Billing Code 4810-AK-P
DEPARTMENT OF THE TREASURY
Office of Investment Security
31 CFR Part 850
RIN 1505-AC82
Provisions Pertaining to U.S. Investments in Certain National Security Technologies and
Products in Countries of Concern
AGENCY: Office of Investment Security, Department of the Treasury.
ACTION: Proposed rule.
SUMMARY: This proposed rule sets forth regulations that would implement Executive Order
14105 of August 9, 2023, “Addressing United States Investments in Certain National Security
Technologies and Products in Countries of Concern,” which declares a national emergency to
address the threat to the United States posed by countries of concern, which seek to develop and
exploit sensitive technologies or products critical for military, intelligence, surveillance, or
cyber-enabled capabilities. The proposed rule would require United States persons to provide
notification to the U.S. Department of the Treasury regarding certain transactions involving
persons of a country of concern who are engaged in activities involving certain national security
technologies and products that may contribute to the threat to the national security of the United
States; and prohibit United States persons from engaging in certain other transactions involving
persons of a country of concern who are engaged in activities involving certain other national
security technologies and products that pose a particularly acute national security threat to the
United States. This notice of proposed rulemaking (NPRM) seeks public comment on various
topics related to the implementation of Executive Order 14105. In accordance with 5 U.S.C.
553(b)(4), a summary of this rule may be found at https://www.regulations.gov.
DATES: Written comments must be received by August 4, 2024.

ADDRESSES: Written comments on this proposed rule may be submitted through one of two
methods:
•

Electronic Submission: Comments may be submitted electronically through the Federal
Government eRulemaking portal at https://www.regulations.gov. Electronic submission of
comments allows the commenter maximum time to prepare and submit a comment, ensures
timely receipt, and enables the Department of the Treasury to make the comments available
to the public.

•

Mail: Send to U.S. Department of the Treasury, Attention: Meena R. Sharma, Director,
Office of Investment Security Policy and International Relations, 1500 Pennsylvania Avenue
NW, Washington, DC 20220.
The Department of the Treasury encourages comments to be submitted via

https://www.regulations.gov. Please submit comments only and include your name and
organization name (if any) and cite “Provisions Pertaining to U.S. Investments in Certain
National Security Technologies and Products in Countries of Concern” in all correspondence.
All comments submitted in response to this NPRM, including attachments and other supporting
material, will be made public, including any personally identifiable or confidential business
information that is included in a comment. Therefore, commenters should submit only
information that they wish to make publicly available. Commenters who wish to remain
anonymous should not include identifying information in their comments.
FOR FURTHER INFORMATION CONTACT: Meena R. Sharma, Director, Office of
Investment Security Policy and International Relations, at U.S. Department of the Treasury, 1500
Pennsylvania Avenue NW, Washington, DC 20220; telephone: (202) 622-3425; email:
OIS.Outbound.Regulations@treasury.gov.
SUPPLEMENTARY INFORMATION:
I.

Background

On August 9, 2023, the President issued Executive Order 14105, “Addressing United
States Investments in Certain National Security Technologies and Products in Countries of
Concern” (the Outbound Order), pursuant to his authority under the Constitution and the laws of
the United States, including the International Emergency Economic Powers Act (IEEPA), the
National Emergencies Act, and section 301 of title 3, United States Code (U.S.C.). In the
Outbound Order, the President found that the advancement by countries of concern in sensitive
technologies and products critical for the military, intelligence, surveillance, or cyber-enabled
capabilities of such countries constitutes a threat to the national security of the United States,
which has its source in whole or substantial part outside the United States, and that certain U.S.
investments risk exacerbating this threat. In response, the President declared a national
emergency to deal with this threat.
The Outbound Order identifies three sectors of national security technologies and
products to be covered by the program: semiconductors and microelectronics, quantum
information technologies, and artificial intelligence. As described in the Outbound Order,
countries of concern are exploiting or have the ability to exploit certain U.S. outbound
investments, including certain intangible benefits that often accompany U.S. investments and
that help companies succeed. In an Annex to the Outbound Order, the President identified one
country, the People’s Republic of China (PRC), along with the Special Administrative Region of
Hong Kong and the Special Administrative Region of Macau, as a country of concern. The
President may modify the Annex to the Outbound Order and update the list of countries of
concern.
Advanced technologies and products that are increasingly developed and financed by the
private sector form the basis of next-generation military, intelligence, surveillance, or 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 cyber-enabled applications of
these technologies and products pose risks to U.S. national security, particularly when developed
in or by a country of concern in which the government seeks to (1) direct entities to obtain
technologies to achieve national security objectives; and (2) compel entities to share or transfer
these technologies to the government’s military, intelligence, surveillance, or security
apparatuses.
U.S. investments are often more valuable than the capital alone because they can also
include the transfer of intangible benefits. Intangible benefits that often accompany U.S.
investments and help companies succeed include: enhanced standing and prominence,
managerial assistance, access to investment and talent networks, market access, and enhanced
access to additional financing. Certain investments by United States persons into a country of
concern can be exploited to accelerate the development of sensitive technologies or products—
including military, intelligence, surveillance, or cyber-enabled capabilities—in ways that
negatively impact the national security of the United States. Such investments, therefore, risk
exacerbating this threat to U.S. national security.
The Outbound Order has two primary components that serve distinct but related
objectives with respect to the relevant technologies and products. The first component requires
notification to the Secretary of the Treasury (the Secretary) regarding certain types of
investments by a United States person in a covered foreign person engaged in covered activities
pertaining to specified categories of technologies and products. The second component requires
the Secretary to prohibit certain types of investment by a United States person in a covered
foreign person engaged in covered activities pertaining to other specified categories of advanced
technologies and products. Both components focus on investments that could enhance a country

of concern’s military, intelligence, surveillance, or cyber-enabled capabilities through the
advancement of technologies and products in particularly sensitive areas.
The Outbound Order directs the Secretary, in consultation with the Secretary of
Commerce and, as appropriate, the heads of other relevant agencies, to issue, subject to public
notice and comment, regulations that, among other things, require U.S. persons to submit
information to the Department of the Treasury regarding notifiable transactions and prohibit
U.S. persons from engaging in prohibited transactions. Under section 10(a) of the Outbound
Order, the President authorizes the Secretary to promulgate rules and regulations, including
elaborating upon the definitions contained in the Outbound Order. The Secretary’s promulgation
of regulations under the Outbound Order is consistent with the President’s authority to “issue
such regulations, including regulations prescribing definitions, as may be necessary for the
exercise” of authorities granted under IEEPA (50 U.S.C. 1704) and the President’s authority to
designate and empower the head of any department or agency in the executive branch to perform
any function which is vested in the President by law (3 U.S.C. 301).
The Outbound Order instructs the Secretary to identify in such regulations categories of
notifiable transactions that involve covered national security technologies and products that the
Secretary, in consultation with the Secretary of Commerce and, as appropriate, the heads of other
relevant agencies, determines may contribute to the threat to the national security of the United
States identified in the Outbound Order. The Outbound Order also instructs the Secretary to
identify categories of prohibited transactions that involve technologies and products that the
Secretary, in consultation with the Secretary of Commerce and, as appropriate, the heads of other
relevant agencies, determines pose a particularly acute national security threat to the United
States. Consistent with the Outbound Order, the Secretary may exempt from the notification
requirement or prohibition any transaction determined by the Secretary, in consultation with the
heads of relevant agencies, as appropriate, to be in the national interest of the United States.
Additionally, the Outbound Order requires the Secretary to investigate, in consultation with the

heads of relevant agencies, as appropriate, violations of the Outbound Order or the regulations
and pursue civil penalties for such violations.
II.

Advance Notice of Proposed Rulemaking
Concurrent with the issuance of the Outbound Order, on August 9, 2023, the Department

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

The Proposed Rule
A.

Scope and Structure of the Proposed Rule

The United States has long maintained an open investment policy and supports crossborder investment where consistent with the protection of United States national security
interests. As discussed in the Outbound Order, certain United States investments may accelerate
the development of sensitive technologies and products in countries that develop them to counter

United States and allied capabilities. The Department of the Treasury has scoped the proposed
rule to focus on the types of U.S. investments that present a likelihood of conveying both capital
and intangible benefits that can be exploited to accelerate the development of sensitive
technologies or products critical for military, intelligence, surveillance, or cyber-enabled
capabilities of such countries in ways that negatively impact the national security of the United
States. With an interest in minimizing unintended consequences and addressing the national
security risks posed by countries of concern developing technologies that are critical to the next
generation of military, intelligence, surveillance, or cyber-enabled capabilities, the proposed rule
includes detailed definitions and descriptions of terms and elements to appropriately scope
coverage and facilitate compliance by United States persons. At the same time, the proposed rule
seeks to avoid loopholes that could undermine the national security objectives of the Outbound
Order. The Department of the Treasury seeks public input on how the proposed rule can best
meet these important objectives.
Consistent with the Outbound Order, the proposed rule would place certain obligations
upon any U.S. person in connection with a covered transaction involving or resulting in the
establishment of a covered foreign person. The proposed definition of covered foreign person
focuses on the person’s relationship to a country of concern and involvement in one or more
covered activity related to certain national security technologies and products. A covered
transaction may be a prohibited transaction, meaning it could not legally be undertaken, or it
may be a notifiable transaction, meaning that it would be permitted under the proposed rule, but
a U.S. person would need to submit specified information about the transaction to the
Department of the Treasury. A U.S. person would also have certain obligations under the
proposed rule in connection with certain transactions undertaken by any non-U.S. person entity
that it controls, referred to as a controlled foreign entity. Additionally, under the proposed rule, a
U.S. person would be prohibited from knowingly directing a transaction that would be prohibited

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

in the proposed rule, and particularly as related to the specific provisions discussed in this section
III.
B.

Discussion of the Proposed Rule

Subpart A—General
This subpart includes a general discussion of the proposed rule’s scope, how the proposed
rule relates to other laws and regulations, proposed guidance on how to interpret and apply
certain terms and provisions, the application of the knowledge standard in certain circumstances,
and, consistent with the Outbound Order, the role of the heads of other relevant agencies in the
implementation and administration of the proposed rule.
With respect to the knowledge standard specifically, because a U.S. person must
determine whether a transaction is a prohibited transaction, a notifiable transaction, or not
covered under the proposed rule, the standard by which a U.S. person’s knowledge of the
relevant facts and circumstances is assessed is an important aspect of the rule. The ANPRM
discussed that the Department of the Treasury was considering adopting a knowledge standard
across this program, which would have meant that for a transaction potentially to be covered by
the regulations, a U.S. person would need to know, or reasonably should know, based on
information publicly available or available through reasonable and appropriate due diligence,
that it is undertaking a transaction involving a covered foreign person and that the transaction is a
covered transaction. Some commenters to the ANPRM stated that it would be difficult to
ascertain when a U.S. person should know that a transaction is a covered transaction. At the
same time, to reduce the risk of circumvention or evasion, the Department of the Treasury seeks
to preserve flexibility to inquire into the facts and circumstances of a U.S. person’s transaction,
for example if a U.S. person failed to undertake due diligence or deliberately avoided learning
certain facts.
In light of these considerations, the proposed rule specifies that certain provisions,
including in the definition of covered transaction, would apply only if a U.S. person has

knowledge of the relevant facts or circumstances at the time of a transaction. The proposed
definition of knowledge would include any the following: actual knowledge that a fact or
circumstance exists or is substantially certain to occur, an awareness of a high probability of a
fact or circumstance’s existence or future occurrence, or reason to know of a fact or
circumstance’s existence. The proposed definition of covered transaction would generally
require the U.S. person to know (or in some circumstances, to intend) at the time of a transaction
that the transaction involves a covered foreign person, will result in the establishment of a
covered foreign person (in the case of a greenfield, brownfield, or a joint venture investment), or
will result in a person of a country of concern’s engagement in a new covered activity (in the
case of a business pivot). The Department of the Treasury is not proposing to hold a U.S. person
liable for a transaction that has all of the other attributes of a covered transaction but that the
U.S. person did not know at the time (which includes not having reason to know at the time) was
involved with or would result in a covered foreign person. If a U.S. person failed to conduct a
reasonable and diligent inquiry at the time of a transaction and undertook the transaction where a
particular fact or circumstance indicative of a covered transaction was present, the Department
of the Treasury may find in the course of determining compliance with the proposed rule that the
U.S. person had reason to know of such fact or circumstance (and therefore, for purposes of the
proposed rule, knew). To provide clarity, the proposed rule includes some of the factors that the
Department of the Treasury will consider in assessing whether a U.S. person undertook such an
inquiry, as applicable. These include efforts to obtain information and contractual assurances that
should be obtainable through a reasonable transactional due diligence process with respect to the
determination of a transaction’s status as a covered transaction or relevant entity’s status as a
covered foreign person.
The Department of the Treasury has considered the practical application of this approach.
More specifically, if a U.S. person has undertaken a reasonable and diligent inquiry and still does
not have knowledge of a fact or circumstance relevant to whether a transaction involves or would

result in a covered foreign person in a way that would render the transaction a covered
transaction, the Department of the Treasury ordinarily (absent other circumstances) would not
attribute knowledge of that fact or circumstance to such U.S. person even if the transaction has
all of the other attributes of a covered transaction. Additionally, if a U.S. person failed to
undertake a reasonable and diligent inquiry but the transaction in question does not involve a
covered foreign person, the Department of the Treasury would not hold the U.S. person liable for
the lack of a reasonable and diligent inquiry.
Commenters to the ANPRM requested a range of additional items from the Department
of the Treasury that would assist a U.S. person in complying with the program such as including
examples, making available answers to frequently asked questions, and publishing a list of
entities designated as a covered foreign person. To illustrate the application of certain terms and
facilitate understanding of this proposed rule, the Department of the Treasury has included a
number of examples in the discussion section at Subpart B below, which are numbered
sequentially to facilitate public comment. These examples are provided for informational
purposes and should not be construed to alter the meaning of the text of the proposed regulations.
Additionally, the Department of the Treasury anticipates making available answers to certain
frequently asked questions as the program is implemented.
Subpart B—Definitions
§ 850.202—AI system.
One of the categories of covered national security technologies and products in the
Outbound Order is sensitive technologies and products in the artificial intelligence (AI) sector.
As discussed in the ANPRM, the U.S. Government is concerned with the development of AI
systems that enable the military modernization of countries of concern—including weapons,
intelligence, and surveillance capabilities—including those that have applications in areas such
as cybersecurity and robotics. The policy objective is to cover U.S. investment into entities that
develop AI systems that have applications that pose, or have the potential to pose, significant

national security risks without broadly capturing investments into entities that develop AI
systems intended only for consumer applications or other civilian end uses that do not have
potential national security consequences. To address these concerns, the proposed rule would
have a notification requirement (see the definition of notifiable transaction) and a prohibition
(see the definition of prohibited transaction) with respect to investments in entities engaged in
certain covered activities involving AI systems.
The ANPRM provided an initial definition for “AI system” as “an engineered or
machine-based system that can, for a given set of objectives, generate outputs such as
predictions, recommendations, or decisions influencing real or virtual environments. AI systems
are designed to operate with varying levels of autonomy.”
Commenters to the ANPRM requested that the Department of the Treasury align terms
with other U.S. Government programs where possible. After the Outbound Order and ANPRM
were published, the President issued Executive Order 14110, “Safe, Secure, and Trustworthy
Development and Use of Artificial Intelligence” on October 30, 2023 (the AI Order), which,
among other things, establishes new standards for AI safety and security. The AI Order provides
definitions for the terms “artificial intelligence” and “AI system” which this proposed rule
incorporates in the definition of AI system. The Department of the Treasury invites comments on
the proposed definition of AI system.
§ 850.206—Controlled foreign entity.
The proposed rule would define controlled foreign entity as an entity of which a U.S.
person is a parent, meaning a U.S. person directly or indirectly holds more than 50 percent of the
outstanding voting interest or voting power of the board of the entity; is a general partner,
managing member, or equivalent of the entity; or, if the entity is a pooled investment fund, is an
investment adviser to any such fund. The proposed rule would place obligations on a U.S. person
to take all reasonable steps to prohibit and prevent its controlled foreign entity from undertaking
a transaction that would be a prohibited transaction if undertaken by a U.S. person, and to notify

the Department of the Treasury if the controlled foreign entity undertakes a transaction that
would be a notifiable transaction if undertaken by a U.S. person. This approach is intended to
address a potential loophole whereby a U.S. person that is a parent of a non-U.S. person entity
could use such an entity to undertake an investment that would otherwise be a covered
transaction if undertaken by the U.S. person directly. Additionally, this approach is aimed at
increasing U.S. Government visibility into these transactions or in some cases, limiting the flow
of capital and intangible benefits through an entity closely tied to and often influenced by a U.S.
person that is a parent, which would be contrary to the objectives of the Outbound Order. In
assessing whether the parent has taken all reasonable steps, the Department of the Treasury
would consider certain factors with respect to a U.S. person and its controlled foreign entity,
including the existence and implementation of periodic training and reporting requirements with
respect to compliance with the proposed regulations and the implementation of internal controls.
The Department of the Treasury would assess compliance based on a consideration of the totality
of relevant facts and circumstances, including whether such steps were reasonable given the size
and sophistication of the parent. Generally, if the U.S. person has taken steps, including those
described in § 850.302(b), that were reasonable given, for example, the size and sophistication of
the U.S. person, the U.S. person would be found in compliance with the proposed rule.
The definition of controlled foreign entity is intended to draw a bright line so that a U.S.
person could easily ascertain whether an entity is its controlled foreign entity. In determining
whether a U.S. person indirectly holds voting interest or voting power of the board via a tiered
ownership structure for purposes of this provision, where the relationship between an entity and
another entity is that of a parent and subsidiary, the voting interest or voting power of the board
of a subsidiary would be fully attributed to the parent. By contrast, if an entity holds 50 percent
or less of another entity’s voting interest or voting power of the board—that is, if the relationship
is not a parent-subsidiary relationship—then the indirect downstream holdings of voting interest
or voting power of the board, as applicable, attributed to the first entity would be determined

proportionately.
If a U.S. person holds both direct and indirect holdings in the same entity, the direct and
indirect holdings of the U.S. person’s voting interest or voting power of the board, as applicable,
would be aggregated. For the avoidance of doubt, each of these metrics (voting interest or voting
power of the board) would be evaluated independently from the other. For example, if an entity
has 20 percent of its voting interest and 15 percent of its voting power of the board each held by
a U.S. person, these percentages would not be combined to equal 35 percent.
The following examples illustrate the application of the proposed definition of controlled
foreign entity:
(1) Example 1. A U.S. person holds more than 50 percent of the voting interest of
the non-U.S. person Company A, and Company A holds more than 50 percent
of the voting interest of the non-U.S. person Company B. Each of Company A
and Company B would be a controlled foreign entity of the U.S. person,
because the U.S. person directly holds more than 50 percent of Company A’s
voting interest, so Company A’s holding of more than 50 percent of Company
B is fully attributed to the U.S. person.
(2) Example 2. A U.S. person holds a 25 percent voting interest of the non-U.S.
person Company C, and Company C holds 60 percent of the voting interest of
the non-U.S. person Company D. The U.S. person indirectly holds 15 percent
of the voting interest of Company D. Company D would not be a controlled
foreign entity of the U.S. person because the U.S. person only indirectly holds
15 percent of the voting interest of Company D.
(3) Example 3. A U.S. person holds more than 50 percent of the voting interest of
non-U.S. person Company E and 10 percent of the voting interest of the nonU.S. person Company F. Company E also holds 41 percent of the voting
interest of Company F. Companies E and F would each be a controlled

foreign entity of the U.S. person because the U.S. person directly holds more
than 50 percent of Company E and has an aggregated voting interest (direct
and indirect) of more than 50 percent of Company F (10 percent directly and
41 percent indirectly).
(4) Example 4. A U.S. person holds 49 percent of the voting interest of Company
G; Company G holds 52 percent of the voting interest in Company H; and
Company H holds 30 percent of the voting interest of non-U.S. person
Company I. Since Company G holds more than 50 percent of the voting
interest in Company H, Company G is a parent of Company H and Company
H’s 30 percent interest in Company I is fully attributed to Company G. The
U.S. person’s indirect interest in Company I is therefore 14.7 percent, which is
calculated by multiplying the U.S. person’s 49 percent interest in Company G
and Company G’s 30 percent interest in Company I. Company I is not a
controlled foreign entity of the U.S. person.
The Department of the Treasury invites comments regarding this definition, including
considerations with respect to coverage of entities established outside of the United States.
§ 850.208—Covered activity.
The proposed rule identifies activities that would provide the relevant nexus between the
covered foreign person and the covered national security technologies and products described in
the Outbound Order. The Outbound Order defines the term “covered national security
technologies and products” to mean sensitive technologies and products in the semiconductors
and microelectronics, quantum information technologies, and AI sectors that are critical for the
military, intelligence, surveillance, or cyber-enabled capabilities of a country of concern, as
determined by the Secretary of the Treasury in consultation with the Secretary of Commerce and,
as appropriate, the heads of other relevant agencies. The Outbound Order further states that,

where applicable, “covered national security technologies and products” may be limited by
reference to certain end uses of those technologies or products.
The three primary definitions in the proposed rule implementing the term “covered
national security technologies and products” are covered activity, notifiable transaction, and
prohibited transaction. The term covered activity would mean, in the context of a particular
transaction, any of the activities referred to in the definition of notifiable transaction in §
850.217 or prohibited transaction in § 850.224. The Department of the Treasury invites
comments on the approach in the proposed rule to incorporating specific covered national
security technologies and products in the definitions of notifiable transaction and prohibited
transaction based on a description of the technology or product and the relevant activities,
capabilities, or end uses of such technology or product, as applicable, and any alternative
approaches that should be considered.
The proposed definitions of notifiable transaction and prohibited transaction would
identify specific covered activities relevant to the technology or product within each category.
Some such covered activities would relate to semiconductors and microelectronics technology,
equipment, and capabilities that enable the production and certain uses of integrated circuits that
underpin current and future military innovations that improve the speed and accuracy of military
decision-making, planning, and logistics, among other things; as well as that enable mass
surveillance or other cyber-enabled capabilities. The proposed rule would also address covered
activities related to quantum information technologies and products that enable capabilities that
could compromise encryption and other cybersecurity controls and jeopardize military
communications, among other things. In the case of a quantum sensing platform or quantum
network, the end-use provision avoids covering use cases in strictly civilian fields. Finally, the
proposed rule would address covered activities related to certain AI systems that have
applications that pose or have the potential to pose significant national security risk. The
proposed rule would not seek to broadly capture AI systems intended only for commercial

applications or other civilian end uses and that do not have potential national security
consequences, as discussed further below.
Those covered activities with respect to technologies and products that pose a particularly
acute national security threat are incorporated into the definition of prohibited transaction. Those
covered activities with respect to technologies and products that may contribute to the threat to
the national security of the United States are incorporated into the definition of notifiable
transaction. The scope of prohibited transaction and the scope of notifiable transaction are
intended to be distinct and not overlap. The Department of the Treasury intends that the
notification requirement will increase the U.S. Government’s visibility into U.S. person
transactions involving the relevant technologies and products and that these notifications will be
helpful in highlighting aggregate sector trends and related capital flows as well as informing
future policy development. The proposed prohibitions would be tailored restrictions on specific,
identified areas to prevent U.S. persons from investing in the development of technologies and
products that pose a particularly acute national security threat. Both the specific covered
activities as well as the technical descriptions in the proposed rule were crafted with these
objectives in mind. A more detailed discussion of specific covered activities and proposed
technical descriptions is below under the sections on notifiable transaction and prohibited
transaction. The Department of the Treasury invites comments on alternative approaches that
would meet the stated objectives.
§ 850.209—Covered foreign person.
The Outbound Order requires the Department of the Treasury to prohibit or require
notification of certain transactions involving a covered foreign person and defines the term as “a
person of a country of concern who or that is engaged in activities, as identified in the
regulations issued under [the Outbound Order], involving one or more covered national security
technologies and products.” The definition of covered foreign person in the proposed rule
describes three sets of circumstances that would cause a person to be a covered foreign person.

§ 850.209(a)(1)
First, a person would be a covered foreign person if it is a person of a country of concern
that is engaged in a covered activity.
§ 850.209(a)(2)
Second, a person would be a covered foreign person even if it is not itself a person of a
country of concern or engaged in a covered activity but has a particular relationship with a
person of a country of concern that is engaged in a covered activity. The relationship would have
to meet two conditions. First, the relevant person would have to hold a specified interest in the
person of a country of concern. That interest could take the form of a voting interest, board seat
(voting or observer), equity interest, or the power to direct or cause the direction of the
management or policies of the person of a country of concern through contractual
arrangement(s) (including, for the avoidance of doubt, any contractual arrangement with respect
to a variable interest entity). The exact size of this interest—such as the percentage of voting
interest or the number of board seats (voting or observer)—is not determinative as long as there
is some interest of the nature described. The policy objective is to cover situations where a
vested interest between the two persons exists. Second, if there is such an interest, then more
than 50 percent of the first person’s revenue, net income, capital expenditure, or operating
expenses would need to be attributable to the person of a country of concern and that person
must be engaged in a covered activity. The first person also would meet this condition if that
person holds an interest in more than one person of a country of concern engaged in a covered
activity, and more than 50 percent of the first person’s revenue, net income, capital expenditure,
or operating expenses is attributable to such persons of a country of concern, in aggregate. The
Department of the Treasury intends the threshold of more than 50 percent of any of the financial
metrics to be evaluated independently, not in combination. For example, assuming no other
relevant circumstances, if a person’s interest in a person of a country of concern represents 20

percent of the first person’s revenue and 31 percent of its capital expenditures, these metrics
would be evaluated independently and not combined to equal 51 percent.
Under this second set of circumstances, the Department of the Treasury intends to capture
those entities that, while not directly engaged in a covered activity themselves, are significantly
financially connected to entities that are engaged in a covered activity. The Department of the
Treasury considers that if more than 50 percent of an investment target’s revenue, net income,
capital expenditure, or operating expense is attributable to one or more persons of a country of
concern that are engaged in a covered activity, the intangible benefits associated with a U.S.
person’s investment in the target are likely to be conveyed to such persons of a country of
concern. Accordingly, the Department of the Treasury considers that the investment target itself
should be treated as a covered foreign person. Consistent with the policy objectives of the
Outbound Order, this approach seeks to focus on transactions where there is a likelihood of the
transfer of intangible benefits to a person of a country of concern engaged in a covered activity.
Moreover, in setting the relevant threshold for financial metrics between the investment target
and persons of a country of concern engaged in a covered activity at more than 50 percent, the
Department of the Treasury expects that through reasonable and diligent inquiry a U.S. person
would be able to determine whether a potential investment target meets the applicable
conditions. In capturing certain U.S. person transactions with entities that have a vested interest
in, as well as a significant financial relationship with, a covered foreign person, this approach is
intended to, among other things, address a common transaction structure whereby investments
are made into parent companies or holding companies. Under these circumstances, a U.S. entity
or an entity in a third country could be considered a covered foreign person.
§ 850.209(a)(3)
Lastly, a person of a country of concern would be a covered foreign person by virtue of
its participation in a joint venture with a U.S. person if such joint venture is engaged in a covered
activity. That is, even though the person of a country of concern may not be engaged in a

covered activity itself, the fact of its participation in a joint venture that is engaged in a covered
activity would cause the person to be a covered foreign person. Consistent with the policy
objectives of the Outbound Order, this approach seeks to focus on transactions where there is a
likelihood of the transfer of intangible benefits from a U.S. person to a person of a country of
concern in connection with a covered activity.
The following examples illustrate the application of the proposed definition of covered
foreign person:
(5) Example 5. Company J holds a 10 percent equity interest in Company K, which is a
person of a country of concern engaged in a covered activity, and income from
Company K comprises 30 percent of Company J’s net income for the most recent
year for which audited financial statements are available. In addition, Company J
holds a 10 percent equity interest in Company L, which is a person of a country of
concern engaged in a covered activity, and income from Company L comprises 21
percent of Company J’s net income for the most recent year for which audited
financial statements are available. Therefore, Company J would be a covered foreign
person under § 850.209(a)(2), because income from Company K and income from
Company L, which are both persons of a country of concern that are engaged in
covered activities in which Company J holds an equity interest, together comprise 51
percent of the net income of Company J for the most recent year for which audited
financial statements are available.
(6) Example 6. Assume the same facts as Example 5, except that none of Company J’s
net income is attributable to Company K, and instead, 30 percent of Company J’s
capital expenditures for the most recent year for which audited financial statements
are available at the time of a given transaction is attributable to Company K.
Company J would not be a covered foreign person under § 850.209(a)(2), because the
percentage of capital expenditures attributable to Company K and the percentage of

net income attributable to Company L would not be aggregated, and neither the
percentage of capital expenditures attributable to Company K nor the percentage of
net income attributable to Company L is more than 50 percent for Company J.
The Department of the Treasury invites comments regarding this definition, including its
application to a U.S. entity or a third-country entity.
In response to the ANPRM, some commenters requested that the definition of covered
foreign person include a de minimis threshold below which a person of a country of concern’s
activity involving a covered technology or product would not trigger the definition of covered
activity, meaning the person would not be a covered foreign person. The Department of the
Treasury declines to propose a de minimis threshold for this definition. A de minimis threshold
based on the financial significance of a covered activity in relation to any particular entity does
not necessarily correspond to the national security significance of such activity. Setting a de
minimis threshold based on the level of activity involving a covered technology or product
would be challenging and would not effectively respond to the national security objectives of the
Outbound Order.
In response to the ANPRM, some commenters requested that the Department of the
Treasury maintain a publicly available list of covered foreign persons. The Department of the
Treasury declines to adopt that suggestion in the proposed rule. Compiling a list of covered
foreign persons would be challenging given that any such list would likely be subject to frequent
change and likely underinclusive, which would undermine the national security goals of the
Outbound Order. Limiting the definition of covered foreign person to persons included on such a
list would risk excluding certain persons that should be covered in order to accomplish the
objectives of the Outbound Order, including early-stage companies that may not have come to
the attention of the Department of the Treasury. Providing a list of covered foreign persons could
also result in attempts to evade the rule through corporate restructuring and would be overly
burdensome to maintain for the reasons listed above. Rather, under the proposed rule, the

Department of the Treasury would expect a U.S. person to conduct a reasonable and diligent
inquiry to determine whether a transaction is covered under the proposed rule, including whether
any covered foreign person is involved.
§ 850.210—Covered transaction.
As discussed in greater detail below, the definition of covered transaction would include a
U.S. person’s direct or indirect:
•

Acquisition of an equity interest or contingent equity interest in a covered foreign person;

•

Provision of debt financing convertible to an equity interest in a covered foreign person
or provision of debt financing that affords the lender certain management or governance
rights in a covered foreign person;

•

Conversion of a contingent equity interest or convertible debt in a covered foreign
person;

•

Greenfield investment or certain other corporate expansions that either will establish a
covered foreign person, or will cause an existing person of a country of concern to pivot
into a new covered activity;

•

Entrance into a joint venture, wherever located, with a person of a country of concern
where the joint venture will undertake a covered activity; and

•

Investment as a limited partner or equivalent (LP) into a non-U.S. person pooled
investment fund that invests in a covered foreign person.
Each of the above transaction types includes a specific requirement for what a U.S.

person would need to know or intend for a transaction to be a covered transaction. Further detail
on each of these transaction types is provided below.
The definition of covered transaction notes that it does not include an excepted
transaction or, consistent with the Outbound Order, a transaction for the conduct of the official
business of the United States Government by employees, grantees, or contractors thereof.
Acquisition of equity interest or contingent equity interest

The definition of covered transaction would include the acquisition of an equity interest
(or equivalent) in a covered foreign person and the acquisition of a financial instrument that does
not constitute an equity interest at the time of the covered transaction but is convertible into, or
provides the right to acquire, an equity interest in a covered foreign person upon the occurrence
of a contingency or defined event. While the issuance of debt secured by equity in a covered
foreign person would not, absent other circumstances, be a covered transaction, foreclosure on
collateral that constitutes an equity interest in a covered foreign person would constitute the
acquisition of an equity interest under the proposed rule and would be a covered transaction.
Convertible debt; debt with special rights
The definition of covered transaction would include the provision of debt financing that
is convertible by the U.S. person into equity of a covered foreign person. Additionally, the
provision of debt financing that affords or will afford the U.S. person the right to make
management decisions on behalf of a covered foreign person or to appoint members of the board
of a covered foreign person would also be a covered transaction. The intent is to capture lending
by a U.S. person lender only where such lending involves the acquisition of equity or equity-like
rights by the U.S. person lender with respect to a covered foreign person.
Conversion of contingent interest or convertible debt
The definition of covered transaction includes as a separate basis of coverage the
conversion of a contingent equity interest or convertible debt in a covered foreign person. As
stated above, in addition to the conversion, the original acquisition of either such interest is a
covered transaction. With respect to a notifiable transaction, the policy objective of including
the conversion of a contingent equity or convertible debt in the definition of covered transaction
is to gain visibility into the circumstances in which contingent interests in a covered foreign
person convert. Including the conversion of a contingent equity interest or convertible debt in the
scope of covered transaction would also address circumstances where the investment target or
borrower is not a covered foreign person at the time of acquisition of the relevant interest but is a

covered foreign person at the time of conversion of such interest (e.g., as a result of newly
engaging in a covered activity or the target’s relationship with a person of a country of concern
engaged in a covered activity). The Department of the Treasury anticipates that if the original
acquisition was a notifiable transaction and was timely notified, the second notification
submitted with respect to the conversion would likely be similar to the first notification and thus
less time-consuming to prepare. The Department of the Treasury considered alternative
approaches such as covering only the acquisition and not the conversion of contingent interests
or covering only the conversion. However, each alternative could be either over- or underinclusive in situations where an investment target has pivoted away from, or into, a covered
activity in the interim between acquisition and conversion.
Greenfield or brownfield investment
The definition of covered transaction would include a U.S. person’s acquisition, leasing,
or development of operations, land, property, or other assets in a country of concern when the
U.S. person knows that such acquisition, leasing, or development will, or the U.S. person intends
it to, either (1) establish a covered foreign person, such as the acquisition of land in a country of
concern with the intent to convert it into a facility that designs an integrated circuit or (2) pivot
an existing entity’s operations into a new covered activity, such as the acquisition of a factory
with the intent to retrofit it to produce equipment for performing volume advanced packaging. A
U.S. person’s intent (as distinct from knowledge) would be sufficient in these cases for the
transaction to be a covered transaction. This is because in the greenfield and brownfield context,
a U.S. person may not know at the time of the transaction that the investment will result in a
covered activity, yet the Department of the Treasury nevertheless seeks to cover activities
intended to bring about the establishment of a covered foreign person or a person of a country of
concern’s engagement in a new covered activity, since such a situation is likely to convey
intangible benefits from the U.S. person to a covered foreign person. That a covered foreign
person ultimately results from a greenfield or brownfield investment would not be necessary for

coverage under the proposed rule, as long as the intent to establish a covered foreign person is
present at the time of the transaction. The Department of the Treasury has assessed that requiring
a greenfield or brownfield investment to result in the establishment of a covered foreign person
or a person of a country of concern’s engagement in a new covered activity before triggering
obligations associated with covered transaction status risks undermining the national security
goals of the program. For the avoidance of doubt, the Department of the Treasury does not intend
to scope in a real estate transaction where the U.S. person does not have the requisite knowledge
or intent.
Joint venture investment
The definition of covered transaction would include a U.S. person’s entrance into a joint
venture, wherever located, with a person of a country of concern where the U.S. person either
knows or intends that the joint venture will engage in a covered activity. Like the greenfield or
brownfield investment prong above, this is intended to cover situations in which a covered
foreign person does not exist at the time of a transaction, but the transaction structure presents
the opportunity and incentive for the transfer of intangible benefits from a U.S. person to a
person of a country of concern through the joint venture. Similar to a greenfield or brownfield
transaction, a U.S. person’s intent (as distinct from knowledge) would be sufficient for coverage
in the joint venture context because a U.S. person may not know at the time of the transaction
that the joint venture will engage in a covered activity, yet the Department of the Treasury seeks
to capture transactions likely to convey intangible benefits to a covered foreign person. Also
similar to a greenfield or brownfield transaction, the joint venture would need not engage in a
covered activity for the establishment of the joint venture to be a covered transaction under the
proposed rule, as long as the U.S. person intends for it to do so.
Investment made as an LP
The definition of covered transaction would include U.S. person investments made as an
LP into certain pooled funds. This approach would differ from other prongs of the definition of

covered transaction in the ways described below.
First, it would cover only an investment into a non-U.S. person pooled investment fund
because the activities of such a fund that is a U.S. person would be directly addressed by other
prongs of this definition.
Second, it would cover an investment only when the U.S. person knows at the time of the
investment that the pooled fund likely will invest in a person of a country of concern engaged in
one or more of the three sectors of covered national security technologies and products identified
in the Outbound Order. The Department of the Treasury has assessed that when a pooled fund is
soliciting investments, it may not yet have identified specific targets in which it seeks to make
investments. Therefore, it may not be practicable for an LP to know where its investment is
going, via the pooled fund, in terms of a specific target entity even following a reasonable and
diligent inquiry at the time of its LP investment. However, it is possible for an LP to know,
through a reasonable and diligent inquiry, where a pooled fund is likely to invest at a higher level
in terms of geography and sector. For example, a U.S. person could know that a pooled fund is
likely to invest in PRC AI companies based on researching past investments made by a pooled
fund’s manager, engaging with the pooled investment fund’s general partner, or reviewing such
fund’s prospectus or other documentation.
Third, this approach would cover an LP investment only when the pooled investment
fund undertakes an investment that would be a covered transaction if made by the U.S. person
directly, to avoid regulating transactions by U.S. person LPs that do not ultimately result in
investments into a covered foreign person. In other words, in order to meet the criteria of a
covered transaction, (1) the U.S. person LP would need to invest in a pooled fund that the U.S.
person knows is likely to invest in a person of a country of concern that is in any of the three
specified sectors in the Outbound Order; and (2) such pooled fund would need to actually
undertake a transaction that would be a covered transaction if undertaken by a U.S. person. If the
transaction is a notifiable transaction, this would mean that the U.S. person would be required to

file the relevant notification no later than 30 calendar days following the earliest date of the
pooled fund’s investment in a covered foreign person. If the investment ultimately made by the
pooled fund would have been a prohibited transaction if made by a U.S. person and the U.S.
person knew at the time of its LP investment in the pooled fund that the pooled fund likely would
invest in a person of a country of concern engaged in any of the three specified sectors in the
Outbound Order, then such investment made by the pooled fund in a covered foreign person
would result in the U.S. person having made a prohibited transaction, which would be a
violation of the proposed rule. On the other hand, a U.S. person’s investment as an LP into a
pooled fund would not be a covered transaction if the U.S. person does not know at the time of
its investment that the pooled investment fund likely will invest in a person of a country of
concern that is in any of the three relevant sectors, even when such fund subsequently undertakes
an investment that would be a covered transaction if made by a U.S. person.
Indirect covered transaction
To address a potential loophole, a U.S. person’s transaction that is indirect, as well as
direct, would be a covered transaction regardless of the number of intermediary entities involved
in such transaction if it meets the elements of the definition. For example, if a U.S. person
purchased shares in a special purpose vehicle, wherever located, that in turn acquired an equity
interest in a covered foreign person, and the U.S. person knew at the time of its transaction that
the special purpose vehicle would be acquiring an equity interest in a covered foreign person,
that transaction would be a covered transaction.
Knowledge requirement for a covered transaction
As set forth in the proposed rule, a transaction that otherwise has the attributes of a
covered transaction ordinarily would be treated as a covered transaction only if the relevant U.S.
person knows at the time of the transaction that the transaction involves, or will result in the
establishment of, a covered foreign person (or will result in a person of a country of concern’s
engagement in a new covered activity). As discussed with respect to Subpart A, knowledge for

this purpose includes both actual knowledge and reason to know of the relevant facts or
circumstances—that is, a U.S. person that had reason to know of the relevant facts or
circumstances would not be excused from obligations or liability associated with entering into a
covered transaction due to its alleged lack of actual knowledge of those facts or circumstances.
Please see the discussion in Subpart A above for further information on how knowledge, which
includes reason to know, would be assessed.
The following examples illustrate the application of the proposed definition of covered
transaction:
(7) Example 7. A U.S. person acquires an existing manufacturing facility in a country of
concern that does not, at the time of the acquisition, engage in a covered activity.
Prior to the transaction, the U.S. person extensively researches the feasibility of
retrofitting the facility to undertake a covered activity and secures financing on the
basis of future cash flows from the facility’s undertaking of such covered activity.
The acquisition would therefore be a covered transaction under § 850.210(a)(4)(i)
because it is the acquisition of assets in a country of concern that the U.S. person
intends at the time of the transaction to result in the establishment of a covered
foreign person.
(8) Example 8. A U.S. person invests as an LP in Company M, a pooled fund which is
not a U.S. person. At the time of the U.S. person’s investment, Company M has not
undertaken any investments. However, Company M’s manager has an extensive track
record of investing predominantly in the artificial intelligence sector in a country of
concern. Company M’s prospectus states that Company M will invest in entities that
are leading AI technology advancements including those with a principal place of
business in a country of concern. One year following the conclusion of fundraising,
Company M undertakes a transaction that would be a covered transaction if
undertaken by a U.S. person. The U.S. person’s investment as an LP would therefore

be a covered transaction under § 850.210(a)(6), because the U.S. person had reason
to know (and therefore is deemed to have known) that Company M was likely to
invest in a person of a country of concern engaged in one of the sectors enumerated in
§ 850.210(a)(6), and Company M subsequently undertook a transaction that would be
a covered transaction if undertaken by a U.S. person. More specifically, if Company
M’s transaction would be a prohibited transaction if undertaken by a U.S. person,
then the U.S. person’s investment as an LP into Company M would be a prohibited
transaction; if Company M’s transaction would be a notifiable transaction if
undertaken by a U.S. person, then the U.S. person’s investment as an LP into
Company M would be a notifiable transaction. The completion date of the transaction
for the purpose of the deadline for a submission of the required notification would be
the earliest date upon which any interest, asset, property, or right in the relevant
covered foreign person was conveyed, assigned, delivered, or otherwise transferred to
Company M. It would not be the date of the U.S. person’s original investment in
Company M.
(9) Example 9. Assume the same facts as Example 8, except that Company M never
undertakes a transaction that would be a covered transaction if undertaken by a U.S.
person. As a result, the U.S. person’s LP investment in Company M would not be a
covered transaction, as Company M’s undertaking of a transaction that would be a
covered transaction if undertaken by a U.S. person is a necessary element of §
850.210(a)(6) of the proposed rule.
Some commenters to the ANPRM requested that certain other activities be either
included in the definition of excepted transaction or explicitly excluded from the definition of
covered transaction. These include university-to-university research collaborations; the sale of
goods and services; the purchase, sale, and licensing of intellectual property; and a variety of
financial and non-financial services ancillary to a transaction such as the processing, clearing, or

sending of payments by a bank. The proposed definition of covered transaction has been crafted
to refer to a narrow set of specific transaction types, and the proposed rule does not explicitly
exclude a list of other activities from this definition as it is not necessary (for any transaction to
be covered, the elements in the definition of covered transaction need to be met).
Under § 850.210(b)(ii), consistent with the Outbound Order, a transaction undertaken for
the conduct of the official business of the United States Government by employees, grantees, or
contractors thereof would not be a covered transaction.
§ 850.214—Excepted transaction.
The proposed rule includes a definition of excepted transaction that refers to a transaction
that is not a covered transaction because it meets specified conditions. See the discussion of
Subpart E below for more information.
§ 850.216—Knowledge.
The proposed rule defines knowledge (which includes variants such as “know”) as actual
knowledge that a fact or circumstance exists or is substantially certain to occur, an awareness at
the time of a transaction of a high probability of a fact or circumstance’s future occurrence, or
reason to know of a fact or circumstance’s existence. Consistent with commenter requests in
response to the ANPRM that the terms align with other U.S. Government programs where
possible, this language is similar to the definition of knowledge found in the Export
Administration Regulations at 15 CFR 772.1. See the above discussion of Subpart A for more
information on how this term would be applied in the proposed rule.
§ 850.217—Notifiable transaction.
A notifiable transaction would be a covered transaction in which the relevant covered
foreign person undertakes (or in the case of certain greenfield, brownfield, or joint venture
investments, the U.S. person knows will or intends to undertake) any of several specified covered
activities listed in the proposed definition of notifiable transaction. At this time, the Department
of the Treasury has determined that the listed activities may contribute to the threat to the

national security of the United States identified in the Outbound Order. Each of the technical
descriptions and, where applicable, references to end uses in the proposed definition, is designed
to achieve the national security policy objectives of the Outbound Order, and the Department of
the Treasury may consider further technical refinements consistent with these objectives. Each
covered activity for purposes of a notifiable transaction is discussed below.
The submission of information to the Department of the Treasury regarding a notifiable
transaction would increase the U.S. Government’s visibility into a transaction involving
technologies and products relevant to the threat to the national security of the United States
identified in the Outbound Order. This information would be instructive in identifying sectoral
trends and related capital flows in the covered activities. Additionally, it would inform future
policy development with respect to both implementation of the Outbound Order, as well as the
establishment or expansion of other U.S. Government programs relevant to the covered national
security technologies and products. It is expected that this information would help policymakers
determine whether any existing legal authorities should be used, or new action should be taken to
address the threat to the national security of the United States identified in the Outbound Order.
The Department of the Treasury invites comments on whether the proposed definition of
notifiable transaction meets these goals.
Integrated circuit design and production
The covered activities set forth in the definition of notifiable transaction would include
the design, fabrication, or packaging of any integrated circuit that is not covered by the
prohibited transaction definition (i.e., that does not meet the performance parameters and criteria
identified in § 850.224(c), (d) and (e), as applicable). The proposed rule separately defines the
terms fabricate and package, adding further technical detail as to both the notification and
prohibition provisions. The Department of the Treasury assesses that the scope of this
notification requirement would increase the U.S. Government’s visibility into the volume and
nature of investments of U.S. person transactions involving the defined technologies and

products that may contribute to the threat to the national security of the United States.
AI systems
The covered activities set forth in the definition of notifiable transaction would include
the development of an AI system that is not covered by the prohibited transaction definition (i.e.,
that does not meet the criteria identified in § 850.224(j) or (k)) and that is:
(1) Designed to be used for any government intelligence or mass-surveillance end use
(e.g., through mining text, audio, or video; image recognition; location tracking;
or surreptitious listening devices) or military end use (e.g., for weapons targeting,
target identification, combat simulation, military vehicle or weapons control,
military decision-making, weapons design, or combat system logistics and
maintenance);
(2) Intended by the relevant covered foreign person to be used for cybersecurity
applications, digital forensics tools, and penetration testing tools, or the control of
robotic systems; or
(3) Trained using a quantity of computing power greater than a certain level of
computational operations (e.g., integer or floating-point operations). The
Department of the Treasury is considering three potential alternates for the level
of computational operations: 10^23, 10^24, or 10^25.
This approach to covering the development of an AI system for purposes of a notifiable
transaction reflects further consideration since the end-use qualification discussed in the
ANPRM and focuses on the AI system’s design in some cases and its intended use by the
relevant covered foreign person in other cases. Additionally, the proposed rule would include a
technical parameter based on the amount of compute used to train an AI system. Commenters to
the ANPRM recommended, in the context of prohibited transactions, adding coverage of
transactions involving frontier AI models, defined based on a set of technical parameters. Given
the approach related to the development of an AI system for purposes of a prohibited transaction

(discussed below), the proposed rule offers for comment specific technical parameters in the
definition of notifiable transaction as well. The Department of the Treasury intends to select one
of the compute power alternates for purposes of the prohibited transaction definition and would
potentially set the relevant amount of compute power for the corresponding provision in the
definition of notifiable transaction below the amount of compute power in the definition of
prohibited transaction (at § 850.224(k)(1)). For the definition of notifiable transaction as well as
the definition of prohibited transaction, the Department of the Treasury is interested in
considering alternatives, including whether the definition should account for (1) specialized AI
models trained on high-quality data that could require a lower amount of compute power; (2) AI
models that can be fine-tuned or retrained to remove safety features; (3) other techniques (such
as model scaling, Monte Carlo Tree Search, pruning, chain of thought, that could be used to
increase performance); or (4) other relevant considerations, including alternative language with
respect to the definition of covered activities relating to AI systems for purposes of notifiable
transactions to add clarity or more precisely capture activities giving rise to the national security
concerns related to the development of AI systems.
§ 850.221—Person of a country of concern.
This defined term is a component of the definitions of covered foreign person and
covered transaction. It would include an individual who is a citizen or permanent resident of a
country of concern and exclude U.S. citizens and U.S. permanent residents. It would also include
an entity with a principal place of business in, headquartered in, incorporated in, or organized
under the laws of a country of concern. The Department of the Treasury invites comments on the
impact of this definition as proposed, particularly whether other categories of persons in addition
to U.S. citizens and permanent residents should be excluded from the definition of person of a
country of concern.
The definition would also include the government of a country of concern, persons acting
on behalf of such a government, and persons controlled by or directed by such a government.

The Department of the Treasury expects that, through a reasonable and diligent inquiry, a U.S.
person should be able to determine whether a potential investment target involves a person of a
country of concern as defined in the proposed rule.
Finally, the definition would include any entity, wherever located, in which one or more
persons of a country of concern, individually or in the aggregate, hold at least 50 percent of any
outstanding voting interest, voting power of the board, or equity interest, regardless of whether
the interest is held directly or indirectly. This is intended to capture entities located outside of a
country of concern that are majority-owned by persons of a country of concern, because a U.S.
person investment into such an entity could result in the transfer of intangible benefits to or for
the benefit of one or more persons of a country of concern. When evaluating a tiered ownership
structure for any given entity, a U.S. person would need to determine whether persons of a
country of concern, individually or in the aggregate, hold at least 50 percent of the entity’s voting
interest, voting power of the board, or equity interest, in which case, the entity would be
considered a person of a country of concern. If the entity meets this criteria, another entity in
which it holds at least 50 percent of the entity’s voting interest, voting power of the board, or
equity interest would also be a person of a country of concern, and so on. The definition is
intended to draw a bright line so that it is straightforward for a U.S. person to ascertain whether
an entity is a person of a country of concern.
The following examples illustrate the application of the proposed definition of person of
a country of concern:
(10)

Example 10. Company N has its principal place of business in a country outside

of a country of concern and is headquartered and incorporated outside of a country of
concern. Six citizens of a country of concern, each of whom is not a U.S. citizen or
U.S. permanent resident, each hold 10 percent of Company N’s equity interest.
Company N would therefore be a person of a country of concern under § 850.221(d),

because an aggregate of 60 percent of the entity’s equity interest is held by persons of
a country of concern.
(11)

Example 11. Assume the same facts as Example 10. In addition, Company N

holds 60 percent of the voting power of the board of Company O, which also has its
principal place of business in a country outside of a country of concern and is
headquartered and incorporated outside of a country of concern. Company O would
therefore be a person of a country of concern under § 850.221(e), because 60 percent
of Company O’s board voting power is held by Company N, which is a person of a
country of concern under § 850.221(d).
§ 850.224—Prohibited transaction.
A prohibited transaction would be a covered transaction in which the relevant covered
foreign person undertakes (or in the case of certain greenfield, brownfield, or joint venture
investments, the U.S. person knows will or intends to undertake) any of several specified covered
activities listed in the proposed definition of prohibited transaction. At this time, the Department
of the Treasury has determined that the listed activities pose a particularly acute national security
threat to the United States identified in the Outbound Order. Each of the technical descriptions
and, where applicable, references to end uses in the proposed definition, is designed to achieve
the focused national security policy objectives of the Outbound Order, and the Department of the
Treasury may consider further technical refinements consistent with these objectives. Each
covered activity for purposes of a prohibited transaction is discussed below.
Advanced integrated circuit design and equipment
The covered activities set forth in the definition of prohibited transaction would include
developing or producing any electronic design automation software for the design of integrated
circuits or advanced packaging. The proposed rule separately defines the terms advanced
packaging, develop, and produce, adding further technical detail to the prohibition provision.
Additional covered activities included in the definition of prohibited transaction would include

developing or producing any of the following: certain front-end semiconductor fabrication
equipment designed for performing the volume fabrication of integrated circuits, equipment for
performing volume advanced packaging, or other items designed exclusively for use in or with
extreme ultraviolet lithography fabrication equipment.
Advanced integrated circuit design and production
The covered activities set forth in the definition of prohibited transaction would include
designing any integrated circuit that meets or exceeds certain advanced technical thresholds
identified by the Bureau of Industry and Security of the Department of Commerce, or integrated
circuits designed for operation at or below 4.5 Kelvin. The term would also include the
fabrication of advanced integrated circuits that meet the technical criteria specified in the
proposed rule. Additionally, the term would include the packaging of any integrated circuit using
advanced packaging techniques.
Supercomputers
The covered activities set forth in the definition of prohibited transaction would include
developing, installing, selling, or producing any supercomputer enabled by advanced integrated
circuits that can provide a theoretical compute capacity of 100 or more double-precision (64-bit)
petaflops or 200 or more single-precision (32-bit) petaflops of processing power within a 41,600
cubic foot or smaller envelope. The Department of the Treasury invites comments on the scope
of covered activities involving supercomputers in the definition of prohibited transaction
including whether any adjustments or clarification should be made.
Quantum computers and components
The covered activities set forth in the definition of prohibited transaction would include
developing a quantum computer or producing any of the critical components required to produce
a quantum computer such as a dilution refrigerator or two-stage pulse tube cryocooler. The
proposed rule separately defines the term quantum computer, adding further technical detail to
the prohibition provision. The Department of the Treasury invites comments regarding this prong

of the definition including input on how further clarity might be provided with respect to what is
meant by critical components, and the extent to which dilution refrigerator or two-stage pulse
tube cryocooler can be further defined in terms of critical performance or otherwise.
Quantum sensors
The covered activities set forth in the definition of prohibited transaction would include
developing or producing any quantum sensing platform designed for, or which the relevant
covered foreign person intends to be used for, military, government intelligence, or masssurveillance end uses. The proposed rule includes an end-use limitation to appropriately scope
this activity to circumstances that could give rise to a particularly acute national security threat,
recognizing that similar technologies could have important civilian purposes.
Quantum networking and quantum communication systems
The covered activities set forth in the definition of prohibited transaction would include
developing or producing any quantum network or quantum communication system designed for,
or which the relevant covered foreign person intends to be used for: (1) networking to scale up
the capabilities of quantum computers; (2) secure communications, such as quantum key
distribution; or (3) any other application that has military, government intelligence, or masssurveillance end use. The proposed rule includes an end-use limitation to appropriately scope this
activity to circumstances that could give rise to a particularly acute national security threat,
recognizing that similar technologies could have civilian purposes.
AI systems
Some commenters to the ANPRM noted that the AI definitions under consideration in
connection with a prohibited transaction could apply broadly and potentially sweep in civilian
uses of an AI system unnecessarily. As noted above, the policy objective is to cover U.S.
investment into entities that develop AI systems that have applications that pose a particularly
acute national security threat without broadly capturing investments into entities that develop AI
systems intended only for consumer applications or other civilian end uses that do not have

potential national security consequences. To make sure the scope of prohibited transactions
related to the development of any AI system appropriately addresses the national security threat
identified in the Outbound Order, the covered activities would include any AI system that is
designed to be exclusively used for, or which the relevant covered foreign person intends to be
used for, any military end use (e.g., for weapons targeting, target identification, combat
simulation, military vehicle or weapon control, military decision-making, weapons design, or
combat system logistics and maintenance); or government intelligence or mass surveillance end
use (e.g., through mining text, audio, or video; image recognition; location tracking; or
surreptitious listening devices). Additionally, as discussed above in connection with notifiable
transactions involving the development of AI systems, commenters to the ANPRM
recommended, among other things, adding coverage of transactions involving frontier AI models
and defined based on a set of technical parameters. The proposed rule offers for comment
specific technical parameters in describing any AI system that is trained using a certain quantity
of computing power generally and separately, any AI system that is trained using a certain
quantity of computing power using primarily biological sequence data. The Department of the
Treasury is considering setting the general computing power threshold for a prohibited
transaction at one of three levels: 10^24, 10^25, or 10^26 computational operations (e.g., integer
or floating-point operations). As discussed above in connection with notifiable transactions
involving the development of AI systems, the Department of the Treasury intends to select one of
the general compute power alternates for purposes of the prohibited transaction definition and
would potentially set the relevant amount of compute power for the corresponding provision in
the definition of notifiable transaction (at § 850.217(d)(3)) below the amount of compute power
in the definition of prohibited transaction. With respect to AI systems trained primarily using
biological sequence data, the Department of the Treasury is considering setting the computing
power threshold at one of two levels: 10^23 or 10^24 computational operations. As noted below,
the Department of the Treasury is considering whether this approach with respect to biological

sequence data should be utilized for the definition of a notifiable transaction rather than the
definition of a prohibited transaction. Regardless, the Department of the Treasury invites
comments on the impacts of setting the computing power threshold at the various levels
proposed as alternates.
The Department of the Treasury, in consultation with other departments and agencies, has
determined that the covered activities described in connection with AI systems pose a particularly
acute threat to the national security of the United States and thus are appropriate for the
definition of prohibited transaction. The specified end uses relate directly to the national security
threats identified in the Outbound Order, and the Department of the Treasury, in consultation
with other departments and agencies, has determined that transactions involving either an AI
system exclusively designed to be deployed for such an end use or the relevant covered foreign
person’s intent to use an AI system for such an end use present a particularly acute threat to U.S.
national security. Meanwhile, the general computing power thresholds set forth for consideration
would cover powerful AI models, which could enable potential applications of concern, such as
the design, synthesis, acquisition, or use of chemical, biological, radiological, or nuclear
weapons; powerful offensive cyber operations; or the evasion of human control or oversight
through deception or obfuscation. Such models can also enable next-generation military
capabilities through improving the speed and accuracy of military decision-making and
intelligence capabilities. Models trained using a quantity of computing power greater than 10^23
or 10^24 computational operations using primarily biological sequence data could enable
potential biotechnology applications of concern, including for the design of biological weapons.
The Department of Treasury welcomes comments on whether any transactions involving AI
systems that could pose a threat to U.S. national security as identified in the Outbound Order
would not be covered by the definitions of a notifiable transaction or a prohibited transaction.
The Department of the Treasury invites comments on the impacts of each of these computing
power threshold alternates. The Department of the Treasury is also interested in comments on

whether and why this approach to biological sequence data should instead be considered for the
notification requirement rather than the prohibition.
Cross-reference to U.S. Government lists
The definition of prohibited transaction would also provide that any covered transaction
is prohibited when it is with or involves a covered foreign person undertaking any covered
activity—whether referred to in the definition of prohibited transaction or in the definition of
notifiable transaction—if the covered foreign person is included on one of several U.S.
Government lists, such as the Entity List maintained by the Bureau of Industry and Security
within the Department of Commerce. Because the United States has already determined that the
inclusion of a person on such a list evidences a threat to the interests of the United States, such as
the foreign policy or national security of the United States, if a listed person is a covered foreign
person engaged in any covered activity, then a U.S. person’s covered transaction with such
covered foreign person and the transfer of capital and U.S. person intangible benefits to them
would pose a particularly acute risk to U.S. national security even when such listed person is
engaged in what would otherwise qualify as only a covered activity under the notifiable
transaction definition.
§ 850.229—U.S. person.
The proposed rule would apply to the conduct of a U.S. person only. In the proposed rule,
a U.S. person would include any United States citizen or lawful permanent resident, as well as
any entity organized under the laws of the United States or any jurisdiction within the United
States, including any foreign branch of any such entity, or any person in the United States. This
would mean that an entity organized in the United States would be considered a U.S. person for
purposes of the proposed rule even if its parent is a non-U.S. person.
Some commenters to the ANPRM raised questions about the potential extraterritorial
reach of the proposed rule as it relates to this term. Depending on how U.S. person is defined,
these commenters noted that the proposed rule could purport to restrict activity taking place

outside of the United States. In response to these comments, the Department of the Treasury
clarifies two points. First, a non-U.S. person that happens to be a parent of a U.S. person would
not be treated as a U.S. person for the purposes of this proposed rule solely because of its
relationship to the U.S. person. Second, while any person in the United States, including
personnel of a non-U.S. person entity working in a branch office of that entity or otherwise,
would be considered a U.S. person under the proposed rule based on their presence in the United
States, such person’s non-U.S. person employer would not be considered a U.S. person solely
because of an employee’s presence in the United States. The Department of the Treasury invites
comments regarding this proposed approach.
Some commenters to the ANPRM noted that the potential inclusion of “any person in the
United States” in this definition could scope in a non-U.S. person in transit through the United
States that takes an action during this transit that could constitute a covered transaction, such as
signing investment paperwork, and therefore this portion of the definition should be scaled back
or removed. However, the inclusion of “any person in the United States” mirrors the language
used in the definition of “United States person” in the Outbound Order. The Department of the
Treasury is concerned with persons who are neither citizens nor permanent residents and who are
nevertheless able to accrue knowledge, experience, networks, and other intangible assets while
they are in the United States that could convey valuable benefits to a covered foreign person.
The circumstance of a non-U.S. citizen or permanent resident individual in transit through the
United States who wishes to enter into a transaction that could trigger program coverage, while
possible, is not likely to be a frequent occurrence and can be reasonably managed with advance
planning.
Subpart C—Prohibited Transactions and Other Prohibited Activities
This subpart of the proposed rule describes activities that would be prohibited. Such
activities would include a U.S. person engaging in a prohibited transaction unless an exemption
has been granted and would include a U.S. person knowingly directing an otherwise prohibited

transaction, as described below. A U.S. person would also be required to take all reasonable
steps to prohibit and prevent any transaction by its controlled foreign entity that would be a
prohibited transaction if engaged in by a U.S. person.
§ 850.303—Knowingly directing an otherwise prohibited transaction.
Subpart C includes a prohibition on a U.S. person that possesses authority at a non-U.S.
person entity from knowingly directing a transaction by that non-U.S. person entity that would be
a prohibited transaction if undertaken by a U.S. person. This provision is intended to address a
potential loophole, such as a U.S. person senior manager at a foreign fund that invests in a
covered foreign person or otherwise directs a transaction that would be prohibited if engaged in
by a U.S. person.
In the ANPRM, the Department of the Treasury noted that it was considering applying
this provision to situations where a U.S. person, with knowledge, “orders, decides, approves, or
otherwise causes to be performed a transaction that would be prohibited under these regulations
if engaged in by a U.S. person.” Commenters to the ANPRM sought clarity on this language,
including at what stage of an investment such “directing” would occur, what level of
involvement or responsibility would be required to trigger the definition, and through what types
of entities such “knowingly directing” would need to occur to be covered. Commenters to the
ANPRM also asked for clarification that ordinary banking activities would not be scoped into
this definition.
The Department of the Treasury’s proposed approach to this provision is guided by
several goals: (1) establishing a clear standard so a U.S. person (or a non-U.S. person employing
such U.S. person) can determine whether its (or its employee’s) conduct is covered; (2) limiting
the reach of the provision to minimize the potential impact on non-senior U.S. person employees,

including administrative staff and individuals not playing a substantial role in an investment
decision; and (3) capturing concerning U.S. person activities in a targeted manner.
Under the proposed rule, a U.S. person “knowingly directs” a transaction when such U.S.
person has authority to make or substantially participate in decisions on behalf of a non-U.S.
person entity and exercises that authority to direct, order, decide upon, or approve a transaction
that would be a prohibited transaction if engaged in by a U.S. person. The proposed provision
specifies that a U.S. person would have authority if such U.S. person is an officer, director, or
senior advisor, or otherwise possesses senior-level authority. The Department of the Treasury
requests comments on the impacts of the proposed approach as well as any alternatives that
commenters consider appropriate.
In response to commenter questions on the ANPRM about whether this provision would
apply only to the activity of U.S. persons at non-U.S. person funds, or to non-financial entities as
well, the proposed rule clarifies that this provision would prohibit a U.S. person from knowingly
directing a transaction via any type of non-U.S. person entity if the subject transaction would be
a prohibited transaction if undertaken by a U.S. person. In response to commenter questions on
the ANPRM about whether ordinary banking activities would be included in the definition of
knowingly directing, the Department of the Treasury’s proposed approach to this provision is
intended to avoid scoping in the provision of third-party services such as banking services, as
well as routine administrative work by a U.S. person who lacks substantial involvement in an
investment decision. Rather, the Department of the Treasury’s objective is to address a potential
loophole that could otherwise permit a U.S. person to transfer capital and intangible benefits to a
covered foreign person via a non-U.S. person entity.
The following example illustrates the application of the proposed definition of knowingly
directing:
(12)

Example 12. A U.S. person is a senior executive at Company P, a non-U.S. person

operating company. The U.S. person’s role includes substantial participation in

investment decisions related to Company P’s strategic acquisitions. The U.S. person
participates in deliberations among Company P’s leadership about whether to
undertake a share purchase in Company Q, a privately-held covered foreign person
that develops a quantum computer. Following these deliberations, the U.S. person
votes in favor of the share purchase and knows at the time of the vote that the share
purchase would be a prohibited transaction if undertaken by a U.S. person.
Therefore, the U.S. person would have knowingly directed an otherwise prohibited
transaction under the proposed rule.
Wherever possible, consistent with national security objectives, the Department of the
Treasury seeks to avoid broad implications on the employment of U.S. persons. As a result, the
proposed approach would carve out a U.S. person who recuses themself from an investment even
if that person has the authority to make or substantially participate in decisions on behalf of a
non-U.S. person entity. The Department of the Treasury invites comments regarding the
proposed approach, particularly to what stage of an investment this recusal carveout should apply
(e.g., negotiation of a transaction, the decision to undertake the transaction, and/or overseeing the
investment after the completion date).
Subpart D—Notifiable Transactions and other Notifiable Activities
This subpart of the proposed rule would require a U.S. person to notify the Department of
the Treasury in any of the following circumstances:
•

If it undertakes a notifiable transaction (§ 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 would be required to follow specified
procedures that include requirements to submit detailed information to the Department of the
Treasury according to set timeframes and to certify as to the completeness and accuracy of the
information submitted, as well as to maintain relevant records. A U.S. person would also be
required to promptly notify the Department of the Treasury of any material omission or
inaccuracy that the U.S. person learns about following any information submission.
The requirement to notify the Department of the Treasury in § 850.403 would apply to
circumstances in which a U.S. person acquires actual knowledge after the window in which a §
850.401 notification could have been timely submitted. Specifically, the § 850.403 notification
requirement would apply to situations where a U.S. person did not possess knowledge at the time
of the transaction of a fact that, if known at the time of the transaction, would have made the
transaction a covered transaction (such as, for example, the investment target’s engagement in a
covered activity). The information requirements for a § 850.403 notification include an
explanation by the U.S. person as to why it did not possess or obtain such knowledge at the time
of the transaction and to describe any pre-transaction diligence.
Some commenters stated that certain of the information considered in the ANPRM as
elements of a complete notification could be difficult to obtain or burdensome to provide and
cautioned that certain information requirements could have an unintended chilling effect on
transactions in the relevant activities described in the ANPRM. The proposed rule seeks to
address the national security threat described in the Outbound Order while minimizing
unintended consequences. In light of this, the proposed rule contains information requirements
for a notifiable transaction that would provide important details regarding a transaction, but are
more focused than those listed in the ANPRM. The proposed rule also would require the U.S.
person to maintain a copy of the notification and supporting documentation for ten years
(consistent with the 21st Century Peace through Strength Act of 2024 (Sec. 3111, Pub. L. 11850), which amended section 206 of IEEPA and extended the statute of limitations for violations

of IEEPA from five years to ten years), during which period the Department of the Treasury
could request such documents.
In response to comments to the ANPRM that a requirement to submit a notification
before the completion date of a transaction could have the effect of delaying the transaction, the
proposed rule would allow a notification to be submitted no later than 30 calendar days
following the completion date of a notifiable transaction. In other words, the U.S. person could
submit the notification at any point prior to the completion date of the notifiable transaction or
within 30 calendar days following the completion date.
The following example illustrates the application of the proposed definition of
completion date and the submission of a notification in the context of an acquisition of a
contingent equity interest:
(13) Example 13. A U.S. person acquires a contingent equity interest in a covered foreign
person in a transaction that is a notifiable transaction. One year later, the contingent
equity interest converts into an equity interest. The U.S. person’s acquisition of a
contingent equity interest and subsequent conversion into an equity interest each
constitute a separate covered transaction under § 850.210(a)(1) and § 850.210(a)(3),
respectively. Under § 850.204, § 850.401, and § 850.404, the U.S. person would be
required to file the first notification with the Department of the Treasury no later than
30 calendar days following the completion date of the first covered transaction,
which would be the earliest date upon which the contingent equity interest is
conveyed, assigned, delivered, or otherwise transferred to the U.S. person. Likewise,
the U.S. person would be required to file the second notification with the Department
of the Treasury no later than 30 calendar days following the completion date of the
second covered transaction, which would be the earliest date upon which the equity
interest (resulting from the conversion of the contingent equity interest) is conveyed,
assigned, delivered, or otherwise transferred to the U.S. person.

Subpart E—Exceptions and Exemptions
This subpart of the proposed rule specifies particular factors that would cause an
otherwise covered transaction to be treated as an excepted transaction. This subpart also
specifies provisions that would apply when a transaction is a covered transaction but a party to
that transaction seeks an exemption from certain applicable rules on national interest grounds
(which, if granted, would cause the transaction to be an exempted transaction).
§ 850.501—Excepted transaction.
In keeping with the goal of tailoring the proposed rule to address the national security
threat described in the Outbound Order while minimizing disruptive effects on U.S. persons, the
proposed rule would define certain exceptions. A transaction that otherwise would qualify as a
covered transaction but meets one of the exceptions would be referred to as an excepted
transaction. The Department of the Treasury considers that a transaction that would qualify as an
excepted transaction presents a lower likelihood of the transfer of intangible benefits to the
covered foreign person or is otherwise less likely to present national security concern than a
covered transaction.
As discussed in detail below, an excepted transaction would include the following
(subject to conditions in some instances, as explained below):
•

An investment by a U.S. person in a publicly traded security;

•

An investment by a U.S. person in a security issued by an investment company,
such as an index fund, mutual fund, or exchange traded fund;

•

An investment of a certain size by a U.S. person LP in a pooled investment fund;

•

A U.S. person’s full buyout of all interests of any person of a country of concern
in an entity, such that the entity would not constitute a covered foreign person
following the transaction;

•

An intracompany transaction between a U.S. person parent and its subsidiary to
support ongoing operations (or other activities that are not covered activities as

defined in § 850.208);
•

Fulfillment of a U.S. person’s binding capital commitment entered into prior to
the date of the Outbound Order;

•

The acquisition of a voting interest in a covered foreign person upon default or
other condition involving a loan, where the loan was made by a lending syndicate
and a U.S. person participates passively in the syndicate; and

•

Certain transactions that occur in a country or territory outside the United States
that has been designated by the Secretary in accordance with provisions set forth
in § 850.501(f) of the proposed rule.

To make sure these exceptions are consistent with the policy objectives, certain of the
transactions described above would cease to qualify as an excepted transaction if a U.S. person
were to obtain certain investor rights beyond standard minority shareholder protections (for
example, in connection with publicly traded securities or an LP investment).
The ANPRM proposed an exception for an investment into a publicly traded security,
with “security” defined as set forth in section 3(a)(1) of the Securities Exchange Act of 1934. In
response to the ANPRM, some commenters requested that the definition of “publicly traded
security” be broadened from the definition of “security” used in the discussion of excepted
transactions in the ANPRM to align with the definition used by the Department of the Treasury’s
Office of Foreign Assets Control in connection with the Non-SDN Chinese Military-Industrial
Complex Companies List. The proposed rule would effectively broaden the carveout to include a
security traded on a non-U.S. exchange, or a security traded “over-the-counter,” in addition to a
security traded on a U.S. exchange. The proposed rule would adopt this suggestion because a
U.S. person’s purchase of securities traded on a public exchange, whether inside or outside the
United States, presents a lower likelihood of transferring intangible benefits to a covered foreign
person.

The proposed rule also would provide an exception for investment in securities issued by
an investment company, such as an index fund, mutual fund, or exchange traded fund, as well as
a business development company under the Investment Company Act of 1940, as amended.
Similarly, a U.S. person making an LP investment under a specified threshold into a
pooled fund that then invests in a covered foreign person would, subject to the specified criteria,
constitute an excepted transaction. The rationale for this approach is that LP transactions above a
certain threshold are more likely to involve the transfer of intangible benefits such as those often
associated with larger institutional investors, including standing and prominence, managerial
assistance, and enhanced access to additional financing. When a U.S. person’s committed capital
to a pooled investment fund as an LP exceeds a certain threshold, the U.S. person may have
greater incentive and potentially greater ability to impact the success of a covered foreign person
in which the pooled fund invests. The proposed rule presents two alternate approaches for
defining the threshold beneath which a U.S. person’s LP investment into a pooled fund that then
invests in a covered foreign person would constitute an excepted transaction.
Under proposed Alternate 1, a U.S. person’s investment made as an LP in a pooled fund
would constitute an excepted transaction if (1) the LP’s rights are consistent with a passive
investment and (2) the LP’s committed capital is not more than 50 percent of the total assets
under management of the pooled fund. If the U.S. person LP’s committed capital were to
constitute more than 50 percent of the total assets under management of the pooled fund, its
investment would qualify as an excepted transaction only if the U.S. person secured a binding
agreement that the pooled fund would not use its capital for a prohibited transaction. This
approach was developed to address the likelihood of intangible benefits being transferred by
such an investment if, for example, a U.S. person’s LP investment is large enough compared to
the investable assets of the pooled fund such that the U.S. person LP is an anchor investor or
otherwise wields substantial influence that would allow it to guide the pooled fund’s investment
decisions or interact regularly with the pooled fund’s investment targets. This approach would

also address situations where the U.S. person’s LP investment falls below the threshold but
contains one of several indicia of control or influence over the pooled fund or the ultimate
covered foreign person investment target by excluding such an investment from the definition of
excepted transaction.
Under proposed Alternate 2, a U.S. person’s investment made as an LP in a pooled
investment fund would constitute an excepted transaction if the LP’s committed capital is not
more than $1 million. The rationale for this alternate approach is that if an LP investment is
above the $1 million threshold, a U.S. person’s LP investment may be large enough that its
investment transfers intangible benefits, such as standing and prominence that an underlying
covered foreign person investment target could exploit for legitimacy or for further fundraising
purposes. Although this alternate may scope in a greater number of LP investments as covered
transactions compared to Alternate 1, this bright-line approach may be easier to comply with
while still addressing the risk of intangible benefits being transferred by such an investment.
An excepted transaction also would include a U.S. person’s full buyout of the interests of
a person of a country of concern in an entity, where the entity would not constitute a covered
foreign person following the transaction. As discussed in the ANPRM, the objective of this
exception is to carve out from coverage a transaction that eliminates the likelihood that
intangible benefits of a U.S. person transfer to a covered foreign person, because following a full
buyout, a person of a country of concern will no longer have any interest in the target of the
buyout.
An excepted transaction would also include certain intracompany transactions—that is, a
transaction between a U.S. person and its controlled foreign entity to support ongoing operations
or other activities that are not covered activities. The goal of this exception is to avoid
unintended interference with the ongoing operations of a U.S. person’s controlled foreign entity
even when that controlled foreign entity also meets the definition of covered foreign person. The
Department of the Treasury expects that the initial acquisition or establishment of the subsidiary

would already constitute a covered transaction, and where it does not, the potential impacts on
the U.S. person from covering such intracompany transactions under the proposed rule would
likely outweigh the benefit in terms of the objectives of the Outbound Order. Although the
definition of covered transaction in the proposed rule would not usually apply to most routine
intracompany activities such as the sale or purchase of inventory or fixed assets, the provision of
paid services, or the licensing of technology, the intracompany transaction exception in the
proposed rule nonetheless excepts intracompany transactions that would be covered transactions
but support activities that are not covered activities. To avoid use of the intracompany
transaction exception to establish new covered foreign persons or to pivot existing subsidiaries
into a new covered activity, the exception would not apply to greenfield investments, pivots of
existing entities’ operations into covered activities, and joint ventures.
Consistent with the ANPRM, the proposed definition of excepted transaction would also
include any transaction made in fulfillment of a U.S. person’s binding capital commitment
entered into prior to the effective date of the Outbound Order (August 9, 2023). A U.S. person
would not have been aware of the scope of the Outbound Order and directive for the
implementation of the prohibition and notification requirement before the Outbound Order was
issued, and this exception is intended to avoid significant disruption to a U.S. person who entered
into a binding commitment prior to August 9, 2023. The ANPRM, issued on the same day as the
Outbound Order, also included discussion of a possible exception for fulfillment of “binding
capital commitments … made prior to the issuance of the [Outbound] Order.” The Department of
the Treasury proposes to specify that this proposed exception applies to any transaction made in
fulfillment of a binding capital commitment entered into prior to the date of the Outbound Order.
The intent is to effectively address the national emergency identified in the Outbound Order and
avoid creating incentives for U.S. persons to enter into new binding commitments for a covered
transaction after issuance of the proposed rule. The Department of the Treasury requests
comment on the scope of the exception, including how to address the timing of binding capital

commitments.
The definition of excepted transaction would also include the acquisition of a voting
interest in a covered foreign person by a U.S. person upon default or other condition involving a
loan or similar financing arrangement where the U.S. person lender was part of a syndicate of
banks and cannot initiate action vis-à-vis the debtor on its own and does not have a lead role in
the syndicate. Consistent with the objectives of the Outbound Order, it would except a narrow set
of circumstances in which a U.S. person lender has passively received an interest in a covered
foreign person and, even after receiving such interest, lacks a role in the lending syndicate that
could create the opportunity for a U.S. person lender’s intangible benefits to transfer to the
covered foreign person debtor.
The Department of the Treasury, together with the Departments of State and Commerce
and other agencies, recognize the importance of working with our partners and allies and will
continue coordinating closely to address our shared national security concerns posed by
outbound investment. In recognition of the shared objectives and in furtherance of the U.S.
Government’s efforts to encourage partners and allies address risks posed by outbound
investment, the proposed rule would also provide for the potential application of the term
excepted transaction to certain transactions with or involving a person of a country or territory
outside of the United States designated by the Secretary in accordance with certain criteria (to be
developed) that relate to that country or territory’s own measures to address the national security
risk related to certain outbound investment. The Department of the Treasury expects that any
such country or territory would be designated after accounting for factors such as whether the
country or territory is regulating outbound investment transactions involving technologies critical
to a country of concern’s military, intelligence, surveillance, or cyber-enabled capabilities, which
technologies are covered by such regulation, and whether such regulation addresses national
security concerns posed by outbound investment similar to those addressed by the U.S. outbound
program. The Department of the Treasury is considering taking into account other factors for

purposes of designating a country or territory, including the extent to which a country or territory
cooperates with the United States on issues of national security and whether it has in place and is
using related authorities and tools, such as export controls, to protect sensitive technologies and
products.
The proposed rule would provide for the application of this exception only to certain
types of transactions with or involving a person of a designated country or territory. The
proposed rule anticipates that the Secretary would determine the types of transactions for which
the related national security concerns are likely to be adequately addressed by measures taken or
that may be taken by the government of a country or territory outside the United States. Once
developed, the Department of the Treasury intends to make factors for the designation of a
country or territory as well as types of transactions and/or activities that would be subject to the
exception publicly available on Treasury’s Outbound Investment Security Program website. The
Department of the Treasury, along with the Departments of State and Commerce, will continue
to work with partners and allies as they explore addressing the national security concerns posed
by certain outbound investments. The Department of the Treasury invites comments and input on
the proposed factors for the Secretary to consider when designating a country or territory in this
context as well as comments on the types of transactions or activities that should be excepted
once a country or territory has been designated. Additionally, the Department of the Treasury
invites comments more generally on efforts to engage internationally on outbound investment
security.
§ 850.502—National interest exemption.
The Outbound Order authorizes the Secretary to “exempt from applicable prohibitions or
notification requirements any transaction or transactions determined by the Secretary, in
consultation with the heads of relevant agencies, as appropriate, to be in the national interest of
the United States.”
On a case-by-case basis, the Secretary, in consultation with the Secretary of Commerce,

the Secretary of State, and the heads of relevant agencies, as appropriate, may determine that a
covered transaction is in the national interest of the United States and therefore, exempt it from
certain provisions of this proposed rule. The Department of the Treasury anticipates that this
exemption of a covered transaction would be granted by the Secretary in exceptional
circumstances.
This section of the proposed rule describes the process and considerations for such a
determination. Any determination that a covered transaction is in the national interest of the
United States and therefore exempt from certain provisions will be based on a consideration of
the totality of the facts and circumstances. The Department of the Treasury anticipates that such
determination may be informed by, among other considerations, the transaction’s effect on
critical U.S. supply chain needs, domestic production needed for projected national defense
requirements, the United States’ technological leadership globally in areas affecting U.S.
national security, and the impact on national security from prohibiting a given transaction. The
Department of the Treasury is not considering granting retroactive waivers or exemptions (i.e.,
waivers or exemptions after a prohibited transaction has been completed).
In order to request a national interest exemption, a U.S. person would need to submit
certain information to the Department of the Treasury, including describing the scope of the
relevant transaction, the basis for the request, and an analysis of the transaction’s potential
impact on the national interest of the United States. The Department of the Treasury may request
that a U.S. person submit information that may include some or all of the information required
by § 850.405, as well as additional details based on the facts and circumstances.
Once developed, the Department of the Treasury anticipates detailing the process and
required information for any national interest exemption request on the Department of the
Treasury’s Outbound Investment Program website.
Subpart F—Violations
This subpart of the proposed rule describes conduct that would be treated as a violation of

the proposed rule. Such conduct would include taking any action prohibited by the proposed rule,
failing to take any action required by the proposed rule within the timeframe and in the manner
specified, and making materially false or misleading representations to the Department of the
Treasury when submitting any information required by the proposed rule. The proposed rule
would also prohibit any action that evades or avoids or has the purpose of evading or avoiding
any of the prohibitions of the proposed rule.
Subpart G—Penalties and Disclosures
This subpart of the proposed rule describes the penalties that would be applicable to
violations of the proposed rule by any person subject to the jurisdiction of the United States,
which would include civil and criminal penalties up to the maximum amount set forth in section
206 of IEEPA. Under the proposed rule, the Department of the Treasury may impose a civil
penalty on any person that violates the rule, and the Secretary may refer potential criminal
violations under the proposed rule to the Attorney General. Further, the proposed rule states that
the Secretary, in consultation with the heads of relevant agencies, may take action to nullify,
void, or otherwise compel divestment of any prohibited transaction entered into after the
effective date of the rule. This subpart also describes the process for a person that may have
violated applicable rules to submit a voluntary self-disclosure. A U.S. person could elect to make
such a disclosure of actual or possible violations. The Department of the Treasury would take
such disclosure into account as a mitigating factor in determining the appropriate response,
including the potential imposition of penalties, if the Department of the Treasury determines that
there was, in fact, a violation.
Subpart H—Provision and Handling of Information
This subpart describes the Department of the Treasury’s proposal to treat as confidential,
subject to limited exceptions, information and documentary materials that are submitted pursuant
to the regulations and that are not otherwise publicly available. Except to the extent required by

law or in accordance with one of the enumerated exceptions, the Department of the Treasury
would not disclose such information publicly.
However, consistent with the exceptions set forth in the proposed rule, the Department of
the Treasury would be permitted to disclose information that would otherwise be treated as
confidential in certain limited circumstances; for example, the Department of the Treasury could
disclose information to U.S. partners and allies where the information is important for the
national security analysis or actions of the Department of the Treasury or such partners and
allies, and subject to appropriate safeguards. Separately, under the proposed rule, the Department
of the Treasury could use information submitted to fulfill its obligations under the Outbound
Order, which include the requirement to prepare annual reports to the President in coordination
with the Secretary of Commerce and in consultation with the heads of other relevant agencies, as
appropriate, and could include anonymized data gathered pursuant to this part.
The Department of the Treasury is considering whether there are additional
circumstances where disclosure of otherwise confidential information should be permitted. One
proposal under consideration would allow the Department of the Treasury to disclose such
information to the public as and when the Secretary determines that such disclosure is in the
national interest: for example, to promote compliance with the proposed regulations by sharing
with the public information about the activities of particular persons of a country of concern. The
Department of the Treasury expects that such an exception would be subject to a high bar and
limited to circumstances in which the Secretary identifies a pressing national interest that
disclosure could help to address. This exception would not supersede any applicable statutory
restrictions that may constrain the sharing of certain categories of information, such as
information that a party has identified as protected trade secrets information. The Department of
the Treasury invites comments on the considerations that it should take into account in
identifying the scope of this potential additional exception to confidential treatment, the standard

that should apply to the Secretary’s determination, and what safeguards may be applicable to
disclosure when such an exception applies.
Subpart I—Other Provisions
This subpart of the proposed rule contains provisions related to the delegation of the
Secretary’s authorities under the Outbound Order, any amendment to or modification of the
proposed rule, and a requirement for certain information regarding any transaction to be
furnished upon demand. The proposed rule states that, consistent with the statutory authority on
which the Outbound Order and the proposed rule are based, the Department of the Treasury has
the power to investigate conduct that may constitute a violation, hold hearings, call witnesses,
and require in-person testimony or production of documents, among other powers listed in §
850.904.
Subpart I would also establish, in § 850.903, that the provisions of the rule are severable
from one another. If any of the provisions of this rule as finalized, or the application thereof to
any person or circumstance, were to be held invalid, such invalidity would not affect other
provisions or application of such provisions to other persons or circumstances that can be given
effect without the invalid provision or application.
IV.

Request for Comment
The Department of the Treasury invites comments on any and all aspects of the proposed

rule, including and on the specific provisions discussed above in section III and the questions
below. The Department of the Treasury invites comments accompanied by empirical data or
other specific information wherever possible.
1. Are there areas where the proposed rule is broader than necessary to address the national
security concerns identified in the Outbound Order? Are there areas where it is narrower
than necessary or contains loopholes? If so, where and what adjustments should be made?
2. How could the knowledge standard in the proposed rule be clarified? What, if any,
alternatives should be considered? What other factors should be considered to assess

whether a person conducted a reasonable and diligent inquiry?
3. What considerations should the Department of the Treasury take into account with
respect to the ease or difficulty with which a U.S. person will be able to comply with the
proposed rule, particularly with respect to ascertaining whether an investment target or
relevant counterparty is a person of a country of concern and engaged in a covered
activity?
4. Are there adjustments to the scope of covered activities identified in the definition of
either notifiable transaction or prohibited transaction in the proposed rule (including
addition(s), removal(s), or elaboration(s)) that should be made to help ensure that the
definition addresses the national security concerns identified in the Outbound Order and
discussed above while minimizing unintended consequences? If so, what are they?
5. Is the line between the covered activities identified in the definition of notifiable
transaction and those in the definition of prohibited transaction (with respect to the
products and technologies in the semiconductors and microelectronics and the AI sectors)
appropriately drawn? What are the potential consequences of the proposed scope of
covered activities in the definition of notifiable transaction and prohibited transaction
and how should the distinction between the two be adjusted, if at all?
6. How do U.S. persons anticipate ascertaining the information necessary to comply with
paragraph (a)(2) of the definition of covered foreign person at § 850.209? How, if at all,
should this definition be adjusted for a situation in which no financial statement (audited
or otherwise) is available for a covered foreign person?
7. Are there adjustments to the types and scope of covered transactions identified in the
proposed rule (including addition(s), removal(s), or elaboration(s)) that should be made
to help ensure it addresses the national security concerns identified in the Outbound
Order and discussed above while minimizing unintended consequences? If so, what are
they?

8. How, if at all, should the definition of covered transaction be modified with respect to
the conversion of a contingent equity interest or convertible debt? What are the
considerations as to the balance among minimizing compliance costs, avoiding over- or
under-inclusiveness, while maintaining U.S. Government visibility into the instances of
conversion?
9. How, if at all, should the definition of covered transaction be modified with respect to LP
investments? What considerations should the Department of the Treasury take into
account with respect to a U.S. person’s LP investment qualifying as a covered
transaction when the relevant pooled investment fund actually undertakes a transaction
that would be a covered transaction if undertaken by a U.S. person?
10. Could the proposed approach to defining an indirect controlled foreign entity be further
refined to enhance clarity and facilitate compliance, and if so, how?
11. The definitions of controlled foreign entity and person of a country of concern discuss
application of such terms in the case of a tiered ownership structure. Could either of these
definitions be further refined to enhance clarity and facilitate compliance with respect to
their application in a tiered ownership structure, and if so, how?
12. The proposed definition of person of a country of concern (in § 850.221(d)) and the
proposed definition of covered foreign person (in § 850.209(a)(2)) could include a U.S.
person entity. What considerations should the Department of the Treasury take into
account with respect to an entity qualifying as a U.S. person and also as a covered foreign
person or person of a country of concern? What are the instances in, and what is the
frequency with which, this may occur?
13. What are the legal, commercial, practical or other consequences of including in, or
conversely excluding from, the definition of U.S. person a person who is lawfully present
in the United States? What are the consequences of an individual simultaneously being
both a person of a country of concern and a U.S. person? Under what circumstances, and

with what frequency, may this occur?
14. What are the considerations for U.S. person due diligence related to the specified end
uses and computing thresholds in the different alternates for an AI system in the
definitions of notifiable transaction and prohibited transaction? How would a U.S.
person investor determine the computational threshold levels of any AI system of an
investment target or relevant counterparty? What are the considerations with respect to
making such determinations related to an entity of a country of concern specifically?
15. What would be the impact of a prohibition on U.S. person transactions involving entities
that develop an AI system trained using a quantity of computing power greater than
10^24, 10^25, or 10^26 computational operations? What, if any, unintended
consequences could result from adoption of the alternate definitions of AI system?
16. What would be the impact of a prohibition on U.S. person transactions involving entities
that develop an AI system trained using a quantity of computing power greater than 10^23
or 10^24 computational operations applied to biological sequence data? What are the
considerations or factors weighing in favor or against requiring notification rather than a
prohibition in this instance?
17. How should the Department of the Treasury ensure the regulations remain responsive to
changes in the sectors identified in the Outbound Order (i.e., the semiconductors and
microelectronics, quantum information technologies, and artificial intelligence sectors)?
18. How, if at all, could the prohibition on knowingly directing a transaction be modified to
best address national security concerns identified in the Outbound Order and discussed
above while maximizing clarity and minimizing adverse impacts on U.S. persons,
including their employment at foreign companies? What, if any, alternatives should be
considered?
19. What is the practical utility of a recusal carveout from the prohibition on knowingly
directing a transaction? What stage(s) of an investment should the recusal carveout from

the prohibition on knowingly directing apply to (for example, should it apply to
negotiating and decision-making related to an investment, management and oversight of
the investment after the completion date, or something else), and why? In what ways
could the recusal carveout’s clarity or usefulness be enhanced?
20. What challenges, if any, are anticipated in connection with the information required to be
submitted for a notifiable transaction? Are they scoped appropriately to obtain
information relevant to the national security concerns identified in the Outbound Order
and discussed above, including increasing the U.S. Government’s visibility into U.S.
person transactions involving the relevant technologies and products and highlighting
trends with respect to related capital flows? If not, how should the information
requirements be modified?
21. Are there categories of transactions that should be added to, or removed from, the
definition of excepted transaction in light of the national security concerns identified in
the Outbound Order? If so, what are they and why? What potential consequences should
the Department of the Treasury consider in limiting the applicability of the definition of
excepted transaction to a transaction made pursuant to a binding, uncalled capital
commitment entered into before August 9, 2023?
22. Which of the two proposed alternates for the exception for LP investments in the
definition of excepted transaction best addresses national security concerns while
minimizing disruptive effects? Should either approach and corresponding threshold for
the exception be adjusted, and if so, why and how? What consequences could result from
basing an exception on either of the proposed thresholds? What are the considerations
related to compliance by U.S. persons? Where available, please support your answer with
data about the type, aggregate number, or total dollar equivalent amount of investments
that would be excepted under each of the two proposed alternates.

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

Rulemaking Requirements
This rulemaking pertains to a foreign affairs function of the United States and therefore is

not subject to the rulemaking requirements of the Administrative Procedure Act (APA) (5 U.S.C.
553), which exempts a rulemaking from notice and comment requirements “to the extent there is
involved . . . a military or foreign affairs function of the United States.” 5 U.S.C. 553(a)(1). As
required by the Outbound Order, the proposed rule is being issued to assist in addressing the
national emergency declared by the President with respect to the national security threat posed
by countries of concern developing technologies that are critical to the next generation of
military, intelligence, surveillance, or cyber-enabled capabilities. As described in the Outbound
Order, this threat to the national security of the United States has its source in whole or
substantial part outside the United States. The proposed rule would have a direct impact on
foreign affairs concerns, which include the protection of national security against external threats

(for example, limiting investment in specific sectors in designated countries of concern).
Although the proposed rule is not subject to the notice and comment requirements of the APA,
the Department of the Treasury is engaging in notice and comment rulemaking for this proposed
rule, consistent with section 1(a) of the Outbound Order. In addition, the proposed rule was
designated as significant under Executive Order 12866, as amended, and was reviewed by the
Office of Information and Regulatory Affairs (OIRA) in the Office of Management and Budget
(OMB). The Department of the Treasury has undertaken an analysis of the anticipated costs and
benefits of the proposed rule. Following the issuance of the ANPRM, a number of stakeholders
commented about the potential burden associated with this program, which is novel in its
approach to addressing the national security concern posed by U.S. outbound investments
involving a country of concern. The Department of the Treasury, after taking into account these
comments and the novelty of the program, conducted an analysis of the relative costs and
benefits of the proposed rule. For purposes of this analysis, the Department of the Treasury
assessed the costs and benefits of the proposed rule relative to a no-action baseline reflecting
U.S. person investment behavior in the absence of regulations.
In addition, this section includes the required assessments of the reporting and
recordkeeping burdens under the Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et.
seq., and the potential impact on small entities pursuant to the Regulatory Flexibility Act (RFA),
5 U.S.C. 601 et. seq., in each case as discussed below.
A.

Executive Orders 12866, 13563, and 14094

Executive Orders 12866, 13563, and 14094 direct agencies to assess the costs and
benefits of available regulatory alternatives for certain types of rulemaking in certain
circumstances and, if regulation is necessary, to select regulatory approaches that maximize net
benefits. The Department of the Treasury has conducted an assessment of the costs and benefits
of the proposed rule, as well as the costs and benefits of available regulatory alternatives.

As noted above in section I, the Outbound Order directs the Secretary to establish a
program to prohibit U.S. persons from engaging in certain transactions and require U.S. persons
to submit notifications of certain other transactions. These two primary components of the
program established by the Outbound Order would serve distinct but interrelated objectives with
respect to the relevant technologies and products. The first component would require the
Secretary to prohibit certain types of investment by a U.S. person in a covered foreign person
engaged in certain categories of activities related to technologies and products that pose a
particularly acute national security threat. The second component would require notification to
the Secretary regarding certain types of investments by a U.S. person in a covered foreign person
engaged in other categories of activities related to technologies and products that may contribute
to the threat to national security. The focus of both components would be on investments that
could enhance a country of concern’s military, intelligence, surveillance, or cyber-enabled
capabilities through the advancement of technologies and products in particularly sensitive areas.
In an Annex to the Outbound Order, the President identified the People’s Republic of China,
along with the Special Administrative Region of Hong Kong and the Special Administrative
Region of Macau, as a country of concern.
As described above in section I, this proposed rule is consistent with the President’s
mandate in the Outbound Order and prescribes procedures and obligations governing the (1)
prohibition of certain types of investment by U.S. persons into certain entities located in or
subject to the jurisdiction of a country of concern, certain other entities owned by persons of a
country of concern, and certain entities with an interest in and significant financial connection to
a person of a country of concern, with capabilities or activities related to defined technologies
and products; and (2) mandatory notification to the Secretary by U.S. persons for certain types of
investment into certain entities located in or subject to the jurisdiction of a country of concern,
certain other entities owned by persons of a country of concern, and certain entities with an
interest in and significant financial connection to a person of a country of concern, with

capabilities or activities related to defined technologies and products. The implementation of the
Outbound Order through this proposed rule would advance the President’s objective of
regulating certain investments from the United States into a country of concern.
The proposed rule would cover a defined set of transactions such as certain acquisitions
of equity interests (e.g., mergers and acquisitions, private equity, and venture capital) and
contingent equity interests, certain debt financing transactions, greenfield and brownfield
investments, joint ventures, and certain LP investments by U.S. persons. Given the focus on
transactions that could aid in the development of technological advances that pose a risk to U.S.
national security, the Department of the Treasury proposes to except from the program certain
transactions with a lower likelihood of having that effect. The proposed exceptions extend to
certain investments into publicly traded securities or into securities issued by an investment
company, such as an index fund, mutual fund, or exchange traded fund.
B.

Costs

The primary direct costs to the public associated with the proposed rule would relate to
(1) understanding the proposed rule; (2) conducting the transaction-specific diligence that would
be needed for a U.S. person to determine whether a particular transaction would be either a
notifiable transaction or a prohibited transaction under the proposed rule; and (3) if applicable,
preparing and submitting a mandatory notification of certain transactions or other information to
the Department of the Treasury pursuant to the proposed rule. The Department of the Treasury
invites comment on any of the assumptions and estimates in this analysis.
The proposed rule would apply to all U.S. persons who undertake, directly or indirectly, a
covered transaction. Because of the tailored scoping of the proposed rule, the Department of the
Treasury estimates that it would apply to a relatively modest volume of potential covered
transactions. While precise data that matches the scope of covered transactions including the
relevant technology and products in the proposed rule is not available – and is one of the reasons
for the notification requirement which would increase the U.S. Government’s visibility into the

relevant transactions – a review of available data appears to support this estimate of a modest
volume. For example, to estimate the number of entities that would be potentially affected by the
proposed rule and would incur associated direct compliance costs, the Department of the
Treasury considered data available through PitchBook from approximately 2021 to 2023.1 This
data indicates that over this three-year period, 180 unique U.S.-based investors made around 318
equity and add-on investment transactions in the semiconductor, AI, and quantum science sectors
of the PRC (as defined by PitchBook). This data suggests an annual average of 60 different
investors engaging in an annual average of 106 potentially covered transactions. Since details of
U.S. private investment overseas cannot be determined with precision through the available data,
and there are limitations in any dataset based on the parameters set by the provider, the
Department of the Treasury has determined this figure to be a lower bound. The Department of
the Treasury also acknowledges that some U.S. person investors may incur costs even where the
rule does not appear to apply directly to their transaction. To clarify, the figure used to estimate
the volume of potentially covered transactions may not capture all instances of parties who may
incur costs as a result of the proposed rule. For example, a U.S. person may not always know in
advance of the due diligence process whether the U.S. person will want or need to collect
information related to the proposed rule and then proceed to spend resources on diligence, only
to confirm that the relevant transaction is not a covered transaction.
For purposes of this analysis, the Department of the Treasury doubled the averages from
the available data to account for the likely underrepresentation of potentially relevant
transactions. Thus, the Department of the Treasury’s analysis is based on the estimate of
approximately 120 entities and 212 transactions annually (based on an assumption of an annual
average of 1.77 transactions per entity) that may be affected by the proposed rule. The
Department of the Treasury is soliciting comments on the reasonableness of this estimate (in

PITCHBOOK, https://pitchbook.com (last visited May 24, 2024).

terms of the data source and analysis), and whether there are other sources of data that the
Department of the Treasury should consider for its cost analysis. The Department of the Treasury
also invites comments on whether doubling the averages from publicly available data is a
reasonable way to account for any underrepresentation of potentially relevant transactions, or
whether a different methodology should be used. For the remainder of this analysis, however, the
Department of the Treasury relied on the estimates as described above.
To derive an estimate for the costs related to the proposed rule, the Department of the
Treasury first estimated the associated labor costs related to interpreting and applying the
proposed rule. The Department of the Treasury expects that individuals and entities reviewing
the proposed rule and engaging in potentially relevant transactions would engage on their own
and through their own employees as well as hire lawyers or advisors from outside firms.
For a low-end estimate, the Department of the Treasury relied on a figure from the
Bureau of Labor Statistics (BLS), which reports the mean hourly wage for Standard
Occupational Classification System Code (SOC Code) 231011—Lawyers to be $84.84 per hour
and SOC Code 111021—General and Operations Managers to be $62.18 per hour.2 In each
instance the Department of the Treasury tripled the BLS mean hourly wage figure. This
adjustment is intended to not only account for employee benefits and overhead, but also to reflect
the presumption that hourly labor costs of the investors and their advisors likely to be affected by
the proposed rule will often be higher than the hourly mean wage in these occupation categories
across the United States. Accordingly, the Department of the Treasury estimates that the
impacted entities will each incur costs of $187 per hour for managers and $255 for lawyers. The
average of these figures is $221 per hour and, again, this is a low-end estimate.
For a high-end estimate, the Department of the Treasury acknowledges that the hourly
rate billed for a lawyer performing the relevant type of work at a private firm may be
significantly higher than the average hourly wage of a lawyer from the BLS figure. The global

Figures based on May 2023 data.

data and business intelligence platform Statista reports that the average hourly attorney billing
rate in Washington, D.C. in 2023 was $392.3 The average of the hourly cost of a manager at
$187 per hour and the Statista figure of the hourly rate of a lawyer at $392 per hour is $290. The
Department of the Treasury invites comments on whether either of these figures (i.e., the lowend or the high-end estimate) are reasonable benchmarks and estimates for this analysis or
whether there are other sources of data or estimates that should be considered.
Costs associated with understanding the proposed rule
Based on the above assumptions and estimates of affected entities, number of
transactions and labor costs, the Department of the Treasury has estimated the annual time and
cost that would be spent by affected entities in understanding the proposed rule. While
recognizing that the extent of this diligence will necessarily vary from transaction to transaction,
the Department of the Treasury arrived at the below estimates for purposes of this regulatory
analysis.
The range of estimated aggregate annual costs for understanding the proposed rule begins
at $468,520 on the low end and goes up to $614,800 on the high end. This is based on the
estimate of an average time burden to be ten total person hours per transaction for understanding
the proposed rule. As such, ten total person hours per transaction multiplied by 212 annual
transactions and the low-end hourly labor cost range and high-end hourly labor cost range
described above, respectively, result in the total cost range for understanding the proposed rule.
Costs associated with diligence and maintaining records
Based on the above assumptions and estimates of affected entities, number of
transactions and labor costs, the Department of the Treasury has estimated the annual time and
cost that would be spent by affected entities on conducting additional transactional diligence
with respect to this proposed rule. These economic estimates should in no way be construed as

STATISTA (Feb. 26, 2024), https://www.statista.com/statistics/941146/legal-services-hourly-rates-metropolitanregion-united-states/.
relevant to the reasonableness of the inquiry a party would pursue in light of the particular facts
and circumstances of a transaction and the requirements of the proposed rule. While recognizing
that the extent of this diligence will necessarily vary from transaction to transaction, the
Department of the Treasury arrived at the below estimates for purposes of this regulatory
analysis.
The Department of the Treasury recognizes that most investment transactions, regardless
of whether the investment is potentially subject to this proposed rule, involve some level of
review, diligence, assessment, and recordkeeping by the investor. And, for some transactions and
investors, the level of information collection, retention, and diligence necessary to comply with
the proposed rule may not give rise to any costs beyond what would be incurred in the absence of
the proposed rule. This conclusion is reached by focusing on the nature of the information
required for a notification, which consists of data typically gathered or available in the process of
making an investment. This includes, for example, the proposed information requirements
regarding transaction party identifying information as well as the commercial rationale,
transaction structure, financial details, and completion date of the transaction itself.
The Department of the Treasury assesses that it is reasonable in some cases to assume
that customary transactional due diligence would involve the collection and review of this
required information, meaning that the only incremental costs would be incurred for the review
of the information from the perspective of ensuring compliance with the proposed rule. While
the notification requirement would also include (1) information regarding covered activities
undertaken by the covered foreign person that makes the transaction a notifiable transaction, as
well as a brief description of the known end uses and end users of the covered foreign person’s
technology, products, or services; (2) a statement of the attributes that cause the entity to be a
covered foreign person; and (3) in certain cases, the identification of the technology node(s) at
which any applicable product is produced, the due diligence underlying many covered
transactions would include gathering and reviewing this information even if not specifically to

comply with the proposed rule. The proposed rule further states that a U.S. person that has failed
to conduct a reasonable and diligent inquiry by the time of a given transaction may be assessed
to have had awareness or reason to know of a given fact or circumstance, including facts or
circumstances that would cause the transaction to be a covered transaction. Compliance with this
provision and the requirements of the proposed rule may in some cases require enhanced
diligence. Recognizing that in some instances, compliance with the proposed rule may not
require the collection and retention of additional transaction-related information, this analysis
considers reasonable estimates of the additional due diligence and recordkeeping costs that could
be associated with the proposed rule as described below.
The range of estimated annual incremental cost for conducting due diligence and
recordkeeping associated with the proposed rule runs from $0 on the low end to $2,459,200 on
the high end. These are two ends of the range, and it is anticipated that the costs for most
transactions would fall between these figures. The Department of the Treasury estimates that the
average time burden would likely not exceed 40 total person hours per transaction for conducting
additional due diligence and recordkeeping with respect to the proposed rule.
For the low end of this range, it is reasonable to anticipate that some investors, having
spent resources learning about the proposed rule, as discussed above, will be able to quickly
collect and assess the information needed to determine whether a potential transaction would be
a prohibited transaction. As such, the low-end estimate is a zero-dollar incremental cost for
additional due diligence and recordkeeping. Not all transactions will be this simple, and it is
reasonable to anticipate more costs at the higher end of the range. As such, 40 total person hours
per transaction multiplied by 212 annual transactions and the high-end hourly labor cost estimate
described above results in the high-end estimate for additional due diligence and recordkeeping
related to the proposed rule. The Department of the Treasury estimates 40 person hours per
transaction, based on approximately a total of eight person hours across all involved general and
operations managers and lawyers per business day for one week. However, the cost of a U.S.

person conducting diligence and the difficulty of that exercise will vary depending on a
transaction’s complexity, the availability of relevant information, and the incremental person
hours may be higher for certain transactions, for example those that involve indirect transactions.
The Department of the Treasury invites comments on whether these figures are
reasonable benchmarks and estimates for this analysis or whether there are other sources of data
or estimates it should consider.
Costs associated with providing information
The proposed rule would require the submission of information to the Department of the
Treasury for notifiable transactions and provides for certain other circumstances that require
information submission. The Department of the Treasury intends to require U.S. persons to
provide notification of certain transactions under the proposed rule. The proposed rule also
contemplates that a person seeking a national interest exemption from the proposed rule’s
notification requirement or prohibition would submit certain information to the Department of
the Treasury. The proposed rule would also require a U.S. person to make a post-closing
submission regarding a transaction that it believed at closing was not a covered transaction when
the U.S. person later discovers information which, had it been known at closing, would have
caused the transaction to be a covered transaction. Also, the proposed rule would require a U.S.
person to inform the Department of the Treasury of any material omission or inaccuracy in any
previous representation, statement, or certification. Lastly, the Department of the Treasury
anticipates time and cost associated with responding to inquiries by the Department of the
Treasury.
The Department of the Treasury expects that of the universe of potentially covered
transactions for which U.S. persons perform due diligence each year, certain transactions will
turn out not to be covered, others will turn out to be notifiable, and still others will turn out to be
prohibited. For purposes of this analysis, however, the Department of the Treasury has assumed
that U.S. persons will perform due diligence with respect to the estimated 212 potentially

covered transactions each year, and that all 212 will turn out to be notifiable transactions. The
Department of the Treasury took this approach in the interest of estimating a theoretical
maximum upper bound, recognizing that the number of actual notifiable transactions is likely to
be less than 100 percent of potentially covered transactions. A notifiable transaction would
likely cost more in terms of time and resources than a prohibited transaction, because, in
addition to the due diligence cost, a notifiable transaction would entail resources to prepare and
submit a notification.
The estimated annual cost range for time spent submitting information would be
$2,342,600 to $3,074,000. This estimate assumes 50 person hours per transaction for preparing
and submitting a notification through an online portal, combined with the number of transactions
per year (212) and the hourly labor cost range described above—$221 to $290. As discussed
above, this number reflects the high-end estimate, since this analysis assumes that every
potentially relevant transaction would result in a notification.
For purposes of this analysis, the Department of the Treasury estimated only the total
annual costs of preparing and submitting a notification under § 850.404 of the proposed rule. The
Department of the Treasury anticipates that the time and cost behind preparing and submitting a
post-transaction notice, notice of any material omission or inaccuracy in any previous
representation, statement, or certification, or responding to agency inquiries may be comparable
to the costs of preparing and submitting a notification. Likewise, where a U.S. person elects to
provide information in seeking a national interest exemption, the Department of the Treasury
anticipates that the associated costs would be comparable to or could slightly exceed the costs of
preparing and submitting a notification.
Estimated total direct costs
Based on the direct cost estimates above, the total annual direct costs associated with
complying with the proposed rule can be expected to have a range of between $2,811,120 and
$6,148,000 and the total annual time burden would be approximately 21,200 person hours.

Additional indirect costs associated with prohibited transactions and non-covered
transactions
With respect to prohibited transactions, the Department of the Treasury has no basis to
conclude that the proposed rule will have additional direct economic costs to U.S. investors
beyond those described above. There may, however, be additional indirect costs associated with
prohibited transactions. Investors who would have otherwise engaged in a prohibited
transaction absent the proposed rule may pursue alternative investment opportunities since they
would be precluded from undertaking a prohibited transaction. These indirect costs amount to
the difference, if any, between the return on investment that would have been generated by a
prohibited transaction and the return on investment that would result from an alternative
transaction. Any attempt to quantify this cost would be speculative and difficult to assess in any
specificity due to individual decision-making, opportunities available, and market conditions. In
addition, while the proposed rule may have an economic impact on investment targets that are
covered foreign persons because certain transactions would be prohibited, the proposed rule is
not designed to nor does it prohibit all U.S. person investments into such persons, due to the
scope of transactions covered as well as the exceptions provided for in the proposed rule.
Costs to the U.S. Government
Administering the regulation would also entail costs to the U.S. Government. Such costs
would include information technology (IT) development and ongoing annual maintenance, as
well as processing electronic notifications. The Department of the Treasury estimates that initial
IT development costs would be between $4 million and $8 million with an additional $2 million
to $3 million required to maintain the systems and the underlying technology being leveraged to
support the capabilities. The Department of the Treasury and other relevant agencies, including
the Department of Commerce, may incur additional costs, besides those estimated above. This
includes other responsibilities related to the implementation of the proposed rule such as
analyzing notifications submitted as well as complying with the reporting requirements under the

Outbound Order. Furthermore, costs may be associated with efforts to promote compliance with
the notification requirement and prohibition requirements, potentially including education on the
requirements, development of guidance and frequently asked questions, and conducting
stakeholder outreach. The Department of the Treasury does not currently have specific estimates
for these costs but estimates that there would be personnel costs of less than $2 million
associated with the proposed regulation in Fiscal Year 2024 with additional costs for ongoing
outreach and enforcement thereafter.
The Department of the Treasury and other government agencies may also incur costs in
enforcing compliance with the regulation. The Department of the Treasury does not currently
have estimates for these costs, and they are not included in the estimates above.
The Department of the Treasury plans to monitor compliance with the final regulation by
leveraging a variety of data sources, both internal and external. Because the external data sources
may include third parties, the Department of the Treasury requests comment on what external
data sources would be appropriate to leverage in identifying non-compliance with respect to the
regulations and what potential costs may be incurred by such third parties. If the external data
sources include third party commercial data, the Department of the Treasury assesses that the
cost associated with accessing these databases would be modest and incremental, given that the
Department of the Treasury regularly maintains access to such databases in the course of other
work but may need to request additional licenses for employees. After identifying an instance of
apparent non-compliance, the Department of the Treasury may initiate outreach to the involved
entity, work with law enforcement to investigate the apparent non-compliance, or initiate an
enforcement action. The Department of the Treasury’s enforcement of the proposed regulation
would also involve coordination with law enforcement agencies. These law enforcement
agencies may also incur costs (time and resources) while conducting investigations into potential
non-compliance.
C.

Benefits

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

These notifications would increase the U.S. Government’s visibility into transactions by U.S.
persons or their controlled foreign entities and involving technologies and products relevant to
the threat to the national security of the United States due to the policies and actions of countries
of concern. These notifications would be helpful in highlighting trends with respect to related
capital flows and would inform future policy development. The Department of the Treasury
expects that the national security benefits, while qualitative, will outweigh the compliance costs
of the proposed rule. The Department of the Treasury requests comment on data or methods that
may inform estimates of potential costs of the proposed rule.
D.

Alternatives

The Outbound Order requires the Secretary of the Treasury to issue implementing
regulations subject to public notice and comment. As a result, the Department of the Treasury
did not have the discretion to refrain from promulgating the proposed rule or to promulgate it
without notice and comment. However, the Department of the Treasury considered different
approaches to the proposed rule that would be available under the Outbound Order. Specifically,
the Department of the Treasury considered the following potential alternatives to the proposed
rule:
•

Scope of covered transaction and excepted transaction. The Department of the Treasury
could have proposed a broader definition of covered transaction and/or fewer exceptions
and considered certain alternatives to the scope of covered transaction and excepted
transaction in developing the proposed rule. This discussion does not cover each
alternative considered for the scope of covered transaction but provides a summary of a
few alternatives the Department of the Treasury considered.
The Department of the Treasury considered and selected regulatory approaches that
maximize net benefits (including effectively addressing the national security threat
identified in the Outbound Order) while balancing potential compliance and
implementation costs. For example, an alternative that the Department of the Treasury

considered in relation to contingent equity interests in particular was to limit the scope of
covered transaction to just the acquisition of a contingent equity interest and not
separately cover the conversion of the contingent equity interest. This would have
reduced some of the compliance and resource burden on a U.S. person, who would have,
in the context of a notifiable transaction, been required to submit a notification only at
the time of acquisition rather than a notification at the time of acquisition and another
notification at the time of conversion of contingent equity. However, this alternative
would have reduced the ability of the U.S. Government to observe the frequency and
instances in which the relevant contingent interests convert. Additionally, it would not
have scoped in circumstances where the acquisition of a contingent equity interest did not
involve a covered foreign person but then a covered foreign person was involved at the
time of the conversion of a contingent equity interest, which would have limited the
proposed rule’s reach and ability to address the national security threat identified in the
Outbound Order. Another example is with respect to the exception for LP investments
where the proposed rule puts forth two proposed alternatives. As discussed above in the
section-by-section analysis with respect to § 850.501 of the proposed rule, the
Department of the Treasury, after consulting with the heads of other agencies, is offering
and seeking comment on two alternates for this exception. Under proposed Alternate 1, a
U.S. person’s investment made as an LP in a pooled investment fund would constitute an
excepted transaction if (1) the LP’s rights are consistent with a passive investment and
(2) the LP’s committed capital is not more than 50 percent of the total assets under
management of the pooled fund. If the U.S. person LP’s committed capital were to
constitute more than 50 percent of the total assets under management of the pooled fund,
its investment would qualify as an excepted transaction only if the U.S. person secured a
binding agreement that the pooled fund would not use its capital for a prohibited
transaction. This approach would address situations where the U.S. person’s LP

investment falls below the threshold but contains one of several indicia of control or
influence over the pooled fund or the ultimate covered foreign person investment target.
Compared to Alternate 2, Alternate 1 would scope in fewer LP investments as covered
transactions but could potentially be more challenging for a U.S. person to comply with,
as it requires a multi-factor analysis for assessing whether a U.S. person’s LP investment
is an excepted transaction. Under Alternate 2, a U.S. person LP’s committed capital in a
pooled fund that then invests in a covered foreign person would be an excepted
transaction only if the committed capital was not more than $1,000,000. Although this
alternate would likely scope in a greater number of LP investments as covered
transactions compared to Alternate 1 (and potentially increase the compliance costs of
this program), the bright-line approach may be easier for U.S. persons to comply with
than Alternate 1.
•

Covered national security technologies using broad definition of sectors rather than
specific activities and technologies. In the proposed rule, the Department of the Treasury
proposed to define notifiable transaction and prohibited transaction in § 850.217 and §
850.224, respectively, by reference to certain technologies and activities, and in some
instances, end uses. Alternatively, the Department of the Treasury could have opted for a
broad sectoral categorization, such as, for example, all technologies and products in the
artificial intelligence sector, regardless of the end use of such artificial intelligence
related technologies or products. If the Department of the Treasury had proposed that
approach, the Department of the Treasury estimates that the economic impact for U.S.
persons subject to the rule, and for the overall U.S. economy, would be significantly
greater than under the proposed rule. Instead, the Department of the Treasury, along with
other relevant agencies, carefully tailored the covered activities and technical descriptions
under the definitions of notifiable transaction and prohibited transaction. In the case of
AI systems, the proposed rule addresses covered activities related to certain AI systems

that would have applications that pose or have the potential to pose national security risks
without broadly capturing AI systems intended only for commercial applications or other
civilian end uses that do not have potential national security consequences, thereby
limiting the additional compliance and implementation burden on U.S. persons.
The Department of the Treasury intends that the proposed rule would provide a U.S.
person with clarity and guidance regarding its obligations with respect to a covered transaction,
while effectively addressing the national emergency identified in the Outbound Order in a
targeted manner. The Department of the Treasury expects that the national security benefits,
while qualitative, will outweigh the compliance costs of the proposed rule.
Paperwork Reduction Act
The collections of information contained in this notice of proposed rulemaking have been
submitted to the Office of Management and Budget for review in accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3507(d)) (PRA).
The proposed rule would require a U.S. person to submit a notification with respect to (1)
any notifiable transaction; (2) any transaction by a controlled foreign entity that would be a
notifiable transaction if engaged in by a U.S. person; and (3) any transaction for which a U.S.
person acquires actual knowledge after the completion date of the transaction that the transaction
would have been a prohibited transaction or a notifiable transaction if knowledge had been
possessed by the relevant U.S. person at the time of the transaction. Such notification would
include relevant details on the U.S. person involved in the transaction as well as information on
the transaction and the covered foreign person involved. The proposed rule would require any
U.S. person that has filed a notification to respond to any questions or document requests from
the Department of the Treasury related to the transaction or compliance with the proposed rule;
any information or documents provided to the Department of the Treasury in response to such
request would be deemed part of the notification under the proposed rule.

The proposed rule would also require any U.S. person that files a notification to maintain
a copy of the notification filed and supporting documentation for a period of ten years from the
date of the filing. Further, the proposed rule would require any person who has made any
representation, statement, or certification subject to the proposed rule to notify the Department of
the Treasury in writing of any material omission or inaccuracy in such representation, statement,
or certification. Finally, the proposed rule would also require any U.S. person seeking a national
interest exemption to submit information to the Department of the Treasury regarding the scope
of the transaction including, as applicable, the information that would be required for a
notification of a notifiable transaction.
The collections of information described would be used by the Department of the
Treasury and the Department of Commerce, and, as appropriate, other relevant agencies, in
connection with the analysis of notifiable transactions pursuant to the Outbound Order. The
information provided in the notifications would increase the U.S. Government’s visibility into
the volume and nature of U.S. person transactions involving the defined technologies and
products that may contribute to the threat to the national security of the United States. The
information in the notifications will be helpful in highlighting trends with respect to related
capital flows. It would also inform future policy development and decisions, including any
modifications to the scope of notifiable transactions and prohibited transactions. Additionally,
the information would assist the Secretary in complying with the report requirements in section 4
of the Outbound Order and in determining whether to grant a national interest exemption to a
particular covered transaction. The proposed rule would prohibit the Department of the Treasury
from making public any information or documentary materials submitted to or filed with the
Department of the Treasury under the proposed rule unless required by law or otherwise
provided in the proposed rule.
Written comments and recommendations for the proposed information collections can be
submitted by visiting https://www.reginfo.gov/public/do/PRAMain. Information collection

requests may be found by selecting “Currently Under Review—Open for Public Comments” or
by using the search function. Comments on the collections of information should be received by
August 4, 2024.
The Department of the Treasury used the methodology described in the previous section
to estimate the total annual reporting and recordkeeping burden of the information collections in
this proposed rule. The Department of the Treasury estimates that the annual hourly burden
would be up to 19,080 hours. This annual total is based on the Department of the Treasury’s
assumption that: (1) 120 entities per year would respond to the information collections in this
proposed rule and each entity would submit an average of 1.77 notifications annually, meaning
these respondents would file a total 212 responses to the information collections annually; and
(2) each respondent would spend an estimated 50 to 90 person hours per response. The
Department of the Treasury estimates that the annual cost burden associated with the information
collections and recordkeeping in the proposed rule would range between $2,342,600 and
$5,533,200.
In accordance with 5 CFR 1320.8(d)(1), the Department of the Treasury is soliciting
comments from members of the public concerning these collections of information to:
(1)

Evaluate whether the proposed collections of information are necessary for the
proper performance of the functions of the agency, including whether the
information will have practical utility;

(2)

Evaluate the accuracy of the agency’s estimate of the burden of the proposed
collections of information;

(3)

Enhance the quality, utility, and clarity of the information to be collected; and

(4)

Minimize the burden of the collections of information on those who are to
respond, including through the use of appropriate automated collection techniques
or other forms of information technology.

Under the PRA, an agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a valid control number assigned by the
OMB.
Regulatory Flexibility Act
It is hereby certified that the proposed rule would not have a significant economic impact
on a substantial number of small entities within the meaning of section 601(6) of the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.).
The proposed rule may impact any U.S. person, including a small business that engages
in a covered transaction with a covered foreign person. The Department of the Treasury does not
anticipate that the proposed rule would affect “small organizations” or “small governmental
jurisdiction[s],” as defined in the RFA.
The Department of the Treasury expects the proposed rule to have a negligible baseline
impact on small businesses because the proposed rule’s obligations on U.S. persons target
investments generally associated with larger institutions that more often are involved in crossborder investments related to the sectors under the proposed rule. These larger institutions are
more likely to enter into transactions that will trigger the definition of covered transaction. The
proposed rule would except specific types of transactions that may be more attractive or
accessible to small business investors. And, as discussed below, the Department of the Treasury
has assessed that small businesses would be likely to enter into transactions that constitute
excepted transactions. As an example, the Small Business Administration’s (SBA’s) Table of
Size Standards with respect to NAICS U.S. Industry Sector 52 “Finance and Insurance” defines a
small business in this sector by dollar value of assets or revenue rather than by number of
employees. As discussed below, the Department of the Treasury believes that the relevant SBA
thresholds are too low to capture the type of U.S. investor likely to actively invest in an entity
that engages in the identified activities related to technologies and products in the
semiconductors and microelectronics, quantum information technologies, and artificial

intelligence sectors that are critical for the military, intelligence, surveillance, or cyber-enabled
capabilities of a country of concern. For example, SBA categories such as “open end investment
funds,” and “other financial vehicles” are not considered small businesses if their average annual
receipts exceed $40 million. As a reference point, IBISWorld reports that for NAICS Industry
Code 52591 “Open-End Investment Funds,” for years 2018 to 2023, there were 825 businesses in
this category and a total 2023 revenue across those businesses of $191.1 billion.4 Extrapolating
from this data, the average 2023 revenue per firm in this category would have been $231.5
million.
In fact, the total number of potential investors subject to the regulation is likely limited to
a small set of relatively large and sophisticated investors. As discussed above, the Department of
the Treasury considered PitchBook Data from approximately 2021 through 2023. Notably, the
most common type of U.S. based investors in this survey were identified by PitchBook Data as a
venture capital business, corporation, private equity or buyout firm, or comparable investor
types.
Given the applications of technologies and products in these sectors, the Department of
the Treasury believes investments into these sectors involving a person of a country of concern is
not typical for a small business, as these investor types are treated in the SBA’s Table of Size
Standards. Importantly, the proposed rule would also except certain types of transactions,
including certain investments into publicly traded securities or into securities issued by an
investment company, such as an index fund, mutual fund, or exchange traded fund, where a
small business is more likely to consider investing. Given the narrow scoping of what constitutes
a covered transaction under the proposed rule, the Department of the Treasury expects that few
small businesses, as that term is defined by SBA, will be impacted by the proposed rule.

IBIS WORLD, https://www.ibisworld.com/united-states/market-research-reports/open-end-investment-fundsindustry/#IndustryStatisticsAndTrends (last visited Mar. 15, 2024).
In the unlikely event that a small entity is subject to the requirements of the program,
such entity would be expected to incur the costs described in the separate cost benefit analysis
above. For submission of notifications, the Department of the Treasury has endeavored to
develop information gathering procedures that minimize the burden on U.S. persons, both large
and small. U.S. persons who file a notification will use a fillable form that will be available
online and is intended to facilitate submission through an electronic format. This fillable form
will benefit anyone who submits a notification, regardless of their size, but may be especially
helpful for small businesses who will be able to submit directly to the Department of the
Treasury through an online portal.
Notwithstanding this certification, the Department of the Treasury invites comments from
the public about the impact the proposed rule on small entities. The proposed rule will be
submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration
for comment on its impact on small business.
List of Subjects in 31 CFR Part 850
Administrative practice and procedure, Artificial intelligence, Business and industry,
Confidential business information, Electronic filing, Executive orders, Foreign persons, Hong
Kong, Holding companies, Investigations, Investments, Investment companies, Microelectronics,
National defense, National security, Macau, Penalties, People’s Republic of China, Quantum
information technologies, Reporting and recordkeeping requirements, Science and technology,
Securities, Semiconductors, U.S. investments abroad.

For the reasons set forth in the preamble, the Department of the Treasury proposes to add part
850 of title 31 of the Code of Federal Regulations as follows:
PART 850—PROVISIONS PERTAINING TO U.S. INVESTMENTS IN CERTAIN
NATIONAL SECURITY TECHNOLOGIES AND PRODUCTS IN COUNTRIES OF
CONCERN
Subpart A—General
Sec.

850.101 Scope.
850.102 Relation of this part to other laws and regulations.
850.103 Rules of construction and interpretation.
850.104 Knowledge standard.
Subpart B—Definitions
850.201 Advanced packaging.
850.202 AI system.
850.203 Certification.
850.204 Completion date.
850.205 Contingent equity interest.
850.206 Controlled foreign entity.
850.207 Country of concern.
850.208 Covered activity.
850.209 Covered foreign person.
850.210 Covered transaction.
850.211 Develop.
850.212 Entity.
850.213 Excepted transaction.
850.214 Fabricate.
850.215 Knowingly directing.
850.216 Knowledge.
850.217 Notifiable transaction.
850.218 Package.
850.219 Parent.
850.220 Person.
850.221 Person of a country of concern.
850.222 Principal place of business.
850.223 Produce.
850.224 Prohibited transaction.
850.225 Quantum computer.
850.226 Relevant agencies.
850.227 Subsidiary.
850.228 United States.
850.229 U.S. person.
Subpart C—Prohibited Transactions and Other Prohibited Activities
850.301 Undertaking a prohibited transaction.
850.302 Actions of a controlled foreign entity.
850.303 Knowingly directing an otherwise prohibited transaction.
Subpart D—Notifiable Transactions and Other Notifiable Activities
850.401 Undertaking a notifiable transaction.
850.402 Notification of actions of a controlled foreign entity.
850.403 Notification of post-transaction knowledge.
850.404 Procedures for notifications.
850.405 Content of notifications.
850.406 Notice of material omission or inaccuracy.
Subpart E—Exceptions and Exemptions
850.501 Excepted transaction.
850.502 National interest exemption.
850.503 IEEPA statutory exception.
Subpart F—Violations
850.601 Taking actions prohibited by this part.
850.602 Failure to fulfill requirements.

850.603 Misrepresentation and concealment of facts.
850.604 Evasions; attempts; causing violations; conspiracies.
Subpart G—Penalties and Disclosures
850.701 Penalties.
850.702 Administrative collection; referral to United States Department of Justice.
850.703 Divestment.
850.704 Voluntary self-disclosure.
Subpart H—Provision and Handling of Information
850.801 Confidentiality.
850.802 Language of information.
Subpart I—Other Provisions
850.901 Delegation of authorities of the Secretary of the Treasury.
850.902 Amendment, modification, or revocation.
850.903 Severability.
850.904 Reports to be furnished on demand.
Authority: 50 U.S.C. 1701 et seq.; E.O. 14105, 88 FR 54867.
Subpart A—General
§ 850.101 Scope.
(a) This part implements Executive Order 14105 of August 9, 2023, “Addressing United
States Investments in Certain National Security Technologies and Products in Countries of
Concern” (the Order), directing the Secretary of the Treasury (the Secretary), in consultation
with the Secretary of Commerce and, as appropriate, the heads of other relevant executive
departments and agencies, to issue, subject to public notice and comment, regulations that
require U.S. persons to provide notification of information relative to certain transactions
involving covered foreign persons and that prohibit U.S. persons from engaging in certain other
transactions involving covered foreign persons.
(b) The regulations identify certain types of transactions that are covered transactions—
that is, transactions that are either notifiable or prohibited. Additionally, the regulations identify
other instances where a U.S. person has obligations with respect to certain transactions. The
regulations prescribe exceptions to the definition of covered transaction. A transaction that
meets an exception is not a covered transaction and is referred to as an excepted transaction.
Finally, the regulations prescribe a process for the Secretary to exempt certain covered

transactions from the rules otherwise prohibiting or requiring notification of covered
transactions on a case-by-case basis.
(c) The regulations identify categories of covered transactions that are notifiable
transactions. A notifiable transaction is a transaction by a U.S. person or its controlled foreign
entity with or resulting in the establishment of a covered foreign person that engages in a covered
activity or a person of a country of concern’s engagement in a new covered activity that the
Secretary, in consultation with the Secretary of Commerce and, as appropriate, the heads of other
relevant agencies, has determined may contribute to the threat to the national security of the
United States identified in the Order. The regulations require a U.S. person to notify the
Department of the Treasury of each such notifiable transaction by such U.S. person or its
controlled foreign entity. The regulations also require a U.S. person to provide prompt notice to
the Department of the Treasury upon acquiring actual knowledge after the completion date of a
transaction of facts or circumstances that would have caused the transaction to be a covered
transaction if the U.S. person had had such knowledge on the completion date. Additionally, any
person who makes a representation, statement, or certification under to this part is required to
promptly notify the Department of the Treasury upon learning of a material omission or
inaccuracy in such representation, statement, or certification.
(d) The regulations identify categories of covered transactions that are prohibited
transactions. A prohibited transaction is a transaction by a U.S. person with or resulting in the
establishment of a covered foreign person that engages in a covered activity or a person of a
country of concern’s engagement in a new covered activity that the Secretary, in consultation
with the Secretary of Commerce and, as appropriate, the heads of other relevant agencies, has
determined poses a particularly acute national security threat because of its potential to
significantly advance the military, intelligence, surveillance, or cyber-enabled capabilities of a
country of concern. The regulations prohibit a U.S. person from engaging in a prohibited
transaction and also prohibit a U.S. person from knowingly directing a transaction that the U.S.

person knows would be a prohibited transaction if engaged in by a U.S. person. The regulations
also require a U.S. person to take all reasonable steps to prohibit and prevent any transaction by
its controlled foreign entity that would be a prohibited transaction if undertaken by a U.S.
person.
(e) Pursuant to the Order, the Secretary shall, as appropriate:
(1) Communicate with the Congress and the public with respect to the
implementation of the Order;
(2) Consult with the Secretary of Commerce on industry engagement and analysis of
notifiable transactions;
(3) Consult with the Secretary of State, the Secretary of Defense, the Secretary of
Commerce, the Secretary of Energy, and the Director of National Intelligence on the
implications for military, intelligence, surveillance, or cyber-enabled capabilities of covered
national security technologies and products in the Order and potential 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, its legal counsel, or its representatives have made on
behalf of the U.S. person regarding an investment target or relevant counterparty, including
questions asked of the investment target or relevant counterparty, as of the time of the
transaction;
(2) The contractual representations or warranties the U.S. person has obtained or
attempted to obtain from the investment target or relevant counterparty with respect to the
determination of a transaction’s status as a covered transaction and an investment target or
relevant counterparty’s status as a covered foreign person;
(3) The effort by the U.S. person at the time of the transaction to obtain available nonpublic information relevant to the determination of a transaction’s status as a covered transaction
and an investment target or relevant counterparty’s status as a covered foreign person, and the
efforts undertaken by the U.S. person to obtain and review such information;
(4) Available public information, the efforts undertaken by the U.S. person to obtain and
review such information, and the degree to which other information available to the U.S. person
at the time of the transaction is consistent or inconsistent with such publicly available
information;
(5) Whether the U.S. person, its legal counsel, or its representatives have purposefully
avoided learning or sharing relevant information;

(6) The presence or absence of warning signs, which may include evasive responses or
non-responses from an investment target or relevant counterparty to questions or a refusal to
provide information, contractual representations, or warranties; and
(7) The use of public and commercial databases to identify and verify relevant
information of an investment target or relevant counterparty.
Subpart B—Definitions
§ 850.201 Advanced packaging.
The term advanced packaging means to package integrated circuits in a manner that
supports the two-and-one-half-dimensional (2.5D) or three-dimensional (3D) assembly of
integrated circuits, such as by directly attaching one or more die or wafer using through-silicon
vias, die or wafer bonding, heterogeneous integration, or other advanced methods and materials.
§ 850.202 AI system.
The term AI system means:
(a) A machine-based system that can, for a given set of human-defined objectives,
make predictions, recommendations, or decisions influencing real or virtual
environments—i.e., a system that uses data inputs to:
(1) Perceive real and virtual environments;
(2) Abstract such perceptions into models through automated or algorithmic
statistical analysis; and
(3) Use model inference to make a classification, prediction, recommendation, or
decision.
(b) Any data system, software, hardware, application, tool, or utility that operates in
whole or in part using a system described in (a).
§ 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 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.
§ 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.
§ 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 any voting interest, board seat, or equity
interest in any person described in paragraph (a)(1) of this section, or holds any power to direct
or cause the direction of the management or policies of any person described in paragraph (a)(1)
of this section through one or more contractual arrangements, including, for the avoidance of
doubt, variable interest entities; and where the person, based the relevant financial statement
described in paragraph (b) of this section:
(i) Derives more than 50 percent of its revenue from any person described in paragraph
(a)(1) of this section, individually or in the aggregate;
(ii) Derives more than 50 percent of its net income from any person described in
paragraph (a)(1) of this section, individually or in the aggregate;
(iii) Incurs more than 50 percent of its capital expenditure through any person described
in paragraph (a)(1) of this section, individually or in the aggregate; or
(iv) Incurs more than 50 percent of its operating expenses through any person described
in paragraph (a)(1) of this section, individually or in the aggregate.
(3) With respect to a covered transaction described in § 850.210(a)(5), the person of a
country of concern that participates in the joint venture is deemed to be a covered foreign person
by virtue of its participation in the joint venture.
(b) Determination of whether a person is a covered foreign person within the meaning of
paragraph (a)(2) of this section shall be made based on an annual financial statement from the

most recent year for which an audited financial statement of such person is available at the time
of a given transaction. If an audited financial statement is not available, the most recent
unaudited financial statement shall be used instead.
§ 850.210 Covered transaction.
(a) The term covered transaction means a U.S. person’s direct or indirect:
(1) Acquisition of an equity interest or a contingent equity interest (or interest equivalent
to an equity or contingent equity interest) in a person that the U.S. person knows at the time of
the acquisition is a covered foreign person;
(2) Provision of a loan or a similar debt financing arrangement to a person that the U.S.
person knows at the time of the provision is a covered foreign person, where such debt financing:
(i) Is convertible to an equity interest; or
(ii) Affords or will afford the U.S. person the right to make management decisions with
respect to or on behalf of the covered foreign person or the right to appoint members of the board
of directors (or equivalent) of the covered foreign person;
(3) Conversion of a contingent equity interest (or interest equivalent to a contingent
equity interest) or conversion of debt to an equity interest in a person that the U.S. person knows
at the time of the conversion is a covered foreign person;
(4) Acquisition, leasing, or other development of operations, land, property, or other
assets in a country of concern that the U.S. person knows at the time of such acquisition, leasing,
or other development will result in, or that the U.S. person intends to result in:
(i) The establishment of a covered foreign person; or
(ii) The engagement of a person of a country of concern in a covered activity where it
was not previously engaged in such covered activity;
(5) Entrance into a joint venture, wherever located, that is formed with a person of a
country of concern and that the subject U.S. person knows at the time of entrance into the joint
venture will engage in or the U.S. person intends to engage in a covered activity; or

(6) Acquisition of a limited partner or equivalent interest in a venture capital fund, private
equity fund, fund of funds, or other pooled investment fund (in each case where the fund is not a
U.S. person) that a U.S. person knows at the time of the acquisition likely will invest in a person
of a country of concern that is in the semiconductors and microelectronics, quantum information
technologies, or artificial intelligence sectors, and such fund undertakes a transaction that would
be a covered transaction if undertaken by a U.S. person.
(b) Notwithstanding paragraph (a) of this section, a transaction is not a covered
transaction if it is:
(1) An excepted transaction as set forth in § 850.501; or
(2) For the conduct of the official business of the United States Government by
employees, grantees, or contractors thereof.
(c) The acquisition of a convertible or contingent interest described in paragraph (a)(1) or
(2) of this section may constitute a covered transaction, and the subsequent occurrence of a
conversion event described in paragraph (a)(3) of this section may constitute a separate covered
transaction. A U.S. person should assess each of the acquisition and the conversion to determine
the applicability of this part.
Note 1 to § 850.210: For the avoidance of doubt, in the context of a debt financing, a
lender’s foreclosure on collateral that constitutes an equity interest is an acquisition of such
equity interest by the lender.
§ 850.211 Develop.
The term develop means to engage in any stages prior to serial production, such as design
or modification, design research, design analyses, design concepts, assembly and testing of
prototypes, pilot production schemes, design data, process of transforming design data into a
product, configuration design, integration design, and layouts.
§ 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); or

(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 government intelligence or mass-surveillance end use
(e.g., through mining text, audio, or video; image recognition; location tracking; or surreptitious
listening devices) or military end use (e.g., for weapons targeting, target identification, combat
simulation, military vehicle or weapons control, military decision-making, weapons design, or
combat system logistics and maintenance);
(2) Intended by the covered foreign person to be used for cybersecurity applications,
digital forensics tools, and penetration testing tools, or the control of robotic systems; or
Alternate 1
(3) Trained using a quantity of computing power greater than 10^23 computational
operations (e.g., integer or floating-point operations).
Alternate 2
(3) Trained using a quantity of computing power greater than 10^24 computational
operations (e.g., integer or floating-point operations).
Alternate 3
(3) Trained using a quantity of computing power greater than 10^25 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 quantity of computing power described in
paragraph (d)(3) remains effective in addressing threats to the national security of the United
States described in the Order and make updates, as appropriate, through public notice.
§ 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. 80b2(a)(11)).
§ 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
such country of concern; or any entity with respect to which the government of such country of
concern holds individually or in the aggregate, directly or indirectly, 50 percent or more of the
entity’s outstanding voting interest, voting power of the board, or equity interest, or otherwise
possesses the power to direct or cause the direction of the management and policies of such
entity (whether through the ownership of voting securities, by contract, or otherwise);

(d) Any entity in which one or more persons identified in paragraph (a), (b), or (c) of this
section, individually or in the aggregate, directly or indirectly, holds at least 50 percent of any of
the following interests of such entity: outstanding voting interest, voting power of the board, or
equity interest; or
(e) Any entity in which one or more persons identified in paragraph (d) of this section,
individually or in the aggregate, directly or indirectly, holds at least 50 percent of any of the
following interests of such entity: outstanding voting interest, voting power of the board, or
equity interest.
§ 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 integrated circuit that meets any of the following criteria:
(1) Logic integrated circuits using a non-planar transistor architecture or with a
production technology node of 16/14 nanometers or less, including fully depleted silicon-oninsulator (FDSOI) integrated circuits;
(2) NOT-AND (NAND) memory integrated circuits with 128 layers or more;
(3) Dynamic random-access memory (DRAM) integrated circuits using a technology
node of 18 nanometer half-pitch or less;
(4) Integrated circuits manufactured from a gallium-based compound semiconductor;
(5) Integrated circuits using graphene transistors or carbon nanotubes; or
(6) Integrated circuits designed for operation at or below 4.5 Kelvin;
(e) Packages any integrated circuit using advanced packaging techniques;
(f) Develops, installs, sells, or produces any supercomputer enabled by advanced
integrated circuits that can provide a theoretical compute capacity of 100 or more doubleprecision (64-bit) petaflops or 200 or more single-precision (32-bit) petaflops of processing
power within a 41,600 cubic foot or smaller envelope;
(g) Develops a quantum computer or produces any of the critical components required to
produce a quantum computer such as a dilution refrigerator or two-stage pulse tube cryocooler;

(h) Develops or produces any quantum sensing platform designed for, or which the
relevant covered foreign person intends to be used for, any military, government intelligence, or
mass-surveillance end use;
(i) Develops or produces any quantum network or quantum communication system
designed for, or which the relevant covered foreign person intends to be used for:
(1) Networking to scale up the capabilities of quantum computers, such as for the
purposes of breaking or compromising encryption;
(2) Secure communications, such as quantum key distribution; or
(3) Any other application that has any military, government intelligence, or masssurveillance end use;
(j) Develops any AI system that is designed to be exclusively used for, or which the
relevant covered foreign person intends to be used for, any:
(1) Military end use (e.g., for weapons targeting, target identification, combat simulation,
military vehicle or weapon control, military decision-making, weapons design, or combat system
logistics and maintenance); or
(2) Government intelligence or mass surveillance end use (e.g., through mining text,
audio, or video; image recognition; location tracking; or surreptitious listening devices);
(k) Develops any AI system that is trained using a quantity of computing power greater
than:
Alternate 1 for paragraph (k)(1)
(1) 10^24 computational operations (e.g., integer or floating-point operations); or
Alternate 2 for paragraph (k)(1)
(1) 10^25 computational operations (e.g., integer or floating-point operations); or
Alternate 3 for paragraph (k)(1)
(1) 10^26 computational operations (e.g., integer or floating-point operations); or
Alternate 1 for paragraph (k)(2)

(2) 10^23 computational operations (e.g., integer or floating-point operations) using
primarily biological sequence data;
Alternate 2 for paragraph (k)(2)
(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 MilitaryIndustrial 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 quantities of computing power described in

paragraph (k) of this section remain effective in addressing threats to the national security of the
United States described in the Order and make updates, as appropriate, through public notice.
§ 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 given the size and sophistication of
the U.S. person.
§ 850.303 Knowingly directing an otherwise prohibited transaction.
(a) A U.S. person is prohibited from knowingly directing a transaction by a non-U.S.
person that the U.S. person knows at the time of the transaction would be a prohibited transaction
if engaged in by a U.S. person. For purposes of this section, a U.S. person “knowingly directs” a
transaction when the U.S. person has authority, individually or as part of a group, to make or
substantially participate in decisions on behalf of a non-U.S. person, and exercises that authority
to direct, order, decide upon, or approve a transaction. Such authority exists when a U.S. person
is an officer, director, or senior advisor, or otherwise possesses senior-level authority at a nonU.S. person.
(b) A U.S. person that has the authority described in paragraph (a) of this section and
recuses themself from an investment will not be considered to have exercised their authority to
direct, order, decide upon, or approve a transaction.
Subpart D—Notifiable Transactions and Other Notifiable Activities
§ 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 transaction would have been a notifiable transaction or a prohibited transaction.
Note 1 to § 850.403: For the avoidance of doubt, a U.S. person’s submission of a
notification pursuant to this section shall not preclude a finding by the Department of the
Treasury that as a factual matter the U.S. person had relevant knowledge of the transaction’s
status at the time of the transaction.
§ 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.
(b) A notification shall provide, as applicable:
(1) The contact information of a representative of the U.S. person filing the notification
who is available to communicate with the Department of the Treasury about the notification
including such representative’s name, title, email address, mailing address, phone number, and
employer;

(2) A description of the U.S. person, including name, and as applicable, principal place of
business and place of incorporation or legal organization, company address, website, and, if the
U.S. person is an entity, such U.S. person’s ultimate owner;
(3) A post-transaction organizational chart of the U.S. person that includes its relationship
with any controlled foreign entity or entities of the U.S. person and that identifies the covered
foreign person and other relevant persons involved in the transaction;
(4) A brief description of the commercial rationale for the transaction;
(5) A brief description of why the U.S. person has determined the transaction is a covered
transaction that includes a discussion of the nature of the transaction, its structure, reference to
the paragraph of § 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;
(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 pre-transaction 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 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 in no event 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 if the conditions set forth in this section are met. In that case, the transaction is an
excepted transaction.
(a) The following transactions are excepted transactions:
(1) An investment by a U.S. person:
(i) In any publicly traded security, with “security” as defined in section 3(a)(10) of the
Securities Exchange Act of 1934, as amended, at 15 U.S.C. 78c(a)(10), denominated in any
currency, and that trades on a securities exchange or through the method of trading that is
commonly referred to as “over-the-counter,” in any jurisdiction;
(ii) In a security issued by (1) any “investment company” as defined in section 3(a)(1) of
the Investment Company Act of 1940, as amended, at 15 U.S.C. 80a-3(a)(1), that is registered
with the U.S. Securities and Exchange Commission, such as index funds, mutual funds, or

exchange traded funds, or (2) any company that has elected to be a business development
company pursuant to section 54 of the Investment Company Act of 1940 (15 U.S.C. 8a-54); or
any derivative thereon; or
Alternate 1 for paragraph (a)(1)(iii)
(iii) Made as a limited partner or equivalent in a venture capital fund, private equity fund,
fund of funds, or other pooled investment fund other than as described in paragraph (a)(1)(ii) of
this section where:
(A) The limited partner’s contribution is solely capital and the limited partner:
(1) Is not responsible for any debts or other financial obligations with respect to the fund
beyond its investment including any uncalled capital commitments related thereto;
(2) Cannot approve, disapprove, or otherwise influence or participate in the investment
decisions of the fund;
(3) Cannot approve, disapprove, or otherwise influence or participate in the decisions
made by the general partner, managing member, or equivalent related to entities in which the
fund is invested;
(4) Cannot unilaterally dismiss, prevent the dismissal of, select, or determine the
compensation of the general partner, managing member, or equivalent of the fund; and
(5) Cannot participate in, and has no right or ability, by virtue of its status as a limited
partner or any other contractual relationship, to influence the decision-making or operations of
any covered foreign person in which the fund is invested; and;
(B)(1) The limited partner’s committed capital is not more than 50 percent of the total
assets under management of the fund, aggregated across any investment and co-investment
vehicles that comprise the fund; or,
(2) Where the fund is not a U.S. person or a controlled foreign entity, the limited partner
has secured a binding contractual assurance that its capital will not be used to engage in a
transaction that would cause the limited partner to have made an indirect prohibited transaction.

Alternate 2 for paragraph (a)(1)(iii)
(iii) Made as a limited partner or equivalent in a venture capital fund, private equity fund,
fund of funds, or other pooled investment fund other than as described in paragraph (a)(1)(ii) of
this section where the limited partner’s committed capital is not more than $1,000,000,
aggregated across any investment and co-investment vehicles that comprise the fund.
(2) Notwithstanding paragraph (a)(1) of this section, an investment is not an excepted
transaction if it affords the U.S. person rights beyond standard minority shareholder protections
with respect to the covered foreign person. Such protections include:
(i) The power to prevent the sale or pledge of all or substantially all of the assets of an
entity or a voluntary filing for bankruptcy or liquidation;
(ii) The power to prevent an entity from entering into contracts with majority investors or
their affiliates;
(iii) The power to prevent an entity from guaranteeing the obligations of majority
investors or their affiliates;
(iv) The right to purchase an additional interest in an entity to prevent the dilution of an
investor’s pro rata interest in that entity in the event that the entity issues additional instruments
conveying interests in the entity;
(v) The power to prevent the change of existing legal rights or preferences of the
particular class of stock held by minority investors, as provided in the relevant corporate
documents governing such stock; and
(vi) The power to prevent the amendment of the Articles of Incorporation, constituent
agreement, or other organizational documents of an entity with respect to the matters described
in paragraphs (a)(2)(i) through (v) of this section;
(b) The acquisition by a U.S. person of equity or other interests in an entity held by one
or more persons of a country of concern; provided that:

(1) The U.S. person is acquiring all equity or other interests in such entity held by all
persons of a country of concern; and
(2) Following such acquisition, the entity does not constitute a covered foreign person.
(c) A transaction that, but for this paragraph, would be a covered transaction between a
U.S. person and its controlled foreign entity that supports ongoing operations or other activities
that are not covered activities as defined in § 850.208; provided that this exception shall not
apply when the transaction is a covered transaction pursuant to § 850.210(a)(4) or (a)(5);
(d) A transaction made after the effective date of this part pursuant to a binding, uncalled,
capital commitment entered into before August 9, 2023; or
(e) The acquisition of a voting interest in a covered foreign person by a U.S. person upon
default or other condition involving a loan or a similar financing arrangement, where the loan
was made by a syndicate of banks in a loan participation where the U.S. person lender(s) in the
syndicate:
(1) Cannot on its own initiate any action vis-à-vis the debtor; and
(2) Does not have a lead role in the syndicate; or
(f)(1) A transaction that is:
(i) With or involving a person of a country or territory outside of the United States
designated by the Secretary, after taking into account whether the country or territory is
addressing national security concerns posed by outbound investment; and
(ii) Of a type for which the Secretary has determined that the related national security
concerns are likely to be adequately addressed by measures taken or that may be taken by the
government of the relevant country or territory.
(2) Prior to making a designation or determination under this paragraph (f), the Secretary
shall consult with the Secretary of State, the Secretary of Commerce, and, as appropriate, the
heads of other relevant agencies.

(3) The Secretary’s designations and determinations under paragraph (f) of this section
shall be made available through public notice.
Note 1 to § 850.501: A limited partner’s participation on an advisory board or a
committee of an investment fund shall not constitute having the ability to undertake the actions
referred to in Alternate 1 paragraphs (a)(1)(iii)(A)(1) to (5) of this section if the advisory board
or committee does not have the ability to approve, disapprove, or otherwise control: (i)
investment decisions of the investment fund; or (ii) decisions made by the general partner,
managing member, or equivalent related to entities in which the investment fund is invested.
§ 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. 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 and concealment of facts.
With respect to any information submission to or communication with the Department of
the Treasury pursuant to any provision of this part, the making of any materially false or
misleading representation, statement, or certification, or falsifying or concealing any material
fact is a violation of this part.
§ 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 not to exceed the maximum amount set forth in section 206 of IEEPA
may be imposed on any person who violates, attempts to violate, conspires to violate, or causes a
violation of any order, regulation, or prohibition issued under IEEPA, including any provision of
this part.
(2) A person who willfully commits, willfully attempts to commit, willfully conspires to
commit, or aids or abets in the commission of a violation, attempt to violate, conspiracy to
violate, or causing of a violation of any order, regulation, or prohibition issued under IEEPA,
including any provision of this part, shall, upon conviction, be fined not more than $1,000,000,
or if a natural person, be imprisoned for not more than 20 years, or both.
(b) The Secretary may refer potential criminal violations of the Order, or of this part, to
the Attorney General.
(c) The civil penalties provided for in IEEPA are subject to adjustment pursuant to the
Federal Civil Penalties Inflation Adjustment Act of 1990, as amended (Pub. L. 101–410, 28
U.S.C. 2461 note).
(d) The criminal penalties provided for in IEEPA are subject to adjustment pursuant to 18
U.S.C. 3571.
(e) The penalties available under this section are without prejudice to other penalties,
civil or criminal, and forfeiture of property, available under other applicable law.

(f) Pursuant to 18 U.S.C. 1001, whoever, in any matter within the jurisdiction of the
executive, legislative, or judicial branch of the Government of the United States, knowingly and
willfully falsifies, conceals or covers up by any trick, scheme, or device a material fact; makes
any materially false, fictitious, or fraudulent statement or representation; or makes or uses any
false writing or document knowing the same to contain any materially false, fictitious, or
fraudulent statement or entry shall be fined under title 18, United States Code, or imprisoned not
more than 5 years, or both.
§ 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 self-disclosure of that conduct to the Department of the Treasury.
(b) In determining the appropriate response to any violation, the Department of the
Treasury will consider the submission and the timeliness of any voluntary self-disclosure.
(c) In assessing the timeliness of a voluntary self-disclosure, the Department of the
Treasury will consider whether it has learned of the conduct prior to the voluntary 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) and (c)
of this section, information or documentary materials not otherwise publicly available that are
submitted to the Department of the Treasury under this part shall not be disclosed to the public.
(b) Notwithstanding paragraph (a) of this section, except to the extent prohibited by law,
the Department of the Treasury may disclose information or documentary materials that are not
otherwise publicly available, subject to appropriate confidentiality and classification
requirements, when such information or documentary materials are:
(1) Relevant to any judicial or administrative action or proceeding;
(2) Provided to Congress or to any duly authorized committee or subcommittee of
Congress; or
(3) Provided to any domestic governmental entity, or to any foreign governmental entity
of a United States partner or ally, where the information or documentary materials are important
to the national security analysis or actions of such governmental entity or the Department of the
Treasury.
(c) Notwithstanding paragraph (a) of this section, the Department of the Treasury may
disclose to third parties information or documentary materials that are not otherwise publicly
available when the person who submitted or filed the information or documentary materials has
consented to its disclosure to such third parties.
(d) The Department of the Treasury may use the information gathered pursuant to this
part to fulfill its obligations under the Order, which may include publication of anonymized data.
§ 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
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. 2024-13923 Filed: 7/3/2024 8:45 am; Publication Date: 7/5/2024]