification those transactions 

involving AI systems that are relevant to 

national security either because of their 

end use—they are designed for 

government intelligence, masssurveillance, or military end use or are 

intended to be used for cybersecurity 

applications, digital forensics tools, 

penetration testing tools, or the control 

of robotic systems end—or because they 

meet the technical threshold of greater 

than 10∧23 computational operations. 

The Treasury Department considered 

and assessed that limiting notifiable 

transactions involving AI systems to 

systems designed to be exclusively used 

for certain non-military applications 

would be too narrow to capture dual-use 

technologies of potential concern. 

Similarly, the Treasury Department 

assessed that sectoral carveouts for 

notifiable transactions would 

undermine the goals of the Outbound 

Order, since AI systems designed or 

intended for a listed end use or trained 


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on greater than 10∧23 computational 

operations are by nature designed or 

trained with an objective or a level of 

sophistication that could contribute to 

capability development in areas critical 

for military, intelligence, surveillance, 

or cyber-enabled capabilities by 

countries of concern. 

Substantive changes are discussed 

below. The Final Rule also implements 

stylistic changes in conformance with 

the substantive changes discussed 

below. 

Notifiable Transaction—AI System— 

End Use—Design Intent 

Regarding the end-use thresholds for 

notifiable transactions involving AI 

systems, commenters also noted the 

challenge of distinguishing between AI 

systems that are ‘‘designed’’ for 

government intelligence, masssurveillance, or military end uses 

(which are subject to the notification 

requirement) from AI systems that are 

‘‘exclusively designed’’ for the same end 

uses (which are subject to the 

prohibition). A commenter suggested 

allowing U.S. investors to rely on 

information or representations of the 

target, which would be able to assess the 

design intent and end use of a given AI 

system. Another commenter suggested 

clarifying the requirement by replacing 

‘‘designed to be used’’ with ‘‘may be 

used’’ in § 850.217(d)(1), which would 

broaden the notification requirement to 

encompass any AI systems with the 

potential for any of the listed end uses 

without the need for investors to assess 

‘‘design’’ or ‘‘exclusive design’’ intent. 

Another commenter requested that the 

Treasury Department define ‘‘design’’ in 

relation to a covered activity. 

Sections 850.217(d) and 850.224(j) in 

the Final Rule retain the use of ‘‘design’’ 

and ‘‘exclusive design’’ as an end-use 

threshold for identifying certain 

notifiable and prohibited transactions, 

respectively, that involve AI systems. 

The Treasury Department notes that the 

end-use thresholds for AI systems are 

complemented by the technical 

threshold for computing power at 

§ 850.217(e), which provides criteria for 

notifiable transactions involving AI 

systems trained using a quantity of 

computing power greater than 10∧23 

computational operations. In some 

instances, the technical thresholds 

would therefore obviate the need for an 

investor to assess design intent of AI 

systems. The Treasury Department 

recognizes that while design intent may 

not always be easy to ascertain, 

especially in early-stage startup 

companies, the assessment of the 

investor is based on information 

available at the time of the transaction, 

consistent with the knowledge standard 

described at § 850.104. The Treasury 

Department further notes that assessing 

a given AI system for ‘‘design’’ or 

‘‘exclusive design’’ may involve 

considering an AI developer’s source of 

funding, customer base, nature and 

extent of model customization, 

performance indicators from testing and 

evaluation, and relevant training data, 

among other factors. The Final Rule 

does not adopt a specific definition for 

‘‘design,’’ since the specific applications 

of ‘‘design’’ may vary through their 

usage in the regulatory text depending 

on the relevant technology. The 

Treasury Department notes that the 

plain English meaning of ‘‘design’’ 

should apply, including but not limited 

to the process of conceiving, defining, or 

planning a system for a specific function 

or end use, such as laying out elements, 

interfaces, and other characteristics in 

accordance with identified requirements 

or architecture. 

Commenters also noted that the first 

parenthetical list under § 850.217(d)(1) 

in the Proposed Rule seemed to suggest 

that any AI system incorporating any of 

the features in the serial list would 

automatically qualify as ‘‘designed to be 

used for’’ mass-surveillance end use. 

Commenters were concerned that such 

an approach would implicate many 

exclusively commercial AI systems 

capable of ‘‘mining text, audio, or video; 

image recognition; location tracking; or 

surreptitious listening,’’ since such 

features are more commonplace. 

The Final Rule makes an adjustment 

in the first parenthetical list under 

§ 850.217(d)(1) to clarify that the list is 

illustrative of the types of features that 

could contribute to mass-surveillance 

end use. 

One commenter sought clarification 

regarding whether the terms ‘‘designed 

to be used’’ and ‘‘intended . . . to be 

used for’’ in § 850.217(d)(1) and (2), 

respectively, are meant to have different 

meanings. The commenter suggested 

that the Treasury Department use a 

single term if the meanings are identical 

or, alternatively, provide clarification 

regarding how the terms are meant to 

operate differently in the regulatory text. 

The Treasury Department notes that 

the terms ‘‘designed to be used’’ and 

‘‘intended . . . to be used for’’ operate 

distinctly from one another in 

§ 850.217(d). The phrase ‘‘design to be 

used’’ refers to any AI system where the 

development of such system, including 

for example, research and design 

considerations, is undertaken in view of 

potential government intelligence, masssurveillance, or military end use. The 

phrase ‘‘intended . . . to be used’’ 

captures AI systems that may or may not 

have been developed specifically for 

cybersecurity applications, digital 

forensics tools, penetration testing tools, 

or the control or robotic systems, but are 

nevertheless intended by a covered 

foreign person to be used for such 

purposes. 

The Final Rule also adds 

parenthetical text to § 850.217(d)(1) to 

clarify that weapons design includes, 

but is not limited to, chemical, 

biological, radiological, or nuclear 

weapons. 

Notifiable Transaction—AI System— 

End Use—Scope 

Several commenters requested that 

the Treasury Department distinguish 

between AI systems with end uses that 

are offensive in nature from those that 

are defensive (e.g., the cybersecurityrelated applications under 

§ 850.217(d)(2) could include both 

applications that disrupt another 

computer network and those that 

protect one’s own network). One 

commenter suggested that 

§ 850.217(d)(2) should exclude AI 

systems sold to commercial or civilian 

end users and that are restricted from 

military, surveillance, or law 

enforcement uses by technical and 

contractual safeguards. 

In response to the comments, the 

Final Rule includes Note 3 in § 850.217, 

which carves out from notification 

requirements certain transactions 

involving a person engaged in certain 

development of an AI system that would 

otherwise result in the transactions 

being covered transactions, where such 

development is undertaken in a manner 

that is unlikely to pose a national 

security concern. Specifically, Note 3 

provides that customizing, configuring, 

or fine-tuning a third-party AI model or 

machine-based system strictly for 

internal, non-commercial use would not 

itself trigger the notification 

requirements delineated in § 850.217 for 

covered transactions involving AI 

systems, unless such activity has a 

government intelligence, masssurveillance, or military end use, or is 

for digital forensics tools, penetration 

testing tools, or the control of robotic 

systems. The effect of this is that a 

person customizing, configuring, or 

fine-tuning a third-party AI model or 

machine-based system strictly for its 

own internal, non-commercial use for 

cybersecurity applications, or other end 

uses or applications not listed in Note 

3, would not implicate the notification 

requirements solely on that basis. 


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Notifiable Transaction—AI System— 

End Use—Scope—Control of Robotic 

Systems 

Commenters suggested that the 

notification requirement for certain AI 

systems involving the ‘‘control of 

robotic systems’’ could be narrowed to 

exclude certain commercial or civilian 

applications, with commenters 

suggesting specific carveouts for 

medical and direct patient care, or 

automotive use. 

The Final Rule adopts the subparagraph (iv) pertaining to ‘‘the control 

of robotic systems’’ from § 850.217(d)(2) 

of the Proposed Rule without changes. 

The Treasury Department recognizes 

that this provision may implicate 

certain consumer or civilian 

applications, due to the dual-use nature 

of controlling robotic systems, and 

considered options for rescoping the 

provision, including carveouts based on 

direct patient care or robotic systems 

with lower levels of autonomy. Given 

the potential and significant capability 

enhancement afforded by AI systems in 

the area of controlling robotic systems, 

however, the Treasury Department 

assesses in consultation with U.S. 

Government subject-matter experts that 

a sectoral carveout for medical or 

automotive applications in the 

notification requirement would reduce 

the U.S. Government’s visibility into 

transactions involving dual-use 

technologies and products relevant to 

national security. 

Notifiable Transaction—AI System— 

Technical Computing Power Thresholds 

Section 850.217(d)(3) of the Proposed 

Rule defined notifiable transactions 

involving AI systems to include any 

covered transaction in which a relevant 

covered foreign person or joint venture 

developed any AI system that is not 

described in § 850.224(j) or (k) and that 

was trained on a specific quantity of 

computing power. Three alternates for 

such technical thresholds were 

provided for consideration in the 

Proposed Rule: 10∧23, 10∧24, or 10∧25 

computational operations (e.g., integer 

or floating-point operations). The 

Treasury Department did not receive 

comments with specific preferences for 

any of the three alternate technical 

thresholds listed for notifiable 

transactions involving AI systems but 

did receive several comments on the 

general approach. One commenter 

suggested that investment restrictions 

should target AI systems trained on 

more than 10∧26 floating-point 

operations of compute. Other 

commenters noted that the Treasury 

Department should seek to align the AIrelated provisions of the Final Rule with 

other national security-related policies 

on AI and provide a clear rationale for 

the computing power threshold chosen. 

One commenter noted concern about 

using floating-point operations per 

second as a metric to assess risk. 

Regarding the computing power 

threshold for notifiable transactions 

involving the development of AI 

systems, the Final Rule sets the 

threshold at 10∧23 computational 

operations. As noted above, the 

technical threshold of greater than 

10∧23 computational operations will 

capture for notification AI systems at the 

lower end (in terms of scale and 

capability) of large-scale AI models that 

have been released to date. The 

Treasury Department, in consultation 

with U.S. Government subject-matter 

experts, selected this threshold based on 

the current number of publicly known 

AI models originating from the PRC, 

which is identified as a country of 

concern in the Annex to the Outbound 

Order, that would be implicated by the 

Final Rule. The Treasury Department 

considered other metrics for measuring 

AI capability and selected computing 

power for training consistent with the 

AI Order. The Treasury Department 

recognizes that new and potentially 

improved benchmarks for evaluating AI 

capabilities may become available and 

will monitor these developments to 

incorporate, as appropriate, such 

metrics into future regulatory updates. 

Notifiable Transaction—AI System— 

Changes to Technical Thresholds 

Three commenters noted that AI 

systems will evolve over time and that 

the computing power thresholds for 

both notifiable and prohibited 

transactions will likely need to be 

updated in the future, suggesting that 

the Treasury Department should engage 

with the private sector to ensure such 

thresholds and other definitions in the 

rule remain relevant. One commenter 

requested that the Treasury Department 

do so through a notice-and-comment 

process for any updates to the 

computing power thresholds, as well as 

other covered products and 

technologies, including provisions to 

ensure that such updates do not result 

in U.S. persons being penalized for 

investing in entities that become 

covered foreign persons. Another 

commenter recommended that the 

Treasury Department work closely with 

the National Institute for Standards and 

Technology and in line with the AI 

Order on a process for updating 

compute thresholds. One commenter 

suggested that transactions involving 

connected and electric vehicle 

technologies should be added to the 

notification and prohibition 

requirements, given pending legislation 

and rulemaking to control and secure 

connected vehicle, advanced driver 

assistance, autonomous vehicle, and 

electric vehicle technologies. 

The Treasury Department anticipates 

that the computing power thresholds 

included in the Final Rule will likely 

need to evolve to reflect developments 

in AI and relevant technologies. The 

Final Rule includes the note to 

§ 850.217 that was in the Proposed Rule, 

indicating that 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 and make 

updates, as appropriate, through public 

notice. The Treasury Department 

intends to continue engaging with 

stakeholders to inform future updates, 

as appropriate, to the notification 

requirements involving AI systems or 

related technologies. Regarding 

potential liability for a U.S. person that 

invests in an entity that was not a 

covered foreign person at the time of the 

transaction but becomes a covered 

foreign person because of a future 

regulatory update, the Treasury 

Department would not expect to apply 

such a regulatory update retroactively. 

Several commenters sought 

clarification regarding identification of 

notifiable and prohibited transactions 

based on how and when a person of a 

country of concern ‘‘engages in’’ the 

covered activities referred to in the 

definitions of notifiable and prohibited 

transactions. Multiple other 

commenters similarly requested that the 

Treasury Department confirm that 

covered activities would not extend to 

the provision of customer support in 

connection with the sale of a product to 

a covered foreign person. 

The Treasury Department notes that 

the covered person definition at 

§ 850.209(a)(1) is meant to capture 

persons of a country of concern that are 

engaging in the covered activities 

delineated in §§ 850.217 and 850.224 

and would not implicate third-party 

entities that supply a product or service 

to a covered foreign person, so long as 

the third-party entity does not itself 

perform the covered activity. 

One commenter requested the 

Treasury Department develop a 

notification system requiring U.S. 

persons to file details about covered 

transactions that includes venture 

capital investments in countries of 


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concern that do not currently fall under 

the purview of other regulatory 

agencies. The Treasury Department 

declines to implement this suggestion to 

expand the notification requirement, as 

it would exceed the scope of covered 

transactions contemplated in the 

Outbound Order. 

§ 850.219—Parent 

Section 850.219 of the Proposed Rule 

defined parent, with respect to an 

entity, as (1) a person that directly or 

indirectly held more than 50 percent of 

the outstanding voting interest in an 

entity or the voting power of the board 

of the entity; (2) the general partner, 

managing member, or equivalent of the 

entity; or (3) the investment adviser to 

any entity that was a pooled investment 

fund, with ‘‘investment adviser’’ as 

defined in the Investment Advisers Act 

of 1940 (15 U.S.C. 80b–2(a)(11)). 

The Treasury Department received 

one comment on this provision. The 

commenter stated that the definition of 

parent is too broad and should only 

include the direct or indirect holding of 

more than 50 percent of outstanding 

voting interest in an entity or voting 

power of the board of an entity. The 

Treasury Department declines to make 

this change to narrow the definition of 

parent in the Final Rule. The Treasury 

Department understands the 

commenter’s suggested revision as 

requesting the removal of paragraphs (b) 

and (c) from § 850.219. Doing so would 

narrow the application of the provision 

and not account for other types of 

entities such as limited partnerships or 

pooled investment funds that are 

structured differently than an entity 

with equity ownership or a board. 

Removing paragraphs (b) and (c) from 

§ 850.219 would therefore result in a 

gap in coverage. In the Final Rule, the 

Treasury Department has added Note 1 

to § 850.219 to clarify that an entity 

which satisfies the conditions in 

paragraphs (a), (b), or (c) is a parent 

within the meaning of this section even 

where such an entity is the intermediate 

entity and not the ultimate parent. This 

addition is in response to a comment to 

§ 850.206 of the Proposed Rule which 

sought clarity as to whether an 

intermediate entity could be a U.S. 

person parent under paragraph (a) of 

that section for the purposes of 

determining whether an entity is a 

controlled foreign entity. Other than the 

addition of this note, § 850.219 is 

finalized without change from the 

Proposed Rule. A parent under the Final 

Rule, with respect to any entity, is (1) 

a person that directly or indirectly holds 

more than 50 percent of the outstanding 

voting interest in an entity or the voting 

power of the board of the entity; (2) the 

general partner, managing member, or 

equivalent of the entity; or (3) the 

investment adviser to any entity that is 

a pooled investment fund, with 

‘‘investment adviser’’ as defined in the 

Investment Advisers Act of 1940 (15 

U.S.C. 80b–2(a)(11)). 

§ 850.221—Person of a Country of 

Concern 

Section 850.221 of the Proposed Rule 

described four sets of circumstances that 

would cause a person to be a person of 

a country of concern: 

• An individual who is a citizen or 

permanent resident of a country of 

concern (excluding U.S. citizens and 

U.S. permanent residents); 

• An entity with a principal place of 

business in, headquartered in, 

incorporated in, or organized under the 

laws of, a country of concern; 

• 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; or 

• Any entity, wherever located, in 

which one or more persons of a country 

of concern, individually or in the 

aggregate, holds at least 50 percent of 

any outstanding voting interest, voting 

power of the board, or equity interest, 

regardless of whether the interest was 

held directly or indirectly. 

As stated in the Proposed Rule, this 

defined term is a component of the 

definitions of covered foreign person 

and covered transaction. 

Person of a Country of Concern— 

General 

The Treasury Department received 

comments on several aspects of 

§ 850.221. A commenter stated that the 

Proposed Rule would increase the time 

and complexity of completing due 

diligence due to the breadth of the 

definition of person of a country of 

concern, and other commenters noted 

that regulatory restrictions in a country 

of concern or privacy concerns could 

impede or prevent a U.S. person from 

collecting information from a person of 

a country of concern. The Treasury 

Department notes that the definition of 

person of a country of concern is 

derived from section 9(e) of the 

Outbound Order and was crafted to 

cover a variety of persons with 

relationships to a country of concern. As 

previously discussed, the Treasury 

Department appreciates the dynamics of 

conducting due diligence regarding 

overseas investment targets. However, 

the Treasury Department 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 

Final Rule. As in the Proposed Rule, the 

Final Rule sets forth a variety of nonexclusive factors that are relevant to 

conducting a ‘‘reasonable and diligent 

inquiry.’’ Further discussion of due 

diligence as it relates to how knowledge 

will be assessed can be found in Subpart 

A and the preamble to Subpart A. 

A commenter noted that other U.S. 

national security regulatory programs 

publish a list of foreign persons subject 

to certain transactional prohibitions, 

allowing due diligence to be carried out 

through automated processes. The 

commenter stated that a list-based 

approach would reduce the compliance 

burden for a U.S. person investing in 

publicly traded securities. The 

commenter also noted that a U.S. person 

would be required to establish a 

separate, manual compliance process in 

the absence of such an approach. In 

response to this comment, the Treasury 

Department notes that compiling a list 

as the commenter suggested 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. 

Additional discussion relevant to this 

point is above in the discussion of a 

covered transaction. The Treasury 

Department instead expects a U.S. 

person to conduct a ‘‘reasonable and 

diligent inquiry’’ to determine whether 

a transaction is covered under the Final 

Rule, including whether any person of 

a country of concern or covered foreign 

person is involved. Note, however, that 

the definition of prohibited transaction 

provides 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 (BIS) 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 


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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. 

Citizen or Permanent Resident of a 

Country of Concern 

Section 850.221(a) of the Proposed 

Rule related to those individuals that 

are defined as a person of a country of 

concern. These included any individual 

that (1) was a citizen or permanent 

resident of a country of concern, (2) was 

not a U.S. citizen; and (3) was not a 

permanent resident of the United States. 

The Treasury Department adopts this 

paragraph in the Final Rule without 

changes. 

One commenter requested that the 

Treasury Department exclude from the 

definition of person of a country of 

concern individuals who are permanent 

residents or citizens of third countries 

and citizens of a country of concern 

(also known as dual citizens). The 

commenter also suggested excluding 

individuals who no longer ordinarily 

reside in a country of concern. While 

the Treasury Department understands 

that individuals who are citizens of a 

country of concern can have 

relationships to more than one country, 

the Treasury Department declines to 

amend this sub-paragraph. The fact that 

a person of a country of concern may be 

a dual citizen or permanent resident of 

a third country does not necessarily 

diminish their ties or allegiance to a 

country of concern, and they may still 

be subject to the laws of a country of 

concern that may compel the disclosure 

of information or other conduct. 

Creating an exception for such dual 

citizens could undermine the 

effectiveness of the Final Rule by 

introducing a loophole whereby a 

person of a country of concern could 

avoid coverage through taking up 

residency in or acquiring citizenship of 

a third country. The Treasury 

Department also notes that this subparagraph is derived from section 9(e)(i) 

of the Outbound Order. 

One commenter expressed concern 

that the scope of this sub-paragraph, 

which includes individuals who are 

citizens or permanent residents of a 

country of concern, could prohibit U.S. 

investment in technology startups in the 

United States where the business was 

started by an individual who is a person 

of a country of concern. The Treasury 

Department interprets this comment to 

refer to a situation in which the person 

of a country of concern that has started 

a U.S. company both remains in the 

United States and continues to own a 

controlling stake such that the company 

is also defined as a person of a country 

of concern pursuant to § 850.211(d). The 

Treasury Department notes that an 

individual who is a U.S. citizen or U.S. 

permanent resident is not a person of a 

country of concern as set forth in 

§ 850.221. However, where a person of 

a country of concern is merely in the 

United States (or a third country) and is 

engaged in a covered activity, capturing 

U.S. person transactions involving such 

persons is consistent with the objectives 

of the Outbound Order, given the ties 

between the entity accepting investment 

and a country of concern by virtue of its 

continued ownership by a citizen or 

permanent resident of a country of 

concern that is also neither a U.S. 

citizen nor a U.S. permanent resident. 

Another commenter stated that 

investments by a person of a country of 

concern enterprise in third countries do 

not usually pose national security risks 

and requested the definition be adjusted 

to exclude such investments. The Final 

Rule, like the Proposed Rule, does not 

generally regulate investments by a 

person of a country of concern entity 

into third countries, but rather regulates 

certain investments by a U.S. person 

into a person of a country of concern 

that engages in a covered activity. 

However, the Treasury Department 

declines to categorically exclude 

coverage of certain situations in which 

a person of a country of concern may 

also be a U.S. person (for example, 

because the entity is majority owned or 

controlled by persons of a country of 

concern but headquartered in the 

United States) because doing so could 

create a loophole that would undermine 

the national security goals of the Final 

Rule. 

Entity of a Country of Concern 

Section 850.221(b) of the Proposed 

Rule defined as a person of a country of 

concern an entity with a principal place 

of business in, headquartered in, or 

incorporated in or otherwise organized 

under the laws of, a country of concern. 

The Treasury Department did not 

receive comments on this paragraph and 

adopts it in the Final Rule without 

changes. 

Control by the Government of a Country 

of Concern; Acting for or on Behalf of 

the Government of a Country of Concern 

Section 850.221(c) of the Proposed 

Rule scoped into the definition of a 

person of a country of concern 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 

held 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 possessed 

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). The Treasury 

Department adopts this paragraph in the 

Final Rule without changes. 

Commenters requested that the 

Treasury Department clarify which 

actions taken for or on behalf of the 

government of a country of concern 

would fall within the scope of this 

provision. A commenter also requested 

clarity on (or specific examples of) what 

constitutes an instrumentality or any 

political subdivision, political party, or 

agency of the government of a country 

of concern. The Treasury Department 

notes that ‘‘acting for or on behalf of the 

government of a country of concern’’ 

may include formal or informal 

relationships between a person and a 

government of a country of concern 

resulting in such person engaging in 

conduct for the purpose of benefitting 

such government. This provision is not 

intended to capture persons, such as 

third-party consultants, operating in an 

arm’s-length commercial relationship 

with a government. 

Person of a Country of Concern— 

Aggregation and Voting Power 

Section 850.221(d) of the Proposed 

Rule scoped into the definition of a 

person of a country of concern any 

entity in which one or more persons 

identified in § 850.221(a), (b), or (c), 

individually or in the aggregate, directly 

or indirectly, held at least 50 percent of 

any of the following interests of such 

entity: outstanding voting interest, 

voting power of the board, or equity 

interest. Section 850.221(e) of the 

Proposed Rule made explicit that when 

a person of a country of concern held 

any interest described in paragraph 

850.221(d) in another person, which in 

turn held any interest described in 

paragraph 850.221(d) in a third person, 

each of the three persons would be 

defined to be a person of a country of 

concern, and so on. The Treasury 

Department adopts these paragraphs in 

the Final Rule without changes. 

A commenter requested that the 

Treasury Department revise the 

definition of person of a country of 

concern to exclude those entities scoped 

in via the language of 221(d) and (e). 

The commenter asserted that the 

inclusion of ‘‘in the aggregate’’ and 


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‘‘direct and indirect’’ presents broad and 

impracticable diligence obligations for a 

U.S. person when determining whether 

an investment target is a person of a 

country of concern and recommended 

that the 50 percent rule apply only if 

attributable to a single entity, rather 

than in the aggregate. Alternatively, the 

commenter recommended excluding the 

aggregation of unrelated parties’ 

ownership stakes, and instead 

establishing a de minimis threshold for 

outstanding voting power or equity 

below 10 percent. Another commenter 

similarly suggested revising the rule to 

only require aggregation of voting 

interest, voting power of the board, or 

equity interest where the persons are 

related or affiliated parties. The 

commenter noted that this suggestion 

meant to reduce the burden on the U.S. 

Government in instances where a U.S. 

person submits a notification out of an 

abundance of caution due to incomplete 

information on transactions that may 

involve a person of a country of 

concern. The Treasury Department 

notes that the paragraphs requiring 

aggregation are intended to capture 

entities located outside of a country of 

concern that are at least 50 percent 

owned by a person of a country of 

concern or controlled by a government 

of a country of concern, because a U.S. 

person investment into such an entity 

could result in the transfer of capital 

and intangible benefits to or for the 

benefit of one or more persons of a 

country of concern or a government of 

a country of concern. As such, the 

Treasury Department declines to amend 

these provisions and reiterates that, as 

stated in the Proposed Rule, 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. 

One commenter recommended that 

the Treasury Department define ‘‘voting 

power of the board’’ to avoid 

uncertainty as to whether it applies 

based on the citizenships of members of 

the board. The commenter suggested a 

definition for the Treasury Department’s 

consideration. The Treasury Department 

declines to incorporate the definition 

provided by the commenter because 

whether it refers to an individual or 

entity depends on the context. 

Person of a Country of Concern—Final 

Rule Summary 

The Final Rule adopts the definition 

of a person of a country of concern 

without change from the Proposed Rule. 

This definition includes an individual 

who is a citizen or permanent resident 

of a country of concern and excludes 

U.S. citizens and U.S. permanent 

residents. It also includes an entity with 

a principal place of business in, 

headquartered in, incorporated in, or 

organized under the laws of a country of 

concern. It also includes 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 Treasury 

Department 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 Final Rule. 

The definition includes 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. 

Finally, the definition includes 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 at least 50 percent 

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 will need to determine whether 

a person of a country of concern, 

individually or in the aggregate, holds at 

least 50 percent of the entity’s voting 

interest, voting power of the board, or 

equity interest, in which case the entity 

will be considered a person of a country 

of concern. If the entity meets these 

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 will also be a person of 

a country of concern, and so on. 

§ 850.224—Prohibited Transaction 

In the Proposed Rule, § 850.224 

defined a prohibited transaction as a 

covered transaction in which the 

relevant covered foreign person 

undertook (or in the case of certain 

greenfield, brownfield, or joint venture 

investments, the U.S. person knew 

would or intended to undertake) any of 

several specified covered activities 

listed in the proposed definition of 

prohibited transaction. These covered 

activities included: 

• Developing or producing any 

electronic design automation software 

for the design of integrated circuits or 

advanced packaging, certain front-end 

semiconductor fabrication equipment, 

equipment for performing volume 

advanced packaging, or other items 

related to extreme ultraviolet 

lithography fabrication equipment; 

• Designing any integrated circuit 

that meets or exceeds certain advanced 

technical thresholds identified by the 

Department of Commerce, Bureau of 

Industry and Security, or integrated 

circuits designed for operation at or 

below 4.5 Kelvin; 

• Fabricating integrated circuits that 

meets specified technical criteria; 

• Packaging of any integrated circuit 

using advanced packaging techniques; 

• Developing, installing, selling, or 

producing any supercomputer enabled 

by advanced integrated circuits that 

provide a theoretical compute capacity 

above a specified threshold; 

• Developing a quantum computer or 

producing any of the critical 

components required to produce a 

quantum computer; 

• 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 masssurveillance end use; 

• 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; or (3) any other 

application that had military, 

government intelligence, or masssurveillance end use; 

• Developing an AI system that is 

designed to be exclusively used for, or 

which the relevant covered foreign 

person intends to be used for, any 

military, government intelligence, or 

mass-surveillance end use; 

• Developing an AI system that is 

trained using a quantity of computing 

power above a technical threshold (for 

which the Proposed Rule offered three 

alternate thresholds for consideration), 

with a lower computing power technical 

threshold for AI systems using primarily 

biological sequence data (for which the 

Proposed Rule offered two alternate 

thresholds for consideration); and 

• Any covered activity (either in the 

definition of notifiable transaction or 

prohibited transaction) if the covered 

foreign person is included on certain 

specified U.S. Government lists. 


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The Treasury Department received 

several comments relating to these 

various aspects of the scope of 

prohibited transactions. 

Prohibited Transaction—General 

One commenter requested that the 

Treasury Department revise the 

definition of prohibited transaction to 

distinguish between civilian and 

military technologies and products, 

which would have the effect of limiting 

the impact on U.S. firms seeking to 

enter certain civilian markets in a 

country of concern. 

The Treasury Department has 

determined that the specified covered 

activities listed in the definition of 

prohibited transaction pose a 

particularly acute national security 

threat to the United States identified in 

the Outbound Order. Each of the 

technical descriptions and references to 

end uses in the definition of prohibited 

transaction is designed to achieve the 

focused national security policy 

objectives of the Outbound Order. 

However, the Final Rule includes Note 

3 in § 850.224, which carves out from 

prohibition certain transactions that 

involve a person engaged in certain 

development of an AI system that would 

otherwise result in the transactions 

being covered transactions, where such 

development is undertaken in a manner 

that is unlikely to pose a national 

security concern. Specifically, Note 3 

provides that customizing, configuring, 

or fine-tuning a third-party AI model or 

machine-based system strictly for 

internal, non-commercial use would not 

itself trigger the prohibition delineated 

in § 850.224 for covered transactions 

involving AI systems unless such 

activity has a government intelligence, 

mass-surveillance, or military end use, 

or is for digital forensics tools, 

penetration testing tools, or the control 

of robotic systems. The effect of this is 

that a person customizing, configuring, 

or fine-tuning a third-party AI model or 

machine-based system strictly for its 

own internal, non-commercial use for 

cybersecurity applications, or other end 

uses or applications not listed in Note 

3, would not implicate a prohibition 

solely on that basis. 

Prohibited Transaction—Integrated 

Circuits 

Commenters requested that the rule 

not prohibit but instead require 

notification for covered transactions 

involving any integrated circuits, 

including those described at 

§ 850.224(c), (d), and (e). One 

commenter stated that the prohibition of 

such transactions could prevent U.S. 

companies from diversifying critical 

supply chains to the benefit of U.S. 

national security by making investments 

in non-U.S. companies that have 

operations in the PRC. 

The Final Rule adopts the Proposed 

Rule’s definition of prohibited 

transactions involving certain integrated 

circuits, including those described at 

§ 850.224(c), (d), and (e). The Final Rule 

does make a technical edit to the 

chapeau at § 850.224(d), which was 

modified from ‘‘Fabricates any 

integrated circuit that meets any of the 

following criteria’’ to ‘‘Fabricates any of 

the following.’’ This is a technical edit 

for clarity in paragraph (d) and is not 

intended to affect the substance of the 

paragraph. 

The Treasury Department notes that 

the criteria for integrated circuits and 

related technologies were scoped to 

capture activities that pose an acute 

national security threat as described in 

the Outbound Order and Proposed Rule. 

The Treasury Department further notes 

that the Final Rule includes certain 

exceptions and exemptions at 

§§ 850.501 and 850.502, respectively, 

that could except or exempt certain 

transactions involving advanced 

integrated circuits, including in the 

event the Secretary makes a 

determination regarding a national 

interest exemption for a covered 

transaction that the Secretary 

determines, in consultation with the 

heads of relevant agencies, as 

appropriate, to be in the national 

interest of the United States. 

Prohibited Transaction—AI System— 

Technical Thresholds 

Several commenters requested the 

Treasury Department set the computing 

power thresholds for a prohibited 

transaction involving an AI system at 

10∧26 computational operations, the 

least restrictive of the three potential 

alternates offered in the Proposed Rule 

(10∧24, 10∧25, or 10∧26). Commenters 

noted that this threshold would be more 

likely to target the type of AI systems 

that pose acute national security threats 

and be consistent with the thresholds 

set out in the AI Order. One commenter 

noted that some widely-available 

commercial AI models have been 

trained at 10∧25 computational 

operations. For an AI system trained 

using primarily biological sequence 

data, one commenter recommended that 

the Treasury Department set the 

computing power threshold for a 

prohibited transaction at 10∧24 

computational operations, while 

another noted that restrictions on the 

AI-related use of biological data would 

be better addressed through separate 

regulations focused on governing the 

use of biological sequence data. Another 

commenter suggested that AI systems 

trained using primarily biological 

sequence data should be subject to a 

notification requirement only, citing the 

inconclusive relationship between AI 

training compute and bio-related risks, 

the distinct characteristics and opensource nature of life sciences research, 

and the value of a notification regime 

towards better understanding this subcategory of AI models. One commenter 

remarked that, despite its limitations, 

the use of a computing power threshold 

was a more administrable benchmark 

than other criteria. 

The Final Rule sets the computing 

power threshold for a prohibited 

transaction involving an AI system at 

10∧25 computational operations for an 

AI system generally, and at 10∧24 

computational operations for an AI 

system using primarily biological 

sequence data. These determinations are 

reflected at § 850.224(k)(1) and (2), 

respectively. In assessing the 

appropriate technical thresholds for 

computing power, the Treasury 

Department considered the comments 

received on the Proposed Rule and 

inputs from U.S. Government subjectmatter experts; the thresholds identified 

in the AI Order and related rationales; 

estimates for how computing power 

may evolve as AI model development 

continues; and the nature, number, and 

origin of current large-scale AI models 

trained at each of 10∧23, 10∧24, 10∧25, 

and 10∧26 computational operations 

based on available information. The 

Treasury Department notes that the 

computing power thresholds identified 

in the Final Rule for a prohibited 

transaction involving an AI system 

capture a number of models, including 

models trained primarily on biological 

data, that originate from a country of 

concern and exhibit the scale and 

capability that have implications for 

national security. The Treasury 

Department will continue to monitor the 

development of the AI industry, 

including engagement with relevant 

stakeholders, to inform future updates 

to the prohibition involving AI systems, 

as appropriate. 

One commenter recommended that 

the Treasury Department add a 

prohibition requirement focused on 

targeting computing clusters required to 

train frontier AI systems. The 

commenter provided specific 

recommendations for technical criteria 

related to such computing clusters, 

including networking of over 100Gbits/ 

s and a calculation of theoretical 

maximum computing capacity. The 

Treasury Department notes that the 

suggestion to add computing clusters to 


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the Final Rule aligns conceptually with 

a reporting requirement for AI clusters 

(with a certain networking bandwidth 

minimum and theoretical maximum 

computing capacity) under the AI 

Order. The Treasury Department 

intends to consider a similar addition in 

future updates to the Final Rule, since 

more time, information, and analysis are 

required to assess the nature and scope 

of such restrictions, including how to 

avoid unnecessary impact on computing 

clusters used for consumer or 

commercial applications. 

Another commenter recommended 

that the Treasury Department have a 

mechanism to reevaluate computing 

power thresholds in response to changes 

in technology and the development of 

AI systems in countries of concern. The 

Treasury Department notes that the 

Final Rule includes the note to 

§ 850.224 from the Proposed Rule 

indicating that 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) remain 

effective in addressing threats to the 

national security of the United States 

and make updates, as appropriate, 

through public notice. 

Prohibited Transaction—AI System— 

General 

One commenter recommended that 

the Treasury Department develop a 

licensing system that would approve 

transactions where parties can 

demonstrate that a relevant AI system is 

not transferred to military, intelligence, 

or mass-surveillance end users or end 

uses. The same commenter also 

suggested publication of a list of AI 

applications ‘‘authorized’’ for 

investment regardless of computing 

power. The Final Rule makes no change 

to § 850.224 in response to this 

comment, since, as discussed above, a 

licensing system based on transactionby-transaction review would be 

resource- and time-intensive to 

administer and is unlikely to result in 

the approvals that the commenter 

anticipates due to the potential dual-use 

and national security implications of AI 

systems that meet the end use or 

computing power thresholds tied to the 

prohibition. The Treasury Department 

additionally notes that there are no 

restrictions on outbound investment 

involving AI applications that do not 

meet the relevant definitions and 

thresholds set forth in the Final Rule, 

even if there is not a definitive list of 

such applications. Such AI applications 

would be challenging to list 

comprehensively due to the evolving 

nature of the AI industry and cadence 

of new or updated AI applications being 

released. The Final Rule includes 

additional clarification in § 850.224(j)(2) 

regarding an AI system’s government 

intelligence or surveillance use. The 

Final Rule also adds parenthetical text 

to § 850.244(j)(1) to clarify that weapons 

design includes, but is not limited to, 

chemical, biological, radiological, or 

nuclear weapons. 

One commenter also requested that 

the Treasury Department synchronize 

its definition of an AI system as used 

within prohibited transaction with other 

regulations, such as by basing its 

definition of AI systems on the EAR. 

The commenter noted that this would 

better align with companies’ existing 

compliance operations, facilitating 

implementation of the rule and 

removing the need for companies to 

make subjective determinations about 

the intended use of AI systems. 

In response, the Treasury Department 

notes that certain technologies 

implicated by the Final Rule may be 

necessarily different from those 

implicated by the EAR, since the 

restrictions on certain outbound 

investments are meant to prevent a 

country of concern from developing or 

advancing the development of 

technologies critical to the next 

generation of military, intelligence, 

surveillance, or cyber-enabled 

capabilities, including certain 

technologies that could be less 

advanced than, upstream of, or 

otherwise distinct from items controlled 

for export. 

Prohibited Transaction—Quantum 

Computer 

One commenter expressed concern 

that § 850.224(g), which defines a 

prohibited transaction to include a 

covered transaction in which the 

relevant covered foreign person or joint 

venture develops a quantum computer 

or produces any of the critical 

components of a quantum computer, 

could implicate research and 

commercial applications. The 

commenter requests that this provision 

exclude from its scope certain medical 

and geological applications. 

The Treasury Department considered 

the technologies identified in 

§ 850.224(g), including their potential 

use in research or commercial 

applications, and adopts this provision 

from the Proposed Rule in the Final 

Rule without changes. The Treasury 

Department notes that development of a 

quantum computer, or production of 

any of the critical components required 

to produce a quantum computer such as 

dilution refrigerators or two-stage pulse 

tube cryocoolers, by a country of 

concern has the potential to pose an 

acute national security threat to the 

United States. Advances towards more 

capable quantum computers, including 

incremental advances in quality and 

speed, would likely contribute to a 

country’s capability to develop a 

cryptographically relevant quantum 

computer, among other applications, 

with acute national security 

implications. To the extent that a 

covered foreign person is engaged in 

developing a quantum computer or 

components critical to its function, the 

Treasury Department assesses that 

covered transactions involving such a 

covered foreign person should be 

prohibited to prevent a country of 

concern from accelerating its 

development of sensitive technologies 

and products critical for military end 

use. 

Prohibited Transaction—CrossReference to U.S Government Lists and 

Programs 

Several commenters discussed 

§ 850.224(m) of the Proposed Rule, 

which provided that any covered 

transaction was prohibited when the 

transaction was with or involved 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 was included on one of several 

U.S. Government lists, such as the 

Entity List maintained by BIS. One 

commenter recommends expanding the 

coverage of this provision via executive 

order or a related authority. Conversely, 

multiple commenters expressed concern 

that the Proposed Rule was overbroad 

and conflicts with policy decisions 

made by the U.S. Government in 

administering the other programs 

referenced in § 850.224(m). 

The Final Rule makes no changes to 

§ 850.224(m) as set forth in the Proposed 

Rule and adopts it in full. A covered 

foreign person’s inclusion on these lists 

evidences a threat to the interests of the 

United States, such as the foreign policy 

or national security of the United States. 

The lists in the Proposed Rule were 

chosen because the transfer of capital 

and U.S. person intangible benefits to 

any covered foreign person on any such 

list 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. 

One commenter stated that, because 

some of the lists effectively already 


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prohibit U.S. persons from engaging in 

certain transactions with the listed 

persons, § 850.224(m) may be 

duplicative. Another commenter 

reiterated its request that the Treasury 

Department base the prohibition on a 

list of entities that are engaged in certain 

activities rather than rely on the lists in 

§ 850.224(m). Additionally, one 

commenter requested clarification 

around the interplay between this 

program and other U.S. Government 

programs, particularly through 

guidance. 

As stated above, the Treasury 

Department considers that § 850.224(m) 

is necessary to address circumstances in 

which a U.S. person may not otherwise 

be prohibited from engaging in a 

covered transaction with a listed 

person. While a U.S. person may 

already be prohibited from undertaking 

certain types of transactions with a 

listed person, there may be covered 

transactions under the Final Rule that 

are not already addressed by the other 

programs of the programs referenced in 

§ 850.224(m). 

The Treasury Department further 

declines to establish and maintain a de 

novo list of entities that are engaged in 

certain activities for the purposes of 

prohibited transactions. As discussed in 

the Proposed Rule, developing and 

maintaining a list of entities 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. 

Providing a list of entities could also 

result in attempts to evade the rule 

through corporate restructuring and 

would be overly burdensome to 

maintain for the reasons discussed in 

relation to the definition of a covered 

transaction above. Instead, the Treasury 

Department expects 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. 

Lastly, the Treasury Department notes 

that § 850.224(m) should not 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. 

§ 850.229—U.S. Person 

Section 850.229 of the Proposed Rule 

defined a U.S. person to mean 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. 

The Treasury Department received 

comments on certain aspects of this 

section. A commenter requested that the 

Treasury Department reconsider 

prohibiting or regulating investments by 

foreign-domiciled funds that are 

controlled or managed by U.S. 

companies. The Treasury Department 

reiterates that any branch of a U.S. 

entity would be a U.S. person. With 

respect to actions by foreign-domiciled 

funds, the Treasury Department notes 

that as required by § 850.302, the U.S. 

person parent of a controlled foreign 

entity must take all reasonable steps to 

prohibit and prevent any transaction by 

such entity that would be a prohibited 

transaction if engaged in by a U.S. 

person. Further discussion of the 

requirements of a U.S. person related to 

its controlled foreign entity can be found 

in Subparts C and D and the preamble 

discussion for those subparts. 

A commenter expressed concern 

about the extraterritorial reach of the 

definition, particularly as related to U.S. 

citizens employed by companies 

operating in third countries. The 

Treasury Department notes that 

including U.S. citizens and permanent 

residents, wherever located, is critical to 

the effectiveness of the Final Rule, as 

narrowing the definition may present 

opportunities for circumvention. 

Furthermore, the scope of this section is 

derived from section 9(h) of the 

Outbound Order. 

A commenter requested that ‘‘any 

person in the United States’’ be removed 

from the definition of U.S. person, or 

that the Treasury Department provide 

greater clarity with respect to when a 

non-U.S. citizen or permanent resident 

in transit through the United States 

would be a U.S. person. The Treasury 

Department notes, as it did in the 

Proposed Rule, that 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 Treasury 

Department 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 coverage under the Final Rule, 

while possible, is not likely to be a 

frequent occurrence and can be 

reasonably managed with advance 

planning. 

One commenter requested that the 

Treasury Department supplement the 

definition of U.S. person with examples 

to illustrate when a non-U.S. entity with 

a subsidiary, employee, unincorporated 

branch office, or other fixed place of 

business in the United States would fall 

within the definition. The Treasury 

Department anticipates providing 

illustrative examples via its Outbound 

Investment Security Program website. 

The Final Rule adopts § 850.229 from 

the Proposed Rule without changes. The 

Final Rule will apply to the conduct of 

a U.S. person only. Regarding § 850.229 

of the Final Rule, the Treasury 

Department reiterates that an entity 

organized in the United States will be 

considered a U.S. person even if its 

parent is a non-U.S. person. However, a 

non-U.S. person that happens to be a 

parent of a U.S. person will not be 

treated as a U.S. person for the purposes 

of this Final Rule solely because of its 

relationship to the U.S. person. Further, 

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, will be 

considered a U.S. person under the 

Final Rule based on their presence in 

the United States, such person’s nonU.S. person employer will not to be 

considered a U.S. person solely because 

of an employee’s presence in the United 

States. 

Subpart C—Prohibited Transactions and 

Other Prohibited Activities 

This subpart of the Final Rule 

describes activities that are prohibited. 

Such activities include a U.S. person 

engaging in a prohibited transaction 

unless an exemption has been granted 

and includes a U.S. person knowingly 

directing an otherwise prohibited 

transaction, as described below. A U.S. 

person is also 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. 

§ 850.302—Actions of a Controlled 

Foreign Entity 

Under the Proposed Rule, a U.S. 

person would have been required to 

take all reasonable steps to prohibit and 

prevent any transaction by its controlled 

foreign entity that would have been a 

prohibited transaction if engaged in by 

a U.S. person. The Proposed Rule set 

out an illustrative list of factors that 

Treasury would have considered in 

determining whether the relevant U.S. 

person took all reasonable steps. 


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One commenter argued that the term 

‘‘all reasonable steps’’ is overly broad 

and would impose an unachievable 

standard upon U.S. persons. In the 

commenter’s view, this would result in 

second guessing, even when significant 

efforts were made to comply. The 

commenter requested removal of the 

word ‘‘all’’ from the regulations, which 

would, in the commenter’s view, be 

more realistic and achievable as an 

obligation upon U.S. persons, while 

addressing the Treasury Department’s 

objective of limiting the likelihood that 

a controlled foreign entity would engage 

in a prohibited transaction. One 

commenter requested that the Treasury 

Department clarify the shareholder 

rights that it will consider when 

determining compliance with this 

requirement and provide more specific 

guidance on what constitutes ‘‘all 

reasonable steps’’ for ensuring 

controlled foreign entities follow the 

requirements in the rule. Another 

commenter suggested the Treasury 

Department eliminate entirely the 

requirement for a U.S. person to take all 

reasonable steps to prohibit and prevent 

its controlled foreign entities from 

undertaking a transaction that would be 

a prohibited transaction if engaged in by 

a U.S. person. Instead, the commenter 

suggests that such transactions be 

permitted but require notification. 

The Treasury Department is finalizing 

§ 850.302 as proposed. The Treasury 

Department declines to eliminate the 

requirement for U.S. persons to take all 

reasonable steps to prohibit and prevent 

their controlled foreign entities from 

undertaking a transaction that would be 

a prohibited transaction if engaged in by 

a U.S. person. Doing so would create a 

loophole whereby a U.S. person would 

effectively be able to engage in 

prohibited transaction through its 

controlled foreign entity. Moreover, the 

phrasing ‘‘all reasonable steps,’’ which 

is consistent with section 8(d) of the 

Outbound Order, makes clear that if a 

particular measure is ‘‘reasonable’’ in 

the context of the specific facts and 

circumstances of the transaction, then 

the U.S. person should take it. 

Removing ‘‘all’’ could suggest that U.S. 

persons need only take ‘‘some’’ 

reasonable steps and create a risk that a 

U.S. person could permit its controlled 

foreign entity to engage in a transaction 

that would be a prohibited transaction 

if engaged in by a U.S. person and 

undermine the intent of the Outbound 

Order. As described in Note 1 to 

§ 850.302, the Treasury Department will 

assess compliance based on a 

consideration of the totality of relevant 

facts and circumstances, and where a 

U.S. person has taken all steps, 

including those described in 

§ 850.302(b), that were reasonable given 

the relevant circumstances, the U.S. 

person would be found in compliance 

with this provision of the Final Rule. 

The Final Rule adjusts the text of Note 

1 to § 850.302 by replacing the phrase 

‘‘given the size and sophistication of the 

U.S. person’’ with ‘‘in light of the 

relevant facts and circumstances’’ to 

clarify that all relevant facts and 

circumstances may be considered. 

The specific measures identified in 

§ 850.302(b) of the Final Rule that a U.S. 

person may take include: (1) the 

execution of agreements with respect to 

compliance with the Final Rule between 

the 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 

the Final Rule; (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. 

§ 850.303—Knowingly Directing an 

Otherwise Prohibited Transaction 

Section 850.303(a) of the Proposed 

Rule would have prohibited a U.S. 

person that possessed authority at a 

non-U.S. person entity from knowingly 

directing a transaction by that non-U.S. 

person entity that would have been a 

prohibited transaction if undertaken by 

a U.S. person. A U.S. person would 

have ‘‘knowingly directed’’ a transaction 

when such U.S. person had authority to 

make or substantially participate in 

decisions on behalf of a non-U.S. person 

entity and exercised that authority to 

direct, order, decide upon, or approve a 

transaction that would have been a 

prohibited transaction if engaged in by 

a U.S. person. The Proposed Rule 

specified that a U.S. person would have 

had such authority if such U.S. person 

was an officer, director, or senior 

advisor, or otherwise possessed seniorlevel authority, at such non-U.S. person 

entity. 

Section 850.303(b) of the Proposed 

Rule carved out from this prohibition a 

U.S. person who recused themself from 

an investment even if that person had 

the authority to make or substantially 

participate in decisions on behalf of a 

non-U.S. person entity. 

As the Treasury Department noted in 

the Proposed Rule, this provision was 

intended to address a potential 

loophole, such as a U.S. person senior 

manager at a foreign pooled investment 

fund that invested in a covered foreign 

person or otherwise directed a 

transaction that would have been 

prohibited if engaged in by a U.S. 

person. The approach in the Proposed 

Rule was 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) could determine 

whether its (or its employee’s) conduct 

was 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. 

Commenters requested the Treasury 

Department amend § 850.303 to narrow 

the scope of U.S. persons and activity 

covered, provide additional guidance on 

how ‘‘knowingly directing’’ would be 

applied to specific situations, and 

clarify how a U.S. person could recuse 

themself from an investment pursuant 

to § 850.303(b). Some commenters 

stated that if interpreted broadly and in 

conjunction with other terms in the 

Proposed Rule, this provision could 

operate as a prohibition on a U.S. 

person holding an executive or other 

decision-making role at a covered 

foreign person or any non-U.S. company 

and would be inconsistent with the 

objectives of other cross-border 

regulatory requirements. 

Several commenters requested that 

the Treasury Department narrow the 

scope of ‘‘knowingly directing’’ by 

removing ‘‘or substantially participate 

in’’ and ‘‘or as part of a group’’ from the 

second sentence in § 850.303(a). Two 

commenters requested that the Treasury 

Department amend § 850.303(a) to note 

that certain officers or directors ‘‘may’’ 

have such authority depending on the 

facts and circumstances, and that not all 

officers and directors have any authority 

or power with respect to investment 

decisions. 

Another commenter noted that the 

inclusion of ‘‘senior advisor’’ was 

unclear, as persons acting solely in an 

advisory capacity would not typically 

be able to ‘‘exercise’’ authority to direct, 

order, decide upon, or approve a 

transaction. Three commenters 

requested that the Treasury Department 

clarify that in addition to having the 

authority to make or substantially 


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participate in decisions on behalf of a 

non-U.S. person, the U.S. person must 

actually exercise that authority in regard 

to a transaction 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. 

The Final Rule revises § 850.303(a) in 

response to the comments. Under the 

Final Rule, a U.S. person that possesses 

authority at a non-U.S. person entity, 

individually or as part of a group, to 

make or substantially participate in 

decisions on behalf of such non-U.S. 

person entity, is prohibited 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. As stated 

in the Final 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 by that non-U.S. person 

entity that would be a prohibited 

transaction if engaged in by a U.S. 

person. The Treasury Department has 

modified the last sentence of 

§ 850.303(a) to specify that a U.S. person 

possesses such authority for a non-U.S. 

person when they are an ‘‘officer, 

director, or otherwise possess executive 

responsibilities’’ (emphasis added) at a 

non-U.S. person. This modified text 

removes ‘‘or senior advisor’’ and 

narrows the scope of persons who may 

knowingly direct a non-U.S. person to 

officers, directors, or their functional 

executive equivalents, and is consistent 

with how other national-security 

regulatory requirements administered 

by the Treasury Department apply a 

functional test to those occupying 

decision-making positions (see, e.g., 31 

CFR 800.402(b)(3)). 

The Final Rule does not make other 

changes recommended by commenters 

to 850.303(a), such as removing 

‘‘substantially participates’’ or ‘‘as part 

of a group’’ from what it is to 

‘‘knowingly direct.’’ The Treasury 

Department is seeking to balance 

concerns about potential evasion with 

concerns related to the scope of the 

provision, including impacts on 

employment of non-U.S. persons, and 

has determined that scoping the 

provision to apply to certain persons in 

key roles is the most effective way to do 

so. Furthermore, in entities where 

investment decisions are frequently 

made by committees or other governing 

bodies, applying the rule only to actions 

taken outside of a group context would 

exclude a significant amount of 

corporate activity that could be 

exploited to facilitate a prohibited 

transaction. 

The Treasury Department declines to 

adopt a formal ‘‘facts and 

circumstances’’ test in the Final Rule, 

because the existing two-step 

requirement that a U.S. person must 

have authority and then exercise it, 

combined with the specific language in 

§ 850.303(a) of the Final Rule regarding 

when such authority exists and the 

recusal carveout (discussed further 

below), is clearer than a ‘‘facts and 

circumstances’’ standard. Furthermore, 

the existing requirement in § 850.303(a) 

that such authority actually be exercised 

with regards to a particular investment 

for the prohibition to apply recognizes 

the concern raised by commenters that 

some executives ‘‘may’’ have such 

authority but not exercise it. 

The Treasury Department has 

clarified that consistent with commenter 

views, to ‘‘knowingly direct’’ an 

otherwise prohibited transaction by a 

non-U.S. person, a U.S. person must 

both (1) have authority to make or 

substantially participate in decisions on 

behalf of the non-U.S. person and (2) 

exercise 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. In other 

words, a U.S. person with such 

authority will not be assessed to have 

‘‘knowingly directed’’ an otherwise 

prohibited transaction unless they 

actually exercised that authority in 

decision-making regarding the 

transaction. 

The Treasury Department considered 

the potential impact of this provision on 

employment opportunities for U.S. 

persons at non-U.S. person entities, but 

notes that the provision does not 

broadly restrict U.S. persons from 

holding executive or other decisionmaking positions at non-U.S. persons. 

The Treasury Department reiterates that 

§ 850.303(a) applies when a U.S. person 

both has and actually exercises 

decision-making authority. Along with 

the availability of the recusal provision 

at 850.303(b) (discussed further below), 

the provisions together establish a clear 

standard through which a U.S. person 

could perform executive level functions 

at non-U.S. person entities without 

unintentionally ‘‘knowingly directing’’ a 

prohibited transaction. 

Other commenters suggested 

exclusions for certain activities, 

including the provision of third-party 

services, such as banking, due diligence, 

and routine administrative work by a 

U.S. person, participation in a Limited 

Partnership Advisory Committee 

(LPAC), as well as the provision of legal 

advice and counsel with respect to the 

applicability of the Final Rule. One 

commenter requested the Treasury 

Department amend either § 850.303(a) 

or the definition of covered transaction 

at § 850.210(a)(4) so that the rule would 

apply more clearly to investment 

activity, and not routine business 

operations, pivots, or expansions. The 

Final Rule does not make any changes 

in response to these comments because, 

as explained in the Proposed Rule, 

routine business activities conducted by 

a U.S. person (whether that U.S. person 

is an employee of the non-U.S. person 

or a third party) are unlikely to rise to 

the level of substantial involvement in 

an investment decision. Furthermore, 

approval or decision-making by a U.S. 

person in routine business operations of 

a non-U.S. person, which could include 

approving an annual budget, staffing, or 

procurement, are unlikely to fall within 

the scope of this provision. The 

Treasury Department declines to except 

a business pivot or expansion by a nonU.S. person, which may constitute a 

prohibited transaction (and would fall 

within the scope of this provision) 

because such a transaction is more 

likely to risk a transfer of intangible 

benefits to a covered foreign person. 

One commenter requested 

clarification on how § 850.303 would 

apply to a U.S. person entity voting its 

interests or providing approvals, even if 

no U.S. person individual is involved, 

while another requested clarity on what 

activities of a private fund’s Investment 

Committee would be covered by the 

provision. 

The Final Rule will apply to a U.S. 

person regardless of whether such U.S. 

person is an individual or an entity, as 

long as it meets the elements of 

§ 850.303(a) such that it possesses the 

authority described and exercises such 

authority as described. The Treasury 

Department notes that a U.S. person 

who participates in an advisory board or 

an advisory committee of a pooled 

investment fund would generally not 

have the authority to ‘‘make or 

substantially participate in decisions’’ 

about investments if the advisory board 

or committee itself does not have the 

ability to approve, disapprove, or 

otherwise control: (1) investment 

decisions of the investment fund; or (2) 

decisions made by the general partner, 

managing member, or equivalent related 

to entities in which the investment fund 

is invested. However, in some 

circumstances, an advisory board or 

committee may approve or disapprove 

certain transactions, such as those 

where conflicts of interest are present. 

In those circumstances, the advisory 

board or committee would have the 

authority to ‘‘make or substantially 


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participate in decisions’’ of the 

investment fund. 

Another commenter requested the 

Treasury Department clarify whether 

penalties apply to the relevant U.S. 

person or the non-U.S. person entity 

that undertakes a transaction that would 

be a prohibited transaction if 

undertaken by such U.S. person 

directly. Section 850.303 specifically 

prohibits actions by a U.S. person. A 

violation of this provision would 

therefore result in penalties for that U.S. 

person. 

Knowingly Directing—Recusal Carveout 

Several commenters requested 

additional clarification or guidance 

regarding the recusal provision at 

§ 850.303(b). A few commenters 

requested that the Treasury Department 

clarify at what point a U.S. person 

would be considered to be 

‘‘substantially participating’’ in an 

investment decision, and when a U.S. 

person should recuse themself from an 

investment transaction to benefit from 

the carveout. Multiple commenters 

requested guidance on how the 

prohibition would apply to certain 

investment activity after the completion 

of an investment, or noted that the 

recusal should extend to negotiating and 

decision-making related to an 

investment and management and 

oversight of the investment after the 

completion date. One commenter stated 

that the prohibition on ‘‘knowingly 

directing’’ should only apply to the 

decision to enter into the investment 

commitment and another stated the 

recusal carveout should ‘‘apply no 

earlier than the stage of a ‘decision to 

undertake a transaction’ ’’ and requested 

additional clarity on what such a 

decision would entail. 

The Final Rule implements 

§ 850.303(b) with modifications in 

response to comments. In particular, the 

Final Rule specifies in § 850.303(b) that 

a U.S. person that has the authority 

specified in § 850.303(a) will not be 

deemed to have ‘‘knowingly directed’’ a 

transaction by a non-U.S. person when 

the U.S. person recuses themself from 

each of the following activities: 

(1) Participation in formal approval 

and decision-making processes related 

to the transaction, including making a 

recommendation; 

(2) Reviewing, editing, commenting 

on, approving, and signing relevant 

transaction documents; and 

(3) Engaging in negotiations with the 

investment target (or, as applicable, the 

relevant transaction counterparty, such 

as a joint venture partner). 

Consistent with the requests of most 

commenters on this issue, the recusal 

carveout focuses on activities connected 

to an investment decision and does not 

reach post-transaction management and 

oversight of an investment (so long as 

such post-transaction activity does not 

fall under the description of activities in 

§ 850.303(b)). Because the definition of 

knowingly directing in § 850.303(a) of 

the Final Rule does not cover posttransaction activity, a recusal carveout 

that covers such activity would be 

inapposite. 

Because the above carveout is 

conjunctive, a U.S. person that 

participates in any single activity 

specified in § 850.303(b) would not be 

able to qualify under it. To clarify, while 

this carveout, if strictly adhered to, 

removes an individual U.S. person from 

the scope of the prohibition in 

§ 850.303(a), it does not confer any 

carveouts, protections, exceptions, 

exemptions, or safe harbors upon the 

U.S. person in connection with any 

other provision of this Final Rule or any 

other rule, nor does it affect the 

application of the Outbound Order, 

Final Rule, or guidance to a transaction 

itself or the actions of any other 

individual or entity. 

Subpart D—Notifiable Transactions and 

Other Notifiable Activities 

This subpart of the Final Rule 

requires a U.S. person to notify the 

Treasury Department in any of the 

following circumstances: 

• If it undertakes a notifiable 

transaction (§ 850.401); 

• If its controlled foreign entity 

undertakes a transaction that would be 

notifiable if undertaken by a U.S. person 

(§ 850.402), or; 

• 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 (§ 850.403). 

In each of the above circumstances, 

the U.S. person is required to follow 

specified procedures that include 

requirements to submit detailed 

information to the Treasury Department 

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 is also required to 

promptly notify the Treasury 

Department of any material omission or 

inaccuracy that the U.S. person learns 

about following any information 

submission. 

§ 850.403—Notification of PostTransaction Knowledge 

The Proposed Rule required a U.S. 

person to notify the Treasury 

Department if the U.S. person acquired 

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. 

Section 850.403 would have applied to 

circumstances in which a U.S. person 

acquired actual knowledge after the 

window in which a § 850.401 

notification could have been timely 

submitted. Under § 850.403 of the 

Proposed Rule, in such a circumstance 

a U.S. person would have been required 

to submit a notification pursuant to 

§ 850.404 within 30 days of acquiring 

such knowledge. Specifically, the 

§ 850.403 notification requirement 

would have applied 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 

§ 850.403 notification included 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. The requirement would have 

applied if the transaction would have 

been either a notifiable transaction or a 

prohibited transaction. 

The Treasury Department received 

several comments with respect to this 

section. Commenters requested 

revisions to § 850.403 to remove the 

obligation to submit a notification in the 

case where a transaction counterparty 

has pivoted into a covered activity until 

the U.S. person is considering a followon or other subsequent investment in 

the target company. It was noted that 

without this limitation, the Proposed 

Rule would create an ongoing obligation 

to monitor and report on activities of the 

target company and questioned how far 

into the future an investor must assess 

a target company’s activities and how 

mature those plans must be before the 

investment is brought within the scope 

of the rule. Some commenters requested 

clarity that there is not a requirement for 

ongoing monitoring obligations on 

behalf of a U.S. person. However, one 

commenter noted that because § 850.403 

only applies where the U.S. person has 

‘‘actual knowledge,’’ ongoing 

monitoring or recurring diligence of 

existing investments would not be 


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necessary and requests that the rule 

state as much. Commenters also 

requested a clear exception from 

imposed divestment in situations in 

which a target company pivots into a 

prohibited covered activity, but the U.S. 

person performed reasonable due 

diligence at the time of its initial 

investment and satisfied the notification 

requirement if applicable. 

The Final Rule adopts § 850.403 of the 

Proposed Rule largely as proposed. The 

only change is a technical edit to Note 

1 of § 850.403 to remove the phrase ‘‘For 

avoidance of doubt’’ from the beginning 

of the note. This edit is for clarity and 

is not intended to affect the substance 

of the requirement. Section 850.403 

applies where a U.S. person 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 the U.S. person had known of the 

relevant facts or circumstances as of the 

completion date. As to corporate pivots 

into covered activity that occur after the 

completion date of the relevant 

transaction, there are two main 

considerations with respect to the 

application of the Final Rule: first, 

whether the U.S. person had knowledge 

at the time of the transaction regarding 

the later corporate pivot into a covered 

activity, including whether the U.S. 

person had or should have had an 

awareness of a high probability of a fact 

or circumstance’s existence or future 

occurrence (in which case the 

transaction would be a notifiable 

transaction or a prohibited transaction 

in the first instance under Subpart C or 

Subpart D, as applicable); and second, 

where a U.S. person does not satisfy the 

knowledge requirement at the time of 

the transaction, whether in the future 

the U.S. person acquires actual 

knowledge of a fact or circumstance 

that, if known to the U.S. person at the 

time of the transaction, would have 

resulted in a notifiable transaction or 

prohibited transaction (for example, that 

a greenfield entity was, at the time of 

the transaction, planning to engage in a 

covered activity). Because § 850.403 

requires actual knowledge, there is no 

obligation for a U.S. person to conduct 

recurring diligence or actively monitor 

the activities of the target of the 

transaction after the completion date for 

purposes of § 850.403, assuming a 

‘‘reasonable and diligent inquiry’’ had 

been conducted as of the time of the 

transaction. 

The purpose of this provision, 

consistent with the Outbound Order, is 

to increase the U.S. Government’s 

visibility into U.S. person transactions 

involving the relevant technologies and 

products. 

Accordingly, under the Final Rule, a 

U.S. person who acquires actual 

knowledge following the completion 

date of a transaction of a fact or 

circumstance such that the transaction 

would have been a covered transaction 

had the fact or circumstance been 

known by the U.S. person at the time of 

the transaction will be required to 

submit a notification pursuant to 

§ 850.404 within 30 days of acquiring 

such knowledge. This requirement will 

apply if the transaction would have 

been a notifiable transaction or a 

prohibited transaction. 

§ 850.404—Procedures for Notifications 

Section 850.404 of the Proposed Rule 

detailed the procedures that would have 

been required for submitting a 

notification regarding a covered 

transaction pursuant to §§ 850.401, 

850.402, and 850.403. This included the 

method of submission via electronic 

filing in accordance with the 

instructions posted by the Treasury 

Department on its Outbound Investment 

Security Program website. Section 

850.404(b) of the Proposed Rule 

authorized the Treasury Department to 

contact a U.S. person who files a 

notification with questions or document 

requests related to the transaction or 

compliance with the rule. Under 

§ 850.404(c) of the Proposed Rule, the 

U.S. person would have been required 

to file a notification no later than 30 

calendar days after the completion date 

of a transaction that would have been 

required to be notified to the Treasury 

Department under § 850.401 or 

§ 850.402, and, with respect to 

§ 850.403, no later than 30 calendar 

days after it acquired the knowledge 

referred to in that section. If a U.S. 

person submitted a notification prior to 

the completion date of the transaction, 

then under § 850.404(d) of the Proposed 

Rule, the U.S. person would have been 

required to update such notification no 

later than 30 calendar days following 

the completion date if there were 

material changes to the information in 

the original filing. Lastly, under 

§ 850.404(e) of the Proposed Rule, a U.S. 

person would have been required to 

inform the Treasury Department in 

writing no later than 30 calendar days 

following the acquisition of previously 

unavailable information required under 

§ 850.405. 

The Treasury Department received 

several comments on the notification 

procedures. One commenter requested 

that in the case of multiple funding 

rounds where a U.S. person would be 

required to submit notifications for 

substantially similar investments, that 

the Treasury Department either remove 

the notification requirement for 

subsequent funding rounds (absent a 

material change in the relevant activities 

of the target or relevant transaction 

counterparty) or allow the U.S. person 

to amend a previously submitted 

notification by updating it to reflect the 

subsequent investment. One commenter 

expressed concern about the Treasury 

Department’s authority to request 

documents and information about a 

transaction beyond the information 

detailed in § 850.405. The commenter 

requested that such follow-up be limited 

to instances where a notification is 

incomplete with respect to the 

information requirements in § 850.405, 

that follow-up requests be limited to 

supporting documentation identified in 

§ 850.405(c), and that the time frame 

specified by the Treasury Department 

for responses be a ‘‘reasonable’’ time 

frame. Another commenter expressed 

the view that the timeline for 

notifications was too short and 

requested the timeline be extended to 90 

or 180 days following the completion 

date of a notifiable transaction. One 

commenter requested clarification on 

specific recordkeeping and due 

diligence obligations that companies 

must undertake. One commenter on this 

section noted the absence of a 

mechanism through which a U.S. 

person is required to notify the Treasury 

Department of an instance where a 

person of a country of concern pivots 

into a new covered activity, but the U.S. 

person does not make a new 

contribution to this activity. The 

commenter suggested the rule require 

notification of such instances, 

irrespective of whether there is an 

additional investment made in the 

relevant entity, or alternatively, where a 

notification was previously submitted, a 

requirement to notify if at a future date 

the covered foreign person pivots into a 

covered activity described in the 

definition of a prohibited transaction. 

The Final Rule adopts § 850.404 from 

the Proposed Rule without change. In 

the case of multiple funding rounds 

where the information is consistent 

across investments, the Treasury 

Department is exploring whether the 

electronic system for submission of 

notifications can allow a duplicate 

notification to be populated, updated as 

needed, and submitted, with a new 

certification under § 850.203. A blanket 

exception for additional investments in 

the case of multiple funding rounds 

would be counter to the policy objective 

of increasing the U.S. Government’s 

visibility into the volume and nature of 


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investments involving the identified 

technologies and products. With respect 

to the scope of follow-up questions or 

document requests, this is already 

qualified by the language ‘‘related to the 

transaction or compliance with [part 

850]’’ and that provides sufficient focus. 

Limiting follow-up requests to only 

information necessary to comply with 

the requirements in § 850.405 would be 

unduly restrictive and not allow the 

Treasury Department to ask for relevant 

information about the individual 

transaction that may not have been 

contemplated in the general information 

requirements set forth in § 850.405, or as 

related to compliance. The commenter’s 

request for the timeline to be extended 

from 30 days post-closing to 90 or 180 

days did not justify why a three- or sixfold increase would be necessary. The 

Treasury Department expects a U.S. 

person to begin collecting the relevant 

information for the notification 

submission well before the completion 

date as diligence on the transaction is 

often conducted early in the transaction 

lifecycle. On specific recordkeeping and 

due diligence obligations, these are 

discussed in various provisions 

including §§ 850.104, 850.405(c), and 

850.904. In response to the comment 

recommending a mechanism through 

which a U.S. person is required to notify 

the Treasury Department where an 

investment target pivots into a new 

covered activity following an investment 

by a U.S. person, the Treasury 

Department declines to expand the 

Final Rule to require ongoing 

notification of post-transaction changes 

in an investment target or transaction 

counterparty’s activities where the U.S. 

person did not know (including having 

reason to know) at the time of the 

relevant transaction of the investment 

target or transaction counterparty’s 

planned engagement in a covered 

activity. While one purpose of the 

Outbound Order is to increase the U.S. 

Government’s visibility into U.S. person 

transactions involving relevant 

technologies and products, the Treasury 

Department has balanced such policy 

considerations with compliance 

considerations related to a U.S. person. 

Relatedly, and as discussed above, in 

cases where a U.S. person acquires 

actual knowledge following the 

completion date of a transaction of a fact 

or circumstance such that the 

transaction would have been a covered 

transaction had the fact or circumstance 

been known by the U.S. person at the 

time of the transaction, the U.S. person 

will be required to submit a notification 

pursuant to § 850.404 within 30 days of 

acquiring such knowledge. 

The Final Rule describes at § 850.404 

the method of submission, that 

electronic filing instructions will be 

made available and that only such 

electronic filing will constitute the filing 

of a notification pursuant to the Final 

Rule. Under § 850.404(b), the Treasury 

Department may contact a U.S. person 

who has filed a notification with 

questions or document requests related 

to the transaction or compliance with 

the rule. Under § 850.404(c), the U.S. 

person is required to file a notification 

within 30 calendar days of the 

completion date of a notifiable 

transaction under § 850.401 or 

§ 850.402, and, with respect to 

§ 850.403, no later than 30 calendar 

days after it acquires the knowledge 

referred to in that section. If a U.S. 

person submits a notification prior to 

the completion of a transaction, then 

under § 850.404(d), it must update such 

notification no later than 30 calendar 

days following the completion date if 

there are material changes to the 

information in the original filing. Under 

§ 850.404(e), a U.S. person is required to 

inform the Treasury Department in 

writing no later than 30 calendar days 

following the acquisition of previously 

unavailable information required under 

§ 850.405. 

§ 850.405—Content of Notifications 

Section 850.405 of the Proposed Rule 

detailed the specific information that a 

U.S. person would have been required 

to include as part of a notification 

pursuant to § 850.401, § 850.402, or 

§ 850.403 of the Proposed Rule. This 

included information about the U.S. 

person and the covered foreign person, 

information about the transaction, and a 

discussion of the covered activity or 

activities undertaken by the covered 

foreign person. If a notification would 

have been required pursuant to 

§ 850.403 of the Proposed Rule (relating 

to knowledge relevant to a transaction’s 

status acquired after the transaction has 

closed), the information to be submitted 

would also have included identification 

of the fact or circumstance of which the 

U.S. person acquired knowledge postclosing, a statement explaining why the 

U.S. person did not possess such 

knowledge at or prior to closing, and a 

description of the due diligence that the 

U.S. person undertook prior to the 

completion of the transaction. Section 

850.405(c) of the Proposed Rule would 

have required a U.S. person to maintain 

records related to a notification and 

supporting documentation for a period 

of 10 years from the date of filing. Under 

§ 850.405(d) of the Proposed Rule, if the 

U.S. person did not provide the 

information required by § 850.405(b), 

such U.S. person would have been 

required to provide a sufficient 

explanation for why the information 

was not available or otherwise could not 

be obtained and explain what steps it 

had taken to obtain the information. 

The Treasury Department received 

several comments on this section. One 

commenter suggested narrowing the 

information requirements or including a 

de minimis exception, particularly for 

smaller firms and minor transactions, to 

reduce the compliance burden for 

companies. The Treasury Department 

sought to address in § 850.405 of the 

Proposed Rule the basic information 

necessary to analyze and increase the 

U.S. Government’s visibility into U.S. 

person transactions involving the 

relevant technologies and products, 

while at the same time minimizing the 

compliance burden on U.S. investors. 

The information provided in the 

notifications will be helpful in 

highlighting aggregate sector trends and 

related capital flows as well as 

informing future policy development. 

The Treasury Department expects that 

many of the information requirements 

are standard for transactional due 

diligence and should be available to the 

U.S. person. Narrowing the information 

or creating a de minimis exception will 

not serve the objectives of the Outbound 

Order. 

A commenter requested additional 

guidance regarding a U.S. person’s 

ability to provide ‘‘sufficient 

explanation’’ for why particular 

information is unavailable. The 

commenter stated that it was unclear 

whether the submission of a filing with 

certain information missing would be 

allowed, and in what circumstances an 

incomplete filing might be permissible. 

The obligation on a U.S. person is to 

provide accurate and complete 

information at the time of the filing. The 

Treasury Department anticipates there 

may be limited instances where the U.S. 

person does not have available all of the 

information required and nevertheless, 

receipt of the submission by the 

Treasury Department would be 

consistent with the objective of the 

Outbound Order. In such cases, an 

explanation for why the information is 

unavailable or cannot be obtained is 

important. 

Another commenter referred to 

practices in typical venture capital and 

private equity investments that would 

make meeting the content requirements 

of a notification difficult, and therefore 

requested that requirements be lifted 

regarding identities and ultimate owner 

disclosures. The commenter stated that 

certain parties are contractually 

prohibited from disclosing the identities 


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of other parties and that it can be 

difficult to ascertain the ultimate owner 

of a public company. The Treasury 

Department notes that carveouts 

typically are included in contracts for 

sharing relevant information with 

government investigations, and 

ascertaining the identity of co-investors 

and ultimate owners of the relevant U.S. 

person and the relevant covered foreign 

person is important to the objectives of 

the Outbound Order. 

A commenter sought clarification on 

the record retention requirements, 

specifically as to whether such 

requirements would apply to noncovered transactions. The Proposed 

Rule at § 850.405(c) provides that the 

U.S. person shall maintain a copy of the 

notification filed and supporting 

documentation for a period of 10 years 

from the date of the filing. This applies 

to transactions that are required to be 

notified. 

The Treasury Department is adopting 

§ 850.405 as set forth in Proposed Rule, 

with technical edits to paragraph (a) and 

paragraphs (b)(3) and (9). The technical 

edit to paragraph (a) clarifies that a 

notification submitted to the Treasury 

Department must be accurate and 

complete subject to paragraph (d), 

which discusses how a U.S. person 

should respond where the U.S. person 

cannot provide information required 

under paragraph (b), or where such 

information becomes available after the 

notification is filed with the Treasury 

Department. The technical edits to 

paragraphs (b)(3) and (9) add 

intermediate and ultimate parent 

entities for inclusion in the posttransaction organizational charts of the 

U.S. person and covered foreign person, 

respectively, as well as information 

related to such intermediate and 

ultimate parent entities, to include 

name, principal place of business, and 

place of incorporation or legal 

organization. Section 850.405 of the 

Final Rule details the specific 

information that must be submitted by 

a U.S. person as part of a notification, 

including information about the U.S. 

person and the covered foreign person, 

a brief description of the commercial 

rationale for the transaction, and a 

discussion of the covered activity or 

activities undertaken by the covered 

foreign person. If the notification is 

pursuant to § 850.403, the notification 

must identify the fact or circumstance of 

which the U.S. person acquired actual 

knowledge post-transaction, a statement 

explaining why the U.S. person did not 

possess such knowledge at the time of 

the transaction, and a description of the 

due diligence that the U.S. person 

undertook prior to the completion of the 

transaction. Section 850.405 also 

identifies the records related to the 

covered transaction that the U.S. person 

must maintain for a period of 10 years 

from the date of filing. If the U.S. person 

does not provide information required 

by § 850.405, then it must provide a 

sufficient explanation for why the 

information is not available or otherwise 

cannot be obtained and explain what 

steps it has taken to obtain the 

information. 

Subpart E—Exceptions and Exemptions 

§ 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 identified certain 

exceptions. A transaction that otherwise 

qualified as a covered transaction but 

met one of the enumerated exceptions 

was referred to as an excepted 

transaction. The Proposed Rule listed 

categories of excepted transactions 

based on the Treasury Department’s 

determination that such transactions 

presented a lower likelihood of the 

transfer of intangible benefits to a 

covered foreign person or were 

otherwise less likely to raise national 

security concerns relative to other 

transactions covered by the Proposed 

Rule. 

The Proposed Rule identified the 

following categories of excepted 

transactions (subject to conditions in 

some instances, as summarized below): 

D An investment by a U.S. person in 

a publicly traded security; 

D An investment by a U.S. person in 

a security issued by a registered 

investment company, such as an index 

fund, mutual fund, or exchange traded 

fund, or issued by any company that has 

elected to be a business development 

company; 

D An investment below a certain size 

by a U.S. person LP in a pooled 

investment fund or where the U.S. 

person LP has secured a binding 

contractual assurance that its capital in 

the fund will not be used to engage in 

a transaction that would be a prohibited 

or notifiable transaction, as applicable, 

if engaged in by a U.S. person; 

D 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 

does not constitute a covered foreign 

person following the transaction; 

D 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 

§ 850.208); 

D Fulfillment of a U.S. person’s 

binding, uncalled capital commitment 

entered into prior to the date of the 

Outbound Order; 

D 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 

D Certain transactions with or 

involving a person of a country or 

territory outside the United States that 

has been designated by the Secretary in 

accordance with provisions set forth in 

the Proposed Rule. 

The Treasury Department received 

comments to § 850.501 of the Proposed 

Rule, which are discussed below. 

Excepted Transaction—General 

Commenters were generally 

supportive of the excepted transaction 

concept. While most commenters 

focused on one or more of the above 

categories—which are discussed in turn 

below—some commenters requested the 

inclusion of additional exceptions or the 

exclusion of certain activities from the 

definition of covered transaction. Citing 

to ambiguities and unintended 

consequences, such as imposing 

additional due diligence burdens, 

several commenters requested that the 

Treasury Department explicitly include 

in § 850.501 a range of activities that 

were identified in the preamble to the 

Proposed Rule as not intended to fall 

within the definition of covered 

transaction: university-to-university 

research collaborations; contractual 

arrangements or the procurement of 

material inputs for any of the covered 

national security technologies or 

products (such as raw materials); 

intellectual property licensing 

arrangements; bank lending; the 

processing, clearing, or sending of 

payments by a bank; underwriting 

services; debt rating services; prime 

brokerage; global custody; equity 

research or analysis; or other services 

secondary to a transaction. 

One commenter requested 

clarification that the exceptions would 

apply to transactions undertaken by (1) 

a controlled foreign entity, or (2) a nonU.S. person knowingly directed by a 

U.S. person that would otherwise fall 

within the definition of an excepted 

transaction if engaged in by a U.S. 

person directly. Another commenter 

requested that any ‘‘follow-on’’ 

transactions be excepted from coverage, 

stating that if an original transaction 

was not a covered transaction, then any 

subsequent restructuring of that 

transaction or additional investments in 

the business should receive the same 


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treatment to preserve the value of the 

original, permissible investment. One 

commenter asked that sale-andleaseback arrangements be included as 

an excepted transaction, raising the 

possibility that the transaction could be 

interpreted as a prohibited greenfield 

investment if the leasing party were 

engaged in covered activities. One 

commenter requested that the Treasury 

Department publish a list of transactions 

that are not covered transactions in 

guidance materials. Another commenter 

requested that the Treasury Department 

consider exemptions or special 

provisions for transactions made by U.S. 

semiconductor companies. 

Upon consideration of the requests to 

list activities or transactions that are not 

covered within the text of the Final 

Rule, either within the definition of a 

covered transaction or within the 

definition of an excepted transaction, 

the Treasury Department has 

determined that doing so is not 

necessary. The definition of covered 

transaction has been crafted to refer to 

a specific set of transaction types, and 

for any transaction to be a covered 

transaction, all of the elements in the 

relevant prong of the definition must be 

met. As such, it would be unnecessary 

and may be misleading to categorically 

identify a set of general activities as 

excepted from the provisions of the rule 

when some activities may not in the 

first place satisfy the elements needed to 

find coverage (and thus technically 

could not be excepted from coverage if 

they were never covered to begin with) 

or, depending on how the activity is 

undertaken, may meet the definitional 

elements and objective of the Outbound 

Order and thus should be evaluated as 

a covered transaction. Therefore, the 

Final Rule contains no such list of noncovered activities apart from the 

definition of excepted transaction. 

While U.S. persons subject to the rule 

may need to undertake due diligence to 

ensure compliance—i.e., to identify 

whether a contemplated transaction is a 

covered transaction—the Treasury 

Department has sought to tailor the 

Final Rule to address the national 

security threat identified in the 

Outbound Order. 

With respect to the application of the 

exceptions to a controlled foreign entity 

or to a non-U.S. person knowingly 

directed by a U.S. person, the Treasury 

Department notes the Final Rule, as 

with the Proposed Rule, places 

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 

Treasury Department if the controlled 

foreign entity undertakes a transaction 

that would be a notifiable transaction if 

undertaken by a U.S. person. If a 

transaction would not be prohibited or 

notifiable if undertaken by a U.S. 

person—as is the case with an excepted 

transaction—then there is no obligation 

on the U.S. person with respect to such 

transaction. 

Including an exception for 

restructurings or follow-on investments 

would substantially undermine the 

goals of the Final Rule. The national 

security objectives of the Outbound 

Order and Final Rule are implicated 

regardless of whether earlier 

investments may have been permitted. 

Creating a categorical exception for 

corporate restructuring would 

potentially open a loophole, and where 

a transaction meets the criteria of a 

covered transaction and a restructuring 

introduces an entity in a country of 

concern into the corporate chain, this 

may be a transaction relevant for 

purposes of the Final Rule. 

The Treasury Department assesses 

that an exception for sale-and-leaseback 

arrangements would not be consistent 

with the national security goals of the 

Final Rule. To the extent that the U.S. 

person knows or plans that the lease 

will result in the establishment of a 

covered foreign person or the 

engagement of a person of a country of 

concern in a covered activity, then that 

transaction should be a covered 

transaction. If the U.S. person, after 

‘‘reasonable and diligent inquiry,’’ does 

not have the requisite knowledge or 

plan, then the leaseback would not be 

a covered transaction. 

Several commenters requested a 

general de minimis exception be created 

in § 850.501 based on the dollar value 

of the transaction or the percentage of 

outstanding equity acquired by the U.S. 

person. One commenter suggested 

excepting acquisitions of less than five 

percent of the equity interest of a 

covered foreign person. A second 

commenter suggested excepting 

transactions where a U.S. person invests 

no more than $10 million in a covered 

foreign person and receives no more 

than five percent of its equity. A third 

commenter requested that a 

presumption of an exception attach to 

any investment in publicly traded 

securities if such acquisition constitutes 

10 percent or less of voting interest in 

the target. Several commenters stated 

that de minimis investments were, or 

were likely to be, passive, and therefore 

were unlikely to lead to a U.S. person 

transferring intangible benefits to the 

investment target. 

The Treasury Department declines to 

institute an exception across 

transactions based purely on their dollar 

value or the percentage of equity. One 

reason is that the various types of 

transactions already included in the 

definition of an excepted transaction in 

the Final Rule include investments with 

a lower likelihood of a U.S. person 

having the opportunity and incentive to 

transfer intangible benefits. Such 

transactions include publicly traded 

securities and LP investments below a 

certain threshold (as discussed further 

below). In addition, and independently, 

a de minimis threshold based on the 

financial significance of a covered 

activity in relation to any particular 

entity does not necessarily correspond 

to the national security significance of 

such activity. The Treasury Department 

continues to assess that investments of 

the kinds identified in the definition of 

covered transaction, which has been 

intentionally scoped to capture those 

investments more likely to raise 

national security concerns, may 

contribute to national security risks 

regardless of their size, as even 

relatively low-dollar investments can 

lead to the transfer of intangible 

benefits, particularly for early-stage 

companies seeking investor validation 

or access to professional networks as 

much as capital. In addition, 

investments that fall beneath the various 

thresholds proposed by commenters— 

such as those that comprise four percent 

of voting interest or equity in a covered 

foreign person—may nonetheless afford 

significant opportunity and incentive 

for a U.S. person to transfer intangible 

benefits to the investment target, 

illustrating the challenges of a blanket 

de minimis threshold. 

The Treasury Department additionally 

declines to create an exception 

specifically for the semiconductor 

industry. Given the likelihood that U.S. 

person participants in the 

semiconductor industry are often wellpositioned to transfer intangible benefits 

to covered foreign persons, such an 

exception would create a significant gap 

in coverage under the Final Rule and 

thereby undermine the national security 

objectives of the Outbound Order. 

The Treasury Department has made 

one technical edit to the chapeau of 

§ 850.501. The phrase ‘‘The following 

transactions are excepted transactions’’ 

had been at (a) in the Proposed Rule, but 

this phrase is being moved into the 

chapeau in the Final Rule, and the 

phrase ‘‘An investment by a U.S. 

person,’’ which had been at (1) in the 

Proposed Rule, is now at (a)(1) in the 

Final Rule. This edit is for clarity and 


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is not intended to affect the substance 

of the provision. 

Publicly Traded Security; Derivative; 

Equity Compensation 

Section 850.501(a)(1)(i) of the 

Proposed Rule defined as an excepted 

transaction an investment into a 

‘‘publicly traded security,’’ with 

‘‘security’’ as defined in section 3(a)(10) 

of the Securities Exchange Act of 1934, 

as amended. As noted in the Proposed 

Rule, this included 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 Treasury Department assessed that 

a U.S. person’s purchase of securities 

traded on a public exchange or over the 

counter, whether inside or outside the 

United States, would present a lower 

likelihood of transferring intangible 

benefits to a covered foreign person. 

A few commenters supported the 

Proposed Rule’s incorporation of 

elements from the definition of 

‘‘publicly traded security’’ as it is used 

by the Office of Foreign Assets Control 

(OFAC) in connection with the NonSpecially Designated Nationals (SDN) 

Chinese Military-Industrial Complex 

Companies List. One commenter 

supported the additional clarity offered 

in the Proposed Rule on the exception 

for investments into publicly traded 

securities. 

Several commenters discussed the 

definition of publicly traded security in 

the context of an excepted transaction. 

Multiple commenters requested that the 

definition of publicly traded security 

include derivatives, or that the 

definition of excepted transaction be 

expanded to include derivatives. One 

commenter recommended excluding 

derivatives unless the derivates trade 

involves the right to acquire equity or 

certain rights associated with equity in 

a covered foreign person. 

One commenter suggested exceptions 

for investments in securities be 

expanded to cover a variety of 

additional instruments, including index 

funds, mutual funds, and exchangetraded funds ‘‘involving’’ publicly 

traded securities of a covered foreign 

person, instruments that reference such 

securities (e.g., swaps, futures, or 

options), or instruments that are 

convertible into or exchangeable for 

such publicly traded securities or index 

funds, mutual funds, and exchangetraded funds. Another commenter 

requested that Treasury clarify that the 

exception includes rights, warrants, and 

derivative contracts with ‘‘publicly 

traded security’’ reference assets, as well 

as futures on broad-based indexes. 

Another commenter called on the U.S. 

Government to close what it referred to 

as the ‘‘passive-index loophole,’’ 

requesting that the Treasury Department 

work with the U.S. Securities and 

Exchange Commission (SEC) to do so 

and referenced support for certain 

legislative efforts on this matter. One 

commenter questioned whether a U.S. 

person’s receipt of equity or an equityrelated instrument from a covered 

foreign person that is a public company 

would qualify as an exception. 

One commenter requested that the 

Final Rule consider subscriptions to 

IPOs as a ‘‘publicly traded security’’ or 

otherwise exempt subscriptions to IPOs, 

while others sought clarification 

whether initial purchasers would 

qualify for the exception. Other 

commenters requested clarity regarding 

whether transactions by underwriters, 

advisers, and other providers of 

‘‘ancillary services’’ participating in or 

assisting with an IPO of covered foreign 

persons would qualify as an excepted 

transaction. 

The Final Rule implements 

§ 850.501(a)(1)(i) from the Proposed 

Rule without change. Under the Final 

Rule, an excepted transaction includes 

an investment into a ‘‘publicly traded 

security,’’ with ‘‘security’’ defined as set 

forth in section 3(a)(10) of the Securities 

Exchange Act of 1934, as amended. This 

includes a security traded on a non-U.S. 

exchange, or a security traded ‘‘over-thecounter,’’ in addition to a security 

traded on a U.S. exchange. In response 

to comments, the Treasury Department 

is adding an additional exception at 

§ 850.501(a)(1)(iv) in the Final Rule that 

excepts an investment in a derivative so 

long as the derivative does not confer 

the right to acquire equity, rights 

associated with equity, or any assets in 

or of a covered foreign person. 

In response to the comment regarding 

a ‘‘passive-index loophole,’’ the 

exception for publicly traded securities 

as well as that for securities issued by 

an investment company (further 

discussed below), are not loopholes but 

rather represent a considered decision 

to carve out investments that are 

unlikely to contribute to the national 

security risks connected to the transfer 

of intangible benefits identified in the 

Outbound Order. In response to one 

commenter’s request to except the 

receipt of equity or an equity-related 

instrument from a public company, the 

Treasury Department has created an 

exception for receipt of employment 

compensation in the form of stock or 

stock options in the Final Rule 

discussed more above (see covered 

transaction). This exception is reflected 

in the text at § 850.501(f). 

The Treasury Department considers 

the acquisition of an equity interest in 

a covered foreign person that is not yet 

publicly traded for the purpose of 

facilitating an IPO, such as a purchase 

with the intent to create a market or to 

resell the security on a secondary 

market (e.g., as part of an underwriting 

arrangement), to be a covered 

transaction and declines to create an 

exception for such a transaction. Such 

transactions provide both capital to the 

covered foreign person and the 

opportunity to transfer intangible 

benefits, such as increased market 

access. (See the discussion regarding 

covered transaction above for more.) 

Furthermore, services ancillary to IPOs 

that do not include the acquisition of an 

equity interest (or other interests set 

forth in the definition of § 850.210), 

including underwriting services that do 

not entail acquiring such an interest, are 

not a covered transaction and thus do 

not require an exception. 

Security Issued by an Investment 

Company 

Section 850.501(a)(1)(ii) of the 

Proposed Rule defined as an excepted 

transaction an investment by a U.S. 

person in a security issued by an 

investment company as defined in 

section 3(a)(1) of the Investment 

Company Act of 1940, as amended 

(ICA), that is registered with the SEC, 

such as an index fund, mutual fund, or 

exchange traded fund, as well as a 

company that has elected to be a 

business development company 

pursuant to the ICA. The Treasury 

Department considered such 

investments to carry with them a lower 

likelihood of exacerbating the threat to 

national security identified in the 

Outbound Order. 

The Treasury Department received a 

few comments on this section of the 

Proposed Rule. One commenter 

requested that the Treasury Department 

consider requiring index providers to 

engage in public consultation prior to 

undertaking methodological changes to 

indexes. Another commenter indicated 

their support for the proposed exception 

and requested that it be expanded to 

include common and collective 

investment funds that are exempt from 

the definition of ‘‘investment company’’ 

under the ICA, pursuant to section 

3(c)(3) or section 3(c)(11) thereof, but 

are subject to regulation by Federal or 

state banking authorities (also known as 

collective investment trusts or CITs), 

arguing that they, like index funds, are 

unlikely to present the kind of risks 

contemplated by the Outbound Order. 

One commenter requested that the 

exceptions for investments in securities 


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issued by registered investment 

companies be expanded to cover 

securities issued by companies with 

equivalent status under the securities 

laws of non-U.S. countries. 

The Treasury Department is 

implementing § 850.501(a)(1)(ii) with 

three changes from the Proposed Rule. 

The first is the insertion of ‘‘elected to 

be regulated as or is regulated as a 

business development company’’ in 

place of ‘‘elected to be a business 

development company.’’ This is a 

technical edit and is not intended to 

alter the substance of the rule. The 

second change is an updated statutory 

reference to 15 U.S.C. 80a–53 in place 

of 15 U.S.C. 8a–54 and a reference to the 

Investment Company Act of 1940 ‘‘as 

amended.’’ This is also a technical edit 

and is not intended to alter the 

substance of the rule. The third is the 

removal of the reference to ‘‘or any 

derivative thereon,’’ given the exception 

for derivatives discussed above and 

located at § 850.501(a)(1)(iv) of the Final 

Rule. Under this provision of the Final 

Rule, an investment by a U.S. person in 

a security issued by a registered 

investment company, such as an index 

fund, mutual fund, or exchange traded 

fund, as well as a business development 

company under the ICA, are excepted 

from the definition of covered 

transaction. 

The Treasury Department recognizes 

the policy goal underpinning the 

request to impose a requirement on 

index funds to engage in public 

consultation prior to making 

methodological changes. However, the 

request exceeds the scope of authority 

delegated to the Treasury Department by 

the Outbound Order, and thus cannot be 

addressed in this rulemaking. With 

respect to CITs, while CITs serve a 

similar purpose to registered investment 

companies, they are not themselves 

separate legal entities, but a type of 

fiduciary account maintained by a 

Federal or state bank or trust company. 

CITs are investment funds available 

mainly in employer-sponsored 

retirement plans and unregulated by the 

SEC, so adding an exception for CITs 

would undermine this separate 

treatment for pooled investment funds 

under § 850.501(a)(1)(iii). The Treasury 

Department declines to expand the 

exceptions for investments in securities 

issued by registered investment 

companies to cover securities issued by 

companies with equivalent status under 

the securities laws of non-U.S. countries 

given a desire to keep the exception 

limited and the complexities in 

assessing the equivalence of non-U.S. 

securities laws, which can vary 

considerably across jurisdictions. 

Investment Made as an LP 

The Proposed Rule presented two 

alternates for § 850.501(a)(1)(iii) for 

commenters to consider. Under 

proposed Alternate 1, a U.S. person’s 

investment made as an LP in a pooled 

investment fund would have constituted 

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 

(AUM) of the pooled investment fund. 

If the U.S. person LP’s committed 

capital were to constitute more than 50 

percent of the total AUM of the pooled 

investment fund, its investment would 

have qualified as an excepted 

transaction only if the U.S. person 

secured a binding agreement that the 

pooled investment fund would not use 

its capital for a prohibited transaction. 

Under proposed Alternate 2, a U.S. 

person’s investment made as an LP in a 

pooled investment fund would have 

constituted an excepted transaction if 

the LP’s committed capital is not more 

than $1 million. 

A number of commenters expressed a 

preference for Alternate 1. No 

commenters expressed a preference for 

Alternate 2. Several commenters noted 

that Alternate 2 would make the 

exception for an LP investment 

effectively unavailable to most U.S. 

persons (including U.S. institutional 

investors) investing in a pooled 

investment fund as an LP. One 

commenter noted that the size of an LP’s 

capital commitment in a particular fund 

may not align to the size of the LP’s 

investment allocated specifically to a 

covered foreign person. Several 

commenters stated that Alternate 1 was 

better aligned with the policy goals of 

the rule because by focusing on an LP’s 

relative share of a given pooled 

investment fund as a percentage of 

AUM, which relates to the LP’s 

influence within the pooled investment 

fund, it focused more on the potential 

transfer of intangible benefits from a 

non-passive U.S. person investor via 

such fund than the absolute dollar 

threshold in Alternate 2. Two 

commenters stated that Alternate 1 

aligned with the goals of the Outbound 

Order because the AUM threshold of 50 

percent was aligned with the threshold 

for control of a pooled investment fund. 

One commenter stated that Alternate 2 

would disadvantage U.S. person LPs 

and facilitate the entrance of non-U.S. 

person LPs into pooled investment 

funds in their place. 

Two commenters requested that if the 

Treasury Department adopts Alternate 

2, it should raise the dollar threshold to 

be significantly higher, such as $20 

million. One commenter stated that 

there should be no de minimis 

threshold for the exception for LP 

investments at all because LPs only 

have limited liability as long as they 

remain passive investors. One 

commenter suggested that an exception 

for all passive investment, similar to the 

approach taken for LPs in Alternate 1, 

be included in the rule. One commenter 

requested that the Treasury Department 

remove the exception for LP 

investments altogether. 

In discussing the effects of Alternate 

2, one commenter stated that some fund 

managers do not accept investments 

under $1 million to comply with SEC 

laws and regulations related to 

‘‘sophisticated investors.’’ The 

commenter also stated that a range of 

investors rely on investment in private 

funds as a source of diversification and 

strong returns for investing the 

retirement savings of tens of millions of 

American workers and that if Alternate 

2 were selected, these investors may 

forgo such investments, disrupting 

cross-border investment and causing 

them to lose an essential source of 

diversification for the retirement savings 

of tens of millions of American workers. 

One commenter stated that based on a 

review of a random sample of 400 LP 

investments across all its funds, 255 

contributed in excess of $1,000,000 per 

fund. 

A number of commenters requested 

that, regardless of which alternate the 

Treasury Department selects for the 

final rule, an excepted transaction 

include a transaction in which a U.S. 

person LP has secured a binding 

contractual assurance that its capital 

will not be used to engage in a 

transaction that would cause the LP to 

have made an indirect prohibited 

transaction. However, one commenter 

stated that this language would create a 

loophole unless it required the fund to 

make an assurance that none of the 

fund’s capital would be used for such a 

purpose. 

Several commenters discussed 

challenges to compliance with either or 

both alternates. Multiple commenters 

requested further details regarding how 

the percentage of AUM would be 

calculated for the purposes of Alternate 

1 given, for example, multiple coinvestments in a single target by the 

same LP via multiple funds as well as 

the fact that fundraising from multiple 

LPs occurs over a period of time, 

causing a given LP’s percentage of total 

contributed capital to fluctuate during 

the fundraising period. Several 

comments related to whether the factors 

enumerated in § 850.501(a)(1)(iii)(A)(1) 


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through (5) via Alternate 1 (which 

would have excluded an investment 

from the definition of excepted 

transaction related to certain LP 

investments) or in § 850.501(a)(2) 

(which would have excluded an 

investment from the definition of 

excepted transaction related to a 

publicly traded security, a security 

issued by an investment fund, or an LP 

investment) apply to a given LP 

investment. Other commenters 

requested that certain types of LP 

engagement in a fund be conferred a 

safe harbor. One commenter discussed 

compliance costs for a non-U.S. person 

fund that has a mix of LPs that fall 

above and below the excepted 

transaction threshold. Another 

commenter stated that compliance with 

Alternate 2 would not be possible for a 

U.S. person investor contributing a 

smaller amount as they would lack 

leverage to gain access to the 

information necessary to determine 

whether a pooled investment fund had 

made an investment that would result in 

an indirect covered transaction by the 

LP. 

The Treasury Department notes 

commenter preferences for Alternate 1, 

as well as the comments and data 

stating that a $1 million dollar threshold 

could make the exception practically 

unavailable to many larger or 

institutional investors. However, the 

fact that an institutional investor 

generally makes investments as an LP 

investor that exceed a given dollar 

threshold is not dispositive to the 

analysis of that threshold. As discussed 

in the Proposed Rule, the rationale for 

excepting an LP investment by a U.S. 

person under a specified threshold into 

a pooled investment fund that then 

invests in a covered foreign person 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. The Treasury 

Department has determined that an 

exception threshold based purely on an 

investment’s proportion of a fund’s 

overall AUM could be overinclusive by 

permitting large U.S. person 

investments that could be significantly 

allocated to underlying investments in 

one or more covered foreign persons. 

Even if an institutional U.S. person LP 

remained passive and did not provide 

managerial assistance to investment 

targets, a covered foreign person 

benefiting from the indirect investment 

could exploit the affiliation with an 

established U.S. person LP for 

legitimacy and access to additional 

financing, among other benefits. In 

addition, given the size of certain 

investments that would be permitted 

under a pure AUM-based exception 

threshold, a U.S. person LP may have 

greater incentive and potentially greater 

ability to impact the success of a 

covered foreign person in which the 

relevant pooled investment fund 

invests. 

To address this risk of intangible 

benefits, the Treasury Department 

declines to adopt the element of 

Alternate 1 linked to a pooled 

investment fund’s AUM. Instead, in 

response to requests to raise the dollar 

threshold in Alternate 2, the Treasury 

Department has determined to apply an 

exception at $2,000,000, or double that 

discussed in the Proposed Rule. This 

higher threshold is intended to facilitate 

compliance by U.S. person investors 

that are generally smaller in size and 

less likely to confer standing and 

prominence on an underlying covered 

foreign person by virtue of their 

association as an LP investor. The 

Treasury Department declines to 

eliminate the LP exception in the Final 

Rule, as suggested by one commenter, 

because the Final Rule is scoped to 

prevent the transfer of capital that is 

accompanied by intangible benefits, and 

certain de minimis U.S. person 

investments into pooled investment 

funds likely do not provide sufficient 

incentive or opportunity for the U.S. 

person to transfer such intangibles to a 

covered foreign person. 

The Treasury Department has also 

considered the continued interest of 

institutional investors to have exposure 

to a wide variety of pooled investment 

funds in search of returns on capital. In 

response to commenter requests to 

maintain an exception for a U.S. person 

LP investor that has received a binding 

contractual assurance that its capital 

invested in the fund will not be used to 

engage in an indirect prohibited 

transaction, the Treasury Department 

has determined to modify the Final Rule 

to except U.S. person investments into 

a pooled investment fund if the U.S. 

person has obtained a binding 

contractual assurance that its capital in 

the fund will not be used to engage in 

a transaction that would be a prohibited 

transaction or notifiable transaction, as 

applicable, if engaged in by a U.S. 

person. For example, if a U.S. person LP 

investor invests in a fund that is not a 

U.S. person and that it knows is likely 

to invest in a person of a country of 

concern engaged in one or more of the 

three specified sectors, and the investor 

obtains a binding contractual assurance 

that its capital in the fund will not be 

used to engage in a transaction that 

would be a prohibited transaction if 

engaged in by a U.S. person, the U.S. 

person LP investor’s investment into the 

fund is not prohibited under the Final 

Rule. However, unless the U.S. person 

LP investor has also obtained a binding 

contractual assurance that its capital in 

the fund will not be used to engage in 

a transaction that would be a notifiable 

transaction if engaged in by a U.S. 

person, then the U.S. person LP 

investment is not excepted from the 

applicable notification requirements, 

and would be required to submit a 

notification when the fund undertakes a 

transaction that would be a notifiable 

transaction if undertaken by a U.S. 

person. Any assurance would need to be 

obtained prior to the U.S. person 

investment into the pooled investment 

fund for the exception to apply. If 

timely obtained, the exception would 

apply regardless of the overall dollar 

amount of the U.S. person’s 

investment—that is, the test for an 

excepted transaction is disjunctive such 

that either an investment of $2,000,000 

or less, or an investment with the 

foregoing contractual assurance, is 

sufficient to trigger the exception. 

This approach aligns with the goals of 

the Outbound Order because the 

covered foreign person would not 

benefit from a U.S. person’s capital, and 

a U.S. person whose capital is not 

invested in a covered foreign person 

likely lacks the opportunity or incentive 

to provide intangible benefits to such 

covered foreign person that it might 

have provided had its capital been 

invested. The Treasury Department 

expects that such a binding contractual 

assurance would result in the U.S. 

person LP not receiving investment 

returns from those investments in a 

covered foreign person for which the 

U.S. person’s capital was not used 

pursuant to such assurance. 

The overall hybrid approach adopted 

in the Final Rule—that is, defining 

excepted transaction as any LP 

investment of $2,000,000 or less, or any 

LP investment accompanied by a 

binding contractual assurance that the 

LP’s capital invested in the pooled 

investment fund would not be made to 

effect an indirect prohibited transaction 

or notifiable transaction, as applicable— 

provides two distinct avenues to meet 

the criteria of an exception, addressing 

several issues raised by commenters. 

Finally, the hybrid approach adopted 

in the Final Rule makes the exception 

accessible to a wide variety of investor 

sizes and types but retains the brightline simplicity of Alternate 1. It 

eliminates the need to interpret and 


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apply the exclusionary factors 

enumerated in § 850.501(a)(1)(iii)(A)(1) 

through (5) of the Proposed Rule to 

particular LP agreements or 

participation in an LPAC or committee 

of an investment fund, and likewise 

obviates the complexities discussed by 

commenters of calculating a specific 

LP’s percentage of AUM. As such, the 

Treasury Department removes from the 

Final Rule Note 1 to § 850.501 of the 

Proposed Rule, which described the 

application of those exclusionary factors 

no longer included in the Final Rule. 

The Treasury Department notes that an 

LP’s participation on an advisory board 

or a committee of an investment fund 

does not, as a general matter, exclude 

such LP from the exception described in 

§ 850.501(a)(1)(iii). 

Rights Beyond Standard Minority 

Shareholder Protections 

Under § 850.501(a)(2) of the Proposed 

Rule, certain transactions that otherwise 

qualified as excepted transactions 

would not qualify if a U.S. person 

obtained certain rights beyond standard 

minority shareholder protections as part 

of its investment. The Proposed Rule 

listed six minority shareholder 

protection rights: 

• 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; 

• The power to prevent an entity from 

entering into contracts with majority 

investors or their affiliates; 

• The power to prevent an entity from 

guaranteeing the obligations of majority 

investors or their affiliates; 

• 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 

issued additional instruments 

conveying interests in the entity; 

• 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 

• 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 § 850.501(a)(2)(i) through 

(v) of the Proposed Rule. 

A few commenters provided 

responses to this section of the Proposed 

Rule. One commenter noted that in 

certain jurisdictions, including the PRC, 

rules for listed companies give 

shareholders owning no more than 3 

percent of shares the right to put 

forward for a shareholder vote a 

proposal to nominate directors. The 

commenter asked that the Treasury 

Department either make explicit that 

such a right is a standard minority 

shareholder protection or that an 

otherwise excepted transaction does not 

lose that status unless and until the U.S. 

person investor exercises their right to 

nominate. One commenter asked that 

the Treasury Department explicitly 

affirm that a transaction that provides 

only minority shareholder provisions is 

excepted. Another commenter suggested 

removing the restriction that any 

investment that affords a U.S. person 

rights outside standard minority 

shareholder rights will not constitute an 

excepted transaction. 

The Treasury Department 

acknowledges that certain jurisdictions, 

including the PRC, may provide 

proposal rights to relatively low 

percentage shareholders in companies 

listed in those jurisdictions. The 

Treasury Department, however, does not 

consider these rights to be standard 

minority protection rights and declines 

to modify the Final Rule to 

accommodate this scenario. Standard 

minority protection rights are typically 

defensive in nature and are aimed at 

protecting minority shareholders’ 

investments from actions taken by 

majority investors. A right to propose a 

slate of directors is a positive, not 

negative right, and goes beyond just 

protecting the investment of the 

minority shareholders. Being afforded 

such a right with respect to an 

investment in a covered foreign person 

would go beyond standard minority 

shareholder protections; as such, if 

provided as part of an investment that 

would otherwise be an excepted 

transaction, the investment will not 

have that excepted status. 

The Treasury Department does not 

support the inclusion of an explicit 

affirmation that transactions providing 

only minority shareholder protections 

are excepted. The text of the Final Rule 

is clear that if an investment falls within 

the definition of 850.501(a)(1), it is an 

excepted transaction, unless it affords 

rights beyond standard minority 

shareholder protections. 

Section 850.501(a)(2) of the Final 

Rule, therefore, remains largely 

unchanged from the Proposed Rule, 

with the exception of a technical edit 

discussed below. An investment in a 

covered foreign person that would 

otherwise be an excepted transaction 

under § 850.501(a) that affords a U.S. 

person rights beyond standard minority 

shareholder protections with respect to 

the covered foreign person (such as the 

rights listed above) is not an excepted 

transaction. The Final Rule adds the 

phrase ‘‘standard minority shareholder’’ 

to the last sentence of § 850.501(a)(2) to 

clarify the reference to the ‘‘protections’’ 

described in paragraphs (a)(2)(i) through 

(vi). This edit is not intended to affect 

the substance of the requirement. 

Buyout of Person of a Country of 

Concern Interest(s) 

Section 850.501(b) of the Proposed 

Rule defined as an excepted transaction 

those transactions in which a U.S. 

person acquired all of the equity or 

other interests in an entity held by one 

or more persons of a country of concern, 

provided that following the acquisition, 

the entity no longer constituted a 

covered foreign person. The objective of 

the exception was to carve out from 

coverage a transaction that eliminated 

the likelihood that intangible benefits of 

a U.S. person could transfer to a covered 

foreign person because following the 

transaction, a person of a country of 

concern no longer would have any 

interest in the buyout target. 

The Treasury Department received 

two comments on this section of the 

Proposed Rule. Both commenters 

recommended that the exception be 

expanded to include any acquisition of 

equity or other interest by a U.S. person 

in an entity if, following the acquisition, 

the entity no longer meets the definition 

of a person of a country of concern. 

According to the commenters, 

modifying the exception would be 

consistent with the Proposed Rule, 

which would permit U.S. persons to 

invest in entities that are minorityowned by persons of a country of 

concern. 

The Treasury Department declines to 

expand the exception and adopts the 

text of the Proposed Rule without 

changes. Expanding the exception in the 

manner recommended by commenters 

would open a potential loophole with 

respect to joint ventures—if, for 

example, a U.S. person purchases a 51 

percent interest in a covered foreign 

person, and a person of a country of 

concern retains 49 percent ownership, 

that transaction closely resembles the 

establishment of a joint venture. The 

exception, if expanded in the manner 

requested by commenters, would 

threaten to undermine § 850.210(a)(5), 

because U.S. person investors could 

effectively create joint ventures with 

persons of a country of concern in 

contravention of the Final Rule. 

Intracompany Transfer 

Section 850.501(c) of the Proposed 

Rule excepted from the definition of 

covered transaction certain 

intracompany transactions—that is, a 

transaction between a U.S. person and 


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its controlled foreign entity to support 

ongoing operations or other activities 

that are not covered activities. The goal 

of this exception was to avoid 

unintended interference with the 

ongoing operations of a U.S. person’s 

controlled foreign entity even when that 

controlled foreign entity also met the 

definition of covered foreign person. 

The Treasury Department expected that 

the initial acquisition or establishment 

of the subsidiary would already have 

constituted a covered transaction, and 

where it did not, the potential impacts 

on the U.S. person from covering such 

intracompany transactions under the 

Proposed Rule likely would have 

outweighed the benefit in terms of the 

objectives of the Outbound Order. 

Although the definition of covered 

transaction in the Proposed Rule would 

not have usually applied 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 would 

have excepted intracompany 

transactions that would have been 

covered transactions but supported 

activities that were not covered 

activities. However, the exception 

would not have applied to greenfield 

investments or joint ventures, in order 

to prevent the exception from being 

exploited, e.g., via the use of an existing 

controlled foreign entity to shift 

operations into new covered activities or 

the acquisition of a person of a country 

of concern entity not engaged in a 

covered activities that then shifted 

operations into a covered activity for the 

first time. 

Several commenters sought 

clarification regarding the application of 

the exception, stating that the Proposed 

Rule was ambiguous with respect to the 

line between transactions that would 

support ongoing operations and those 

that would fund covered activities. To 

rectify the ambiguity, one commenter 

stated that the rule should be revised to 

allow companies (1) to provide ongoing 

support for existing operations (i.e., 

predating the Outbound Order) in the 

prohibited category, so long as they 

provide notice; and (2) to be excepted 

from the notification requirement for 

ongoing operations (i.e., predating the 

Outbound Order) if they would not be 

prohibited under the Outbound Order. 

One commenter interpreted the 

Proposed Rule to limit the exception to 

only transactions between a U.S. person 

parent and a direct controlled foreign 

entity subsidiary. Another suggested 

that the rule should apply to any 

intracompany transaction between a 

U.S. person parent and controlled 

foreign entity subsidiary, except 

transactions that would be covered 

under § 850.210(a)(4). 

Multiple commenters sought to 

expand the reach of the exception 

beyond the parent-subsidiary 

relationship between a U.S. person and 

its controlled foreign entity. A few 

commenters asked for expansion of the 

exception to include transactions 

between a U.S. person and its 

subsidiaries, both wholly-owned and 

less-than-wholly-owned. One 

commenter requested that the exception 

apply to all transactions between a U.S. 

person parent and any wholly owned 

subsidiary. Others suggested expanding 

the exception to include any transaction 

between a U.S. person and a corporate 

affiliate, or a transaction involving 

affiliates that are knowingly directed by 

a U.S. person, or a transaction 

undertaken by a controlled foreign 

entity of a U.S. person. One commenter 

suggested extending the exception to 

where a U.S. person knowingly directs 

a transaction by a foreign parent that is 

a publicly traded company. One 

commenter suggested establishing a 

threshold based on the financial 

significance of the transaction. Another 

commenter stated that the exception 

should apply to categories of covered 

activities, which would allow a 

controlled foreign entity to continue its 

activities within a particular category. 

Some commenters suggested that the 

exception should extend to U.S. person 

investment in any controlled foreign 

entity, even if the U.S. person were not 

the parent. Others asked that the 

exception apply to transactions between 

entities operating in a verein network or 

other non-corporate forms that have the 

same purpose of facilitating routine 

operational activities. 

One commenter asked for an 

illustrative list of intracompany 

transactions that would fall within the 

exception, and those that would not— 

i.e., when the controlled foreign entity 

begins engaging in a new covered 

activity. 

The Treasury Department notes the 

requests for clarification with respect to 

the Proposed Rule regarding the 

intended scope of the exception for 

intracompany transfers under 

§ 850.501(c). The purpose of the 

exception in the Final Rule is to carve 

out from the definition of covered 

transaction a transaction between a U.S. 

person parent and a controlled foreign 

entity subsidiary that supports new 

operations that are not covered activities 

or that maintains ongoing operations 

(including ongoing covered activities) in 

which the controlled foreign entity is 

engaged at the time of the effective date 

of the Final Rule. The Final Rule 

amends this provision to make this 

explicit. 

As written, the intracompany transfer 

exception in the Final Rule does not 

include an exception for intracompany 

transfers that support new operations 

that are covered activities. Because such 

transfers are not excepted, the 

exclusions for greenfield, brownfield, 

and joint venture investments in the 

exception in the Proposed Rule that 

cross reference to § 850.210(a)(4) and (5) 

have been removed. 

In other words, the intracompany 

transfer exception in the Final Rule 

allows a U.S. person parent to continue 

to support its controlled foreign entity in 

maintaining any covered activities in 

which it has been engaging prior to the 

effective date of the Final Rule as well 

as any new non-covered activities. The 

intracompany transfer exception in the 

Final Rule also allows a U.S. person 

parent to support its controlled foreign 

entity that was established after the 

effective date of the Final Rule in its 

new or ongoing operations that are not 

covered activities. It does not permit a 

U.S. person parent to use its covered 

foreign person subsidiary to engage in 

new covered activities, nor does it allow 

a U.S. person parent to acquire control 

of a person of a country of concern and 

shift such entity’s operations such that 

it engages in a new covered activity. 

Neither such activity is excepted by 

§ 850.501(c) of the Final Rule, and both 

such activities are covered by the 

language of § 850.210(a)(4) (see the 

discussion of covered transaction above, 

specifically as regards ‘‘greenfield’’ and 

‘‘brownfield’’ investments). 

The Treasury Department does not 

support extending the intracompany 

transfer exception beyond the U.S. 

person parent-controlled foreign entity 

relationship—i.e., to other subsidiaries 

or affiliates, where a U.S. person 

knowingly directs a transaction 

involving an affiliate or a foreign parent 

to support ongoing operations of a 

subsidiary, or between a U.S. person 

and any controlled foreign entity, 

including those for which the U.S. 

person is not a parent. This exception 

is intended to be limited in scope and 

to avoid unintended consequences for 

the existing operations of a U.S. person 

that is already the parent of a covered 

foreign person in a country of concern 

and, importantly, can control such 

entity. Extending the exception beyond 

a controlled foreign entity could open 

significant loopholes and could result in 

transfers of intangible benefits to an 

entity in a country of concern that the 

relevant U.S. person does not control, 


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heightening concerns that such 

enhanced standing and prominence, 

managerial assistance, access to 

investment and talent networks, market 

access, and enhanced access to 

additional financing, could be shared 

onward with government authorities. 

Similarly, the Treasury Department 

declines to expand the exception to 

allow any intracompany transfer to a 

wholly-owned subsidiary, as one 

commenter requested, as this could 

open a loophole in the rule by extending 

the exception to the use of existing 

wholly-owned subsidiaries to fund 

operations in new line of covered 

activities, for example. 

The Treasury Department also does 

not support the establishment of a 

threshold for the exception based on 

financial significance; the exception 

applies to any transaction of any value 

between a U.S. person parent and 

controlled foreign entity subsidiary to 

support new non-covered activities or 

maintain ongoing operations, including 

ongoing covered activities. The purpose 

of the Final Rule, consistent with the 

Outbound Order, is to require 

notification of, and prohibit, certain 

transactions that can be exploited by 

countries of concern to develop 

sensitive technologies and products. 

Therefore, the Treasury Department 

assesses that it is important to keep this 

exception, which would permit 

investments in an entity that constitutes 

a covered foreign person, narrow, with 

the intention of avoiding unnecessary 

disruption to operations of entities of 

which the U.S. person is a parent. Given 

the myriad varieties of intracompany 

transactions that could be excepted 

under this provision, the Treasury 

Department declines to provide an 

illustrative list in this Final Rule. To be 

clear, the exception under the Final 

Rule is not limited to direct U.S. person 

parent-controlled foreign entity 

relationships, as § 850.206(b) 

contemplates and captures a tiered 

ownership structure scenario where a 

U.S. person is an ultimate (but not 

immediate) parent. For the avoidance of 

doubt, to the extent that a U.S. person 

entity’s subsidiaries or affiliates are also 

U.S. persons, then they have an 

independent obligation to comply with 

the Final Rule. 

Binding, Uncalled Capital Commitment 

The Proposed Rule included an 

exception for transactions made in 

fulfillment of a U.S. person’s binding, 

uncalled capital commitment entered 

into prior to August 9, 2023, the 

effective date of the Outbound Order. 

The Treasury Department included this 

exception because a U.S. person could 

not have been aware of the scope of the 

Outbound Order or the President’s 

directive to the Treasury Department to 

implement the prohibition and 

notification requirements before the 

Outbound Order was issued. Indeed, the 

ANPRM, issued on the same day as the 

Outbound Order, included a discussion 

of the possible exception for 

transactions made pursuant to such 

commitments made prior to the 

issuance of the Outbound Order. The 

Proposed Rule, therefore, aimed to 

avoid a significant disruption to a U.S. 

person who entered into a binding 

capital commitment prior to August 9, 

2023, and would have applied to any 

transaction made in fulfillment of a 

binding, uncalled capital commitment 

entered into prior to such date. 

Multiple commenters provided 

responses to this section of the Proposed 

Rule. A few commenters expressed 

support for the Treasury Department’s 

decision to provide for only prospective 

application of the rule, while several 

requested that the Treasury Department 

revise the exception for commitments 

entered into before August 9, 2023, to 

instead except commitments entered 

into before the effective date of the Final 

Rule. One commenter asked to revise 

the exception for transactions made 

pursuant to a binding, uncalled capital 

commitment entered into before August 

9, 2023, to instead except commitments 

that the investor did not know were 

prohibited at the time the commitments 

were entered into. 

A few commenters stated that limiting 

the exception to binding, uncalled 

capital commitments made prior to 

August 9, 2023, could lead to retroactive 

application if terms defined elsewhere, 

like covered activities and ‘‘covered 

national security technologies and 

products,’’ were later broadened to 

cover more transactions without 

changing the applicable lookback date. 

In response to the comments, and 

given certain fairness considerations 

raised by the commenters, the Treasury 

Department has revised § 850.501(d) of 

the Final Rule to provide an exception 

for transactions made after the effective 

date of the Final Rule (January 2, 2025) 

pursuant to a binding, uncalled capital 

commitment entered into before the 

effective date of the Final Rule. 

If the Treasury Department broadens 

the scope of what is covered in 

subsequent rulemaking, the Treasury 

Department expects to consider whether 

it is appropriate to amend this provision 

to take into account binding 

commitments made after the specified 

date. The Treasury Department notes 

that the exception in § 850.501(d) is 

limited to transactions pursuant to 

binding capital commitments made 

before the effective date (i.e., where the 

U.S. person has made a binding capital 

commitment to a fund or similar 

investment entity prior to January 2, 

2025 and the capital is then called after 

the effective date), recognizing that 

often a fund’s investment targets have 

yet to be determined at the time of the 

capital commitment. This is in contrast 

to the situation where a U.S. person 

signs a binding agreement with or with 

respect to the investment target. In the 

later scenario, the exception in 

850.501(d) will not apply and, if the 

transaction’s completion date is after 

January 2, 2025, the notification and 

prohibition requirements are applicable, 

even if the binding agreement was 

executed prior to January 2, 2025. The 

Treasury Department notes that 

following the Outbound Order and the 

ANPRM, the Proposed Rule additionally 

put the public on notice that the 

Treasury Department intended to 

require notifications for certain 

transactions and prohibit other 

transactions, and the Final Rule 

includes a delayed effectiveness, 

allowing transaction parties time to 

ensure compliance with the Final Rule. 

Loan Syndication Upon Default 

Section 850.501(e) of the Proposed 

Rule included in the definition of 

excepted transaction 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 could not 

initiate action vis-a`-vis the debtor on its 

own and did not have a lead role in the 

syndicate. Consistent with the 

objectives of the Outbound Order, it 

excepted a narrow set of circumstances 

in which a U.S. person lender would 

have passively received an interest in a 

covered foreign person and, even after 

receiving such interest, lacked a role in 

the lending syndicate that would have 

been likely to create the opportunity for 

a U.S. person lender to convey 

intangible benefits to the covered 

foreign person debtor. 

The Treasury Department received 

multiple comments on this provision of 

the Proposed Rule, including one 

expressing general support of the 

exception. Several comments requested 

revisions to the Proposed Rule, while 

one sought to remove the exception 

entirely. With respect to requested 

revisions, one commenter stated that, if 

foreclosures on collateral remain within 

the scope of the rule, then the Treasury 

Department should revise 

§ 850.501(e)(2) to state that the 


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exception applies to any U.S. person 

bank that ‘‘is not the syndication agent,’’ 

because ‘‘lead role’’ is not common 

industry terminology. The Treasury 

Department intends to maintain this 

exception in the Final Rule, as the 

Treasury Department assesses that a 

U.S. person bank passively receiving an 

equity interest by virtue of a role in a 

lending syndicate is unlikely to result in 

the national security concerns identified 

in the Outbound Order. The Treasury 

Department agrees with the proposed 

revision to § 850.501(e)(2) to replace 

‘‘lead role’’ with ‘‘syndication agent’’ 

and has made such change in the Final 

Rule. To the extent that a U.S. person 

lender in the syndicate is not the 

syndication agent yet can still initiate 

action on its own with respect to the 

debtor, then the exception would not 

apply. 

A few commenters sought to expand 

the scope of the exception. One 

commenter requested the exception be 

broadened to include instances where 

the U.S. person lender has a larger role 

in the lending syndicate. Another 

commenter requested that the Treasury 

Department revise the rule to recognize 

that exercising control to protect an 

investment does not always create the 

intangible benefits the rule seeks to 

eliminate. 

The Treasury Department declines to 

expand the exception to include U.S. 

bank lenders that play a larger role in 

the syndicate. With such a role comes 

a greater opportunity to cause the 

transfer of the equity and potentially to 

transfer intangible benefits to the 

covered foreign person debtor, which 

would undermine the goals of the 

Outbound Order and Final Rule. 

Although exercising control over an 

investment may not always result in the 

conveyance of intangible benefits, the 

Treasury Department assesses that 

greater control leads to a higher 

likelihood of such conveyance the rule 

seeks to address. 

A few commenters requested that the 

Treasury Department revise the 

exception to apply to syndicates led by 

either a bank or a nonbank. The 

Treasury Department declines to expand 

the exception in the Final Rule to 

include nonbank lenders. The Treasury 

Department seeks to keep this exception 

limited, given that it involves a U.S. 

person lender taking possession of a 

voting interest in an entity to which it 

has provided capital, and notes that 

there are other exclusions under the 

Final Rule that may be applicable to 

U.S. persons who have foreclosed on an 

equity interest as a result of a loan 

default, for example, where the U.S. 

person did not know at the time of 

making the loan that the pledged 

collateral was in a covered foreign 

person. (See the discussion of a covered 

transaction above.) U.S. person bank 

lenders are generally not in the business 

of managing and operating going 

concerns. To the extent that they take 

possession of a voting interest, it is 

primarily for the purpose of selling the 

interest to recoup the value of their 

loans, and hence the Treasury 

Department assesses there is a relatively 

lower likelihood of such banks 

conveying intangible benefits to the 

covered foreign person. 

The Final Rule, therefore, remains 

largely unchanged from the Proposed 

Rule, except for the change in 

§ 850.501(e)(2) discussed above. The 

exception, therefore, applies to 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 loan was made 

by a syndicate of banks where the U.S. 

person lender in the syndicate cannot 

act on its own with respect to the debtor 

and is not the syndication agent. 

Exception Regarding Designated 

Territories or Countries Outside of the 

United States 

Recognizing shared objectives and in 

furtherance of the U.S. Government’s 

efforts to encourage partners and allies 

to address risks related to outbound 

investment, § 850.501(f) of the Proposed 

Rule excepted 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 related to that country 

or territory’s own measures to address 

the national security risk related to 

certain outbound investment. The 

Treasury Department expected that any 

such country or territory would be 

designated after accounting for factors 

such as whether the country or territory 

was regulating outbound investment 

transactions involving technologies 

critical to a country of concern’s 

military, intelligence, surveillance, or 

cyber-enabled capabilities, which 

technologies were covered by such 

regulation, and whether such regulation 

addressed national security concerns 

related to outbound investment similar 

to those addressed by the Outbound 

Order. The Proposed Rule noted that the 

Treasury Department was considering 

taking into account other factors for 

purposes of designating a country or 

territory, including the extent to which 

a country or territory cooperated with 

the United States on issues of national 

security and whether it had in place and 

is using related authorities and tools, 

such as export controls, to protect 

sensitive technologies and products. 

The Proposed Rule would have 

provided 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 stated that the Secretary 

would determine the types of 

transactions for which the related 

national security concerns were 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 Treasury Department 

stated that it would make the 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 the 

Treasury Department’s Outbound 

Investment Security Program website. 

Several commenters addressed—and 

were generally supportive of—the 

proposed exception under § 850.501(f). 

A few commenters offered a 

framework for how the Treasury 

Department should consider scoping 

which transactions should be subject to 

the exception, or general principles for 

applying the exception in the future. 

Others noted that the proposed 

exception could convey an unfair 

advantage to a foreign competitor unless 

the foreign program is equally stringent. 

Another commenter noted that the 

proposed exception would not provide 

an incentive for a country or territory to 

develop an equivalent program because 

it would affect only a small number of 

businesses in any given country, and 

that if the Treasury Department were to 

consider other national security 

measures (such as export controls) in 

evaluating a country or territory for 

designation, then the country may gain 

the benefit of the incentive without 

needing to establish its own outbound 

security program. One commenter asked 

that the Treasury Department revise the 

Proposed Rule to clarify that the 

Secretary will make public the bases for 

the decision to designate a country or 

territory. Another commenter requested 

that the criteria for the exception be 

‘‘fully developed and specific’’ prior to 

the issuance of the Final Rule. 

The Treasury Department appreciates 

commenters’ efforts to help develop a 

framework and to conceptualize the 

proposed exception and identify 

principles to guide its operation, as well 

as their interest in having the relevant 

consideration criteria be developed 

prior to the issuance of the Final Rule. 

Accordingly, the Treasury Department 

anticipates making available on its 


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Outbound Investment Security Program 

website more information on the factors 

the Secretary will consider when 

making a designation or determination. 

With respect to factors related to a 

designation, the Treasury Department 

intends to consider, for example: 

• A country or territory’s legal 

authority to regulate outbound 

investment; 

• The extent to which the country or 

territory has in place and effectively 

utilizes a mechanism to regulate 

outbound investment involving 

sensitive technologies and products in 

the semiconductors and 

microelectronics, quantum information 

technologies, and AI sectors; 

• The extent to which the country or 

territory possesses the legal authority to 

prohibit or require notification for 

outbound investment transactions 

involving sensitive technologies and 

products in the semiconductors and 

microelectronics, quantum information 

technologies, and AI sectors; and 

• The extent to which the country or 

territory possesses legal authority to 

control the export of sensitive 

technologies and products in the 

semiconductors and microelectronics, 

quantum information technologies, and 

AI sectors to any foreign persons 

anywhere they may be located. 

With respect to determinations, the 

Treasury Department is currently 

considering adopting an approach 

similar to that described by 

commenters, where the ‘‘types of 

transactions’’ for which this exception is 

available may differ based on whether 

the country or territory is the ‘‘source of 

investment’’ or the ‘‘destination of 

investment.’’ 

In response to comments, the 

Treasury Department notes that any 

exceptions created under this section 

would ultimately apply to U.S. persons. 

These exceptions would lift the 

notification requirement or prohibition, 

as applicable, on a U.S. person with 

respect to certain transactions that 

would otherwise be notifiable 

transactions or prohibited transactions. 

The Treasury Department does not 

expect a foreign country or territory’s 

regime related to outbound investment 

to necessarily be identical to the Final 

Rule. The relevant focus remains on the 

national security risks related to and, as 

stated in the Outbound Order, 

potentially exacerbated by, outbound 

investment. As such, the Secretary, 

following relevant consultations, may 

determine that certain types of 

transactions involving those countries 

or territories should be excepted. 

Accordingly, the Final Rule adopts at 

§ 850.501(g) the exception found at 

§ 850.501(f) of the Proposed Rule with 

minor modifications. The Final Rule 

clarifies that the national security risks 

related to outbound investment to be 

addressed by a country or territory 

outside of the United States must be 

similar to those described by the 

Outbound Order. Additionally, 

consistent with the national emergency 

declared in the Outbound Order, the 

risks must be related to, rather than be 

posed by outbound investment. The 

Treasury Department assesses that these 

changes will provide the Secretary with 

greater flexibility to consider the full 

range of a country’s or territory’s legal 

authorities and programs when making 

designations or determinations under 

the rule. In addition, to afford flexibility 

to respond to changes in the 

international threat environment, the 

Treasury Department has added 

§ 850.501(g)(4) to provide the Secretary 

with the authority to rescind a 

designation or determination if 

determined to be appropriate. The 

Secretary’s recission of a designation or 

determination would apply 

prospectively and would be announced 

publicly. 

Excepted Transaction—Final Rule 

Summary 

The Final Rule implements ten 

categories of excepted transaction, 

including (subject to conditions, in 

some instances): 

D An investment by a U.S. person in 

a publicly traded security; 

D An investment by a U.S. person in 

a security issued by a registered 

investment company, such as an index 

fund, mutual fund, or exchange traded 

fund, or issued by any company that has 

elected to be a business development 

company; 

D An investment of a certain size by 

a U.S. person LP in a pooled investment 

fund; 

D An investment by a U.S. person in 

a derivative; 

D 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 

is not a covered foreign person 

following the transaction; 

D An intracompany transaction 

between a U.S. person parent and its 

controlled foreign entity that supports 

new operations that are not covered 

activities or that maintains ongoing 

operations, including ongoing covered 

activities; 

D Fulfillment of a U.S. person’s 

binding, uncalled capital commitment 

entered into prior to the effective date 

of the Final Rule; 

D 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 participated 

passively in the syndicate; 

D The receipt of employment 

compensation by an individual in the 

form of stock or stock options, or the 

exercise of such options; and 

D Certain transactions with or 

involving a person of a country or 

territory outside the United States that 

has been designated by the Secretary in 

accordance with provisions set forth in 

§ 850.501(g) of the Final Rule. 

§ 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.’’ As 

described in the Proposed Rule, the 

Secretary, in consultation with the 

Secretary of Commerce, the Secretary of 

State, and the heads of relevant 

agencies, as appropriate, may have 

determined that a covered transaction is 

in the national interest of the United 

States and therefore, exempted it from 

certain provisions of the Proposed Rule. 

The Treasury Department anticipated 

that this exemption of a covered 

transaction would have been granted by 

the Secretary only in exceptional 

circumstances. 

Section 850.502 of the Proposed Rule 

described the process and 

considerations for the Secretary’s 

authority to exempt a covered 

transaction determined to be, in 

consultation with the heads of relevant 

agencies, as appropriate, in the national 

interest of the United States. Any 

determination that a covered transaction 

was in the national interest of the 

United States and therefore exempt from 

certain provisions of the Proposed Rule 

would have been based on a 

consideration of the totality of the facts 

and circumstances. The Proposed Rule 

stated that the Treasury Department 

anticipated such determination may 

have been 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 Proposed Rule stated that the 

Treasury Department would not 

consider granting retroactive waivers or 


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exemptions (i.e., waivers or exemptions 

after a prohibited transaction has been 

completed). 

To request a national interest 

exemption under the Proposed Rule, a 

U.S. person would have needed to 

submit certain information to the 

Treasury Department, including a 

description of 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 Proposed Rule 

noted that the Treasury Department may 

have requested that a U.S. person 

submit information, including some or 

all of the information required under 

§ 850.405, as well as additional details 

based on the facts and circumstances. 

The Treasury Department received 

comments on § 850.502 of the Proposed 

Rule. Commenters generally expressed 

support for this section. Several 

commenters requested that the Treasury 

Department develop clearer and more 

specific considerations that will be 

evaluated in determining whether a 

covered transaction is in the national 

interest of the United States, and 

therefore exempt from applicable 

provisions of the rule. Commenters 

requested that the Treasury Department 

expand the considerations that will be 

evaluated in a national interest 

determination, to include concerns 

related to the impact on human life, the 

environment, and finances of U.S. 

persons. 

While understanding the interest of 

commenters in expanding the 

enumerated considerations that may 

inform a national interest 

determination, the Treasury Department 

declines to include additional 

enumerated considerations or 

clarifications in the Final Rule. As 

discussed in the Proposed Rule, any 

determination will take into account 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 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. For the avoidance of doubt, 

the considerations in the Final Rule are 

not exclusive, and additional 

considerations may inform any 

determination by the Secretary. The 

Treasury Department anticipates 

providing information on the process 

and requirements for any national 

interest exemption request on its 

Outbound Investment Security Program 

website. 

One commenter requested clarity as to 

whether individuals with delegated 

authority can seek an exemption on 

behalf of a U.S. person. Similar to the 

submission of a notification which 

requires a certification signed by the 

chief executive officer or other duly 

authorized designee of the person filing 

pursuant to § 850.203, the Treasury 

Department has added in the Final Rule 

a provision at 850.502(d) to require a 

certification that can be signed by a duly 

authorized designee according to 

§ 850.203 in order to help ensure the 

provision of accurate and complete 

information to the Treasury Department. 

The Treasury Department notes that a 

certification based on 

misrepresentation, concealment, or 

omission of material fact may impact 

the validity of a national interest 

determination. 

One commenter suggested that the 

rule include clear timelines for both the 

requesting person and the Treasury 

Department in reaching a determination 

and seeking additional information 

about the U.S. person’s interactions 

with the covered foreign person and any 

mitigation of potential threats from the 

covered foreign person. Additionally, 

the commenter requested that the 

Treasury Department publicize the 

granting of a national interest exemption 

so that others can benefit from 

understanding the criteria that meet the 

requirements. Another commenter 

requested that the Treasury Department 

issue additional guidance on the process 

for submitting information related to the 

transaction for which this exemption is 

sought, and that any such process be 

developed with business practicalities 

in mind. As noted above, the Treasury 

Department intends to provide 

information, in accordance with 

§ 850.502(c), to be submitted in 

connection with any national interest 

exemption request on its Outbound 

Investment Security Program website by 

the effective date of the Final Rule. As 

stated in the Proposed Rule, a U.S. 

person requesting a national interest 

exemption will need to submit certain 

information to the Treasury Department, 

including a description of 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 Treasury Department may request 

that a U.S. person submit information 

that may include some or all of the 

information required by § 850.405, as 

well as additional details based on the 

facts and circumstances. In addition to 

the required information, as a general 

matter, the Treasury Department 

welcomes additional information that 

the U.S. person deems relevant, 

including with respect to the U.S. 

person’s interaction with the covered 

foreign person and views on mitigation 

of any national security risk, among 

others. 

At this time, the Treasury Department 

is not instituting a timeline for its 

internal review and determination. After 

the Outbound Order and Final Rule are 

implemented, the Treasury Department 

may consider instituting such a timeline 

or providing additional information. 

One commenter requested that the 

Treasury Department establish an 

appeals process and timeline in the 

event a request for an exemption is 

denied. The Treasury Department 

declines to establish such a process at 

this time and will be informed by 

experience. 

One commenter suggested that the 

Treasury Department establish, prior to 

the issuance of the rule, the binding 

conditions to which an exempt covered 

transaction may be subject. The 

Treasury Department declines to 

establish in the Final Rule the binding 

conditions that a covered transaction 

may be subject to in connection with a 

granted national interest exemption. 

Because any determination will be 

based on a consideration of the totality 

of relevant facts and circumstances, the 

Treasury Department is unable to 

speculate as to what binding conditions 

may be necessary in a determination by 

the Secretary that a covered transaction 

is exempt under § 850.502. 

The Final Rule adopts § 850.502 as set 

forth in the Proposed Rule with a 

modification to require that any 

information and documents submitted 

in relation to a national interest 

determination request be subject to the 

certification described in § 850.203. As 

noted above, a certification based on 

misrepresentation, concealment, or 

omission of material fact may impact 

the validity of a national interest 

determination. 

Under § 850.502 of the Final Rule, 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 §§ 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. Any such 

determination will be based on 

consideration of the totality of the 


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relevant facts and circumstances and 

may be informed by the criteria 

discussed, although the Treasury 

Department reiterates this is not an 

exclusive list of criteria. A U.S. person 

seeking a national interest exemption 

shall submit relevant information to the 

Treasury Department 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 Treasury 

Department may request additional 

information that may include some or 

all of the information required under 

§ 850.405. A certification must be 

submitted pursuant to § 850.203. 

Electronic filing instructions will be 

available via the Treasury Department’s 

Outbound Investment Security Program 

website. A determination that a covered 

transaction is exempt under this section 

may be subject to binding conditions, 

and to be valid must be 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. 

The Treasury Department reiterates 

that it will not grant retroactive waivers 

or exemptions (i.e., waivers or 

exemptions after a prohibited 

transaction has been completed). 

Subpart F—Violations 

Subpart F of the Proposed Rule 

(§§ 850.601 through 850.604) described 

conduct that would be treated as a 

violation of the Proposed Rule. Such 

conduct would have included 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 

Treasury Department when submitting 

any information under the Proposed 

Rule. The Proposed Rule would also 

have prohibited any action that evades 

or avoids or has the purpose of evading 

or avoiding any of the prohibitions of 

the Proposed Rule. The Treasury 

Department did not receive any 

comments on Subpart F of the Proposed 

Rule. 

The Final Rule implements Subpart F 

as proposed, with the exception of a 

clarification to § 850.603 to include 

‘‘omission.’’ The Treasury Department is 

making this change to clarify that in 

addition to any materially false or 

misleading information submitted 

pursuant to the Final Rule, the omission 

of any such material information would 

also constitute a violation of the Final 

Rule. 

Subpart G—Penalties and Disclosures 

Subpart G of the Proposed Rule 

(§§ 850.701 through 850.704) described 

the civil and criminal penalties that may 

be imposed for violations of its 

requirements up to the maximum 

amount set forth in section 206 of 

IEEPA. Furthermore, the Proposed Rule 

would have permitted the Secretary, in 

consultation with the heads of relevant 

agencies, to take action to nullify, void, 

or otherwise compel divestment of any 

prohibited transaction entered into after 

the effective date of the Final Rule. The 

Proposed Rule also described the 

process for a person that may have 

violated applicable provisions to submit 

a voluntary self-disclosure. 

The Treasury Department received 

comments to this subpart. One 

commenter suggested the rule include a 

process for appealing a penalty that is 

imposed or provide some other 

administrative or legal remedy. Other 

commenters requested that the Treasury 

Department clarify whether a non-U.S. 

person would face penalties for 

violations of the rule, and if so, under 

what circumstances, and requested 

specific guidance for non-U.S. persons. 

The Treasury Department declines to 

establish an appeals process at this time. 

Any penalty will be imposed based on 

a totality of the facts and circumstances. 

The Treasury Department anticipates 

providing additional information 

regarding compliance with the program 

at a later date. The Treasury Department 

also notes that the Final Rule places 

certain obligations solely upon U.S. 

persons. 

The Final Rule makes technical edits 

to the text of the provisions of Subpart 

G. Under the Final Rule, the Treasury 

Department may impose a civil penalty 

on any person that violates the Final 

Rule. In § 850.701(a)(1), the Final Rule 

clarifies that the maximum civil penalty 

that 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 the Final Rule, is the greater of twice 

the value of the transaction that is the 

basis of the violation with respect to 

which the penalty is imposed or 

$250,000, which amount is subject to 

adjustment pursuant to the Federal Civil 

Penalties Inflation Adjustment Act of 

1990, as amended by the Federal Civil 

Penalties Inflation Adjustment Act 

Improvements Act of 2015. The Final 

Rule at § 850.701(c) notes that, pursuant 

to the Federal Civil Penalties Inflation 

Adjustment Act of 1990, as amended, 

notice of the maximum penalty which 

may be assessed under this section will 

be published in the Federal Register 

and on Treasury’s Outbound Investment 

Security Program website on an annual 

basis on or before January 15 of each 

calendar year. As of the date of issuance 

of this Final Rule, the current maximum 

civil penalty under IEEPA is an amount 

not to exceed the greater of an amount 

that is twice the amount of the 

transaction that is the basis of the 

violation with respect to which the 

penalty is imposed or $368,136. 89 FR 

2139 (published January 12, 2024). The 

Secretary may also refer potential 

criminal violations under the Final Rule 

to the Attorney General. Regarding a 

voluntary self-disclosure made for 

actual or apparent violations of the 

Final Rule, the Treasury Department 

will take such disclosure into account as 

a mitigating factor in determining the 

appropriate response, including the 

potential imposition of penalties, if the 

Treasury Department determines that 

there was, in fact, a violation. 

Subpart H—Provision and Handling of 

Information 

§ 850.801—Confidentiality 

Section 850.801 of the Proposed Rule 

described the Treasury Department’s 

proposal to treat as confidential, subject 

to limited exceptions, information and 

documentary materials that would have 

been submitted pursuant to its 

provisions and were not otherwise 

publicly available. 

The Proposed Rule would have 

permitted the Treasury Department to 

disclose information or documentary 

materials, subject to appropriate 

confidentiality and classification 

requirements, where such materials 

were relevant to any judicial or 

administrative action or proceeding; 

provided to Congress; or provided to 

any domestic governmental entity or to 

a foreign governmental entity of a U.S. 

partner or ally, where the information or 

materials was important to the national 

security analysis or actions of such 

governmental entity or the Treasury 

Department. Additionally, the Proposed 

Rule would have permitted the Treasury 

Department to disclose information to 

third parties with the submitter’s 

consent, and it also permitted the 

Treasury Department to use the 

information gathered to fulfill its 

obligations under the Outbound Order, 

potentially including publication of 

anonymized data. 

As explained in the Proposed Rule, 

the Treasury Department was 

considering whether there were 

additional circumstances where 

disclosure of otherwise confidential 

information should be permitted. One 


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proposal considered would have 

allowed the Treasury Department to 

disclose such information to the public 

as and when the Secretary determined 

that such disclosure was in the national 

interest. The Treasury Department 

expected that such an exception would 

be rarely invoked and limited to 

circumstances in which the Secretary 

identified a pressing national interest 

that disclosure could help to address. 

This exception would not have 

superseded 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 Treasury 

Department invited 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. 

Multiple commenters provided 

perspectives on § 850.801 of the 

Proposed Rule. One commenter 

requested that the Treasury Department 

limit the sharing of information among 

U.S. Government agencies to only what 

is necessary to develop the analysis and 

recommendations required by the 

Outbound Order. The commenter also 

suggested retaining the other 

information sharing exceptions, 

particularly the exception for 

supporting judicial or administrative 

procedures. Another commenter 

expressed concerns about the Treasury 

Department’s ability to share 

confidential business information 

submitted by parties with foreign 

government entities, potentially placing 

U.S. companies at a competitive 

disadvantage, and urged clarification 

that such information may be shared 

only to the extent ‘‘necessary’’ for the 

purpose of national security. One 

commenter requested the Treasury 

Department compile a monthly report 

on the distribution of notified 

investments across geography and 

industry, among other categories, to be 

‘‘shared with the relevant security or 

intelligence agency.’’ 

While the Treasury Department 

recognizes the importance of 

safeguarding sensitive information, 

limiting the ability of the Treasury 

Department to share information among 

U.S. Government agencies to only what 

is necessary to develop the required 

information and recommendations to 

the President would undermine certain 

directives in the Outbound Order. For 

example, the Outbound Order directs 

the Treasury Department to consult with 

relevant departments and agencies in 

assessing the effectiveness of the Final 

Rule. Additionally, the Treasury 

Department, as stated in the Proposed 

Rule, intends to analyze notifiable 

transactions, in consultation with the 

Department of Commerce and, as 

appropriate, other relevant agencies. 

The Treasury Department emphasizes 

the importance of consulting with 

relevant agencies in furtherance of 

effective administration of the Final 

Rule. 

With respect to the sharing of 

information with foreign governments of 

a United States partner or ally, the 

Treasury Department declines to change 

the standard under the exception to the 

confidentiality provision in 

§ 850.801(b)(3) from ‘‘important’’ to 

‘‘necessary’’ and instead retains the 

language ‘‘important to the national 

security analysis or actions of such 

governmental entity or the Department 

of the Treasury.’’ The Treasury 

Department views this as a high bar and 

intends that any sharing of information 

would be subject to appropriate 

safeguards, including appropriate 

confidentiality and classification 

requirements, which the Treasury 

Department takes seriously. 

In response to the commenter 

suggestion regarding monthly data being 

shared with the relevant security or 

intelligence agencies, the Outbound 

Order directs the Treasury Department 

to provide to the President, through the 

Assistant to the President for National 

Security Affairs, an assessment of the 

effectiveness of the Outbound 

Investment Security Program in 

addressing national security threats 

identified in the Outbound Order as 

well as appropriate recommendations. 

Such assessment and/or 

recommendations may include 

anonymized data pertaining to 

notifiable transactions. The Treasury 

Department is finalizing § 850.801 as set 

forth in the Proposed Rule with the 

addition of the proposal discussed in 

the Proposed Rule (but not added to 

proposed regulatory text at that time) to 

permit the disclosure of information 

where the Secretary determines such 

disclosure to be in the national interest, 

as discussed further below. Section 

850.801(a) of the Final Rule provides 

that information or documentary 

materials not otherwise publicly 

available that are submitted to the 

Treasury Department in accordance 

with its provisions will not be disclosed 

to the public, except as required by law 

or as set forth in the exceptions. As with 

the Proposed Rule, the Final Rule sets 

out limited circumstances under which 

the Treasury Department is permitted to 

disclose information or documentary 

materials, subject to appropriate 

confidentiality and classification 

requirements. Such circumstances 

include where information and 

documentary materials are (1) relevant 

to any judicial or administrative action 

or proceeding, (2) provided to Congress, 

or (3) provided to any domestic 

governmental entity or to a foreign 

governmental entity of a U.S. partner or 

ally, where the information or materials 

are important to the national security 

analysis or actions of such governmental 

entity or the Treasury Department. The 

Final Rule, like the Proposed Rule, also 

permits the Treasury Department to 

disclose to third parties information or 

documentary materials when the person 

who submitted or filed the information 

or documentary materials has consented 

to its disclosure to such third parties. 

The Final Rule also specifies that the 

Treasury Department may use the 

information gathered pursuant to the 

rule to fulfill obligations under the 

Outbound Order, which may include 

publication of anonymized data. An 

additional circumstance in which 

information may be disclosed is 

included in the Final Rule at 

§ 850.801(d). 

The Treasury Department is 

implementing in the Final Rule the 

proposal discussed in the preamble to 

the Proposed Rule that will allow the 

disclosure of information when the 

Secretary determines such disclosure is 

in the national interest. Factors that the 

Secretary may consider when 

determining if disclosure is in the 

national interest may include whether 

such disclosure will further national 

security interests, address law 

enforcement needs, or promote 

compliance with the rule. 

Circumstances in which the Secretary 

may determine the disclosure of 

information to be in the national interest 

can include, for example, identifying 

persons of a country of concern that are 

engaged in covered activities so that 

U.S. persons are on notice that the 

Treasury Department has determined 

such persons to be covered foreign 

entities. The Treasury Department 

anticipates this exception to be invoked 

rarely and limited to circumstances in 

which the Secretary identifies a national 

interest that disclosure could help to 

address. The Treasury Department 

recognizes that a determination as to 

when the disclosure of information is in 

the national interest is a significant 

decision that requires taking into 

account a range of considerations and 

accordingly should be made only by a 


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senior official. Consistent with this, the 

Final Rule provides that any such 

determination may not be delegated 

below the level of the Assistant 

Secretary of the Treasury. 

Subpart I—Other Provisions 

§ 850.903—Severability 

Section 850.903 of the Proposed Rule 

provided that if any provision of the 

Final Rule, or the application thereof to 

any person or circumstance, is held to 

be 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. The Treasury Department 

did not receive any comments on 

§ 850.903 and adopts it without change 

in the Final Rule. 

If any provisions of this Final Rule, 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 

without the invalid provision or 

application. Each provision of the Final 

Rule and application thereof serves an 

important, related, but distinct purpose; 

provides a distinct benefit separate 

from, and in addition to, the benefit 

provided by other provisions and 

applications; is supported by evidence 

and findings that stand independent of 

each other; and is capable of operating 

independently such that the invalidity 

of any particular provision or 

application would not undermine the 

operability or usefulness of other 

aspects of the Final Rule. Based on its 

analysis, the Treasury Department 

believes that although more limited 

application would change the 

magnitude of the overall benefit of the 

Final Rule, it would not undermine the 

important benefit of, and justification 

for, the Final Rule’s application to other 

persons or circumstances. The 

qualitative and quantitative benefits of 

the Final Rule outweigh the costs for all 

persons and circumstances covered by 

the Final Rule. 

For example, but without limitation, 

if application of the Final Rule to a U.S. 

person with respect to the actions of its 

controlled foreign entity, is held to be 

invalid, it is the Treasury Department’s 

intent that the Final Rule remain in 

effect as to all other persons covered by 

the Final Rule. Similarly, if the 

prohibition on a U.S. person knowingly 

directing a transaction by a non-U.S. 

person is held to be invalid, it is the 

Treasury Department’s intent that the 

Final Rule remain in effect as to the 

prohibition on U.S. persons from 

engaging in prohibited transactions. The 

purpose of the Final Rule is to restrict 

those investments by U.S. persons 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 cyberenabled capabilities of countries of 

concern in ways that negatively impact 

the national security of the United 

States. It is consistent with this purpose 

to cover activity of U.S. persons as 

defined in the Final Rule if the 

application of the rule to a subcategory 

of persons or to a subcategory of activity 

is held to be invalid. 

The key requirements of the Final 

Rule—the prohibition or notification of 

certain covered transactions—are 

likewise severable. The covered 

transactions that are subject to 

notification are distinct from those that 

are prohibited, and the two provisions 

operate independently of each other. 

The Treasury Department therefore 

intends for each of these requirements 

in the Final Rule to be severable from 

each other and to be applied to the 

extent possible, even if its application is 

limited. 

§ 850.904—Reports To Be Furnished on 

Demand 

The Proposed Rule set forth at 

§ 850.904 that any person may be 

required to furnish information under 

oath regarding any act or transaction 

subject to part 850. Pursuant to 

§ 850.904, the Treasury Department 

could have requested this information at 

any time and conduct investigations, 

hold hearings, take depositions, and 

compel witnesses to testify through 

subpoenas, among other things. 

A commenter requested clarification 

in the rule that any inquiry made of 

legal counsel under this section should 

be conducted subject to the attorneyclient privilege applicable in the 

relevant jurisdiction. The Treasury 

Department declines to specifically 

mention any particular defense, such as 

the attorney-client privilege, to a 

demand for information under this 

provision. Individuals required to 

provide such information may raise 

such defenses as applicable and 

appropriate, although the availability of 

such defenses does not excuse a party 

from the requirements of this rule. 

Another commenter suggested the 

requirement to furnish information was 

overly broad, and recommended 

narrowing its scope to only functions 

necessary, in the commenter’s view, for 

enforcement of the rule. Additionally, 

the commenter requested the Treasury 

Department make revisions including by 

removing the language requiring the 

information to be submitted under oath, 

in the form of reports or otherwise, as 

well as the language permitting the 

inquiry to be at any time. The 

commenter also requested narrowing 

the Treasury Department’s authority to 

request information from ‘‘any person’’ 

about any ‘‘act or transaction’’ subject to 

the Proposed Rule to instead requesting 

information only from a person 

involved in a transaction subject to the 

Proposed Rule and about such 

transaction. Lastly, the commenter 

requested limiting the Treasury 

Department’s investigative authority 

under § 850.904 to conducting 

investigations and requesting 

information aided by civil 

administrative subpoenas. 

Limiting the Treasury Department’s 

ability to seek information in 

connection with transactions subject to 

part 850 as suggested by the commenter 

would undermine the Treasury 

Department’s ability to investigate and 

enforce violations of the Final Rule. 

Given the focus of the Final Rule on 

obligations on U.S. persons and the 

range of transactions within the 

definitions of covered transaction and 

excepted transaction, greater rather than 

less flexibility in the Treasury 

Department’s avenues for obtaining 

information is important. Under IEEPA, 

the President has broad authority to 

investigate transactions in which any 

foreign person has an interest. Section 

10(ii) of the Outbound Order grants the 

full scope of these investigative powers 

to the Secretary to carry out the 

purposes of the Outbound Order, 

including to investigate and make 

requests for information relative to 

notifiable or prohibited transaction not 

only from parties to such transactions 

but also from other relevant persons. 

Section 850.904 implements this 

authority and is consistent with 

longstanding OFAC practice under 

IEEPA (e.g., 31 CFR 501.602). Notably, 

the text of the provision limits the 

Treasury Department’s information 

gathering power to acts or transactions 

subject to part 850. 

The Final Rule makes no change to 

the text of proposed § 850.904. Under 

the Final Rule, any person may be 

required to furnish information under 

oath regarding any act or transaction 

subject to its provisions. The Treasury 

Department can request this information 

at any time and the Treasury 

Department has the authority to conduct 

investigations, hold hearings, take 

depositions, and compel witnesses to 


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testify through subpoenas, among other 

things. 

D. Other Comments 

Compliance Burden 

Several commenters noted that the 

Proposed Rule would impose what the 

commenters believed were significant 

compliance costs on U.S. companies, 

particularly small businesses, U.S. 

investors, and also foreign persons. One 

such commenter stated that the 

compliance costs for U.S. investors 

would be passed along to businesses, 

limiting resources to advance 

innovation. Another commenter noted 

that for venture capital investments in 

particular, it would be difficult and 

costly to determine who is a person of 

a country of concern, and that 

regulatory changes in the PRC were 

making it more challenging to obtain 

information on PRC entities, which will 

make it difficult for U.S. persons to 

comply with this requirement. 

As described below in Section IV, the 

Treasury Department assessed the costs 

and benefits of the Final Rule. As noted 

in that analysis, while the Final Rule 

will impose some compliance costs on 

U.S. companies, investors, and foreign 

persons, the Treasury Department 

estimates that the Final Rule will apply 

to a relatively modest volume of 

potential covered transactions, and that 

these costs, in turn, will be relatively 

modest compared to the size of potential 

investment opportunities. The Treasury 

Department also notes that for at least 

some transactions and investors, the 

level of information collection, 

retention, and diligence necessary to 

comply with the Final Rule, to include 

determining whether a transaction party 

is a person of a country of concern, may 

not give rise to any costs beyond what 

would be incurred during the course of 

routine due diligence in the absence of 

the Final Rule. 

Compliance Assistance 

Several commenters requested the 

Treasury Department develop tools to 

assist compliance with the rule, such as 

public guidance or advisories, 

frequently asked questions (FAQs), 

sample due diligence questionnaires, 

red flags and case examples, or 

recommended contractual language, as 

well as enforcement guidelines. 

Some commenters requested that the 

Treasury Department include specific 

fact patterns in the regulatory text, not 

just in the preamble to the rule, to 

illustrate transactions that might be 

covered, prohibited, or excepted, or that 

the Treasury Department publish these 

examples as FAQs. 

Commenters also requested that the 

Treasury Department develop a formal 

or informal process, such as a hotline, 

for providing interpretive guidance or 

advisory opinions on specific 

transactions. Some commenters 

requested this process be established 

before the rule is effective. One 

commenter pointed to similar practices 

by other components of the Treasury 

Department as well as other 

departments and agencies that 

administer national security-related 

regulatory programs, such as the 

Departments of Commerce, Justice, and 

State, as well as the SEC. 

Two commenters requested the 

Treasury Department periodically 

publish non-confidential or anonymized 

information in its possession about 

specific transactions to minimize 

program compliance costs, as well as 

unintentional violations. 

One commenter requested that the 

Treasury Department publish guidance 

on prohibited transactions and 

notifiable transactions that were 

undertaken between August 9, 2023 

(i.e., the date of the Outbound Order), 

and the effective date of the rule. The 

commenter recommended that, in the 

alternate, the Treasury Department 

could clarify that prohibited 

transactions undertaken during this 

time period will not be subject to 

enforcement/penalties if parties submit 

a notification after the issuance of the 

rule, while notifiable transactions 

undertaken during an interim period 

could be notified within a certain period 

(e.g., 100 days) after the effective date of 

the rule. In response, the Treasury 

Department notes that the obligations 

under the Final Rule take effect upon 

the effective date; only transactions with 

a completion date on or after the 

effective date are subject to the 

notification requirements or prohibition, 

as applicable. 

The Treasury Department recognizes 

that the Final Rule imposes new 

requirements about which further 

information may be helpful. To assist 

U.S. persons in compliance with the 

Final Rule, the Treasury Department 

anticipates providing additional 

information following publication of the 

Final Rule, including through its 

Outbound Investment Security Program 

website. The Treasury Department also 

anticipates engaging in stakeholder 

outreach and education on the 

requirements in the Final Rule. In 

providing any additional information or 

materials, the Treasury Department will 

consider commenter requests to publish 

more specific and detailed materials to 

assist in due diligence. Regarding the 

request to include specific examples of 

fact patterns in the regulatory text, the 

Treasury Department assesses it is more 

efficient to publish examples through its 

Outbound Investment Security Program 

website rather than through a 

rulemaking. Doing so will allow the 

Treasury Department to provide and 

update such examples in a timely 

manner to support industry compliance. 

At this time, the Treasury Department 

does not expect to establish an advisory 

opinion process to allow parties to 

request determinations of whether a 

particular transaction is covered, 

notifiable, or prohibited. Such a process 

does not exist for CFIUS reviews, for 

example, and, given the complexity and 

volume of potential transactions, would 

not be an efficient allocation of 

resources for the Office of Investment 

Security. Instead, as noted above, the 

Treasury Department anticipates making 

additional information available that 

can assist U.S. persons in understanding 

and complying with the Final Rule. 

Competitiveness Considerations and 

Other Consequences 

A number of commenters suggested 

that certain requirements in the 

Proposed Rule would affect the 

international competitiveness of U.S. 

investors, asset managers, and 

businesses in certain industries. Some 

commenters focused on the additional 

due diligence obligations with which 

U.S. investors must comply. Others 

emphasized the need for a multilateral 

approach so that foreign competitors are 

subject to similar requirements. Other 

commenters suggested that the proposed 

exception for transactions under 

§ 850.501(f)(1) involving persons of a 

country or territory outside the United 

States designated by the Secretary after 

taking into account whether the country 

or territory is addressing national 

security concerns posed by outbound 

investment, would convey an unfair 

advantage on a foreign competitor 

unless the foreign program is equally 

stringent. Two commenters argued that 

limitations on U.S. investment in the 

semiconductor industry in a country of 

concern, to include the notification and 

prohibition requirements related to AI 

systems, would put U.S. businesses in 

the semiconductor and automotive 

industries at a disadvantage when 

compared to foreign competitors. One 

commenter suggested that the 

requirements would disadvantage U.S. 

LPs who would be required to seek 

additional information and governance 

rights compared to non-U.S. LPs 

investing in non-U.S. funds. 

The Treasury Department recognizes 

that the obligations created by the Final 

Rule will impose certain costs and 


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restrictions on U.S. persons. To 

minimize those costs and restrictions, 

the rule focuses on only those 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. 

Additionally, the Treasury Department 

is committed to working with its allies 

and partners to stand up their own 

similar mechanisms to help ensure that 

foreign capital and intangible benefits 

do not merely fill investment gaps 

resulting from the Final Rule. 

Regarding the concern over potential 

designations under § 850.501(g)(1), the 

Treasury Department notes that any 

exceptions created under that section 

would ultimately benefit U.S. persons. 

These exceptions would permit or not 

require a notification by a U.S. person 

with respect to certain transactions that 

would otherwise be a notifiable 

transaction or a prohibited transaction. 

Several commenters shared their 

views on possible unintended 

consequences of the Proposed Rule, 

including general concerns around the 

breadth of the rule impacting U.S. and 

other companies’ ability to conduct 

global business, as well as concerns 

about impacts to U.S. competitiveness, 

innovation, and national security. 

One commenter expressed concern 

about expansion of the scope of 

countries listed as ‘‘countries of 

concern’’ given past implementation of 

certain national security-related laws 

and regulations, citing the 2018 

imposition of tariffs on steel imports 

under Section 232 of the Trade 

Expansion Act of 1962 (19 U.S.C. 1862) 

as an example. 

Another commenter suggested that 

U.S. venture capital firms could become 

uncompetitive for deals involving a 

country of concern or in which 

determining the potential involvement 

of a country of concern takes time. The 

commenter also predicted a chilling 

effect from the compliance related to 

distinguishing between transactions that 

would be notifiable versus those that 

would be prohibited. A few commenters 

argued that the Proposed Rule could 

permit non-U.S. investors to more easily 

engage in transactions, pushing 

particular companies in these leadingedge sectors away from the United 

States and thus harming our national 

security and competitive edge. 

Some commenters suggested that the 

Proposed Rule could impact investment 

activities of third-country entities and 

thereby increase the instability of global 

supply chains or impact U.S. investors’ 

ability to do business in the broader 

Asia region. One commenter requested 

that the Treasury Department ensure the 

rule does not disrupt the day-to-day 

management of global diversified 

portfolios invested in publicly traded 

securities. 

The Treasury Department notes that 

the Final Rule seeks to address the 

national security threat described in the 

Outbound Order while minimizing 

unintended consequences. Accordingly, 

the Final Rule includes tailored 

definitions and descriptions of terms 

and elements to appropriately scope 

coverage and facilitate compliance by 

U.S persons. Where appropriate and 

consistent with the goals of the 

Outbound Order, the Treasury 

Department has included exceptions to 

the coverage of the rule, to seek to 

minimize unintended consequences for 

U.S. persons. 

The Treasury Department notes 

concerns around the practical effects of 

due diligence requirements associated 

with the Final Rule, especially as they 

relate to the timelines of private 

investments. As noted above, the 

Treasury Department intends to publish 

compliance resources and information 

on its Outbound Investment Security 

Program website to assist with 

implementing the Final Rule. In 

addition, as required by the Outbound 

Order, the Secretary of the Treasury, in 

consultation with the Secretary of 

Commerce and, as appropriate, the 

heads of other relevant agencies, will 

assess, within one year of the effective 

date of the Final Rule and periodically 

thereafter, whether to amend the rule. 

International Engagement 

The Treasury Department received 

several comments related to U.S. 

Government engagement with foreign 

countries and territories on the 

Outbound Order and requirements 

described in the Proposed Rule. Several 

commenters expressed support for 

substantive engagement between the 

U.S. Government and foreign countries 

on the Outbound Order and similar 

programs being considered by foreign 

jurisdictions. One commenter 

recommended that the U.S. Government 

work with foreign partners to identify 

regulatory options for outbound 

investment screening reviews that are 

easier to implement and administer and 

are tailored to the particular investment 

relationship that these countries have 

with a country of concern and the 

national security risks arising therefrom. 

Some commenters called out specific 

foreign jurisdictions with whom to 

prioritize coordination, including the 

European Union and South Korea. One 

commenter recommended that the 

Treasury Department engage with PRC 

commercial regulators to increase 

awareness of the Proposed Rule’s 

objectives and compliance requirements 

for PRC businesses, in order to assist 

U.S. firms that are conducting due 

diligence and facilitate implementation 

of the Proposed Rule. 

Other commenters noted potential 

outcomes they believe could arise if the 

U.S. Government does not engage 

substantively with foreign partners and 

align the approach in the Final Rule 

with those taken by foreign partners. 

These include the risk of backfilling 

capital and associated benefits from 

other economies, as well as 

disadvantaging U.S. firms and harming 

U.S. competitiveness. 

As noted in the Proposed Rule, the 

Treasury Department recognizes the 

importance of working with our 

partners and allies as they explore 

options to address national security 

concerns related to outbound 

investment. The Treasury Department 

concurs with commenters that the goals 

of the Outbound Order and Final Rule 

will be enhanced if foreign allies and 

partners develop similar mechanisms. 

The Treasury Department, along with 

other relevant U.S. Government 

departments and agencies, such as the 

Departments of Commerce and State, 

will continue to collaborate with foreign 

partners to advance coordination on 

risks and policy responses related to 

outbound investment. In addition, to 

further U.S. Government efforts to 

encourage partners and allies to address 

risks related to outbound investment, 

the Final Rule includes as an excepted 

transaction 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 that 

relate to that country or territory’s own 

measures to address the national 

security risk related to outbound 

investment. 

Implementation Delay 

A few commenters requested delaying 

the effective date of the rule to ensure 

U.S. persons and non-U.S. persons have 

enough time to analyze and comply 

with its requirements. One commenter 

suggested the implementation of the 

rule be delayed at least 120 days. 

Another commenter requested the 

Treasury Department not set an effective 

date for the rule until after a decision 

has been made by the 118th Congress on 


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a package of PRC-focused legislation 

given that the pending legislation could 

supersede portions of the rule. 

The Treasury Department has 

determined to make the effective date of 

the Final Rule January 2, 2025. This 

provides time for U.S. persons to 

analyze and respond to the changes 

made between the Proposed Rule and 

the Final Rule, while still allowing the 

Treasury Department to expeditiously 

address the national security concerns 

identified in the Outbound Order. The 

Treasury Department notes that the 

issuing of the Outbound Order and 

ANPRM in August 2023 and the 

Proposed Rule in June 2024 provided 

notice about the creation and scope of 

the Final Rule. Moreover, much of the 

due diligence the Final Rule expects of 

firms overlaps with existing diligence 

provisions in other laws and 

regulations, as well as the routine due 

diligence performed in these types of 

transactions. While the Treasury 

Department welcomes continued 

engagement with Congress on 

addressing the national security 

concerns identified in the Outbound 

Order, given the lack of certainty 

surrounding the status of proposed 

legislation or its likelihood of passage 

over alternative proposals, the Treasury 

Department elects not to postpone the 

effective date of the Final Rule in 

response to a legislative proposal. 

Alignment With Other Authorities 

Some commenters discussed how the 

rule should interact with existing 

regulatory regimes. One commenter 

suggested that the rule should anticipate 

transactions that are subject to both the 

Outbound Order and CFIUS 

jurisdiction. They requested the 

Treasury Department exclude 

transactions that have been or will be 

notified to CFIUS from the jurisdiction 

of the Final Rule. 

This commenter misinterprets the role 

of CFIUS in the context of overlapping 

authorities. CFIUS was designed to be a 

tool of last resort, only to be used when 

other authorities do not apply to a 

particular transaction. Applying CFIUS 

jurisdiction to a transaction prior to 

determining whether a separate 

authority may cover the transaction 

would reverse this process. The 

Treasury Department makes no change 

to the Final Rule in response to this 

comment. 

A few commenters suggested areas 

where provisions of the Final Rule 

could be tied more closely to existing 

authorities. One commenter suggested 

tying covered activities and similar 

terms to export classifications or other 

methods already in use by the U.S. 

Government. Another commenter 

requested the rule be more consistent 

with existing national security regimes 

described in the EAR and ITAR, 

particularly the definitions and 

compliance standards. 

While many of the due diligence 

expectations set forth in the Final Rule 

were designed to overlap with existing 

diligence provisions in other laws and 

regulations, the Treasury Department 

recognizes that areas of differentiation 

may impose some additional burden on 

market participants. The Treasury 

Department intends the Final Rule to 

increase the U.S. Government’s 

visibility into U.S. person transactions 

involving sensitive technologies and 

products, which necessitates some 

deviation from existing national security 

regimes. The proposed provisions are 

tailored to 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. The Treasury 

Department makes no change to the 

Final Rule in response to these 

comments. 

IV. 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 Final Rule is being 

issued to assist in addressing the 

national emergency declared by the 

President with respect to the threat 

posed to U.S. national security 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 and foreign policy of 

the United States has its source in 

whole or substantial part outside the 

United States. The Final Rule will have 

a direct impact on a foreign affairs 

function of the United States, which 

includes the protection of national 

security against external threats (for 

example, limiting investment in specific 

sectors in designated countries of 

concern). 

Although the Final Rule is not subject 

to the notice and comment requirements 

of the APA, the Treasury Department is 

engaged in notice and comment 

rulemaking for the Final Rule, 

consistent with section 1(a) of the 

Outbound Order. In addition, the Final 

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 

Treasury Department has undertaken an 

analysis of the anticipated costs and 

benefits of the Final Rule. Several 

commenters to the Proposed Rule 

discussed the potential burden 

associated with the Proposed Rule. The 

Treasury Department, after taking into 

account these comments, conducted an 

analysis of the relative costs and 

benefits of the Final Rule. For purposes 

of this analysis, the Treasury 

Department assessed the costs and 

benefits of the Final 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.), 

Unfunded Mandates Reform Act of 1995 

(UMRA), and Executive Order 13102, 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 Treasury Department 

has conducted an assessment of the 

costs and benefits of the Final Rule, as 

well as the costs and benefits of 

available regulatory alternatives. That 

cost-benefit analysis, along with a 

summary of comments to the costbenefit analysis included in the 

Proposed Rule, is below. 

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 will serve 

distinct but interrelated objectives with 

respect to the relevant technologies and 

products. The first component requires 

the Secretary to prohibit certain types of 

investment by a U.S. person in a 

covered foreign person engaged in 


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certain categories of activities related to 

technologies and products that pose a 

particularly acute national security 

threat. The second component requires 

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 is on investments that can 

enhance a country of concern’s military, 

intelligence, surveillance, or cyberenabled capabilities through the 

advancement of technologies and 

products in particularly sensitive areas. 

In an Annex to the Outbound Order, the 

President identified the PRC, including 

Hong Kong and Macau, as a country of 

concern. 

As described above in section II, this 

Final 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 organized under the laws of a country 

of concern, certain other entities owned 

or controlled by persons of a country of 

concern or acting for or on behalf of the 

government 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 organized under the laws 

of a country of concern, certain other 

entities owned or controlled by persons 

of a country of concern or acting for or 

on behalf of the government 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 Final Rule 

will advance the President’s objective of 

regulating certain investments from the 

United States into a country of concern. 

The Final Rule will 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 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 Treasury 

Department will except from the Final 

Rule certain transactions with a lower 

likelihood of having that effect. The 

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. 

1. Comments on Initial Executive Order 

12866, 13563, and 14094 Analysis 

Several commenters provided 

comments on the initial cost analysis, 

while another commenter provided 

additional data related to outbound and 

inbound investments involving the PRC. 

Multiple commenters argued that the 

initial cost analysis underestimated the 

costs associated with the rule. In making 

this argument, a few commenters noted 

that the initial cost analysis 

underestimated the scope of affected 

transactions. One commenter noted that 

the Treasury Department’s cost estimate 

relied on analysis of equity investments 

made by U.S.-based investors in the 

semiconductor, AI, and quantum 

science sectors of the PRC, but that the 

rule could apply to a range of 

investment and corporate activities 

beyond equity investments. It also noted 

that the rule could affect investment in 

countries other than the PRC because of 

the scope of the definition of covered 

foreign person and could affect non-U.S. 

based investors because of the scope of 

the definition of controlled foreign 

entity. Another commenter noted that 

the Treasury Department’s estimate of 

direct costs for the rule is too low, and 

that the potential impact would be at 

least 10 times greater than the Treasury 

Department’s estimate. 

Regarding the number of transactions 

used for the initial cost analysis, as the 

Treasury Department noted in the 

Proposed Rule, precise data that 

matches the scope of potential covered 

transactions is not available. However, 

the Treasury Department disagrees that 

the scope of potential covered 

transactions is as broad as suggested by 

the commenters. The terms covered 

transaction and covered foreign person, 

along with other defined terms they 

incorporate, are scoped to apply to a 

relatively narrow subset of firms and 

activities involving either U.S. persons 

or persons in a country of concern. In 

the initial cost analysis, the Treasury 

Department doubled the average 

number of transactions derived from the 

existing data, in recognition of the lack 

of precision in the data used to estimate 

the number of potential covered 

transactions, and to account for the 

likely underrepresentation of potentially 

relevant transactions. While the 

Treasury Department declines to adopt 

an estimate 10 times greater than that 

set out in the Proposed Rule, as was 

suggested by one commenter, the 

Treasury Department has increased the 

estimated number of annual 

transactions for the cost analysis in the 

Final Rule from 120 entities and 212 

transactions to 180 entities and 318 

transactions. While commenters did not 

provide any more specific alternative 

data, the Treasury Department is making 

this adjustment in response to 

comments about underrepresentation 

and uncertainty for the number of 

potential covered transactions. The 

Treasury Department notes that this 

increase in the number of transactions 

increases estimated costs for the private 

sector but does not increase estimated 

costs for the U.S. Government. The U.S. 

Government costs associated with the 

Final Rule are not calculated on a per 

transaction basis. 

One commenter argued that the 

estimated costs were too low because 

they did not take into account the costs 

of due diligence in the business sector 

more broadly. The commenter stated 

that in each case the party undertaking 

the transaction will be required to 

determine whether a U.S. person is 

involved, whether the transaction is a 

covered transaction, and whether the 

transaction counterparty is a covered 

foreign person. The commenter also 

noted that even for transactions that are 

not covered, parties will feel compelled 

to maintain records of the diligence they 

perform on such transactions, so they 

can demonstrate that they did not have 

knowledge—including ‘‘reason to 

know’’—that the transaction was a 

covered transaction in the event the 

Treasury Department decides to 

investigate the transaction after the fact. 

The commenter suggested that Treasury 

Department account for these costs as 

well. 

With regard to the need to engage in 

due diligence and maintain records for 

transactions that are not covered to 

demonstrate the lack of knowledge 

about a potentially covered transaction, 

the Treasury Department declines to 

add additional costs. As noted in the 

Proposed Rule, most investment 

transactions, regardless of whether the 

investment would be potentially subject 

to the Final Rule, involve some level of 

review, diligence, assessment, and 

recordkeeping by the investor. For some 

transactions and investors, the level of 

information collection, retention, and 

diligence necessary to comply with the 

Final Rule may not give rise to any costs 

beyond what would be incurred in the 

absence of the Final Rule. The Treasury 

Department has added additional 


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1PitchBook, https://pitchbook.com (last visited 

May 24, 2024). 

discussion to the final cost analysis to 

note this. With regards to significantly 

higher costs noted by one commenter, 

the Treasury Department notes that the 

total annual direct costs associated with 

complying with the Proposed Rule were 

expected to have a range of between 

$2,811,120 and $6,148,000, and the total 

annual time burden was estimated at 

approximately 21,200 person hours. The 

commenter did not provide further 

evidence or data supporting its 

alternative estimate. As noted above, the 

Final Rule cost analysis increases the 

number of estimated transactions, but 

without more specific alternative data 

provided, it does not adjust the time or 

labor costs identified in the Proposed 

Rule cost. 

Another commenter argued that the 

initial analysis understated the relevant 

costs because it omitted certain indirect 

costs. In particular, the commenter 

stated that while the initial analysis 

examined indirect costs such as 

foregone returns on investment incurred 

for prohibited transactions, it should 

also consider two other indirect costs 

related to covered transactions. The first 

indirect cost is for both ‘‘uncovered’’ 

and notifiable transactions that the 

commenter alleges some firms will 

abandon due to the ‘‘actual or perceived 

costs’’ associated with the rule. The 

second indirect cost is the loss 

associated with forgone returns of all 

investments that did not occur— 

prohibited transactions and transactions 

that were abandoned because of the 

perceived or actual cost of the rule, 

including forgone revenues, market 

access, market participation, and 

research and development expenditures. 

The commenter also noted that as the 

actual or perceived costs of compliance 

increase, it is more likely that the costs 

of the rule would exceed its benefits. 

In response to this comment, the 

Treasury Department declines to add 

additional indirect costs associated with 

other covered transactions as well as 

transactions that are not covered. As 

noted in the Proposed Rule, other 

indirect costs are particularly difficult to 

assess due to individual decisionmaking, opportunities available, and 

market conditions, making any estimate 

highly speculative. The Treasury 

Department has updated the cost 

analysis to note that in a very small 

number of cases, companies might 

decide to forego a non-prohibited 

transaction in favor of a different 

investment that would be further away 

from the parameters of the Final Rule. 

The Treasury Department assesses that 

the impact of these costs is nominal, 

because if the difference in investment 

return between the forgone investment 

and alternate investment the company 

chose was more significant, then the 

company would have determined the 

diligence cost was acceptable, given the 

higher economic return. In addition, the 

Treasury Department notes it is very 

challenging to determine the particular 

sector, country, or investment structure 

that the U.S. investor would choose as 

the alternate and then quantify the 

impact of that determination. 

Finally, a commenter noted that the 

Treasury Department should review 

how the rule will affect U.S. 

investments in sectors implicated by the 

definitions of notifiable transaction and 

prohibited transaction and whether they 

will be supplanted by investments from 

other countries. As noted above and 

discussed in the rule, several impacts of 

the Final Rule are particularly difficult 

to quantify, including the extent to 

which the Treasury Department can 

determine the percentage of investors 

from specific countries that will replace 

U.S. investors for prohibited 

transactions. The Treasury Department 

has added a brief discussion of this 

issue to the final cost analysis. 

2. Final Executive Order 12866, 13563, 

and 14094 Analysis 

(a) Costs 

The primary direct costs to the public 

associated with the Final Rule relate to 

(1) understanding the Final 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 Final Rule; and 

(3) if applicable, preparing and 

submitting a mandatory notification of 

certain transactions or other information 

to the Treasury Department pursuant to 

the Final Rule. The Final Rule may also 

involve certain additional indirect costs 

associated with prohibited transactions. 

Investors who would have otherwise 

engaged in a prohibited transaction 

absent the Final Rule may pursue 

alternative investment opportunities 

since they are precluded from 

undertaking a prohibited transaction. 

The Final Rule will apply to all U.S. 

persons who undertake, directly or 

indirectly, a covered transaction. 

Because of the tailored scoping of the 

Final Rule, the Treasury Department 

estimates that it will 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 Final 

Rule is not available—and is one of the 

reasons for the notification requirement, 

which will increase the U.S. 

Government’s visibility into the relevant 

transactions—available data appears to 

support this estimate of a modest 

volume. For example, to estimate the 

number of entities that will be 

potentially affected by the Final Rule 

and would incur associated direct 

compliance costs, the Treasury 

Department 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 

Treasury Department has determined 

this figure to be a lower bound. 

The Treasury Department also 

acknowledges that some U.S. person 

investors may incur costs even where 

the Final 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 Final 

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 Final Rule 

and then proceed to spend resources on 

diligence, only to confirm that the 

relevant transaction is not a covered 

transaction. However, as noted in the 

Proposed Rule, most investment 

transactions, regardless of whether the 

investment would be potentially subject 

to the Final Rule, involve some level of 

review, diligence, assessment, and 

recordkeeping by the investor. For some 

transactions and investors, the level of 

information collection, retention, and 

diligence necessary to comply with the 

Final Rule may not give rise to any costs 

beyond what would be incurred in the 

absence of the Final Rule. 

For purposes of the Final Rule cost 

analysis, the Treasury Department 

tripled the averages from the available 

data to account for the likely 

underrepresentation of potentially 

relevant transactions. Thus, the 

Treasury Department’s analysis is based 


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2Figures based on May 2023 data. 

3Statista (Feb. 26, 2024), https://

www.statista.com/statistics/941146/legal-serviceshourly-rates-metropolitan-region-united-states/. 

on the estimate of approximately 180 

entities and 318 transactions annually 

(based on an assumption of an annual 

average of 1.77 transactions per entity) 

that may be affected by the Final Rule. 

For the remainder of this analysis, 

however, the Treasury Department 

relied on the estimates as described 

above. 

To derive an estimate for the costs 

related to the Final Rule, the Treasury 

Department first estimated the 

associated labor costs related to 

interpreting and applying the Final 

Rule. The Treasury Department expects 

that individuals and entities reviewing 

the Final Rule and engaging in 

potentially relevant transactions will 

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 Treasury 

Department 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 Treasury Department 

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 Final Rule will often 

be higher than the hourly mean wage in 

these occupation categories across the 

United States. Accordingly, the 

Treasury Department estimates that the 

impacted entities will each incur costs 

of $187 per hour for managers and $255 

for lawyers. As the Treasury Department 

is unable to determine which particular 

tasks will be performed by managers or 

lawyers, the Final Rule cost analysis 

uses the average wage of the two 

positions for both the low-end and highend estimate, which the Treasury 

Department assesses is a reasonable 

method for estimating the hourly cost. 

The average of these figures is $221 per 

hour and, again, this is a low-end 

estimate. 

For a high-end estimate, the Treasury 

Department 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. 

Costs Associated With Understanding 

the Proposed Rule 

Based on the above assumptions and 

estimates of affected entities, number of 

transactions, and labor costs, the 

Treasury Department has estimated the 

annual time and cost that would be 

spent by affected entities in 

understanding the Final Rule. While 

recognizing that the extent of this 

diligence will necessarily vary from 

transaction to transaction, the Treasury 

Department arrived at the below 

estimates for purposes of this regulatory 

analysis. 

The range of estimated aggregate 

annual costs for understanding the Final 

Rule begins at $702,780 on the low end 

and goes up to $922,200 on the high 

end. This is based on the estimate of an 

average time burden to be 10 total 

person hours per transaction for 

understanding the Final Rule. As such, 

10 total person hours per transaction 

multiplied by 318 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 Final Rule. 

Costs Associated With Diligence and 

Maintaining Records 

Based on the above assumptions and 

estimates of affected entities, number of 

transactions and labor costs, the 

Treasury Department has estimated the 

annual time and cost that would be 

spent by affected entities on conducting 

additional transactional diligence with 

respect to this Final 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 

Treasury Department arrived at the 

below estimates for purposes of this 

regulatory analysis. 

The Treasury Department recognizes 

that most investment transactions, 

regardless of whether the investment is 

potentially subject to this Final 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 Final Rule 

may not give rise to any costs beyond 

what would be incurred in the absence 

of the Final 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 Treasury Department 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 only 

incremental costs would be incurred for 

the review of the information from the 

perspective of ensuring compliance 

with the Final Rule. While the 

notification requirement also includes 

(1) information regarding covered 

activities undertaken by the covered 

foreign person that make 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 

nodes at which any applicable product 

is produced, the due diligence 

underlying many covered transactions 

will include gathering and reviewing 

this information even if not specifically 

to comply with the Final Rule. The 

Final Rule further states that a U.S. 

person that has failed to conduct a 

‘‘reasonable and diligent inquiry’’ as of 

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 Final Rule may in 

some cases require enhanced diligence. 

Recognizing that in some instances, 

compliance with the Final 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 Final 

Rule as described below. 

The range of estimated annual 

incremental cost for conducting due 


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diligence and recordkeeping associated 

with the Final Rule runs from $0 on the 

low end to $3,688,800 on the high end. 

These are two ends of the range, and it 

is anticipated that the costs for most 

transactions will fall between these 

figures. The Treasury Department 

estimates that the average time burden 

will likely not exceed 40 total person 

hours per transaction for conducting 

additional due diligence and 

recordkeeping with respect to the Final 

Rule. 

For the low end of this range, it is 

reasonable to anticipate that some 

investors, having spent resources 

learning about the Final 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 318 

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 Final Rule. 

The Treasury Department 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. 

Costs Associated With Providing 

Information 

The Final Rule requires the 

submission of information to the 

Treasury Department for notifiable 

transactions and provides for certain 

other circumstances that require 

information submission. The Treasury 

Department requires U.S. persons to 

provide notification of certain 

transactions under the Final Rule. The 

Final Rule requires that a person 

seeking a national interest exemption 

from the Final Rule’s notification 

requirement or prohibition must submit 

certain information to the Treasury 

Department. The Final Rule also 

requires a U.S. person to make a postclosing 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 transaction. Also, the Final 

Rule requires a U.S. person to inform 

the Treasury Department of any material 

omission or inaccuracy in any previous 

representation, statement, or 

certification. Lastly, the Treasury 

Department anticipates time and cost 

associated with responding to inquiries 

by the Treasury Department. 

The Treasury Department expects that 

of the universe of potentially covered 

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 Treasury 

Department has assumed that U.S. 

persons will perform due diligence with 

respect to the estimated 318 potentially 

covered transactions each year, and that 

all 318 will turn out to be notifiable 

transactions. The Treasury Department 

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 $3,513,900 to $4,611,000. 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 (318) 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 

Treasury Department estimated only the 

total annual costs of preparing and 

submitting a notification under 

§ 850.404 of the Final Rule. The 

Treasury Department 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 Treasury Department anticipates 

that the associated costs will be 

comparable to or will 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 

Final Rule can be expected to have a 

range of between $4,216,680 and 

$9,222,000 and the total annual time 

burden will be approximately 31,800 

person hours. 

Additional Indirect Costs Associated 

With Prohibited Transactions and NonCovered Transactions 

With respect to prohibited 

transactions, the Treasury Department 

has no basis to conclude that the Final 

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 Final Rule may pursue 

alternative investment opportunities 

since they will 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 will 

result from an alternative transaction. 

The Treasury Department notes that in 

a very small number of cases, 

companies might decide to forego a nonprohibited transaction in favor of a 

different investment that is not subject 

to the Final Rule or a similar regulatory 

regime. The Treasury Department 

assesses that the impact of these costs 

are nominal, because if the difference in 

investment return between the forgone 

investment and alternate investment the 

company chose was more significant, 

then the company would have 

determined the diligence cost was 

acceptable given the higher economic 

return. In addition, Treasury notes it is 

very challenging to determine the 

particular sector, country, or investment 

structure that the U.S. investor will 

choose as the alternate and then 

quantify the impact of that 

determination. The Treasury 

Department also notes that investors 

from specific countries, including those 

that are not U.S. allies, may replace U.S. 


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investors for prohibited transactions. 

Similarly, Treasury notes that it is 

particularly difficult to quantify these 

and other impacts of the Final Rule. 

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 Final 

Rule may have an economic impact on 

investment targets that are covered 

foreign persons because certain 

transactions will be prohibited, the 

Final 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 Final 

Rule. 

Costs to the U.S. Government 

Administering the Final Rule will also 

entail costs to the U.S. Government. 

Such costs will include information 

technology (IT) development and 

ongoing annual maintenance, as well as 

processing electronic notifications. The 

Treasury Department estimates that 

initial IT development costs will 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 Treasury Department and other 

relevant agencies, including the 

Department of Commerce, may incur 

additional costs besides those estimated 

above. These include other 

responsibilities related to the 

implementation of the Final 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, potentially 

including education on the 

requirements, provision of information 

and FAQs, and conducting stakeholder 

outreach. The Treasury Department 

does not currently have specific 

estimates for these costs but estimates 

that there will be personnel costs of less 

than $2 million associated with the 

Final Rule in Fiscal Year 2024 with 

additional costs for ongoing outreach 

and enforcement thereafter. 

The Treasury Department and other 

U.S. Government agencies may also 

incur costs in enforcing compliance 

with the Final Rule. The Treasury 

Department does not currently have 

estimates for these costs, and they are 

not included in the estimates above. 

The Treasury Department plans to 

monitor compliance with the Final Rule 

by leveraging a variety of data sources, 

both internal and external. If the 

external data sources include thirdparty commercial data, the Treasury 

Department assesses that the cost 

associated with accessing these 

databases will be modest and 

incremental, given that the Treasury 

Department 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 noncompliance, the Treasury Department 

may initiate outreach to the involved 

entity, work with law enforcement to 

investigate the apparent noncompliance, or initiate an enforcement 

action. The Treasury Department’s 

enforcement of the Final Rule will also 

involve coordination with law 

enforcement agencies. These law 

enforcement agencies may also incur 

costs (time and resources) while 

conducting investigations into potential 

non-compliance. 

(b) 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 U.S. 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 U.S. outbound investments, 

including certain intangible benefits 

that often accompany U.S. 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 cyberenabled capabilities are not sufficiently 

addressed by existing tools. 

The Final Rule is designed to 

complement 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 Final 

Rule is intended to provide key 

information that the Treasury 

Department can use to better inform the 

development and implementation of the 

Final Rule. These notifications will 

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 will be helpful in 

highlighting trends with respect to 

related capital flows and will inform 

future policy development. The 

Treasury Department expects that the 

national security benefits, while 

qualitative, will outweigh the 

compliance costs of the Final Rule. 

(c) Alternatives 

The Outbound Order requires the 

Secretary to issue implementing 

regulations subject to public notice and 

comment. As a result, the Treasury 

Department did not have the discretion 

to refrain from promulgating the Final 

Rule or to promulgate it without notice 

and comment. However, the Treasury 

Department considered different 

approaches to the Final Rule that would 

be available under the Outbound Order. 

Specifically, the Treasury Department 

considered the following potential 

alternatives to the Final Rule: 

• Scope of covered transaction and 

excepted transaction. The Treasury 

Department could have proposed a 

broader definition of covered 

transaction or fewer exceptions, and the 

Treasury Department considered certain 

alternatives to the scope of covered 

transaction and excepted transaction in 

developing the Final Rule. This 

discussion does not cover each 

alternative considered for the scope of 

covered transaction but provides a 

summary of a few alternatives the 

Treasury Department considered. The 


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Treasury Department 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 Treasury Department 

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. Another 

example is with respect to the exception 

for LP investments. As discussed above, 

in the Proposed Rule the Treasury 

Department offered and sought 

comment on two alternatives for this 

exception. Under proposed Alternate 1, 

a U.S. person’s investment made as an 

LP in a pooled investment fund would 

have constituted an excepted 

transaction if (1) the LP’s rights were 

consistent with a passive investment 

and (2) the LP’s committed capital was 

not more than 50 percent of the total 

AUM of the pooled investment fund. If 

the U.S. person LP’s committed capital 

were to constitute more than 50 percent 

of the total AUM of the pooled 

investment fund, its investment would 

have qualified as an excepted 

transaction only if the U.S. person 

secured a binding agreement that the 

pooled investment fund would not use 

its capital for a prohibited transaction. 

This approach would have addressed 

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 

investment fund or the ultimate covered 

foreign person investment target. 

Compared to Alternate 2, Alternate 1 

would have scoped in fewer LP 

investments as covered transactions but 

could potentially have been more 

challenging for a U.S. person to comply 

with, as it required 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 committed capital in a 

pooled investment fund that then 

invests in a covered foreign person 

would have been an excepted 

transaction only if the committed 

capital was not more than $1,000,000. 

Although this alternative would have 

likely scoped 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 have been easier for U.S. 

persons to comply with than Alternate 

1. As discussed above at the preamble 

to Subpart E, the Treasury Department 

has adopted a hybrid approach in the 

Final Rule—defining excepted 

transaction as any LP investment of 

$2,000,000 or less, or any LP investment 

accompanied by a binding contractual 

assurance that the LP’s capital invested 

in the pooled investment fund would 

not be made to effect an indirect 

prohibited transaction or notifiable 

transaction, as applicable. 

• Covered national security 

technologies using broad definition of 

sectors rather than specific activities 

and technologies. In the Proposed Rule, 

the Treasury Department proposed to 

define notifiable transaction and 

prohibited transaction in §§ 850.217 and 

850.224, respectively, by reference to 

certain technologies and activities, and 

in some instances, end uses. 

Alternatively, the Treasury Department 

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 Treasury Department 

had proposed that approach, the 

Treasury Department 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 Final Rule. 

Instead, the Treasury Department, 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 Final 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 Treasury Department intends the 

Final Rule to provide a U.S. person with 

clarity and information 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 Treasury Department expects that 

the national security benefits, while 

qualitative, will outweigh the 

compliance costs of the Final Rule. 

B. Paperwork Reduction Act 

The collections of information 

contained in this Final Rule have been 

submitted to OMB for review in 

accordance with the PRA under control 

number 1505–0282. 

The Final Rule will 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 must 

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 Final Rule will require 

any U.S. person that has filed a 

notification to respond to any questions 

or document requests from the Treasury 

Department related to the transaction or 

compliance with the Final Rule; any 

information or documents provided to 

the Treasury Department in response to 

such request will be deemed part of the 

notification under the Final Rule. 

The Final Rule will 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 10 years from the date of the 

filing. Further, the Final Rule will 

require any person who has made any 

representation, statement, or 

certification subject to the Final Rule to 

notify the Treasury Department in 

writing of any material omission or 

inaccuracy in such representation, 

statement, or certification. Finally, the 

Final Rule will also require any U.S. 

person seeking a national interest 

exemption to submit information to the 

Treasury Department regarding the 

scope of the transaction including, as 

applicable, the information required for 

a notification of a notifiable transaction. 

The collections of information 

described will be used by the Treasury 


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Department 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 will 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 may also inform 

future policy development and 

decisions, including any modifications 

to the scope of notifiable transactions 

and prohibited transactions. 

Additionally, the information will 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 Final Rule will 

prohibit the Treasury Department from 

making public any information or 

documentary materials submitted to or 

filed with the Treasury Department 

under the Final Rule unless required by 

law or otherwise provided in the Final 

Rule. 

The Treasury Department used the 

methodology described in the previous 

section to estimate the total annual 

reporting and recordkeeping burden of 

the information collections in this Final 

Rule. The Treasury Department 

estimates that the annual hourly burden 

will be up to 28,620 hours. This annual 

total is based on the Treasury 

Department’s assumption that: (1) 180 

entities per year will respond to the 

information collections in this Final 

Rule and each entity will submit an 

average of 1.77 notifications annually, 

meaning these respondents will file a 

total 318 responses to the information 

collections annually; and (2) each 

respondent will spend an estimated 50 

to 90 person hours per response. The 

Treasury Department estimates that the 

annual cost burden associated with the 

information collections and 

recordkeeping in the Final Rule will 

range between $3,513,900 and 

$8,299,800. 

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. 

C. Regulatory Flexibility Act 

The RFA requires an agency either to 

provide a final regulatory flexibility 

analysis with a final rule or certify that 

the final rule would not have a 

significant economic impact on a 

substantial number of small entities. 

The Treasury Department 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 RFA. The Treasury Department did 

not receive any comments from the 

public or the Chief Counsel for the 

Office of Advocacy of the Small 

Business Administration (SBA) on this 

certification. 

The Treasury Department is hereby 

certifying that the Final Rule will not 

have a significant economic impact on 

a substantial number of small entities 

within the meaning of section 601(6) of 

the RFA. 

The Final Rule may impact any U.S. 

person, including a small business that 

engages in a covered transaction with a 

covered foreign person. The Treasury 

Department does not anticipate that the 

Final Rule will affect ‘‘small 

organizations’’ or ‘‘small governmental 

jurisdiction[s],’’ as defined in the RFA. 

The Treasury Department expects the 

Final Rule to have a negligible baseline 

impact on small businesses because the 

Final 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 Final Rule. These larger institutions 

are more likely to enter into transactions 

that will trigger the definition of covered 

transaction. The Final Rule will except 

specific types of transactions that may 

be more attractive or accessible to small 

business investors. And, as discussed 

below, the Treasury Department has 

assessed that small businesses will be 

likely to enter into transactions that 

constitute excepted transactions. 

As an example, the SBA’s Table of 

Size Standards with respect to North 

American Industry Classification 

System (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 Treasury Department 

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 ‘‘OpenEnd 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. 

Extrapolating from this data, the 

average 2023 revenue per firm in this 

category would have been $231.5 

million. 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 

Treasury Department 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 

Treasury Department believes 

investments into these sectors involving 

a person of a country of concern is not 

typical for a small business, as these 

investor types are treated in the SBA’s 

Table of Size Standards. Importantly, 

the Final Rule will 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 Final 

Rule, the Treasury Department expects 

that few small businesses, as that term 

is defined by the SBA, will be impacted 

by the Final Rule. 

In the unlikely event that a small 

entity is subject to the requirements of 

the Final Rule, such entity will be 

expected to incur the costs described in 

the cost benefit analysis above. For 

submission of notifications, the 

Treasury Department has endeavored to 

develop information gathering 

procedures that minimize the burden on 

U.S. persons, both large and small. U.S. 

persons who file a notification will use 

a fillable form that will be available 

online and is intended to facilitate 

submission through an electronic 

format. This fillable form will benefit 

anyone who submits a notification, 

regardless of their size, but may be 

especially helpful for small businesses 


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who will be able to submit directly to 

the Treasury Department. 

D. Unfunded Mandates Reform Act 

Section 202 of UMRA requires that 

agencies assess anticipated costs and 

benefits and take certain other actions 

before issuing a final rule that includes 

any Federal mandate that may result in 

expenditures in any one year by a State, 

local, or Tribal government, in the 

aggregate, or by the private sector, of 

$100 million in 1995 dollars, updated 

annually for inflation. The Final Rule 

does not include any Federal mandate 

that may result in expenditures by State, 

local, or Tribal governments, or by the 

private sector in excess of that 

threshold. 

E. Executive Order 13132: Federalism 

Executive Order 13132 prohibits an 

agency from publishing any rule that 

has federalism implications if the rule 

either imposes substantial, direct 

compliance costs on State and local 

governments, and is not required by 

statute, or preempts State law, unless 

the agency meets the consultation and 

funding requirements of section 6 of the 

order. The Final Rule does not have 

federalism implications and does not 

impose substantial direct compliance 

costs on State and local governments or 

preempt State law within the meaning 

of Executive Order 13132. 

F. Congressional Review Act 

Pursuant to the Congressional Review 

Act (5 U.S.C. 801 et seq.), OIRA 

designated this rule as not a major rule, 

as defined by 5 U.S.C. 804(2). 

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. 

■ For the reasons set forth in the 

preamble, the Treasury Department 

adds part 850 of title 31 of the Code of 

Federal Regulations to read 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. 

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, concealment, 

and omission 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, 31 U.S.C. 321. 

Subpart A—General 

§ 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 


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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 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, or the 

engagement of a person of a country of 

concern in a 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 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 

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 cyberenabled capabilities of a country of 

concern, or engagement of a person of 

a country of concern in a 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 

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. 

§ 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. 

§ 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. 

§ 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 § 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 has 

made regarding an investment target or 

other relevant transaction counterparty 

(such as a joint venture partner), 

including questions asked of the 

investment target or relevant 


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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 other relevant 

transaction counterparty (such as a joint 

venture partner) with respect to the 

determination of a transaction’s status 

as a covered transaction and status of an 

investment target or other relevant 

transaction counterparty (such as a joint 

venture partner) as a covered foreign 

person; 

(3) The efforts by the U.S. person as 

of the time of the transaction to obtain 

and consider available non-public 

information relevant to the 

determination of a transaction’s status 

as a covered transaction and the status 

of an investment target or other relevant 

transaction counterparty (such as a joint 

venture partner) as a covered foreign 

person; 

(4) Available public information, the 

efforts undertaken by the U.S. person to 

obtain and consider such information, 

and the degree to which other 

information available to the U.S. person 

as of the time of the transaction is 

consistent or inconsistent with such 

publicly available information; 

(5) Whether the U.S. person 

purposefully avoided learning or 

seeking relevant information; 

(6) The presence or absence of 

warning signs, which may include 

evasive responses or non-responses 

from an investment target or other 

relevant transaction counterparty (such 

as a joint venture partner) to questions 

or a refusal to provide information, 

contractual representations, or 

warranties; and 

(7) The use of available public and 

commercial databases to identify and 

verify relevant information of an 

investment target or other relevant 

transaction counterparty (such as a joint 

venture partner). 

(d) An assessment of whether a U.S. 

person has undertaken a reasonable and 

diligent inquiry shall be based on a 

consideration of the totality of relevant 

facts and circumstances. 

Subpart B—Definitions 

§ 850.201 Advanced packaging. 

The term advanced packaging means 

to package integrated circuits in a 

manner that supports the two-and-onehalf-dimensional (2.5D) or threedimensional (3D) assembly of integrated 

circuits, such as by directly attaching 

one or more die or wafer using throughsilicon vias, die or wafer bonding, 

heterogeneous integration, or other 

advanced methods and materials. 

§ 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: 

(1) Uses data inputs to perceive real 

and virtual environments; 

(2) Abstracts such perceptions into 

models through automated or 

algorithmic statistical analysis; and 

(3) Uses 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 paragraph (a) of 

this section. 

§ 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: 

(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 § 850.203: A template for 

certifications may be found at the Outbound 

Investment Security Program section of the 

Department of the Treasury website. 

§ 850.204 Completion date. 

The term completion date means: 

(a) With respect to a covered 

transaction other than under 

§ 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 § 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. 

§ 850.205 Contingent equity interest. 

The term contingent equity interest 

means a financial interest (including 

debt) that currently does not constitute 

an equity interest but is convertible into, 

or provides the right to acquire, an 

equity interest upon the occurrence of a 

contingency or defined event or at the 

discretion of the U.S. person that holds 

the financial interest. 

§ 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. 


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§ 850.207 Country of concern. 

The term country of concern has the 

meaning given to it in the Annex to the 

Order. 

§ 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 

§ 850.217 or prohibited transaction in 

§ 850.224. 

§ 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 a board seat on, a voting or equity 

interest (other than through securities or 

interests that would satisfy the 

conditions in § 850.501(a) if held by a 

U.S. person) in, or any contractual 

power to direct or cause the direction of 

the management or policies of any 

person or persons described in 

paragraph (a)(1) of this section from or 

through which it: 

(i) Derives more than 50 percent of its 

revenue individually, or as aggregated 

across such persons from each of which 

it derives at least $50,000 (or equivalent) 

of its revenue, on an annual basis; 

(ii) Derives more than 50 percent of its 

net income individually, or as 

aggregated across such persons from 

each of which it derives at least $50,000 

(or equivalent) of its net income, on an 

annual basis; 

(iii) Incurs more than 50 percent of its 

capital expenditure individually, or as 

aggregated across such persons from 

each of which it incurs at least $50,000 

(or equivalent) of its capital 

expenditure, on an annual basis; or 

(iv) Incurs more than 50 percent of its 

operating expenses individually, or as 

aggregated across such persons from 

each of which it incurs at least $50,000 

(or equivalent) of its operating expenses, 

on an annual basis. 

(3) With respect to a covered 

transaction described in § 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) For purposes of paragraph (a)(2) of 

this section: 

(1) Calculations shall be based on an 

audited financial statement from the 

most recent year. If an audited financial 

statement is not available, the most 

recent unaudited financial statement 

shall be used instead. If no financial 

statement is available, an independent 

appraisal shall be used instead. If no 

independent appraisal is available, a 

good-faith estimate shall be used 

instead. 

(2) Where an amount is not 

denominated in U.S. dollars, the U.S. 

dollar equivalent shall be determined 

based on the most recent published rate 

of exchange available on the Department 

of the Treasury’s website. 

Note 1 to § 850.209: References in this 

section to revenue, net income, capital 

expenditure, or operating expenses refer to 

overall revenue, net income, capital 

expenditure, or operating expenses, as 

applicable, without subtracting amounts 

attributable to persons described in 

paragraph (a)(1) of this section of less than 

$50,000 (or equivalent). 

§ 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 

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 

affords or will afford the U.S. person an 

interest in profits of the covered foreign 

person, the right to appoint members of 

the board of directors (or equivalent) of 

the covered foreign person, or other 

comparable financial or governance 

rights characteristic of an equity 

investment but not typical of a loan; 

(3) Conversion of a contingent equity 

interest into an equity interest in a 

person that the U.S. person knows at the 

time of the conversion is a covered 

foreign person, where the contingent 

equity interest was acquired by the U.S. 

person on or after January 2, 2025; 

(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 plans 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; 

(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 

that the joint venture will engage, or 

plans 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 § 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 contingent 

interest described in paragraph (a)(1) 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 § 850.210: An indirect covered 

transaction includes a U.S. person’s use of an 

intermediary to engage in a transaction that 

would be a covered transaction if engaged in 

directly by a U.S. person. However, for 

purposes of paragraph (a)(1) of this section, 

a U.S. person is not considered to have 

acquired an indirect equity interest or 

contingent equity interest in a covered 

foreign person when the U.S. person acquires 

a limited partner or equivalent interest in a 

venture capital fund, private equity fund, 

fund of funds, or other pooled investment 

fund and that fund then acquires an equity 

interest or contingent equity interest in a 

covered foreign person. (A U.S. person’s 

acquisition of a limited partner or equivalent 

interest in a non-U.S. person venture capital 

fund, private equity fund, fund of funds, or 

other pooled investment fund may, however, 

be a covered transaction under paragraph 

(a)(6) of this section.) 

Note 2 to § 850.210: Neither the issuance 

of a secured loan or similar debt financing for 

which equity is pledged as collateral, nor the 

acquisition of such secured debt on the 

secondary market, is an acquisition of an 

equity interest. However, foreclosure on 

collateral where the debtholder takes 

possession of the pledged equity is an 

acquisition of an equity interest; provided 

that such an acquisition is not a covered 

transaction where the equity was pledged 

prior to January 2, 2025, or where the U.S. 

person did not know at the time of issuing 

or acquiring the debt that the pledged equity 

was in a covered foreign person. 


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§ 850.211 Develop. 

Except as used in § 850.210(a)(4), the 

term develop means to engage in any 

stages prior to serial production, such as 

design or substantive 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. 

§ 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). 

§ 850.213 Excepted transaction. 

The term excepted transaction means 

a transaction that meets the criteria in 

§ 850.501. 

§ 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. 

§ 850.215 Knowingly directing. 

The term knowingly directing has the 

definition set forth in § 850.303. 

§ 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 § 850.216: See the discussion of 

the knowledge standard in § 850.104 for more 

information about how this term is applied 

in this part. 

§ 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 § 850.210(a)(5), the relevant 

joint venture: 

(a) Designs any integrated circuit that 

is not described in § 850.224(c); 

(b) Fabricates any integrated circuit 

that is not described in § 850.224(d); 

(c) Packages any integrated circuit 

that is not described in § 850.224(e); 

(d) Develops any AI system that is not 

described in § 850.224(j) or (k) and that 

is: 

(1) Designed to be used for any 

military end use (e.g., for weapons 

targeting, target identification, combat 

simulation, military vehicle or weapons 

control, military decision-making, 

weapons design (including chemical, 

biological, radiological, or nuclear 

weapons), or combat system logistics 

and maintenance); or government 

intelligence or mass-surveillance end 

use (e.g., through incorporation of 

features such as mining text, audio, or 

video; image recognition; location 

tracking; or surreptitious listening 

devices); 

(2) Intended by the covered foreign 

person or joint venture to be used for 

any of the following: 

(i) Cybersecurity applications; 

(ii) Digital forensics tools; 

(iii) Penetration testing tools; or 

(iv) The control of robotic systems; or 

(3) Trained using a quantity of 

computing power greater than 10∧23 

computational operations (e.g., integer 

or floating-point operations). 

Note 1 to § 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 criterion described in paragraph 

(d)(3) of this section is serving to effectively 

address threats to the national security of the 

United States described in the Order and 

make updates, as appropriate, through public 

notice. 

Note 2 to § 850.217: Consistent with the 

definition for develop at § 850.211, to 

develop an AI system defined at § 850.202(b) 

in a manner subject to these notification 

requirements, the relevant covered foreign 

person or joint venture must engage in the 

activities enumerated in § 850.211, such as 

design or substantive modification, with 

respect to the third-party AI model or 

machine-based system that is being used by 

a data system, software, hardware, 

application, tool, or utility to operate in 

whole or in part. 

Note 3 to § 850.217: For purposes of 

paragraph (d) of this section, a person 

customizing, configuring, or fine-tuning a 

third-party AI model or machine-based 

system strictly for its own internal, noncommercial use (e.g., not for sale or 

licensing) would not implicate the 

notification requirements for related 

transactions solely on that basis unless the 

person’s internal, non-commercial use is for 

government intelligence, mass-surveillance, 

or military end use, or for digital forensics 

tools, penetration testing tools, or the control 

of robotic systems. 

§ 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. 

§ 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)). 

Note 1 to § 850.219: Any entity that meets 

the conditions of paragraph (a), (b), or (c) of 

this section with respect to another entity is 

the parent, even if the parent entity is an 

intermediate entity and not the ultimate 

parent. 

§ 850.220 Person. 

The term person means any 

individual or entity. 

§ 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 

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 a country of concern; or 

any entity with respect to which the 

government of a 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, 


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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. 

§ 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. 

§ 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. 

§ 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 § 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 of the following: 

(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 halfpitch 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 singleprecision (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 (including chemical, 

biological, radiological, or nuclear 

weapons), or combat system logistics 

and maintenance); or 

(2) Government intelligence or masssurveillance end use (e.g., through 

incorporation of features such as 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: 

(1) 10∧25 computational operations 

(e.g., integer or floating-point 

operations); or 

(2) 10∧24 computational operations 

(e.g., integer or floating-point 

operations) using primarily biological 

sequence data; 

(l) Meets the conditions set forth in 

§ 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 

§ 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 

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 § 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 criterion described in paragraph 

(k) of this section is serving to effectively 

address threats to the national security of the 

United States described in the Order and 

make updates, as appropriate, through public 

notice. 

Note 2 to § 850.224: Consistent with the 

definition for develop at § 850.211, to 

develop an AI system defined at § 850.202(b) 

in a manner subject to these prohibition 

requirements, the relevant covered foreign 

person or joint venture must engage in the 

activities enumerated in § 850.211, such as 

design or substantive modification, with 

respect to the third-party AI model or 

machine-based system that is being used by 

a data system, software, hardware, 

application, tool, or utility to operate in 

whole or in part. 


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Note 3 to § 850.224: For purposes of 

paragraphs (j) and (k) of this section, a person 

customizing, configuring, or fine-tuning a 

third-party AI model or machine-based 

system strictly for its own internal, noncommercial use (e.g., not for sale or 

licensing) would not implicate a prohibition 

for related transactions solely on that basis 

unless the person’s internal, non-commercial 

use is for government intelligence, masssurveillance, or military end use, or for 

digital forensics tools, penetration testing 

tools, or the control of robotic systems. 

§ 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. 

§ 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. 

§ 850.227 Subsidiary. 

The term subsidiary means, with 

respect to a person, an entity of which 

such person is a parent. 

§ 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.’’ 

§ 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 

§ 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 § 850.502. 

§ 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 § 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 in light 

of the relevant facts and circumstances. 

§ 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 

otherwise possesses executive 

responsibilities 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 

each of the following activities will not 

be considered to have exercised their 

authority to direct, order, decide upon, 

or approve a transaction: 

(1) Participating in formal approval 

and decision-making processes related 

to the transaction, including making a 

recommendation; 

(2) Reviewing, editing, commenting 

on, approving, and signing relevant 

transaction documents; and 

(3) Engaging in negotiations with the 

investment target (or, as applicable, the 

relevant transaction counterparty, such 

as a joint venture partner). 

Subpart D—Notifiable Transactions 

and Other Notifiable Activities 

§ 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 

§ 850.404. 

§ 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 § 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. 

§ 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 

knowledge, submit a notification 

pursuant to § 850.404. This requirement 

applies regardless of whether the 


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transaction would have been a notifiable 

transaction or a prohibited transaction. 

Note 1 to § 850.403: 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. 

§ 850.404 Procedures for notifications. 

(a) A U.S. person that has an 

obligation under § 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 

§ 850.405 and the certification referred 

to in § 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 § 850.203. 

(c) A U.S. person shall file a 

notification under § 850.401 or 

§ 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 

§ 850.403 with the Department of the 

Treasury no later than 30 calendar days 

after it acquires the knowledge referred 

to in § 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 

§ 850.405. 

Note 1 to § 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. 

§ 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, subject to 

paragraph (d) of this section. 

(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 

the name and principal place of 

business and place of incorporation or 

legal organization of the intermediate 

and ultimate parent entities of the U.S. 

person, identifies the U.S. person’s 

relationship with any controlled foreign 

entity or entities of the U.S. person, and 

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 § 850.210(a) that best 

describes the transaction type, and 

whether the notification is being 

submitted pursuant to § 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 that includes the name 

and principal place of business and 

place of incorporation or legal 

organization of the intermediate and 

ultimate parent entities 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 

§ 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 § 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 pretransaction diligence undertaken by the 

U.S. person, including, as applicable, 

any steps described in § 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 


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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 

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 no later 

than 30 calendar days following the 

availability of such information. 

§ 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 

§ 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, as applicable, if the 

conditions set forth in this section are 

met. In that case, the transaction is an 

excepted transaction. The following 

transactions are excepted transactions: 

(a)(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: 

(A) 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 

(B) Any company that has elected to 

be regulated or is regulated as a business 

development company pursuant to 

section 54 of the Investment Company 

Act of 1940, as amended, at 15 U.S.C. 

80a–53; 

(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 or 

equivalent’s committed capital is not 

more than $2,000,000, aggregated across 

any investment and co-investment 

vehicles of the fund; or 

(B) The limited partner or equivalent 

has secured a binding contractual 

assurance that its capital in the fund 

will not be used to engage in a 

transaction that would be a prohibited 

transaction or notifiable transaction, as 

applicable, if engaged in by a U.S. 

person; or 

(iv) In a derivative, so long as such 

derivative does not confer the right to 

acquire equity, any rights associated 

with equity, or any assets in or of a 

covered foreign person. 

(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 standard minority shareholder 

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 operations that are not covered 

activities or that maintains covered 

activities that the controlled foreign 

entity was engaged in prior to January 

2, 2025; 

(d) A transaction made after January 

2, 2025, pursuant to a binding, uncalled 

capital commitment entered into before 

January 2, 2025; 

(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-a`-vis the debtor; and 

(2) Is not the syndication agent; 

(f) The receipt of employment 

compensation by an individual in the 

form of an award of equity or the grant 

of an option to purchase equity in a 

covered foreign person, or the exercise 

of such option; or 

(g)(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 

addressing national security risks 

substantially similar to those described 

in the Order and related to 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 (g), 

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 (g)(1) of 

this section shall be made available 

through public notice. 

(4) The Secretary may rescind a 

designation or determination under 


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paragraph (g)(1) of this section if the 

Secretary, in consultation with the 

Secretary of State, Secretary of 

Commerce, and, as appropriate, the 

heads of other relevant agencies, 

determines that such a rescission is 

appropriate. Any rescission shall be 

made available through public notice. 

§ 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 §§ 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 

and the certification referred to in 

§ 850.203. Information and other 

documents submitted by the U.S. person 

to the Department of the Treasury under 

this section shall be deemed part of the 

national interest exemption request. The 

U.S. person shall follow the 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 a request for a national 

interest exemption. The Department of 

the Treasury may request additional 

information that may include some or 

all of the information required under 

§ 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 § 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. 

§ 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 

§ 850.601 Taking actions prohibited by this 

part. 

The taking of any action prohibited by 

this part is a violation of this part. 

§ 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. 

§ 850.603 Misrepresentation, concealment, 

and omission 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, concealing or 

omitting any material fact is a violation 

of this part. 

§ 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 

§ 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 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 in 

an amount not to exceed the greater of: 

(i) $250,000, as such amount is 

adjusted pursuant to the Federal Civil 

Penalties Inflation Adjustment Act of 

1990, as amended (Pub. L. 101–410, 28 

U.S.C. 2461 note); or 

(ii) An amount that is twice the 

amount of the transaction that is the 

basis of the violation with respect to 

which the penalty is imposed. 

(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). Notice of the maximum 

penalty which may be assessed under 

this section will be published in the 

Federal Register and on Treasury’s 

Outbound Investment Security Program 

website on an annual basis on or before 

January 15 of each calendar year. 

(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. 


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§ 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 

referred to the Department of Justice for 

appropriate action to recover the 

penalty. 

§ 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. 

§ 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 selfdisclosure 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 selfdisclosure. 

(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 selfdisclosure. 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 selfdisclosure 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 § 850.403 or § 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 

§ 850.801 Confidentiality. 

(a) Except to the extent required by 

law or otherwise provided in paragraphs 

(b) through (d) 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) Notwithstanding paragraph (a) of 

this section, the Department of the 

Treasury may disclose information that 

is not already publicly available, when 

such disclosure of information is 

determined by the Secretary to be in the 

national interest. Any determination 

under this paragraph (d) may not be 

delegated below the level of the 

Assistant Secretary of the Treasury. 

(e) 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. 

§ 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 

§ 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. 

§ 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 


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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. 

§ 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 

without the invalid provision or 

application. 

§ 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 § 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. 2024–25422 Filed 11–7–24; 11:15 am] 

BILLING CODE 4810–AK–P 


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