Changes to the definition of “covered foreign person”
Under the Part 850 Regulations, “covered foreign person” status requires engagement in a covered activity. By contrast, under the Proposed Rule, “covered foreign person” status turns solely on a person’s relationship to a country of concern, with the technology analysis moved into the definitions of “notifiable technology” and “prohibited technology.”
The Proposed Rule defines “covered foreign person” in a manner generally consistent with the definition of “person of a country of concern” from the Part 850 Regulations (see 31 C.F.R. § 850.221) and retains the 50% test for revenue, net income, capital expenditure, and operating expenses. However, the definition is broadened to include:
- Members of the Central Committee of the Chinese Communist Party (the CCP) and other political leadership of a country of concern and
- Persons (including entities) directly or indirectly subject to the direction or control of the government of a country of concern, or of certain other covered foreign persons.
The Proposed Rule does not define “control” or provide a bright-line test. Instead, it provides that “subject to the direction or control” means that a covered foreign person has the power, directly or indirectly, to direct or cause the direction of the management or policies of the entity (whether through the ownership of voting securities, by contract, or otherwise).
Because the Proposed Rule expands the definition of “principal place of business” to include both an entity’s headquarters and the location where it conducts its main business activities, an entity can be deemed to have more than one principal place of business. For example, a company incorporated and headquartered in the United States whose chief executive officer resides and primarily manages the business in a country of concern would have a principal place of business in both the United States and the country of concern.
The COINS Act added Cuba, Iran, North Korea, Russia, and “the Bolivarian Republic of Venezuela under the regime of Nicolás Maduro Moros” to the People’s Republic of China (including Hong Kong and Macau) as “countries of concern.” This change is unlikely to have much practical effect because U.S. sanctions separately prohibit new investment in Cuba, Iran, North Korea, and Russia, and Treasury notes that the referenced Venezuelan regime no longer exists.
Expanded list of “Excepted Transactions”
The Part 850 Regulations include a list of “excepted transactions” that are not subject to the notification requirements and prohibitions of the OISP. The Proposed Rule retains the exceptions for the following, subject to the applicable qualifications:
- publicly traded securities
- investment company securities
- LP investments (where committed capital does not exceed USD2 million or the investment is subject to a binding contractual assurance)
- derivatives (although the Proposed Rule drops the Part 850 carve-out for derivatives conferring the right to acquire equity or assets of a covered foreign person)
- full buyouts
- intracompany transfers
- binding, uncalled capital commitments entered into before the effective date of the applicable regulations
- acquisitions of voting interests upon default of syndicated loans
- employment compensation
- investments in certain designated countries. See 31 C.F.R. § 850.501.
The Proposed Rule also adds some notable exceptions:
- De minimis transactions. Notifiable transactions that, in the aggregate across the covered national security transactions or provision of funds to the relevant covered foreign person or joint venture in the preceding 12 months, do not exceed USD50,000 in value (including the fair market value of any non-cash consideration). This de minimis exception does not apply to prohibited transactions.
- Secondary transactions. Transactions secondary to a covered national security transaction, including: certain contractual arrangements (other than those for technology transfer or technical knowledge transfer) or the procurement of material inputs for any covered national security transactions; bank lending; processing, clearing, or sending of payments by a bank; underwriting services (including the temporary acquisition of an equity interest for the sole purpose of facilitating underwriting services); debt rating services; prime brokerage; global custody; equity research and analysis; or other similar services. Treasury’s December 23, 2025 FAQs addressed services ancillary to IPOs that do not include the acquisition of an equity interest; the Proposed Rule goes further by addressing the temporary acquisition of equity to facilitate underwriting.
- Ancillary transactions by financial institutions. Any ancillary transaction undertaken by a financial institution, including: the processing, clearing, or sending of payments and cash transactions; underwriting services (including the temporary acquisition of an equity interest for the sole purpose of facilitating underwriting services); credit rating services; and other services ordinarily incidental to the provision of financial services (e.g., opening deposit accounts, direct custody services, foreign exchange services, remittance services, and safe deposit services). The preamble to the Part 850 Regulations stated that ancillary services were outside the scope of the OISP; the Proposed Rule codifies that position.
- Ordinary or administrative business transactions. Any ordinary or administrative business transaction. The Proposed Rule does not define “ordinary or administrative business transaction,” and Treasury notes that the broad exceptions for ancillary and secondary transactions may already cover many transactions in this category.
Knowledge standard and non-binding feedback
The Proposed Rule introduces a new factor for assessing whether a U.S. person has undertaken a “reasonable and diligent inquiry” under the OISP: whether the U.S. person appropriately considered information Treasury provided before the transaction, including any Treasury assessment that the relevant covered foreign person may be engaged in a notifiable technology or a prohibited technology.
Under the COINS Act, Treasury has the authority to establish a publicly accessible, non-exhaustive database that identifies covered foreign persons engaged in a prohibited or notifiable technology; Treasury stated that it does not intend to establish such a database at this time. As required by the COINS Act, the Proposed Rule also includes a process to request non-binding feedback from Treasury as to whether a transaction would constitute a prohibited transaction. Under the Proposed Rule, only a person with a direct financial interest in an actual, non-hypothetical transaction may request feedback, and the written request must include all relevant and material information. The requester may seek anonymized public guidance or confidential non-binding feedback, and Treasury may respond or decline to provide feedback.
Otherwise, the Proposed Rule’s definition of “knowledge” and the existing “reasonable and diligent inquiry” considerations (e.g., target inquiries, contractual representations, efforts to obtain public and non-public information, deliberate avoidance, warning signs, and use of commercial databases) are consistent with the Part 850 Regulations.
Next steps
Financial institutions, investors, funds, and companies should assess the potential impacts of the Proposed Rule and consider submitting comments to Treasury.
We also recommend that parties (i) review existing and upcoming investments in the newly covered technology sectors and (ii) consider any updates to their OISP compliance policies, diligence questionnaires, and contractual representations that may be necessary in light of the COINS Act and the changes previewed by the Proposed Rule.
Depending on the comments it receives, Treasury may make further changes in the final regulations implementing the COINS Act. Interested parties can submit comments on the Proposed Rule until December 7, 2026. In the meantime, do not hesitate to contact the A&O Shearman International Trade Group with any questions about the OISP, including the Part 850 Regulations and the Proposed Rule.
Footnotes
1. See Press Release, “Treasury Issues Proposed Rule to Implement Comprehensive Outbound Investment National Security Act” (Oct. 22, 2026). See also Treasury Fact Sheet and FAQs (Oct. 22, 2026).
.jpg%3Fh%3D1520%26iar%3D0%26w%3D2026&w=256&q=75)
