SUPPLEMENTARY INFORMATION:

I. Background

A. Executive Order 14105 and Current Outbound Investment Security Program

On August 9, 2023, Executive Order 14105 (88 FR 54867), “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern” (the Outbound Order), was issued. The Outbound Order described the threat posed to the United States by countries of concern that exploit, or have the ability to exploit, certain U.S. outbound investments, including certain intangible benefits that often accompany U.S. investments and that help companies succeed. The Outbound Order identified the People's Republic of China (PRC), along with the Special Administrative Regions of Hong Kong and Macau, as a country of concern, and identified three technology areas for coverage.

On November 15, 2024, the Department of the Treasury (Treasury Department) published regulations to implement the Outbound Order. These regulations are found at 31 CFR part 850 (Part 850 Regulations), and they established the Outbound Investment Security Program (OISP), which went into effect on January 2, 2025. Among other things, the Part 850 Regulations (1) require U.S. persons to provide notification to the Treasury Department regarding certain transactions involving persons of a country of concern that are engaged in specified activities in the semiconductor and microelectronics and artificial intelligence (AI) sectors that may contribute to the threat to the national security of the United States; and (2) prohibit U.S. persons from engaging in certain other transactions involving persons of a country of concern that are engaged in other specified activities in the semiconductor and microelectronics, quantum information technologies, and AI systems sectors that pose a particularly acute national security threat to the United States.

In the time since the OISP went into effect (approximately 21 months), the Treasury Department has received approximately 100 notifications of investments in the semiconductor and AI industries from a range of transaction parties, including venture capital firms, asset managers, investment banks, and individual investors and entrepreneurs. Many other transaction parties and their counsel have engaged with the Treasury Department during this time. The Treasury Department also has been closely monitoring investment activity that may be subject to the OISP, because such investment was either potentially prohibited or not notified. Additionally, the Treasury Department has engaged with a wide range of stakeholders across industries, issued guidance and responses to more than 50 Frequently Asked Questions, and launched a website dedicated to the OISP that includes an online portal for submission of notifications.

B. Comprehensive Outbound Investment National Security Act of 2025

On December 18, 2025, Congress enacted the Comprehensive Outbound Investment National Security (COINS) Act as part of the National Defense Authorization Act for Fiscal Year 2026 (FY26 NDAA). In passing the COINS Act, Congress made clear that restricting certain U.S. outbound investments into dual-use strategic technologies that benefit a foreign adversary's military modernization efforts, surveillance states, and human rights abuses is necessary to prevent harm to U.S. national security and foreign policy interests. In addition, Congress stated that the President should exercise the authorities granted in the COINS Act to prevent countries of concern from exploiting U.S. capital to undermine U.S. national security and foreign policy interests.

Subtitle C of the COINS Act adds Title VIII to the Defense Production Act of 1950, 50 U.S.C. 4581-4589 (Title VIII), and establishes a statutory basis for the OISP. In the COINS Act, Congress codified the framework for the Secretary of the Treasury (Secretary) to (1) require United States persons to provide ( printed page 67397) notification to the Treasury Department regarding certain transactions involving foreign persons engaged in notifiable technologies, and (2) prohibit United States persons from engaging in certain other transactions involving foreign persons engaged in prohibited technologies. Title VIII maintains various aspects of the current OISP—such as its application to certain transactions involving the semiconductor and microelectronics, AI systems, and quantum information technologies sectors in the PRC including the Hong Kong and Macau Special Administrative Regions—while broadening the program to address threats to U.S. national security posed by other advanced technologies. Specifically, Title VIII expands the OISP's jurisdiction to include two new technology sectors (in addition to the three already covered under the Part 850 Regulations): (1) high-performance computing and supercomputing; and (2) hypersonic systems. Title VIII also authorizes the Secretary—in consultation with the appropriate congressional committees and subject to notice and comment—to identify additional categories of notifiable and prohibited technologies beyond those specifically listed in the law that enable the military, intelligence, surveillance, or cyber-enabled capabilities of a country of concern, and to define the technical parameters of the technologies within those categories as reasonably needed for national security purposes.

Title VIII includes an expanded list of countries of concern. In addition to the PRC (including Hong Kong and Macau), Title VIII includes as countries of concern the Republic of Cuba, the Islamic Republic of Iran, the Democratic People's Republic of Korea, the Russian Federation, and the Bolivarian Republic of Venezuela under the regime of Nicolás Maduro Moros. Title VIII uses the terms notifiable technology and prohibited technology to capture the relevant technologies for coverage largely in place of the terms “notifiable transaction” and “prohibited transaction” found in the Part 850 Regulations. Title VIII uses the term covered national security transaction (in place of the term “covered transaction” found in the Part 850 Regulations) and explicitly excepts from its coverage, among other things, underwriting services (including where such services involve the acquisition of equity), bank lending, processing or clearing of payments, prime brokerage, and global custody services. Title VIII also includes exceptions for de minimis transactions, specifically for (1) any transaction the value of which the Secretary determines is de minimis and (2) certain investments made by a limited partner or the equivalent where committed capital is not more than a de minimis amount, as determined by the Secretary. Title VIII does not set such de minimis values and instead grants the Secretary the discretion to do so. Title VIII additionally defines a covered foreign person only in terms of such person's relationship to a country of concern and not in connection with the technology or technologies in which such person engages (in contrast to the Part 850 Regulations, where “covered foreign person” has a different meaning).

In addition to certain changes that expand the scope of the OISP, Title VIII includes certain new processes. In particular, Title VIII requires the Treasury Department to implement regulations establishing a process under which a person can request confidential non-binding feedback or anonymized public guidance for a potentially prohibited transaction. Title VIII also requires the Secretary to establish a mechanism for the public to submit evidence on a confidential basis with respect to whether a foreign person is a covered foreign person engaged in a prohibited technology or a notifiable technology. Title VIII further provides the Secretary with the discretionary authority to establish a publicly accessible, non-exhaustive database that identifies covered foreign person s that are engaged in a prohibited technology or a notifiable technology.

II. The Proposed Rule

A. Scope and Structure of the Proposed Rule

The United States remains committed to maintaining a strong, open investment environment and supporting cross-border investment where consistent with the protection of U.S. national security. Certain U.S. investments, however, may be exploited by countries of concern to advance the development of sensitive technologies and products that contribute to those countries' military, intelligence, surveillance, or cyber-enabled capabilities.

This current rulemaking seeks comment on the draft regulatory framework (Proposed Rule) to implement Subtitle C of the COINS Act. Consistent with the sense of Congress, in implementing the COINS Act, the Treasury Department seeks to (1) restrict certain U.S. outbound investments into certain technologies in countries of concern as is necessary to prevent harm to United States national security and foreign policy interests; and (2) balance the priority of protecting the national security interest of the United States while, to the extent practicable, minimizing the cost and complexity of compliance, adopting the least burdensome alternative that achieves regulatory objectives, and prioritizing transparency and stakeholder involvement in the process of issuing the rules.

To implement Title VIII, Congress has directed the Secretary to issue or update current regulations that, as necessary, amend, terminate, supersede, revoke, or streamline the existing requirements in the Part 850 Regulations. Where consistent with Title VIII, the Proposed Rule incorporates certain definitions and concepts from the Part 850 Regulations. Where Title VIII uses new or different terminology, the Treasury Department has made adjustments while seeking, to the extent consistent with congressional intent, to preserve relevant aspects of the Part 850 Regulations. This approach is intended to minimize the cost and complexity of compliance for affected parties by maintaining certain definitions and concepts with which the regulated community is already familiar.

The Proposed Rule, therefore, includes detailed definitions and descriptions of terms and elements to clearly delineate the scope of coverage and facilitate compliance by U.S. persons. At the same time, the Proposed Rule seeks to avoid loopholes that could undermine the intent of the COINS Act. The Treasury Department seeks input on how the Proposed Rule can best meet these objectives.

Consistent with Title VIII, the Proposed Rule would place certain obligations upon any U.S. person in connection with a covered national security transaction in a prohibited technology or in a notifiable technology. A covered national security transaction would involve a U.S. person' s investment in, or other specific activities in connection with, a covered foreign person that “engages in” a prohibited technology or notifiable technology. The proposed definition of covered foreign person is based on the person's relationship with a country of concern. A covered national security transaction relating to a prohibited technology — i.e., where the relevant covered foreign person “engages in” a prohibited technology —would be a prohibited transaction, meaning it could not legally be undertaken. As set forth in the Proposed Rule, a covered foreign person “engages in” a prohibited technology when it undertakes an activity specified in the definition of ( printed page 67398) prohibited technology. The Proposed Rule would define prohibited technology to include specific activities in the sensitive technology sectors identified in Title VIII or by the Secretary pursuant to statutory authority. Meanwhile, a covered national security transaction in a notifiable technology — i.e., where the relevant covered foreign person “engages in” a notifiable technology —would be a notifiable transaction, meaning that it would be permitted under the Proposed Rule where a U.S. person would need to submit specified information about the transaction to the Treasury Department. As set forth in the Proposed Rule, a covered foreign person “engages in” a notifiable technology when it undertakes an activity specified in the definition of notifiable technology. The Proposed Rule would define notifiable technology to include certain other ( i.e., non-prohibited) specific activities in the sensitive technology sectors identified in Title VIII or by the Secretary pursuant to statutory authority. Further, a U.S. person would have certain obligations under the Proposed Rule in connection with certain transactions undertaken by any non-U.S. person entity that it controls, referred to as a controlled foreign entity. These and other terms are defined in Subpart B of the Proposed Rule.

Under the Proposed Rule, a U.S. person undertaking a transaction would have the obligation to determine whether the given transaction is prohibited, permissible but subject to notification requirements, or not covered by the Proposed Rule because it is an excepted transaction, it is exempt, or it is not within the jurisdiction set forth under the Proposed Rule. A U.S. person could seek a national interest exemption from the prohibition set out in the Proposed Rule by following the process described in § 851.502 and further discussed below.

As directed by Title VIII, the provisions contained in the Proposed Rule will not have retroactive effect. The Part 850 Regulations, however, will continue to apply to activities occurring between January 2, 2025, and the effective date of the final regulations implementing Title VIII. Nothing in this Proposed Rule limits the authority of the Treasury Department or any other department or agency of the U.S. Government to take action, including enforcement action, in connection with conduct that would be a violation of the Part 850 Regulations, as applicable.

In Section III, the Treasury Department seeks comment from stakeholders regarding the provisions of the Proposed Rule. The Treasury Department asks commentors to provide, where possible, empirical data or other specific information in support of their comments.

B. Discussion of the Proposed Rule

The following discussion provides an overview and narrative description of the key substantive provisions of the Proposed Rule to implement Title VIII. Because the Part 850 Regulations will remain in effect for transactions occurring during the relevant period, the Treasury Department views establishing a new Part 851 within Title 31 of the Code of Federal Regulations with the full process, procedures, and requirements under Title VIII as the most administrable approach. To make clear the applicability of the Part 850 Regulations, the Proposed Rule also would add a new § 850.105 to the Part 850 Regulations that sets the specific dates for the applicability of those regulations.

Many provisions of the Proposed Rule are substantively identical to the corresponding provisions in the Part 850 Regulations. The Proposed Rule should be read in its entirety as many terms are related and various features are discussed in different parts. The Treasury Department will carefully consider all comments provided to the Proposed Rule and is particularly interested in receiving comments relating to the new provisions and revisions described below.

Subpart A—General

This subpart includes a general discussion of the Proposed Rule's scope, how the Proposed Rule relates to other laws and regulations, the similarities and differences between the Proposed Rule and the Part 850 Regulations, proposed guidance on how to interpret and apply certain terms and provisions, the application of the knowledge standard in certain circumstances, and, consistent with Title VIII, the role of the heads of other relevant Federal departments and agencies in the implementation and administration of Title VIII and the Proposed Rule. Subpart A of the Proposed Rule would generally be identical in substance to §§ 850.101 through 850.104 in Subpart A of the Part 850 Regulations, with most differences focused on conforming the language of the regulatory text to terms used in Title VIII. Proposed § 851.101(e) would also revise the Secretary's responsibilities to conform to Title VIII's requirements.

The most significant change in Subpart A compared to the Part 850 Regulations is an additional element explicitly added to the knowledge standard. The Treasury Department proposes to clarify in § 851.104 that it will take into consideration whether a U.S. person appropriately considered any information that the Treasury Department has provided to such U.S. person when assessing whether the U.S. person conducted a reasonable and diligent inquiry.

§ 851.104—Knowledge Standard

Under the Proposed Rule, certain provisions, including the definition of covered national security transaction, would apply only if a U.S. person knows of a relevant fact or circumstance. As with the Part 850 Regulations, §  851.104 of the Proposed Rule would provide explanation and guidance regarding the application of the knowledge standard. It would state that if a U.S. person fails to conduct a “reasonable and diligent inquiry” at the time of a transaction and undertakes the transaction where a particular fact or circumstance indicative of a covered national security transaction is present, the Treasury Department may find in the course of determining compliance with the Proposed Rule that the U.S. person had reason to know of such fact or circumstance (and therefore, for purposes of the Proposed Rule, knew). The articulation of the application of the knowledge standard in §  851.104 would be similar to that in the Part 850 Regulations. This is because Title VIII's definition of knowledge is substantially identical to that in the Part 850 Regulations, which indicates congressional intent to maintain the Part 850 Regulations' general approach to the knowledge standard. Further, consistency in this provision minimizes the cost and complexity of compliance for affected parties because the regulated community is already familiar with it. As such, the Proposed Rule would maintain both the definition of knowledge from the Part 850 Regulations (see the discussion of § 851.217 below), as well as the important explanatory language in § 851.104, with certain modifications discussed below.

The Treasury Department recognizes that for some potential covered national security transactions, a U.S. person' s ability to conduct diligence may be somewhat limited in certain situations, including in the context of certain secondary market transactions. The Treasury Department reiterates that its assessment of whether a U.S. person has undertaken a reasonable and diligent inquiry would under the Proposed Rule be based on a consideration of the totality of the relevant facts and ( printed page 67399) circumstances surrounding the transaction.

Based on experience operating the OISP, the Treasury Department proposes adding at § 851.104(c) of the Proposed Rule an additional factor it will consider when assessing whether a U.S. person has undertaken a reasonable and diligent inquiry: whether the U.S. person appropriately considered information provided by the Treasury Department prior to undertaking the transaction, including any assessments by the Treasury Department that the relevant covered foreign person may be engaged in a notifiable technology or a prohibited technology. The Treasury Department would consider the provision of such information when determining whether the U.S. person had knowledge of certain facts or circumstances. As discussed further below, the Treasury Department also proposes adding at § 851.104(e) of the Proposed Rule a clarification that the knowledge standard shall also apply to the knowledge of a controlled foreign entity for the purposes of applying §§ 851.402 and 851.403.

Subpart B—Definitions

The Proposed Rule would preserve several definitions from the Part 850 Regulations in their entirety; amend certain definitions from the Part 850 Regulations; and add several new defined terms both to implement the requirements in Title VIII and to make adjustments based on feedback received during implementation of the Part 850 Regulations. To assist in understanding this Proposed Rule, the discussion below notes proposed changes from the Part 850 Regulations and, in certain cases, highlights that the Proposed Rule would make no such substantive changes.

§ 851.202—Affiliate

The Treasury Department proposes defining the term affiliate to mean, in the context of a transaction or activity covered under the Proposed Rule, a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, a person subject to this part. Under the Proposed Rule, if an affiliate of a covered foreign person is included on a list enumerated in § 851.226(v), then a covered national security transaction involving a covered foreign person engaged in a notifiable technology would be a prohibited transaction.

§ 851.206—Controlled Foreign Entity

Title VIII refers to the actions of a controlled foreign entity of a U.S. person when explaining the application of the prohibition and notification requirement but does not define the term. The Treasury Department proposes using the definition of controlled foreign entity from the Part 850 Regulations. As noted in the preamble to the Part 850 Regulations, a controlled foreign entity is an entity incorporated in, or otherwise organized under the laws of, a country other than the United States of which a U.S. person is a parent. The definition is intended to draw a clear line so that it is straightforward for a U.S. person to ascertain whether an entity is a controlled foreign entity. Of note, Title VIII also uses the term “controlled foreign person” in reference to the exception for certain intracompany transfers of funds. The term “controlled foreign person” is not used in the Part 850 Regulations, and the context for its use in Title VIII is substantially similar to that of a controlled foreign entity in the Part 850 Regulations. Therefore, the Proposed Rule would continue only to refer to a controlled foreign entity.

§ 851.207—Country of Concern

Title VIII defines country of concern as the PRC (including the Hong Kong and Macau Special Administrative Regions), which is consistent with the Part 850 Regulations, and adds Cuba, Iran, North Korea, Russia, and the Bolivarian Republic of Venezuela under the regime of Nicolás Maduro Moros. The Proposed Rule would define country of concern consistent with the definition in Title VIII.

With respect to inclusion of the Bolivarian Republic of Venezuela under the regime of Nicolás Maduro Moros in Title VIII, that regime no longer exists. On March 5, 2026, the United States recognized Delcy Rodríguez as the head of state of Venezuela and her government is not the regime of Nicolás Maduro Moros.

§ 851.208—Covered Foreign Person

Title VIII defines a covered foreign person as, subject to regulations, a foreign person that (i) is incorporated in, has a principal place of business in, or is organized under the laws of a country of concern; (ii) is a member of the Central Committee of the Chinese Communist Party (CCP) or is a member of the political leadership of a country of concern; (iii) is directly or indirectly subject to the direction or control of a country of concern, as defined by regulation, an entity described in (i) or (ii), or the state or the government of a country of concern (including any political subdivision, agency, or instrumentality thereof); or (iv) is owned in the aggregate, directly or indirectly, 50 percent or more by a country of concern, an entity described in (i) or (ii), or the state or the government of a country of concern (including any political subdivision, agency, or instrumentality thereof).

Many aspects of the definition of covered foreign person in Title VIII generally align with the definition of “person of a country of concern” in the Part 850 Regulations, and Title VIII provides no indication that it was intended to limit the application of the program in ways that would permit easy circumvention of its restrictions. The Treasury Department therefore proposes defining covered foreign person in the Proposed Rule in a manner consistent with the definition of “person of a country of concern” from the Part 850 Regulations. The Proposed Rule would maintain the Part 850 Regulations' coverage of certain individual foreign persons who are citizens or permanent residents of a country of concern. This inclusion is necessary to prevent circumvention that would undermine the effectiveness of the Proposed Rule. For example, if an individual national of a country of concern (who is not a member of the CCP Central Committee or the political leadership of a country of concern) chose to redomicile an entity that such individual wholly owned to engage in a prohibited technology or notifiable technology outside of a country of concern, the proposed definition would treat such entity as a covered foreign person. Including such individuals also minimizes the cost and complexity of compliance for affected parties, in this case by maintaining a definition with which the regulated community is already familiar.

Title VIII includes as a category of covered foreign person certain foreign persons who are, directly or indirectly, subject to the direction or control of a country of concern or certain entities associated with a country of concern. For the purpose of the proposed definition of a covered foreign person, the Proposed Rule would define “subject to the direction or control” to mean that the government of a country of concern (including any political subdivision, political party, agency, or instrumentality thereof, or any person acting for or on behalf of the government of a country of concern), relevant individual, or relevant entity has the power, directly or indirectly, to direct or cause the direction of the management or policies of the subject entity (whether through the ownership of voting securities, by contract, or otherwise). ( printed page 67400)

The Proposed Rule would also clarify that the 50 percent aggregate ownership requirement in Title VIII can be met through holdings of outstanding voting interest, voting power of the board, or equity interest. In addition, consistent with the need to prevent circumvention and retain features of the Proposed Rule that strengthen its effectiveness and are familiar to the regulated community, the Proposed Rule would state that this ownership interest also can be held by any individual that meets the definition of covered foreign person.

Additionally, the Treasury Department proposes that where a person holds a voting interest, board seat, equity interest, or the contractual power to direct or cause the direction of management or policies of a covered foreign person, and more than 50 percent of the revenue, net income, capital expenditure, or operating expenses of the covered foreign person are attributable to that person, then that person be considered a covered foreign person. A person would also meet this condition if that person holds an interest in more than one covered foreign person, and more than 50 percent of the person's revenue, net income, capital expenditure, or operating expenses is attributable to such covered foreign persons, in aggregate. When calculating whether more than 50 percent of the person's revenue, net income, capital expenditure, or operating expenses are attributable to a given covered foreign person, amounts below $50,000 should not be included for purposes of calculating revenue attributable to a covered foreign person.

This provision is intended to align the Proposed Rule's definition of covered foreign person with the definition of covered foreign person at § 850.209(a)(2) of the Part 850 Regulations. This approach is consistent with Title VIII given its coverage of indirect covered national security transactions. This approach also addresses potential evasion or avoidance pursuant to the Secretary's authority in Title VIII, and it furthers the goal of providing clear guidance about coverage, while reducing confusion that might be caused by changes from the Part 850 Regulations.

§ 851.209—Covered National Security Transaction

Title VIII defines the term covered national security transaction as, subject to regulations, a U.S. person' s direct or indirect:

• Acquisition of an equity interest orcontingent equity interest in a covered foreign person that the U.S. person knows at the time of the acquisition is a covered foreign person;
• Provision of a loan or similar debt financing agreement to acovered foreign person that the U.S. person knows at the time of the provision is a covered foreign person and where the provision affords or will afford the U.S. person lender certain financial or governance rights characteristic of an equity investment in the covered foreign person but not typical of a loan;
• Entrance into a joint venture, wherever located, that is formed with aperson of a country of concern where the U.S. person knows at the time of entrance into the joint venture, that the joint venture will engage, or plans to engage, in a prohibited technology or notifiable technology;
• Conversion ofcontingent equity interest (or equivalent) or debt into an equity interest in a covered foreign person;
• Acquisition, leasing, or other development of operations, land, property, or other assets in acountry of concern that will result in, or the U.S. person plans to result in, the establishment of a covered foreign person or the engagement of a person of a country of concern in a prohibited technology or notifiable technology;
• Direction of a transaction by aforeign person that the U.S. person knows at the time of the transaction would be a covered national security transaction if engaged in by a U.S. person, other than an acquisition of a limited partner interest or equivalent in a non-U.S. person pooled investment fund;
• Acquisition of a limited partner or equivalent interest in a pooled investment fund where the fund is not aU.S. person and the U.S. person knows at the time of the acquisition that such fund likely will invest in a person of a country of concern that is in an enumerated prohibited technology or a notifiable technology sector, and where such fund undertakes a transaction that would be a covered national security transaction if engaged in by a U.S. person; and
• Any other transaction identified by the Secretary, in consultation with the appropriate congressional committees and subject to public notice and comment, that is contributing to the military, intelligence, surveillance, or cyber-enabled capabilities of acountry of concern.

The Treasury Department proposes to implement Title VIII's definition of covered national security transaction in a way substantively consistent with the statutory text, but with a number of important modifications to ensure clarity and consistency with other provisions of Title VIII. Specifically, the Title VIII definition of covered national security transaction refers in multiple places to a “person of a country of concern.” The term “person of a country of concern” is not defined in Title VIII but is used in the Part 850 Regulations. Title VIII also uses the term covered foreign person, which appears to be the equivalent of “person of a country of concern.” As previously discussed, the Proposed Rule would include within the definition of covered foreign person some provisions currently included in the definition of a person of a country of concern in the Part 850 Regulations. Accordingly, the Proposed Rule would replace all references to a “person of a country of concern” in the definition of covered national security transaction with the term covered foreign person. Additionally, in each of the relevant provisions of the definition of covered national security transaction, the Treasury Department proposes to clarify that the relevant knowledge that the U.S. person must possess is not merely that the transaction involves a covered foreign person, but rather that it involves a covered foreign person that engages in a notifiable technology or prohibited technology. As reflected in the Proposed Rule, this would include specified circumstances in which that engagement is indirect because the covered foreign person has one of certain specified relationships with a covered foreign person engaged in a notifiable technology or prohibited technology. Without this clarification, the definition of covered national security transaction would extend to transactions without any nexus to relevant technologies.

In addition, as noted in the discussion regarding the definition of covered foreign person, Title VIII and the Proposed Rule do not define that term in connection with activity that meets the definition of notifiable technology or prohibited technology. A covered national security transaction, however, involves a covered foreign person engaged in a notifiable technology or prohibited technology. For the Proposed Rule to reach a U.S. person investment in a covered foreign person or relevant joint venture that meet the conditions set forth in § 851.208(a)(8) because of its relationship to one or more covered foreign persons that engage in a notifiable technology under § 851.218(a) through (g) or a prohibited technology under § 851.226(a) through (u), the Treasury Department would propose to define covered national security ( printed page 67401) transaction to include where such conditions are met.

With respect to the provision of a loan or similar debt financing, the Treasury Department proposes to incorporate into the definition of covered national security transaction clarifications that were included in Note 2 to § 850.210 of the Part 850 Regulations.

The Proposed Rule would make one substantive clarification to the definition of covered national security transaction in Title VIII by adding a knowledge element to the conversion of a contingent equity interest (or equivalent) or debt in a covered foreign person that engages in a notifiable technology or prohibited technology or meets the conditions of § 851.208(a)(8). This clarification would harmonize the conversion prong of the definition of a covered national security transaction with the other prongs of the definition and would avoid penalizing unwitting activity by a U.S. person that conducted a reasonable and diligent inquiry prior to the conversion of such interest and lacked reason to know that the contingent equity interest was subject to the Proposed Rule. The Proposed Rule would also clarify that the conversion prong applies only to a contingent equity interest (or equivalent) or debt acquired on or after the effective date that is set when the Proposed Rule is finalized.

The Treasury Department notes that Title VIII incorporates directly into the definition of covered national security transaction the concept of “knowingly directing” present in the Part 850 Regulations and, accordingly, extends the scope of “knowingly directing” to include notifiable transactions. By contrast, the Part 850 Regulations limit the application of “knowingly directing” to prohibited transactions as that term is defined in that part (see 31 CFR 850.303). Consistent with Title VIII, proposed § 851.209 incorporates the concept of “knowingly directing” into the definition of a covered national security transaction. Proposed § 851.209(a)(6) also states when the Treasury Department considers the criteria in this prong to have been met and describes the conditions under which a U.S. person may recuse themself from decision-making so as not to be considered engaging in such a covered national security transaction. The proposed § 851.209(a)(6) closely corresponds to § 850.303 of the Part 850 Regulations.

The Treasury Department clarifies that a covered national security transaction involving the entrance into a joint venture under § 851.209(a)(3) would not require the establishment or formation of a new entity. The Proposed Rule would not define the term “joint venture” and instead, the Treasury Department refers to the plain English meaning of the term, i.e., as involving the contribution of capital and/or assets by two parties and the sharing of profits and losses.

The Treasury Department also clarifies that U.S. person investments in venture capital funds, private equity funds, “funds of funds,” or other pooled investment funds with pre-existing investments in a covered foreign person may constitute an indirect covered national security transaction as proposed to be defined in § 851.209(a)(1) through (a)(6), separate and apart from whether the acquisition may be a covered national security transaction under § 851.209(a)(7).

The Treasury Department also clarifies that an indirect covered national security transaction as proposed could include not only a U.S. person' s use of an intermediary entity or natural person to engage in a transaction that would be a covered national security transaction if engaged in directly by a U.S. person, but also a U.S. person' s use of a transaction structure that obfuscates or conceals the U.S. person' s role in a transaction that would be a covered national security transaction if engaged in directly by a U.S. person.

§ 851.210—Develop

Title VIII does not define develop and the Treasury Department proposes to maintain the definition of develop as it exists in the Part 850 Regulations with three substantive clarifications. First, the Proposed Rule would make explicit that the term extends to activities engaged in through or in collaboration with affiliates, consistent with Title VIII's coverage of indirect covered national security transactions. Second, the Proposed Rule would also supplement the list of example stages prior to serial production provided in the Part 850 Regulations by adding the act of transforming blueprints, schema, or other plans into a product. Finally, the Proposed Rule would clarify in § 851.210(b) that the term develop includes the provision of high-level oversight, direction, approval, conceptual input, or strategic planning in connection with any stage prior to serial production.

§ 851.212—Excepted Transaction

Title VIII identifies certain “exceptions and clarifications” to the term covered national security transaction but does not use the term excepted transaction as that term is used in the Part 850 Regulations. The Treasury Department proposes to retain the term excepted transaction in the Proposed Rule to refer to a transaction that is not a covered national security transaction because it meets specified conditions. See the discussion in Subpart E below for more information.

§ 851.214—Foreign Person

Title VIII introduces the term foreign person but leaves the definition to regulations. Accordingly, the Treasury Department proposes to define foreign person as any person that is not a U.S. citizen or alien lawfully admitted for permanent residence in the United States or an entity organized under U.S. law, including any foreign branch of such entity, except that for the purposes of § 851.208(a)(5) through (a)(8), the term foreign person means any person. The carveout related to § 851.208(a)(5) through (a)(8) is intended to preserve Title VIII's introduction of the term foreign person while continuing to capture in the proposed definition of covered foreign person those persons that have significant financial or other material relationships with covered foreign persons. This approach is consistent with the Part 850 Regulations and is intended to prevent circumvention of the Proposed Rule and strengthen its effectiveness.

§ 851.215—Hypersonic System

Title VIII adds hypersonic systems as a technology sector in which the Secretary may identify prohibited technology or notifiable technology. The Treasury Department proposes adding the term hypersonic system as a defined term in the Proposed Rule. The term would mean a vehicle or weapon delivery system capable of sustained atmospheric flight or very low Earth orbit flight at speeds of Mach 5 or greater. The Proposed Rule would identify hypersonic glide vehicles, hypersonic cruise missiles, hypersonic air-launched or aero-ballistic missiles, maneuvering reentry vehicles, and reusable hypersonic vehicles as examples of a hypersonic system. Notably, the examples include both military and civilian hypersonic systems, which may include systems intended for spaceflight. The Treasury Department believes that this definition is consistent with industry usage and with other regulatory regimes, including export controls, specifically items with Export Control Classification Number (ECCN) 9A011 on the Commerce Control List and defense articles within Category IV of the United States Munitions List. ( printed page 67402)

§ 851.216—Intracompany Transfer of Funds

Title VIII provides an exception to the definition of covered national security transaction for an intracompany transfer of funds from a U.S. person “parent company” to a “subsidiary” located in a country of concern, where each of “parent,” “subsidiary,” and “intracompany transfer of funds” is left undefined. As explained above, the Proposed Rule would define a controlled foreign entity to be the non-U.S. subsidiary of a U.S. person parent. The Treasury Department proposes to define the term intracompany transfer of funds to mean the provision of cash or credit by a U.S. person parent to (1) support operations of a controlled foreign entity, which operations are not in a notifiable technology or a prohibited technology; or (2) maintain operations of a controlled foreign entity, which operations are in a notifiable technology or prohibited technology that the controlled foreign entity was engaged in prior to the effective date that is set when the Proposed Rule is finalized at a later time. This definition is further discussed below in Subpart E.

§ 851.217—Knowledge

Title VIII defines the terms knowledge and variants such as know as they are currently defined in the Part 850 Regulations. The Treasury Department proposes to maintain such definition in the Proposed Rule.

§ 851.218—Notifiable Technology

Title VIII introduces the term notifiable technology and, subject to regulations, defines it as a technology within the areas of (1) semiconductor technology and microelectronics; (2) artificial intelligence systems; (3) quantum information technologies; (4) high-performance computing and supercomputing; or (5) hypersonic systems, in each case where not already specified in regulations for prohibited technology. This statutory definition makes clear that the Secretary, in consultation with appropriate congressional committees and subject to notice and comment, may prescribe regulations defining the technical parameters of notifiable technologies as reasonably needed for national security purposes and may add and define categories to the list of technology sectors that enable the military, intelligence, surveillance, or cyber-enabled capabilities of a country of concern.

The Proposed Rule would define certain notifiable technology sectors with reference to specific activities and technical parameters consistent with the activities and technical parameters in the Part 850 Regulations, with specific changes and additions that reflect both Title VIII's requirement to consider notifiable technology in the areas of high-performance computing and supercomputing and hypersonic systems, as well as recent advances and developments in the semiconductor technology and microelectronics sector, which is currently covered by the Part 850 Regulations.

With respect to changes to the three technology sectors covered by the Part 850 Regulations, the most notable involves what was defined as AI systems in the Part 850 Regulations and is referred to as “super intelligence systems” (SI systems) in the Proposed Rule. As discussed in more detail below, the Treasury Department, in consultation with interagency partners and the Executive Office of the President, has determined that the rapid advances in super intelligence capabilities of countries of concern warrant a broad prohibition on U.S. person investment in that sector. Accordingly, the Proposed Rule lists the development of SI systems within the definition of prohibited technology, and not within notifiable technology. The Treasury Department particularly welcomes comment on this approach, as discussed in further detail below.

Semiconductor Technology and Microelectronics

As with the Part 850 Regulations, the Treasury Department proposes including within the definition of notifiable technology the design, fabrication, or packaging of any integrated circuit that is not included within the definition of prohibited technology ( i.e., that does not meet the performance parameters and criteria identified in § 851.226(c), (d), (e), and (f), as applicable, although these criteria differ in certain respects from those in the Part 850 Regulations). Additionally, the Treasury Department proposes to include as notifiable technology the development or production of certain equipment not described in § 851.226(b) that is designed or intended for use in the design, fabrication, or packaging of any integrated circuit. The Proposed Rule would separately define the terms fabricate and package, adding further technical detail as to both notifiable technology and prohibited technology. The Treasury Department assesses that the scope of this notification requirement would aid the U.S. Government's visibility into the volume and nature of investments of U.S. person transactions involving these technologies and products.

SI Systems

In contrast to the Part 850 Regulations, the Proposed Rule would not include development of any SI system within the definition of notifiable technology. Instead, the Treasury Department would include development of any SI system within the definition of prohibited technology, as discussed below.

Quantum Information Technologies

Similar to the Part 850 Regulations, the Proposed Rule would not include any quantum information technologies within the definition of a notifiable technology. The Treasury Department would include quantum information technologies within the definition of prohibited technology as set forth below.

While Title VIII includes both artificial intelligence systems and quantum information technologies in the definition of a notifiable technology, Title VIII explicitly states that such technologies are to be included in the regulatory definition of a notifiable technology to the extent “not already captured by the technical thresholds specified” in the regulatory definition of a prohibited technology. Title VIII also explicitly directs the Secretary, in consultation with the appropriate congressional committees and subject to notice and comment, to define the parameters of those technologies as reasonably needed for national security purposes. For the reasons discussed below, the Treasury Department has not proposed any technical parameters within which the U.S. Government can permit a covered national security transaction into the SI systems or quantum information technologies sectors consistent with U.S. national security.

High-Performance Computing and Supercomputing

The Proposed Rule would include as a notifiable technology the development or production of high-bandwidth, low-latency interconnects for high-performance computing, including interconnects for system-on-chip, system-in-package, scale-up networks, and scale-out networks that are not otherwise proposed to be prohibited under the Proposed Rule. These interconnect technologies and approaches to integration contribute to the capability of super intelligence clusters, high-performance computing environments, and modern data centers through high-speed data transfer ( printed page 67403) between and effective scaling of compute components.

Hypersonic Systems

As noted above, the Treasury Department proposes to define hypersonic system at § 851.215 as a vehicle or weapon delivery system capable of sustained atmospheric or very low Earth orbit flight at speeds of Mach 5 or greater, including hypersonic glide vehicles, hypersonic cruise missiles, hypersonic air-launched or aero-ballistic missiles, maneuvering reentry vehicles, and reusable hypersonic vehicles. The Treasury Department would include in the definition of notifiable technology the development or production of certain technologies capable of use in or for a hypersonic system or its components, including sensor, guidance, navigation, or control equipment or systems; software for research, modeling and simulation, analysis, or testing not included in the definition of prohibited technology; and metals, alloys, composites, ceramics, coatings, or other materials not included in the definition of prohibited technology.

§ 851.219—Notifiable Transaction

Title VIII does not define the term notifiable transaction. The Treasury Department proposes using this term to describe the relevant language of Title VIII and to promote consistency with the Part 850 Regulations, in which this term is used, to minimize the cost and complexity of compliance for affected parties. Accordingly, the Treasury Department proposes to define notifiable transaction as a covered national security transaction (that is not a prohibited transaction) in which the relevant covered foreign person or relevant joint venture (1) engages in a notifiable technology or (2) meets the conditions set forth in § 851.208(a)(8) because of its relationship to one or more covered foreign persons that engage in a notifiable technology.

§ 851.221—Parent

The Proposed Rule would define parent, with respect to an entity, as (1) a person that directly or indirectly holds more than 50 percent of the outstanding voting interest in an entity or the voting power of the board of the entity; (2) the general partner, managing member, or equivalent of the entity; or (3) the investment adviser to any entity that is a pooled investment fund, with “investment adviser” as defined in the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(11)).

The Treasury Department is considering whether to expand the definition of parent to incorporate certain sub-advisers to a non-U.S. person fund as well as the general manager (or equivalent) to a non-U.S. person entity. The Treasury Department welcomes comments on this definition.

§ 851.222—Party

Title VIII introduces the term party with respect to a covered national security transaction and states that it should have the meaning provided in regulations. The Treasury Department proposes defining party to mean any U.S. person, any covered foreign person, and any foreign person relevant to the covered national security transaction, including in the context of joint ventures or controlled foreign entities. The term would be used in proposed § 851.902 concerning submission of information in connection with a request for non-binding feedback. The Proposed Rule would require identification of “each party to the transaction,” to include relevant intermediaries, financing sources, and controlled foreign entities. Party would also be used in § 851.104(c) concerning a U.S. person' s reasonable and diligent inquiry.

§ 851.223—Person

Title VIII defines person as “an individual, corporation, partnership, association, or any other organized group of persons, or legal successor or representative thereof, or any State or local government or agency thereof.” The Treasury Department proposes modifying the definition to include any entity—where entity is separately defined in the Proposed Rule—rather than listing specific types or organizations. The Proposed Rule otherwise would implement Title VIII's definition without substantive changes.

§ 851.224—Principal Place of Business

The term principal place of business is used in Title VIII's definition of covered foreign person but is not defined, leaving it to the Treasury Department to do so in regulations. The Treasury Department proposes defining principal place of business in a way that is similar to the corresponding definition in the Part 850 Regulations, but also specifically includes the location of an entity's headquarters and, separately, the location where an entity conducts its main business activities. For example, if a company is incorporated and has its official headquarters in the United States, but its chief executive officer resides and primarily manages the business in a country of concern, then the company's principal place of business would be in both the United States and the country of concern.

§ 851.226—Prohibited Technology

Title VIII introduces the term prohibited technology, which is defined, subject to regulations, as a technology within one of the five technology areas enumerated in Title VIII: advanced semiconductor technology and microelectronics; artificial intelligence systems; quantum information technologies; high-performance computing and supercomputing; and hypersonic systems. As with notifiable technology discussed above, Title VIII provides the Secretary with the authority, in consultation with the appropriate congressional committees, to prescribe regulations that define the technical parameters of such technology as reasonably needed for national security purposes. The Secretary may also add and define technology categories beyond those listed in Title VIII that enable the military, intelligence, surveillance, or cyber-enabled capabilities of a country of concern. As discussed further below, the Secretary, in consultation with interagency partners and the Executive Office of the President, has determined that the biotechnology sector in countries of concern enables the military, intelligence, surveillance, or cyber-enabled capabilities of those countries and, therefore, pursuant to his authority under Title VIII to prescribe regulations, has added that sector to the proposed definition of prohibited technology.

Advanced Semiconductor Technology and Microelectronics

Consistent with the Part 850 Regulations, the Treasury Department proposes including within the definition of prohibited technology the development or production of any electronic design automation software for the design of integrated circuits or advanced packaging and the development or production of any of the following: certain front-end semiconductor fabrication equipment designed for performing the volume fabrication of integrated circuits (to include extreme ultraviolet and deep ultraviolet lithography equipment), equipment for performing volume advanced packaging, or other items designed or intended for use in or with deep ultraviolet or extreme ultraviolet lithography fabrication equipment.

Further consistent with the Part 850 Regulations, the Proposed Rule would also include within the definition of prohibited technology the design of any integrated circuit that meets or exceeds ( printed page 67404) certain advanced technical thresholds identified by the Department of Commerce's Bureau of Industry and Security (BIS), the fabrication of certain other advanced integrated circuits that meet certain specified parameters, and the development or production of integrated circuits manufactured from certain specified semiconductors, certain radiation hardened integrated circuits designed to withstand specified high-radiation environments, and photonic integrated circuits. Additionally, the term would include the packaging of any integrated circuit using advanced packaging techniques.

The Proposed Rule also would include within the definition of prohibited technology the development or production of high-bandwidth memory with a memory bandwidth density greater than 2 gigabytes per second per square millimeter. This modification as compared to the Part 850 Regulations would bring the scope of prohibited technology in this sector into alignment with current export control restrictions, specifically ECCN 3A090 on the Commerce Control List.

Also consistent with the Part 850 Regulations, the Proposed Rule would separately define the terms advanced packaging, develop, and produce, adding further technical detail to the relevant prohibition provisions.

SI Systems

Since publication of the Part 850 Regulations nearly two years ago, technology has undergone rapid transformation, with breakthrough advances in the capabilities and development of SI systems. A range of SI systems developed by covered foreign persons present significant national security risks—from the ability to autonomously conduct cyberattacks to the potential use by malign actors and foreign adversaries to develop weapons of mass destruction. SI systems can also provide countries of concern with the potential to substantially enhance military modernization efforts, surveillance, and real-time targeting and decision-making capabilities. A range of SI systems may pose novel national security risks in areas such as cyberattacks and the development of chemical, biological, radiological, nuclear, or explosive weapons, as well as expose novel security vulnerabilities. The Treasury Department has observed advances in the capabilities and development of SI systems directly through its market monitoring activity, receipt of notifications as part of the OISP, and other sources.

The Part 850 Regulations distinguished among “AI systems” for purposes of the prohibition, the notification requirement, or absence from OISP coverage based on the quantity of computing power for training, designed end uses, and intended end uses. Over the past two years, SI models have achieved notable performance gains through additional means other than the quantity of training compute. Therefore, no single measure, benchmark, or threshold is currently sufficient to distinguish advanced models. Although the quantity of training compute may continue to indicate a degree of SI model capability, developers increasingly rely on additional methods to improve model capability, including other research and development activities such as synthetic data generation, improved algorithmic or architectural efficiencies, and novel post-training techniques or increasing inference-time compute.

Similarly, the proliferation and adoption of SI capabilities have made SI system end uses more challenging to isolate. General-purpose SI models that were not necessarily designed to be used for relevant national security applications nevertheless may exhibit that functionality, and investors may lack insight into the capabilities of such models if model developers have not evaluated or advertised these capabilities. Additionally, the availability of capable open-source SI models that have fewer safeguards and oversight may lead to their utilization and incorporation into SI systems in contexts outside their intended scope.

Accordingly, the Secretary, in consultation with interagency partners and the Executive Office of the President, has determined that it is necessary for national security purposes to define prohibited technology to include the development of any SI system. The Treasury Department notes that this approach is consistent with the COINS Act's direction to balance the priority of protecting the national security interest of the United States, while, to the extent practicable, minimizing the cost and complexity of compliance for affected parties and adopting the least burdensome alternative that achieves regulatory objectives. Specifically, this approach seeks to protect U.S. national security and streamline compliance through clear proposed regulatory text that does not rely on a U.S. person ascertaining the technical capabilities or thresholds of SI systems being developed by a covered foreign person (which was the case in the Part 850 Regulations).

Importantly, the Treasury Department proposes to include clarifying language regarding when the use or incorporation of certain third-party SI systems would or would not constitute the development of an SI system. This language generally corresponds to Notes 2 and 3 to § 850.224 in the Part 850 Regulations.

The Treasury Department particularly welcomes feedback regarding the potential implications arising from defining prohibited technology to include the development of any SI system, as well as feedback relating to the definition of an SI system. Where possible, feedback should discuss impacts, possible alternative approaches aimed at the same policy intent described above, and where relevant, should include suggestions for how the Proposed Rule could be scoped to address the national security concerns described above accounting for the potential impact on U.S. businesses and consumers. To the extent that a U.S. person believes engaging in a covered national security transaction is in the national interest of the United States, the Treasury Department notes that the Proposed Rule provides a process by which the U.S. person may request an exemption from the Proposed Rule's coverage, provided that the Secretary, in coordination with other relevant Federal departments and agencies, determines the transaction to be in the U.S. national interest. See Subpart E for a further discussion on exceptions and exemptions.

Quantum Information Technologies

The Treasury Department proposes to include within the definition of prohibited technology the development of a quantum computer or production of any of the critical components required to produce or operate a quantum computer (such as a dilution refrigerator or two-stage pulse tube cryocooler), or the development of software for the purpose of designing, simulating, testing, or controlling a quantum computer, or for identifying, implementing, costing, or optimizing algorithms and applications for a quantum computer.

The Proposed Rule would also include in the definition of prohibited technology the development of algorithms and applications for quantum information science technologies. The Proposed Rule would include an end-use limitation to appropriately scope this provision to refer to activities that could give rise to an acute national security threat, recognizing that similar technologies could have important civilian purposes.

The definition of prohibited technology would include the ( printed page 67405) development or production of any quantum sensing platform designed for, or that the relevant covered foreign person intends to be used for, any military, government intelligence, or mass-surveillance end uses.

The development or production of certain quantum networks and quantum communication systems would also be prohibited technology. Specifically, prohibited technology would include such networks and systems designed for, or that the relevant covered foreign person intends to be used for: (1) networking to scale up the capabilities of quantum computers; (2) secure communications, such as quantum key distribution; or (3) any other application that has any military, government intelligence, or mass-surveillance end use.

The Proposed Rule would separately define the term quantum computer, adding further technical detail to the prohibition provision.

High-Performance Computing and Supercomputing

The Treasury Department proposes maintaining the prohibition in the Part 850 Regulations on U.S. person investment with respect to the high-performance computing and supercomputing technology area. Consistent with the Part 850 Regulations, the definition of prohibited technology would include developing, installing, selling, or producing any supercomputer enabled by advanced integrated circuits that can provide a theoretical compute capacity of 100 or more double-precision (64-bit) petaflops or 200 or more single-precision (32-bit) petaflops of processing power within a 41,600 cubic foot or smaller envelope, or components designed for enabling any of such capabilities of a supercomputer. Certain technologies included within the advanced semiconductor technology and microelectronics category also are relevant to the high-performance computing and supercomputing technology area, including the fabrication of any specified DRAM integrated circuit, the development and production of any photonic integrated circuit (including the development of optical components, co-packaged optics, or silicon-photonics integration), and the development and production of certain high-bandwidth memory.

Hypersonic Systems

The Treasury Department proposes to define prohibited technology to include the development or production of a hypersonic system, as that term is defined in the Proposed Rule (and discussed above), a propulsion system capable of enabling hypersonic flight, or fuels or propellants for hypersonic propulsion systems. Propulsion systems capable of enabling hypersonic flight would include rocket-based propulsion, hypersonic airbreathing propulsion such as ramjets and scramjets, and combined cycle propulsion.

The term prohibited technology would also include the development or production of certain materials designed for, or that a covered foreign person intends to be used for, a hypersonic system, including refractory metals or alloys, refractory or ultra-high temperature ceramics, certain carbon composites, and stealth coatings, as well as the development or operation of specialized infrastructure or a facility capable of testing a hypersonic system.

The Proposed Rule would define prohibited technology to also include the development of digital twin technology for modeling and simulation of, monitoring, or optimizing a hypersonic system and the development of digital thread technology that collects, manages, or represents the data flows related to a hypersonic system.

Biotechnology

Certain advanced or sensitive biotechnologies in countries of concern —including those that are subject to export controls, biomanufacturing or bioengineering of certain compounds and materials, and the technology and equipment capable of being used to engage in such manufacturing or engineering—pose an acute risk to U.S. national security. Such risks include the proliferation of biological weapons, the development of brain-computer interfaces, harm to U.S. supply chain security, and the indigenization by countries of concern of advanced technologies with military, government intelligence, and mass surveillance end uses. U.S. person investments in covered foreign persons engaged in such activities are at risk of exploitation. Accordingly, pursuant to the authority granted to the Secretary by Title VIII, the definition of prohibited technology would include specific activities and technical parameters associated with the biotechnology sector, as discussed further below.

Specifically, the Treasury Department proposes to define prohibited technology to include the development, engineering, or use of a biological system—or component of a biological system—to modify, enhance, produce, or control: (1) certain export-controlled agents or toxins, as well as novel agents and toxins capable of similar effects as those currently export-controlled; (2) energetic precursors or energetic materials; (3) novel or high-performance functional materials ( i.e., bio-derived products that exhibit novel or enhanced properties, such as adaptive or protective coatings, materials for agile infrastructure, materials capable of self-repair or self-assembly, and biosensors); (4) pharmaceutical compounds ( e.g., small molecules, polymers, vaccines, blood and blood components, allergenics, cell and gene therapies, and monoclonal antibodies or other recombinant therapeutic proteins), as well as their delivery systems; and (5) biofuels ( i.e., fuels made or derived from bio-based feedstock). The Proposed Rule also would define prohibited technology to include the development or production of brain computer interfaces and the development, construction, or production of biomanufacturing equipment, including components and associated software or technology, as identified in ECCNs 2B352, 2D352, and 2E001 on the Commerce Control List. The Treasury Department also proposes to include in the definition of prohibited technology the development or production of certain other related technology or equipment (including components and associated software), to include: biological sequencing technology, including short-read or long-read sequencing; certain flow cytometers and cell sorters; certain liquid chromatography mass spectrometry instruments; certain computational or bioinformatics tools; and hardware, robotics, or software for automated scientific discovery or experimentation, including laboratory automation or cloud lab infrastructure.

It is necessary to place restrictions in this sector in the interest of protecting U.S. national security; at the same time, the Treasury Department recognizes that restrictions may potentially have countervailing effects on national security to the extent restrictions lead to significant public health risks or harm U.S. businesses in this sector. Accordingly, the Treasury Department is particularly interested in comment on this approach. Where possible, feedback should discuss impacts, possible alternative approaches aimed at the same policy intent described above, and any suggestions for how the Proposed Rule could be scoped to address the national security concerns described above. In particular, the Treasury Department requests comments on the following questions:

• Whether or how the Treasury Department should more precisely describe the biological systems covered in proposed § 851.226(r); ( printed page 67406)
• Whether the Treasury Department should adjust proposed § 851.226(r) to focus on where the development, engineering, or use of a biological system is undertaken using equipment identified in proposed § 851.226(t) or (u);
• Whether or how the Treasury Department should more precisely describe the biofuels covered in proposed § 851.226(r), such that the Proposed Rule does not include fuels that do not pose acute national security risks (such as ethanol);
• Whether or how a “novel or high-performance functional material” identified in proposed § 851.226(r)(3) could be more precisely described and whether definitions used in other regulatory programs, including export controls, could be leveraged to achieve additional clarity;
• Whether and how “pharmaceutical compounds” described in proposed § 851.226(r)(4) should be more precisely scoped to focus on advanced or frontier technologies; and
• Whether the technical parameters of the equipment listed in proposed § 851.226(u) should be more precisely scoped to focus on advanced or frontier technologies.

To the extent that a U.S. person believes engaging in a covered national security transaction is in the national interest of the United States, the Treasury Department notes that the Proposed Rule provides a process by which the U.S. person may request an exemption from the Proposed Rule's coverage, which could be granted if the Secretary, in coordination with other federal departments and agencies, determines the transaction to be in the U.S. national interest. See Subpart E for a further discussion on exceptions and exemptions.

Cross-Reference to U.S. Government Lists

The Treasury Department would also include within the definition of prohibited technology any notifiable technology engaged in by a covered foreign person or relevant joint venture where such covered foreign person or joint venture is, or any of its affiliates or subsidiaries are, included on one of several U.S. Government lists, such as the Entity List maintained by BIS. Defining prohibited technology to include notifiable technology engaged in by such persons is reasonably needed for national security purposes because the U.S. Government's inclusion of such persons on any of these lists reflects a determination that the person poses a threat to the foreign policy or national security interests of the United States. In addition, defining prohibited technology in this manner promotes consistency with the Part 850 Regulations and provides bright lines for certain U.S. person investments, which would minimize the cost and complexity of compliance for affected parties while addressing national security risks.

Section 851.226(v) would cross-reference two additional U.S. Government lists beyond those in the Part 850 Regulations: the Department of War's list of Chinese military companies under section 1260H of the National Defense Authorization Act for Fiscal Year 2021 and the Office of Management and Budget's list of biotechnology companies of concern under the BIOSECURE Act, section 851 of the FY26 NDAA. Such lists are particularly relevant for the OISP, given their focus on entities with connections to the PRC military.

The Treasury Department also proposes that relevant listed entities in § 851.226(v) include the affiliates and subsidiaries of a covered foreign person or relevant joint venture that engages in a notifiable technology. Prohibiting a U.S. person from engaging in a covered national security transaction with a covered foreign person engaged in a notifiable technology whose affiliate or subsidiary is included on one of the U.S. Government lists would strengthen the Proposed Rule by deterring listed persons from establishing subsidiaries to engage in a notifiable technology and participate in a covered national security transaction that the listed person could not.

§ 851.227—Prohibited Transaction

Title VIII does not use the term prohibited transaction, which was used in the Part 850 Regulations. The Treasury Department proposes maintaining this term and concept to provide a single term to describe the operative language of section 801 of Title VIII and to promote consistency with the Part 850 Regulations to minimize the cost and complexity of compliance for affected parties. Accordingly, the Treasury Department proposes to define prohibited transaction as a covered national security transaction in which the relevant covered foreign person or relevant joint venture:

• Engages in aprohibited technology; or
• Meets the investment and financial thresholds under proposed § 851.208(a)(8) because of its relationship to one or morecovered foreign persons that engage in a prohibited technology.

§ 851.229—Relevant Federal Departments and Agencies

The Treasury Department proposes defining the relevant Federal departments and agencies as those departments or agencies specifically mentioned in Title VIII; i.e., the Departments of State, War, Commerce, and Energy, and the Office of the Director of National Intelligence—as well as the Office of the U.S. Trade Representative and the Office of Science and Technology Policy, and any other department, agency, or office the Secretary determines to be appropriate.

§ 851.232—Super Intelligence (SI) System

Title VIII includes “AI systems” as a technology area in which the Secretary may identify specific notifiable technology or prohibited technology. Title VIII does not further define an “AI system.” The Treasury Department proposes to define super intelligence (SI) system  ^[1] in a manner that is generally consistent with the existing definition of an “AI system” found in the Part 850 Regulations, but with some modifications. The narrative description of the Proposed Rule below refers to “artificial intelligence system” or “AI system” when discussing the applicable requirements in the Part 850 Regulations or Title VIII and refers to SI system and the abbreviation “SI” when discussing the Proposed Rule.

Under §  851.232(a) of the Proposed Rule, an SI system would be a machine-based system with certain specified functions and characteristics that are consistent with those in the Part 850 Regulations and also would specifically include machine-based systems that can generate content (with the phrase “generate content” seeking to capture generative SI that can create content such as text, audio, images, multimedia, or code). Section 851.232(b) of the Proposed Rule would include within the definition of SI system any data system, software, hardware, application, tool, or utility that operates in whole or in part using such a machine-based system, including a harness for agentic capability or an embodied SI system. Under §  851.232(b), an SI system would include, for example, robotic or other autonomous or unmanned systems that operate using an SI system. The Treasury Department welcomes ( printed page 67407) comment on the proposed definition of SI system.

Subpart C—Prohibited Transactions and Other Prohibited Activities

Title VIII authorizes the Secretary to prohibit a U.S. person, including its controlled foreign entities, from knowingly engaging in a covered national security transaction in any prohibited technology. To promote consistency with the Part 850 Regulations and to minimize the cost and complexity of compliance for affected parties, this subpart of the Proposed Rule closely aligns with the text of the Part 850 Regulations and describes activities that would be prohibited. Such activities would include a U.S. person engaging in a prohibited transaction unless an exemption has been granted. A U.S. person would also be required to take all reasonable steps to prohibit and prevent any transaction by its controlled foreign entity that would be a prohibited transaction if engaged in by a U.S. person.

Subpart D—Notifiable Transactions and Other Notifiable Activities

This subpart of the Proposed Rule would require a U.S. person to notify the Treasury Department in any of the following circumstances: (1) if the U.S. person knowingly undertakes a notifiable transaction; (2) if a controlled foreign entity of the U.S. person knowingly undertakes a transaction that would be notifiable if undertaken by a U.S. person; and (3) if the U.S. person learns following the completion date that a transaction that it undertook would have been a covered national security transaction if the U.S. person had known of certain facts or circumstances at the time of the transaction. In each case, the U.S. person would be required to meet certain deadlines and follow specified procedures that include requirements to submit detailed information to the Treasury Department, certify the completeness and accuracy of the information submitted, and maintain records. A U.S. person would also be required to promptly notify the Treasury Department of any material omission or inaccuracy that the U.S. person learns about following any information submission.

The Treasury Department notes that § 851.402 would clarify that a U.S. person must submit a notification when its controlled foreign entity undertakes a transaction that the controlled foreign entity or the U.S. person knew at the time of the transaction would be a notifiable transaction if engaged in by a U.S. person. Section 851.403 would clarify that a U.S. person's notification obligations in connection with post-transaction knowledge apply both to transactions undertaken by a U.S. person and to transactions undertaken by a controlled foreign entity of a U.S. person. As discussed above, to reflect the proposed changes to §§ 851.402 and 851.403, the Treasury Department proposes to clarify in § 851.104 that the knowledge standard would also apply to the knowledge of a controlled foreign entity for the purposes of applying §§ 851.402 and 851.403.

Section 851.405 would expand the information from the Part 850 Regulations that is required as part of a notification. The items that would be added are those that typically have been part of follow-on requests for information by the Treasury Department. Including these items in the regulatory text is intended to streamline any follow-on requests once a notification has been submitted.

Subpart E—Exceptions and Exemptions

Title VIII gives the Secretary authority to exempt from prohibition any activity determined by the President, in consultation with or delegated to the Secretary, and in coordination with the Secretary of Commerce, Secretary of State, and, as appropriate, the heads of other relevant Federal departments and agencies, to be in the national interest of the United States. Additionally, Title VIII establishes an exemption from prohibition for any authorized intelligence activities of the United States.

This subpart of the Proposed Rule identifies the activities or transactions that are not included within the definition of covered national security transaction, as discussed below.

§ 851.501—Excepted Transaction

Title VIII identifies, subject to regulations, those transactions or activities that are not included within the definition of covered national security transaction. Under the Proposed Rule, as in the Part 850 Regulations, such transactions would be referred to as excepted transactions.

As discussed in more detail below, an excepted transaction in the Proposed Rule would include the following (subject to limitations in some instances, as explained below):

• An investment by aU.S. person in a security that trades on a securities exchange or the over-the-counter market in any jurisdiction;
• An investment by aU.S. person in a security issued by an investment company, such as an index fund, mutual fund, or exchange traded fund;
• An investment by aU.S. person limited partner or equivalent in a pooled investment fund as described in § 851.209(a)(7) where (1) the U.S. person' s committed capital does not exceed $2 million, or (2) the investment is subject to a specific binding contractual assurance regarding a notifiable transaction (for purposes of an exception from the notification requirement) or a prohibited transaction (for purposes of an exception from the prohibition);
• An investment in a derivative of any security described above;
• AU.S. person' s full buyout of all equity or interests of all covered foreign persons in an entity or assets located outside a country of concern;
• Anintracompany transfer of funds from a U.S. person to its controlled foreign entity;
• A transaction made after the effective date of the final regulations implementing the COINS Act pursuant to a binding, uncalled capital commitment entered into before that date;
• Acquisition of a voting interest in acovered foreign person by a U.S. person lender upon default or other condition of a loan made by a lending syndicate;
• The receipt of employment compensation by an individual in the form of an award of equity or the grant of an option to purchase equity in acovered foreign person, or the exercise of such option;
• Transactions by aU.S. person that, in the aggregate across the preceding 12 months, do not exceed $50,000 in value (for an exception from the notification requirement only);
• A transaction secondary to acovered national security transaction, including certain contractual arrangements or the procurement of material inputs for any covered national security transaction; bank lending; processing, clearing, or sending of payments by a bank; underwriting services; debt rating services; prime brokerage; global custody; equity research and analysis; or other similar services;
• Any ordinary or administrative business transaction;
• Any ancillary transaction involvingcovered foreign persons undertaken by a financial institution, such as the processing of cash transactions, underwriting and credit rating services, or other services ordinarily incidental to the provision of financial services;
• Certain transactions that occur in a country or territory outside the United States that has been designated by the ( printed page 67408) Secretary in accordance with provisions set forth in § 851.501(k) of the Proposed Rule; and
• Any transactions completed before the enactment of Title VIII on December 18, 2025, unless subject to the Part 850 Regulations, in which case those rules apply.

Certain excepted transactions listed above were included in the Part 850 Regulations but not specifically included in Title VIII: (1) fulfilment of a binding, uncalled capital commitment made prior to the effective date of the final regulations; (2) acquisition of a voting interest in a covered foreign person upon default or other condition of a loan made by a lending syndicate; (3) receipt and exercise of employment compensation in the form of equity or options to purchase equity in a covered foreign person; and (4) a transaction with or involving a country or territory outside the United States designated by the Secretary in accordance with criteria that relate to the country or territory's own measures to address risks related to outbound investment. To further Congress's direction to balance protecting national security with minimizing the cost and complexity of compliance for affected parties, and to minimize impacts on the smooth functioning of U.S. capital markets while still achieving the national security objectives of the COINS Act, the Secretary has determined, pursuant to the authority provided in Title VIII, that maintaining these excepted transactions, with which the regulated public is already familiar, is in the national interest of the United States, and therefore includes these exceptions in the Proposed Rule. Further explanation regarding the Secretary's determination is provided below.

Fulfilment of a binding, uncalled capital commitment. Including this exception in § 851.501 is in the national interest because it is intended to avoid disruption to a U.S. person that entered into a binding commitment prior to the effective date of the final regulations. Such a transaction, however, may be a “covered transaction” pursuant to the Part 850 Regulations.

Acquisition of voting interest upon default of a syndicated loan. Including this exception is in the national interest because it would avoid potential disruption to private credit markets in a narrow set of circumstances where a U.S. person lender has passively received an interest in a covered foreign person and, even after receiving such interest, lacks a role in the lending syndicate that could create the opportunity for a U.S. person lender's intangible benefits to transfer to the covered foreign person debtor. The Treasury Department welcomes comments regarding whether this exception is redundant given Title VIII's language regarding the exception for secondary transactions, which includes bank lending.

Receipt of employment compensation in the form of stock or stock options and the exercise of such options. Including an exception for receipt of employment compensation in the form of equity or the option to acquire equity (and the exercise of such an option) in a covered foreign person is in the national interest because it avoids interference with certain individual U.S. workers' employment prospects and potentially personal finances. Moreover, U.S. person employees are generally not providing capital to a covered foreign person employer.

Transactions in certain designated countries or territories. Title VIII directs the Secretary, in coordination with the Secretary of State, Secretary of Commerce, and the heads of other relevant Federal departments and agencies, to engage on both a bilateral and multilateral basis with allies and partners to encourage the development of mechanisms similar to the OISP to prevent the development of prohibited technologies by a country of concern. Including an exception for certain transactions occurring in countries and territories that develop such similar mechanisms is in the national interest because it incentivizes allies and partners to take such steps, which helps protect U.S. national security and foreign policy interests.

Details regarding the other exceptions pursuant to Title VIII are provided below.

Publicly traded securities. Title VIII includes as an excepted transaction investment in a security, as defined in section 3(a)(10) of the Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(10), that trades on a securities exchange or the “over-the-counter” market in any jurisdiction. The Proposed Rule incorporates the exception with minor, non-substantive clarifications. The Treasury Department considers this exception to be substantively equivalent to the corresponding exception in the Part 850 Regulations. As a result, the Treasury Department considers that existing guidance available on the OISP website related to the publicly traded securities exception would likely be re-issued in a manner that applies similarly to this exception under Title VIII.

Securities issued by an investment company. Title VIII also includes an exception for investment in a security issued by an investment company, as defined in the Investment Company Act of 1940, that is registered with the Securities and Exchange Commission. Consistent with Title VIII and with the Part 850 Regulations, the Proposed Rule also includes such an exception, along with illustrative language from the corresponding exception in the Part 850 Regulations, i.e., “such as an index fund, mutual fund, or exchange traded fund.”

The Part 850 Regulations also provide for an exception to the definition of a covered national security transaction for investment by a U.S. person in any company that has elected to be regulated or is regulated as a business development company pursuant to section 54 of the Investment Company Act of 1940, as amended, at 15 U.S.C. 80a-53. Title VIII does not provide for a corresponding exception to the definition of covered national security transaction, and the Proposed Rule likewise does not include it. The Treasury Department welcomes comment on whether extending the exception in § 851.501(a)(1)(ii) of the Proposed Rule to an investment in a business development company is in the national interest. Title VIII additionally provides the Secretary discretion to except investment in a “security issued by a non-United States investment company that is registered with a foreign regulator with comparable oversight standards and regulatory jurisdiction to the Securities and Exchange Commission as determined by the Secretary.” The Treasury Department does not include this exception in the Proposed Rule but invites comment regarding which foreign regulators may qualify under Title VIII's standard and the potential scope of such an exception.

Limited partner investments. Title VIII also contains an exception from the coverage of limited partner investments when made as a limited partner or equivalent in a venture capital fund, private equity fund, “fund of funds,” or pooled investment fund, including where (1) the limited partner or equivalent's committed capital is not more than a de minimis amount, as determined by the Secretary; and (2) where the limited partner or equivalent obtains a binding contractual assurance that its capital in the fund will not be used to engage in a transaction that would be a covered national security transaction if engaged in by a U.S. person. With respect to the first prong, to promote consistency with the Part 850 Regulations to minimize the cost and complexity of compliance for affected parties, and in light of the ( printed page 67409) notifications received to date as part of the OISP, the Secretary has determined to set this de minimis value at $2,000,000 in the Proposed Rule. With respect to the second prong, the Proposed Rule refers to a prohibited transaction or notifiable transaction, as applicable, as the corresponding exception in the Part 850 Regulations currently does, rather than a covered national security transaction. For clarification, the phrase “as applicable” means that receipt of a binding contractual assurance regarding notifiable transactions would except the U.S. person from the notification requirement, while receipt of a binding contractual assurance regarding prohibited transactions would mean that a U.S. person limited partner or equivalent would not commit a violation in the event that the fund used the U.S. person' s capital to engage in a prohibited transaction, despite such contractual assurances. Additionally, the Treasury Department clarifies that this exception applies only to limited partner investments covered by § 851.209(a)(7), consistent with the corresponding exception in the Part 850 Regulations.

Derivatives. The Title VIII exception for investments in derivatives is explicitly limited to derivatives of a security described in three exceptions discussed above: publicly traded securities, securities issued by an investment company, and limited partner investments. The Proposed Rule maintains this scope for exceptions for investments in derivatives although it no longer contains the carve-out from the corresponding exception present in the Part 850 Regulations for derivatives that confer the right to acquire equity, rights associated with equity, or any assets of a covered foreign person. The Treasury Department invites comment on whether removing this carve-out would create a loophole for U.S. person investments that could raise national security concerns.

Exclusion from exception for investments affording certain governance rights. The Secretary also has determined that it is in the national interest to exclude from certain exceptions (namely, those for investments in publicly traded securities, securities issued by an investment company, limited partner investments, and derivatives, each as discussed above) covered national security transactions involving certain equity investments that would afford the U.S. person certain governance rights beyond standard minority shareholder protections with respect to a covered foreign person. This carveout would help ensure that the exceptions in the Proposed Rule are consistent with the policy objectives of Title VIII, and that U.S. persons cannot undertake a transaction that has a higher likelihood of advancing the technologies that are a core concern of Title VIII. The Treasury Department further believes this carveout would be important to protect against potential evasion of the Proposed Rule's notification requirements and prohibitions. Additionally, the Proposed Rule would include clarifying language noting that the relevant “rights” of the U.S. person are governance-related rights.

Buyout exception. Title VIII creates an exception similar to the buyout exception in the Part 850 Regulations. The Title VIII exception appears broader than the exception in the Part 850 Regulations in that it applies to a U.S. person' s acquisition of all the equity or other interests owned or held by a single covered foreign person in an entity or assets located outside of a country of concern, while the corresponding exception in the Part 850 Regulations requires for its application that a U.S. person acquire all equity or interests owned or held by all “persons of a country of concern.”

The wording of the statutory exception, if left unclarified, could introduce administrative challenges for the OISP and create interpretive ambiguity. This is so because in the case of an entity or assets outside of a country of concern in which multiple covered foreign persons hold equity or other interests, excepting a U.S. person' s buyout of a single covered foreign person' s interest in such entity or assets could effectively permit U.S. person investment in a covered foreign person entity that is engaged in a prohibited technology (or allow for such a transaction to go unnotified where the covered foreign person is engaged in a notifiable technology) even while such covered foreign person continues to have significant, or even majority, post-transaction ownership by other covered foreign persons. And although Title VIII's language would on its face permit such a circumstance, its emphasis on excepting a U.S. person' s acquisition of the “totality of the interest” indicates that Congress did not contemplate this scenario. The Proposed Rule, therefore, would apply the buyout exception only where a U.S. person acquires all equity or interests owned or held by all covered foreign persons such that, following the acquisition, the entity no longer constitutes a covered foreign person.

Intracompany transfer exception. Title VIII provides an exception for the intracompany transfer of funds, as defined by the Secretary, “from a United States parent company to a subsidiary located in a country of concern or a transaction that, but for this clause, would be a covered national security transaction between a U.S. person and its controlled foreign person that supports operations that are not covered national security transactions or that maintains covered national security transactions that the controlled foreign person was engaged in prior to the effective date of the regulations implementing” Title VIII. (Emphases added for clarity.)

The Proposed Rule would clarify the statutory exception and harmonize its terminology with the rest of the Proposed Rule. By operation of the proposed definitions of “parent,” “subsidiary,” “controlled foreign entity,” and “intracompany transfer of funds” in the Proposed Rule, a U.S. person parent' s subsidiary located in a country of concern would be a controlled foreign entity, such that the relevant exception in the Proposed Rule would refer to the intracompany transfer of funds by a U.S. person to a c ontrolled foreign entity. The Treasury Department notes that the intracompany transfer exception in Title VIII refers to transactions between a U.S. person and its “controlled foreign person.” As discussed above, the term “controlled foreign person” is used only in the intracompany transfer exception and does not otherwise appear in Title VIII, and the Proposed Rule therefore instead uses the term controlled foreign entity, consistent with the other parts of Title VIII and with the Part 850 Regulations.

The Title VIII statutory exception also is limited to supporting “operations that are not covered national security transactions.” On its face, such language would apply the intracompany transfer exception only to investments in entities that themselves engage in covered national security transactions. Given the statutory definition's similarity to the corresponding exception in Part 850 Regulations, it is unlikely Congress intended such a result. To ensure the proper and intended operation of Title VIII and to promote consistency with the Part 850 Regulations to minimize the cost and complexity of compliance for affected parties, the proposed exception (via the definition of an intracompany transfer of funds) would refer instead to supporting operations that are not in a prohibited technology or a notifiable technology.

The Treasury Department is considering whether and how it should further define what it means to ( printed page 67410) “maintain operations” within the intracompany transfer exception. Specifically, the Treasury Department invites comment on whether to (1) adopt a narrow construction of this term, such that the U.S. person parent would be limited to providing capital that would permit the controlled foreign entity to perform no more than upkeep and maintenance of the notifiable technology or prohibited technology; (2) adopt a broader construction to include upgrading or improving the existing operations, but not permitting any expanded production of the technology; or (3) most expansively, adopt a construction that permits expanding production or improving technological capabilities (provided that such improvement does not involve engaging in a different notifiable technology or prohibited technology or shifting from a notifiable technology to a prohibited technology).

De minimis transaction. Title VIII also includes an exception for transactions, the value of which the Secretary determines is de minimis. Based on the Treasury Department's experience administering the OISP, the Secretary has determined that the de minimis value should be $50,000, aggregated across the covered national security transactions or provision of funds to the relevant covered foreign person or joint venture in the preceding 12 months. The $50,000 threshold would refer to the value of the transaction or transactions, which can include the provision of funds as well as the fair market value of any non-cash consideration. Pursuant to the authority delegated to the Secretary in Title VIII and as explained in the proposed definition of an excepted transaction, the Treasury Department would not be bound by the U.S. person' s determination of the value of a transaction. A U.S. person investor considering the applicability of this exception to a transaction involving non-cash consideration is encouraged to consider valuing such consideration in ways consistent with the equity or other interest acquired in exchange for such non-cash consideration.

The Proposed Rule would further limit the application of this exception to transactions that would otherwise be notifiable transactions. A prohibited transaction below this threshold could raise national security concerns given that the technology at issue may enable the military, intelligence, surveillance, or cyber-enabled capabilities of a country of concern. Therefore, the Secretary does not believe that any such transaction should be classified under Title VIII as de minimis.

Secondary transaction. Title VIII includes a new category of excepted transaction: a transaction secondary to a covered national security transaction. The Proposed Rule would incorporate the relevant text from Title VIII without modification. The Treasury Department invites comment on the scope of “contractual arrangements;” what “other similar services” may exist that would constitute a secondary transaction; whether “bank lending” would except all “banks” from covered national security transactions involving loan provision or similar debt financing; and whether other “secondary transactions” are duplicative of any ancillary transactions, including the exception for underwriting services or the processing, clearing, or sending of payments by a bank.

Ordinary or administrative business transaction. Title VIII includes an exception for any ordinary or administrative business transaction as may be defined in regulations. The Treasury Department has opted not to include a definition of an ordinary or administrative business transaction in the Proposed Rule. Given the broad scope of the exceptions for ancillary transactions and secondary transactions, the Treasury Department believes that transactions that may fall within the category of ordinary or administrative business transaction likely would already be within the scope of those exceptions or would not be covered national security transactions at all. The Treasury Department welcomes comment on what may constitute an ordinary or administrative business transaction that (1) would meet the definition of a covered national security transaction; and (2) is not otherwise included in another exception in the Proposed Rule.

Ancillary transaction. Title VIII creates a new exception for any ancillary transaction undertaken by a financial institution, as “financial institution” is defined in 31 U.S.C. 5312. The Proposed Rule would incorporate Title VIII's statutory definition and clarify that such transactions must be undertaken in connection with, or in certain situations, on behalf of, a covered foreign person.

Transaction completed before the effective date of Title VIII. Title VIII also includes an exception for any transaction completed before the date of the enactment of Title VIII, i.e., December 18, 2025. The Proposed Rule would implement this provision but limit the application to any covered national security transaction not otherwise subject to the Part 850 Regulations. This additional language is intended to ensure that parties understand that the exception does not permit them to avoid any prohibition or notification requirements under the Part 850 Regulations for any covered national security transaction that would be a “covered transaction” under the Part 850 Regulations.

§ 851.502—National Interest Exemption

Title VIII authorizes the Secretary to exempt from prohibition any activity determined by the President, in consultation with the Secretary, or delegated to the Secretary, in coordination with the Secretary of Commerce, Secretary of State, and, as appropriate, the heads of other relevant Federal departments and agencies, to be in the national interest of the United States. Any determination to grant a national interest exemption will be based on a consideration of the totality of the relevant facts and circumstances.

Instructions for submitting a request for a national interest exemption can be found on the OISP website.

The Treasury Department is considering whether a streamlined process for seeking a national interest exemption would be appropriate for covered national security transactions in one or more technology sectors. The Treasury Department requests comment on what the criteria and timelines should be if any such process were to be considered.

§ 851.503—Intelligence Activities Exemption

Title VIII adds an exemption for any authorized intelligence activities of the United States. Section 851.503 of the Proposed Rule incorporates this exemption.

Subpart F—Violations

This subpart of the Proposed Rule describes conduct that would be treated as a violation of the Proposed Rule. Such conduct would include taking any action prohibited by the Proposed Rule, failing to take any action required by the Proposed Rule within the timeframe and in the manner required, taking action to evade or avoid—or conspiring to violate—the Proposed Rule's requirements, and making materially false or misleading representations to the Treasury Department when submitting any information required by the Proposed Rule.

The Treasury Department notes that the proposed anti-evasion language would apply to any action that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the Proposed ( printed page 67411) Rule's obligations, as well as to any conspiracies formed to violate the obligations of the Proposed Rule. Evasion may include the establishment by a U.S. person of an entity or corporate structure to effectuate a transaction that would be a covered national security transaction if undertaken by a U.S. person. While many U.S. investors or asset managers may have bona fide commercial reasons to establish non-U.S. investment vehicles to effectuate investments outside of the United States, in determining whether an entity was established or used for the purpose of evading the obligations of the Proposed Rule, the Treasury Department may consider, inter alia: whether a U.S. person de facto controls the non-U.S. entity irrespective of formal corporate governance rights or voting interest held in the entity; the extent and nature of any shared personnel, services, facilities, or branding between a U.S. person and the non-U.S. entity, or commingling of funds; privity in limited partnership interest between a U.S. person and the non-U.S. entity ( i.e., does the non-U.S. entity have the same investors as an affiliated U.S. fund or fund controlled by a U.S. person); and shared beneficial ownership or right to proceeds (including any commercial arrangements effectuating the same) between the U.S. person and the non-U.S. entity.

Pursuant to Title VIII, the Treasury Department proposes adding a new § 851.605, which would establish that, in an enforcement action for a violation of the Proposed Rule, the burden of proof shall be upon the Secretary.

Subpart G—Penalties and Disclosures

This subpart of the Proposed Rule describes the penalties that would be applicable to violations of the Proposed Rule. The Treasury Department notes that the current Part 850 Regulations contain text that allows for civil and criminal penalties. Title VIII, however, includes language regarding civil penalties but does not include language regarding criminal penalties. As such, the Treasury Department proposes to retain previous civil penalty language from the Part 850 Regulations in the Proposed Rule and to omit language that allows for criminal penalties from the Proposed Rule. The Proposed Rule would include civil penalties up to the maximum amount set forth in section 206 of the International Emergency Economic Powers Act, 50 U.S.C. 1701 et seq. The Treasury Department may impose a civil penalty on any person that violates the Proposed Rule. Further, to implement Title VIII, the Proposed Rule would also state that the Secretary may compel the divestment of a covered national security transaction in a prohibited technology.

This subpart would also describe the process for submission of a voluntary self-disclosure by a person that may have violated applicable rules. The Treasury Department may take self-disclosures into account as a mitigating factor in determining any appropriate response, including the potential imposition of penalties, if the Treasury Department determines that there was a violation. Consistent with Title VIII, the Proposed Rule would use corresponding language from the Part 850 Regulations but would modify the scope of a voluntary self-disclosure to require that such disclosures contain a proposal for mitigation of any harms associated with the violation, including divestment or a voluntary disgorgement of profits. The Proposed Rule would further specify the information that must be included in a voluntary self-disclosure letter.

Subpart H—Provision and Handling of Information

This subpart of the Proposed Rule would implement the section of Title VIII that provides that information or documentary material provided to the Treasury Department under this part is exempt from disclosure under section 552(b)(3) of Title 5 of the United States Code. Title VIII also identifies exceptions to this rule.

The Proposed Rule would incorporate this provision of Title VIII with certain clarifications. Title VIII excepts from the disclosure exemption certain information “[g]athered by the Secretary or the Secretary's designee where the disclosure is determined to be in the national interest.” Section 851.801(b)(6) would clarify that the determination is made by the Secretary or the Secretary's designee. Factors that the Secretary or the Secretary's designee may consider when determining if disclosure is in the national interest may include whether such disclosure will further national security interests, address law enforcement needs, or promote compliance with the rule. Circumstances in which the Secretary may determine the disclosure of information to be in the national interest can include, for example, in the context of notifying the public regarding an action taken by the Treasury Department to enforce compliance with the Proposed Rule. The Treasury Department anticipates this exception to be invoked only in circumstances in which the Secretary identifies a national interest that disclosure could help to address.

Subpart I—Non-Binding Feedback

This subpart would implement Title VIII by establishing procedures by which an eligible person may request non-binding feedback from the Treasury Department regarding a prohibited transaction.

The Treasury Department recognizes that parties may have questions regarding whether a specific investment would constitute a prohibited transaction. Indeed, since the Part 850 Regulations became effective in January 2025, transaction parties and the public have requested feedback on interpretations of the Part 850 Regulations, submitted questions regarding compliance with the regulations, and sought additional public guidance. In response, the Treasury Department has published on its website several tranches of Frequently Asked Questions designed to assist the public with understanding and complying with the regulations.

To make effective and efficient use of the Treasury Department's resources, limit frivolous requests as contemplated under Title VIII, and adhere to Title VIII's confidentiality requirements, the Proposed Rule would require that requests for feedback be submitted in writing by a party with a direct financial interest in an actual—not hypothetical—transaction. While an executed contract would not be required, the material terms of the prospective transaction would need to be identified in a binding written agreement or other binding document to demonstrate that the transaction is not hypothetical. Requesters would need to provide sufficient detail regarding the transaction—which could be in the form of an executed contract, term sheet, or other written documentation—to permit a meaningful review and potential determination by the Treasury Department as to whether the transaction is a prohibited transaction. The Treasury Department recognizes that a person that is not a party to a covered national security transaction may have tips or referrals related to compliance with the OISP, and the Treasury Department continues to encourage the submission of tips and referrals by email to Outbound.Tips@treasury.gov. The Treasury Department will continue to monitor and evaluate such tips and referrals, but it does not intend to provide feedback to them.

The Treasury Department expects that a party, before submitting a request for non-binding feedback, will have conducted sufficient diligence with respect to a potential investment to provide the information that the ( printed page 67412) Treasury Department would need to evaluate such a request. This would include, at a minimum, information about the requester and any party to the transaction; a detailed description of the structure of the transaction (including the form of investment, governance and information rights, timing, and completion date); a detailed description of the products, services, technologies, or activities implicated by the transaction; all operative documents and material term sheets, draft agreements, side letters, and other written materials reflecting the transaction; and any other information that the requester believes would be relevant to the application of the Proposed Rule to the transaction.

The Proposed Rule would outline additional features of the submission process for non-binding feedback, including a required certification that the request contains true, correct, and complete disclosure of all material facts and circumstances known to the requester at the time of submission and that the requester will supplement the request if the requester learns of material changes or omissions. The Proposed Rule notes that the Treasury Department may request additional information or a meeting with the requester and any relevant parties to the transaction.

The Proposed Rule would state that receipt of a complete request for non-binding feedback would not obligate the Treasury Department to issue such feedback and would also state that the Treasury Department may, in its sole discretion, respond to a complete request by providing anonymized public guidance, issuing confidential, written non-binding feedback, or declining to provide feedback. The Proposed Rule would further state that non-binding feedback provided pursuant to this subpart would address only whether a transaction, as described in the request, would constitute a prohibited transaction, and that the Treasury Department may provide feedback that is responsive to some, but not all, of the questions or information presented by the requester. The Proposed Rule would also describe the non-binding nature of the feedback, noting that feedback provided pursuant to this subpart would not bind the Treasury Department, any other Federal or local department or agency, or any court; would not constitute an authorization, license, exemption, or waiver; and would not preclude the Treasury Department from taking any action authorized by the law with respect to the transaction, the requester, or any other person.

To further limit frivolous requests as authorized under Title VIII, the Proposed Rule would describe types of requests that the Treasury Department may identify as frivolous, including requests that concern hypothetical conduct, are incomplete or lack sufficient information to permit a meaningful review, or seek general advisory views or policy guidance that is not specific to the transaction that is the subject of the request.

The Treasury Department notes that this non-binding feedback process would be a new addition to the OISP, as the Part 850 Regulations do not include such a process, and welcomes comment on this subpart.

Subpart J—Information on Covered Foreign Persons

Subpart J of the Proposed Rule would implement Title VIII by establishing a mechanism by which the public can submit evidence, on a confidential basis, regarding whether a foreign person is a covered foreign person engaged in a prohibited technology or notifiable technology. The Proposed Rule would describe the information that the Treasury Department requires to determine whether a foreign person is a covered foreign person.

The Treasury Department is actively considering whether and how to establish a publicly accessible, non-exhaustive database of covered foreign persons as described in Title VIII. Items under consideration include: (1) whether to limit such a database to only covered foreign persons engaged in prohibited technology; (2) the evidentiary standard that the Treasury Department should meet before determining that a foreign person is (or is no longer) a covered foreign person engaged in a prohibited technology or a notifiable technology and should be included in (or removed from) a database; (3) how to communicate the limited temporal nature of inclusion in any such database, given that a covered foreign person' s engagement in a prohibited technology or notifiable technology can change over time; and (4) the administrative burden this may place on the Treasury Department. The Treasury Department welcomes comment on these and any other issues that may be relevant to the establishment of the public database.

Subpart K—Other Provisions

This subpart of the Proposed Rule would implement provisions related to the delegation of the Secretary's authorities under Title VIII, any amendment or modification of the Proposed Rule, severability of the Proposed Rule, and a requirement for certain information regarding any transaction to be furnished upon demand. The Proposed Rule would also state that, consistent with Title VIII, the Treasury Department has the power to investigate conduct that may constitute a violation, hold hearings, call witnesses, and require in-person testimony or production of documents.

III. Request for Comment

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

IV. Rulemaking Requirements

This Proposed Rule is intended to implement Subtitle C of the COINS Act, which added Title VIII to the Defense Production Act of 1950. Title VIII establishes a statutory framework for the Secretary to (1) require U.S. persons to provide notification to the Treasury Department regarding certain transactions involving foreign persons that are engaged in activities involving notifiable technologies, and (2) prohibit U.S. persons from engaging in certain other transactions involving foreign persons that are engaged in activities involving prohibited technologies.

The Treasury Department has opted, as a matter of discretion, to undertake a high-level analysis of the anticipated costs and benefits of the Proposed Rule.

In addition, this section includes the required assessments of the reporting and recordkeeping burdens under the Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq., and the potential impact on small entities pursuant to the Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.

A. Executive Orders 12866 and 13563

Executive Orders 12866 and 13563 direct agencies to assess costs and benefits of available regulatory alternatives for certain types of rulemaking in certain circumstances and, if regulation is necessary, to select regulatory approaches that maximize net benefits. The Office of Management and Budget's Office of Information and Regulatory Affairs has designated this Proposed Rule a significant regulatory action under E.O. 12866. The Treasury Department conducted an assessment of the costs and benefits of the Proposed Rule, as well as the costs and benefits of available regulatory alternatives.

As noted above, Title VIII directs the Secretary to issue regulations to (1) require U.S. person s to provide ( printed page 67413) notification to the Treasury Department regarding certain transactions involving foreign persons that are engaged in activities involving notifiable technologies, and (2) prohibit U.S. person s from engaging in certain other transactions involving foreign persons that are engaged in activities involving prohibited technologies. The Proposed Rule maintains the general framework of the Part 850 Regulations while making changes to implement Title VIII and address the effort by countries of concern to develop certain technologies that pose a threat to the national security of the United States.

Title VIII authorizes the Secretary, in consultation with the appropriate congressional committees and subject to notice and comment, to prescribe regulations defining the technical parameters of notifiable technologies and prohibited technologies in the following technology sectors: (1) semiconductor technology and microelectronics; (2) artificial intelligence systems; (3) quantum information technologies; (4) high-performance computing and supercomputing; and (5) hypersonic systems. As described above, the Treasury Department has determined that rapid advances in the development, adoption, and use of SI capabilities by countries of concern warrant an expansion in the prohibition of U.S. person investment in that sector. Additionally, for the reasons described above, the Treasury Department has expanded the prohibition on U.S. person investment into semiconductors and quantum computing in countries of concern. Title VIII also authorizes the Secretary, in consultation with the appropriate congressional committees, to add and define categories of technologies and products that enable the military, intelligence, surveillance, or cyber-enabled capabilities of a country of concern. The Secretary has determined for purposes of this Proposed Rule to add certain technologies and products within the biotechnology sector as prohibited technologies. Other changes include the coverage of additional countries of concern: Russia, Iran, Cuba, the Democratic People's Republic of Korea, and Venezuela under the regime of Nicolás Maduro Moros. Title VIII also requires that the implementing regulations establish a process under which a person can request confidential non-binding feedback or anonymized public guidance for a potentially prohibited transaction.

The Proposed Rule would apply to certain types of investments by U.S. persons in covered foreign persons engaged in the technologies and activities described above or meets the conditions of § 851.208(a)(8). These include certain acquisitions of equity interests, limited partner investments, greenfield investments, joint ventures, and certain debt financing transactions. The Proposed Rule would except from coverage certain activities or transactions that are identified in Title VIII, including investments in publicly traded securities, certain investment funds, any de minimis transaction, any ancillary transaction, an intracompany transfer of funds, or any ordinary or administrative business transaction, as well as other transactions secondary to a covered national security transaction. Title VIII also authorizes the Secretary to except from coverage any other transaction that the Secretary determines is in the national interest of the United States.

B. Costs

The primary direct costs to the public associated with the Proposed Rule would relate to (1) understanding the Proposed Rule, (2) conducting the transaction-specific diligence that would be needed for a U.S. person to determine whether its intended transaction would be subject to either the notification or prohibition provisions of the Proposed Rule; and (3) if applicable, preparing and submitting a mandatory notification of certain transactions or other information to the Treasury Department pursuant the Proposed Rule. The Treasury Department requests comments on any of the assumptions and estimates in this analysis.

The Proposed Rule would apply to all U.S. persons undertaking a covered national security transaction with or involving a covered foreign person. To estimate the number of potential transactions subject to the Proposed Rule, the Treasury Department considered the number of transactions filed under the notification requirement pursuant to the Part 850 Regulations, the scoping of the Proposed Rule, and a review of commercially available data on transactions that may be subject to the Proposed Rule based on the identified sector of the investment target.

For example, to estimate the number of entities and transactions that would be potentially affected by the Proposed Rule and would incur associated compliance costs, the Treasury Department considered publicly available data from PitchBook relating to transactions from approximately 2023 through 2025. This data indicated that over the relevant three-year period, almost 230 unique U.S.-based investors completed approximately 300 initial and add-on investment transactions in the semiconductor, artificial intelligence, quantum information technology, hypersonic system, high-performance computing and supercomputing, and biotechnology sectors (as such sectors are identified in the commercially available data) in countries of concern. This data suggests an annual average of 75 different investors collectively engaging in an annual average of approximately 100 potentially covered national security transactions. While granular details of U.S. private investment overseas cannot be determined with precision, the Treasury Department believes this figure to be a reasonable estimate. For purpose of this analysis, the Treasury Department then doubled the averages from this data over the relevant three-year period to account for the possibility that these average figures undercount transactions. For example, commercially available data may not include certain transactions that would be subject to the Proposed Rule, or such data may not identify certain transactions as occurring in the technology sectors subject to the Proposed Rule. Thus, the Treasury Department's analysis is based on the assumption that, annually, around 150 different investors collectively engage in 200 transactions that would be potentially covered by the Proposed Rule.

The Treasury Department is interested in comments regarding additional publicly available data sources that the Treasury Department should consider. The Treasury Department also welcomes comment on whether doubling the averages from publicly available data is a reasonable way to account for uncertainty or whether the Treasury Department should account for this uncertainty using a different methodology.

To derive an estimate for the costs related to the Proposed Rule, the Treasury Department first estimated the associated labor costs. The Treasury Department expects that businesses reviewing the Proposed Rule and engaging in potentially relevant transactions would engage their own employees as well as lawyers from outside law firms.

For a low-end estimate, the Treasury Department relied on May 2025 Occupational Employment and Wage Statistics (OEWS) data from the Bureau of Labor Statistics (BLS), which reports the mean hourly wage for Standard Occupational Classification System Code (SOC Code) 231011—Lawyers to be $89.35 per hour and SOC Code ( printed page 67414) 111021—General and Operations Managers to be $64.87 per hour.^[2] In each instance the Treasury Department tripled the BLS mean hourly wage figure. This adjustment is meant not only to account for employee benefits and overhead, but also to reflect the presumption that, because these U.S. investors require attorneys and other staff with experience in cross-border investments that involve complex financial and corporate structures, the hourly labor costs of the investors and their advisers likely to be affected by the Proposed Rule will be systematically higher than the hourly mean wage in these occupational categories. Accordingly, the Treasury Department estimates that the impacted entities will each incur costs of $195 per hour for operations managers and $268 for lawyers. As the Treasury Department is unable to determine which particular tasks will be performed by managers as compared to lawyers, this cost analysis uses the average wage of the two positions for both the low-end and high-end estimate, which the Treasury Department assesses is a reasonable method for estimating the hourly cost. The average of these figures is $231 per hour, which is the low-end estimate.

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

Costs Associated With Understanding the Proposed Rule

Based on the above assumptions and estimates of affected entities, number of transactions, and labor costs, the Treasury Department has estimated the annual time and cost that would be spent by affected entities in understanding the Proposed Rule. While recognizing that the amount of time necessary to understand the Proposed Rule will vary, the Treasury Department arrived at the below estimates for purposes of this analysis.

The range of estimated aggregate annual costs for understanding the Proposed Rule begins at $462,000 on the low end and rises to $586,000 on the high end. This is based on the estimate of an average time burden to be 10 total person-hours per transaction for understanding the Proposed Rule. As such, 10 total person-hours per transaction multiplied by 200 annual transactions and the low-end hourly labor cost range and high-end hourly labor cost range described above, respectively, result in the total cost range for understanding the Proposed Rule.

Costs Associated With Diligence and Maintaining Records

Based on the above assumptions and estimates of affected entities, number of transactions, and labor costs, the Treasury Department has estimated the annual time and cost that would be spent by affected entities on conducting diligence. While recognizing that the extent of this diligence will necessarily vary from transaction to transaction and noting that these economic estimates should in no way be construed as relevant to a party's determination of what constitutes a reasonable and diligent inquiry in light of the particular facts and circumstances of a transaction and the requirements of the Proposed Rule, the Treasury Department arrived at the following estimates for purposes of this regulatory analysis.

The Treasury Department estimates that the range of the annual additional cost for conducting diligence and maintaining records would range from $0 on the low-end to $2,344,000 on the high-end. In estimating the low-end, the Treasury Department recognizes that virtually all investment transactions, regardless of whether the investment is potentially subject to this Proposed Rule, require some minimum level of review, diligence, assessment, and recordkeeping by the investor. And, in most cases, the level of collected and retained information necessary to comply with the Proposed Rule would not give rise to an additional cost to the investor.

The Treasury Department estimates that with respect to those investment transactions where diligence and recordkeeping costs are expected to marginally exceed the normal costs due to more detailed inquiry regarding a technology or other detail relevant to the Proposed Rule, the average additional burden would not exceed 40 total person hours per transaction for conducting diligence and maintaining records.

As such, the Treasury Department arrived at the high-end estimate by multiplying 40 total person hours per transaction by 200 annual transactions by the high-end hourly labor cost range described above. The Treasury Department estimates 40 person-hours per transaction, based on a total of approximately eight person-hours across all involved employees and lawyers per business day for one week. However, the cost and duration of a U.S. person conducting diligence will vary depending on a transaction's complexity and may be higher for certain transactions, such as indirect transactions, including transactions undertaken by a U.S. person' s controlled foreign entity.

The Treasury Department seeks comment on whether these figures are reasonable benchmarks and estimates for this analysis or whether there are specific sources of data or estimates it should consider.

Costs Associated With Providing Information

The Proposed Rule contemplates mandatory notifications for notifiable transactions and other notices and information submissions. The Treasury Department intends to require U.S. persons to provide notification of certain transactions under the Proposed Rule. The Proposed Rule also contemplates that a person seeking a national interest exemption from the prohibition requirements of the Proposed Rule would submit certain information to the Treasury Department. The Proposed Rule also would require a U.S. person to make a post-closing submission regarding a transaction that the U.S. person believed at closing was not a covered national security transaction if the person later discovers information that, had it been known at closing, would have caused the transaction to be a covered national security transaction. Moreover, the ( printed page 67415) Proposed Rule would require a person to submit a notice of any material omission or inaccuracy in any previous representation, statement, or certification. Lastly, the Treasury Department anticipates time and cost associated with responding to inquiries by the Treasury Department.

The Treasury Department expects that, of the universe of potentially covered national security transactions for which U.S. persons perform due diligence each year, some will turn out not to be covered, others will turn out to be notifiable, and still others will turn out to be prohibited. For purposes of this analysis, however, the Treasury Department has assumed that U.S. persons will perform due diligence with respect to 200 potentially covered national security transactions each year, and that all 200 transactions are notifiable transactions. The Treasury Department has made this assumption in the interest of estimating an upper bound. As a general matter, a notifiable transaction would likely cost more in terms of time and resources than a prohibited transaction, because, in addition to the due diligence cost, a notifiable transaction would entail extra time to prepare and submit a notification.

The estimated annual cost range for time spent submitting information would be $2,310,000 to $2,930,000. This estimate assumes 50 person hours per transaction for preparing and submitting a notification, combined with the number of transactions per year—200—and the hourly labor cost range described above—$231 to $293. As discussed above, this number likely reflects the high-end estimate since this analysis assumes that every potentially relevant transaction would result in a notification. However, the Treasury Department expects that some prospective transactions subjected to due diligence would turn out to be not covered and others would turn out to be prohibited; transactions that are not covered national security transactions and prohibited transactions would not trigger a notification.

For purposes of this analysis, the Treasury Department estimated only the total annual costs of preparing and submitting a notification. If a respondent submits information in support of a national interest exemption, the Treasury Department anticipates that the associated time needed to prepare and submit such information would be comparable to the costs of preparing and submitting a notification. The Treasury Department anticipates that the time and cost of preparing and submitting a post-transaction notice, notice of any material omission or inaccuracy in any previous representation, statement, or certification, or responding to agency inquiries may be comparable but likely lower than the costs of preparing and submitting a notification.

Additionally, the Treasury Department recognizes that a U.S. person may incur costs for the preparation of a request for confidential non-binding feedback or anonymized public guidance. However, since this is an optional request for a U.S. person and is a new addition to the existing program, the Treasury Department cannot estimate the number of requests that may be submitted. Therefore, the Treasury Department has determined that costs associated with the non-binding feedback process will not be included in this cost estimate.

Estimated Total Direct Cost

Based on the direct cost estimates above, the total annual direct costs associated with complying with the Proposed Rule can be expected to have a range of between $2,772,000 to $5,860,000 and the total annual time burden would be approximately 20,000 person-hours.

Additional Indirect Costs Associated With Prohibited Transactions

With respect to prohibited transactions, the Treasury Department does not believe that the Proposed Rule will have additional direct economic costs to U.S. investors beyond those described above. There may, however, be additional indirect costs associated with prohibited transactions. Investors who would have otherwise engaged in a prohibited transaction, absent the Proposed Rule, may have to seek less promising investment opportunities since they would be precluded from undertaking and benefiting from prohibited transactions that would be foreclosed to them by the Proposed Rule. These indirect costs amount to the difference between the return that would have been generated by the prohibited transaction and the return that would result from the best alternative transaction. In addition, while the Proposed Rule may have an economic impact on investment targets that are covered foreign persons because certain transactions would be prohibited, the Proposed Rule is not designed to, nor does it, prohibit all U.S. person investments into such persons, due to the several exceptions provided for in the Proposed Rule.

Costs to the U.S. Government

Administering the Proposed Rule would also entail costs to the U.S. Government. Such costs would include information technology (IT) development and ongoing annual maintenance, as well as processing electronic submissions of the transaction data. The Treasury Department estimates that IT development costs would be between $4 million and $5 million with an additional $2 million to $3 million required to maintain the new systems and the underlying technology being leveraged to support the new capabilities. This would include adjustments to address changes in the type of notification information being received, as well as implementing processes for the electronic submission of requests for confidential non-binding feedback, and information submissions regarding potentially covered foreign persons, among other changes.

The Treasury Department or other agencies may incur additional costs, besides those estimated above, while promoting compliance with the notification and prohibition requirements, potentially including providing training on the requirements, publishing documents such as guidance and frequently asked questions, and conducting outreach to and answering inquiries from the public. The Treasury Department does not currently have specific estimates for these costs but estimates that there would be personnel costs of less than $1 million associated with the Proposed Rule in Fiscal Year 2027. For future years, the Treasury Department may incur additional costs for ongoing outreach and enforcement, as well as ensuring there is sufficient personnel to review and timely respond to requests for confidential non-binding feedback.

The Treasury Department and other government agencies may also incur costs in enforcing compliance with the Proposed Rule. These may include additional personnel costs related to the expanded prohibition in existing technology sectors as well as new technology sectors added by Title VIII. The Treasury Department does not currently have estimates for these costs, and they are not included in the estimates above.

The Treasury Department plans to monitor compliance with the Proposed Rule, when finalized, by leveraging a variety of data sources, both internal and external. Because the external data sources may include third parties, the Treasury Department requests comment on what external data sources would be ( printed page 67416) appropriate to leverage in identifying non-compliance with the Proposed Rule and what potential costs may be incurred by such third parties. If the external data sources include third party commercial data, the Treasury Department assesses that the costs associated with accessing these databases would be modest and incremental, given that the Treasury Department regularly maintains access to such databases but may need to request additional licenses for employees. After identifying an instance of apparent non-compliance, the Treasury Department may initiate outreach to the involved entity, work with law enforcement to investigate the apparent non-compliance, or initiate an enforcement action. The Treasury Department's enforcement of the Proposed Rule would also involve coordination with law enforcement agencies. These law enforcement agencies may also incur costs (time and resources) while conducting investigations into potential non-compliance.

C. Benefits

As Congress noted in the COINS Act, there are countless known and unknown entities in countries of concern that are developing dual-use strategic technologies that benefit a foreign adversary's military modernization efforts, surveillance states, and human rights abuses. Advancement by countries of concern in sensitive technologies and products critical for the military, intelligence, surveillance, human rights abuse, or cyber-enabled capabilities of such countries constitutes a threat to the national security of the United States. Restricting certain U.S. outbound investments into certain technologies in countries of concern is necessary to prevent harm to U.S. national security and foreign policy interests.

The Proposed Rule is designed to complement existing tools of the U.S. Government and effectively address the threat to the national security of the United States described in Title VIII. While the benefit of protecting national security is difficult to quantify, the Treasury Department has identified specific benefits below. The notification function of the Proposed Rule is intended to provide key information that the Treasury Department could use to better inform the development and implementation of the OISP. Such notifications received under the existing OISP have increased the U.S. Government's visibility into transactions by U.S. persons, or their controlled foreign entities, in the SI and the semiconductor and microelectronics sectors in a country of concern. These have also assisted the U.S. Government by highlighting trends with respect to related capital flows and investment by non-U.S. persons in these technology sectors in a country of concern. Finally, these notifications have informed policy development for the Proposed Rule as well as other U.S. Government efforts to protect U.S. national security. The Treasury Department expects to receive similar benefits from notifications filed under the Proposed Rule. The Treasury Department does not currently propose a breakeven analysis for the Proposed Rule, as it continues to collect information on potential costs and benefits of the Proposed Rule through the rulemaking process.

D. Alternatives

The Proposed Rule is promulgated pursuant to Title VIII, which directs the Treasury Department to issue regulations to implement its requirements. However, the Treasury Department considered some alternative approaches that would be consistent with Title VIII. Specifically, the Treasury Department considered the following potential alternatives to the Proposed Rule:

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

Paperwork Reduction Act

The collections of information contained in this Proposed Rule have been submitted to OMB for review in accordance with section 3507(d) of the PRA under control number 1505-0282.

The Proposed Rule would require U.S. persons to submit a notification with respect to (1) any notifiable transaction, as defined in the Proposed Rule; (2) any transaction by a controlled foreign entity that would be a notifiable transaction if engaged in by a U.S. person; and (3) any transaction for which a U.S. person acquires actual awareness after the completion date of the transaction that the transaction would have been a prohibited transaction or notifiable transaction if such awareness had been possessed by the relevant U.S. person at the time of the transaction. Such notification would include relevant details on the U.S. person involved in the transaction, as well as information on the transaction and the foreign person involved. The Proposed Rule would require any U.S. person that has filed a notification to respond to any questions or document requests from the Treasury Department related to the transaction or compliance with the Proposed Rule; any information or documents provided to the Treasury Department in response to such request would be deemed part of the notification under the Proposed Rule.

The Proposed Rule would also require any U.S. person that files a notification to maintain a copy of the notification filed and supporting documentation for a period of ten years from the date of the filing. Further, the Proposed Rule would require any person who has made any representation, statement, or certification subject to the Proposed Rule to notify the Treasury Department ( printed page 67417) in writing of any material omission or inaccuracy in such representation, statement, or certification. Also, the Proposed Rule would require any voluntary self-disclosure letter to describe the violation and provide complete information to inform an understanding of the violation, and may in some instances require additional supporting documentation. Additionally, the Proposed Rule would require any U.S. person seeking confidential non-binding feedback to have a direct financial interest in an actual transaction and provide sufficient detail in writing to determine if a transaction is a prohibited transaction. Finally, the Proposed Rule would also require any U.S. person seeking a national interest exemption to submit information to the Treasury Department regarding the scope of the transaction, including, as applicable, the information that would be required for a notification of a notifiable transaction.

The collections of information described would be used by the Treasury Department and, as appropriate, certain other Executive Branch agencies, in connection with the analysis of notifiable transactions pursuant to Title VIII. Under the current OISP, information provided in notifications has increased the U.S. Government's visibility into the volume and nature of U.S. person transactions involving the semiconductor and microelectronics and SI sectors, as well as helped highlight trends with respect to related capital flows. Similarly, the Treasury Department expects this information would continue to assist in informing future policy development and decisions, including any modifications to the scope of prohibited transaction or notifiable transaction. Additionally, the information would assist the Secretary in complying with the reporting requirements in Title VIII and in determining whether to grant a national interest exemption to a particular covered national security transaction. The Proposed Rule would require the Treasury Department not to make public any information or documentary materials submitted to or filed with the Treasury Department under the Proposed Rule unless required by law or otherwise provided in the Proposed Rule, including when the information is relevant to any penalty imposed or any other enforcement action taken under the Proposed Rule.

Written comments and recommendations for the proposed information collections can be submitted by visiting 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 December 7, 2026.

The Treasury Department used the methodology described in the previous section to estimate the total annual reporting and recordkeeping burden of the information collections in this Proposed Rule. The Treasury Department estimates that the annual hourly burden would be 18,000 hours. This annual total is based on the Treasury Department's assumption that: (1) 150 entities per year would respond to the information collections in this Proposed Rule and these respondents would file 200 responses to the information collections annually; and (2) each respondent would spend an average of 50 to 90 person hours per response. The Treasury Department estimates that the annual cost burden associated with the information collections in the Proposed Rule would range between $2,310,000 and $5,274,000.

In accordance with 5 CFR 1320.8(d)(1), the Treasury Department is soliciting comments from members of the public concerning these collections of information to:

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

(2) Evaluate the accuracy of the agency's estimate of the burden of the proposed collections of information;

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

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

Under the PRA, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the OMB.

Regulatory Flexibility Act

It is hereby certified that the Proposed Rule would not have a significant economic impact on a substantial number of small entities within the meaning of section 601(6) of the Regulatory Flexibility Act.

The Proposed Rule may impact any U.S. person, including a small business that engages in a covered national security transaction with a covered foreign person. The Treasury Department does not anticipate that the Proposed Rule would affect “small organizations” or “small governmental jurisdiction[s],” as defined in the RFA.

The Treasury Department expects the Proposed Rule to have a negligible baseline impact on small businesses because the Proposed Rule focuses on certain transactions that—based on the Treasury Department's experience with the type of U.S. investors involved in transactions currently subject to the existing OISP—are more likely to involve a small number of sophisticated investors managing substantial amounts of capital and with access to expertise in a number of emerging technology sectors. This expertise may be acquired through affiliated companies or the hiring of senior advisors with significant experience growing and managing successful technology companies, either of which financial investors that meet the requirements to be a small business are unlikely to have. Further, the covered foreign persons subject to the Proposed Rule are largely located outside of the United States, requiring U.S. investors to hire or retain staff skilled in assessing and structuring complex cross-border investments in foreign companies, which is not common to small businesses. In addition, and as discussed below, the Treasury Department has assessed that small businesses would be more likely to enter into the types of transactions excepted from coverage, including de minimis transactions and investments in publicly traded securities, if such businesses are investing at all into covered national security transactions.

As an example, the Small Business Administration's (SBA's) Table of Size Standards with respect to North American Industry Classification System U.S. Industry Sector 52 “Finance and Insurance” defines a small business in this sector by dollar value rather than by number of employees. For example, SBA categories such as “open end investment funds,” and “other financial vehicles” are not considered small businesses if their average annual receipts exceed $40 million. A number of the U.S. investors who have submitted notifications pursuant to the Part 850 Regulations are investment firms or entities that exceed this threshold, as do most investment entities operating in the United States. As a reference point, according to the Investment Company Institute, there were 11,263 U.S. businesses in this ( printed page 67418) category with net sales of $1.58 trillion.^[4] Extrapolating from this data, the average net sales per firm in this category would have been $140.4 million.

Given the applications of technologies and products in these sectors, the Treasury Department believes investments into these sectors involving a person of a country of concern is not typical for a small business, as these investor types are treated in the SBA's Table of Size Standards. Importantly, the Proposed Rule would also except certain types of transactions, including certain investments into publicly traded securities or into certain investment funds, as well as de minimis transactions where a small business is more likely to consider investing. Given the narrow scoping of what constitutes a covered national security transaction under the Proposed Rule, the Treasury Department expects that few small businesses, as that term is defined by SBA, will be impacted by the Proposed Rule.

In the unlikely event that a small entity is subject to the requirements of the Proposed Rule, such entity would be expected to incur the costs described in the separate cost benefit analysis above. For submission of notifications, the Treasury Department has endeavored to develop information gathering procedures that minimize the burden on U.S. persons, both large and small. U.S. persons who file a notification will use a fillable form that will be available online and is intended to facilitate submission through an electronic format. This fillable form will benefit anyone who submits a notification, regardless of their size, but may be especially helpful for small businesses that will be able to submit directly to the Treasury Department through the online portal.

Notwithstanding this certification, the Treasury Department invites comments from the public about the impact the Proposed Rule would have on small entities. The Proposed Rule will be submitted to the Chief Counsel for the SBA Office of Advocacy for comment on its impact on small business.

Unfunded Mandates Reform Act (UMRA)

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

Executive Order 13132: Federalism

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

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

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

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

2. Add § 850.105 to read as follows:

3. Add part 851, consisting of §§ 851.101 through 851.1104, to read as follows:

91 FR 67396