Interpretation of Foreign Entity of Concern, 37079-37091 [2024-08913]

Agencies

• DEPARTMENT OF ENERGY

[Federal Register Volume 89, Number 88 (Monday, May 6, 2024)]
[Rules and Regulations]
[Pages 37079-37091]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08913]


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DEPARTMENT OF ENERGY

10 CFR Chapter III

RIN 1901-ZA02


Interpretation of Foreign Entity of Concern

AGENCY: Office of Manufacturing and Energy Supply Chains (MESC), U.S. 
Department of Energy.

ACTION: Notification of final interpretive rule.

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SUMMARY: On December 4, 2023, the U.S. Department of Energy (DOE or the 
Department) published in the Federal Register for public comment a 
proposed interpretive rule on DOE's interpretation of the statutory 
definition of ``foreign entity of concern'' (FEOC) in the 
Infrastructure Investment and Jobs Act, also known as the Bipartisan 
Infrastructure Law (BIL), which applies to multiple programs related to 
the battery supply chain. This statutory definition provides that, 
among other criteria, a foreign entity is a FEOC if it is ``owned by, 
controlled by, or subject to the jurisdiction or direction of a 
government of a foreign country that is a covered nation.'' In this 
final interpretive rule, DOE responds to public comments, clarifying 
the term ``foreign entity of concern'' by providing interpretations of 
the following key terms: ``government of a foreign country;'' ``foreign 
entity;'' ``subject to the jurisdiction;'' and ``owned by, controlled 
by, or subject to the direction.''

DATES: This final interpretive rule is effective May 6, 2024.

FOR FURTHER INFORMATION CONTACT: 
    Widad Whitman, U.S. Department of Energy, Office of Manufacturing 
and Energy Supply Chains at Email: [email protected], Telephone: 
(202) 586-3302.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background and Purpose
II. Discussion of Comments
    A. Summary of Comments
    B. Foreign Entity
    C. Government of a Foreign Country
    D. Subject to the Jurisdiction
    E. Owned by, Controlled by, or Subject to the Direction
    F. Other Comments
III. Explanation of Final Interpretation and Changes From the 
Proposed Interpretive Rule
    A. Purpose
    B. Foreign Entity
    C. Government of a Foreign Country
    D. Subject to the Jurisdiction
    E. Owned by, Controlled by, or Subject to the Direction
IV. Regulatory Review
V. Final Interpretive Rule on the Definition of Foreign Entity of 
Concern
    A. Overview
    B. Foreign Entity
    C. Government of a Foreign Country
    D. Subject to the Jurisdiction
    E. Owned by, Controlled by, or Subject to the Direction
VI. Approval of the Office of the Secretary

I. Background and Purpose

    Section 40207 of BIL (42 U.S.C. 18741) provides DOE $6 billion to 
support domestic battery material

[[Page 37080]]

processing, manufacturing, and recycling. Section 40207(b)(3)(C) 
directs DOE to prioritize material processing applicants that will not 
use battery material supplied by or originating from a ``foreign entity 
of concern'' (FEOC). Similarly, section 40207(c)(3)(C) directs DOE to 
prioritize manufacturing applicants who will not use battery material 
supplied by or originating from a FEOC and prioritize recycling 
applicants who will not export recovered critical materials to a FEOC. 
FEOC is defined in BIL section 40207(a)(5). The relevant paragraph 
lists five grounds upon which a foreign entity is considered a FEOC, 
described in subparagraphs (A) through (E). Subparagraphs (A), (B), and 
(D) address entities designated as foreign terrorist organizations by 
the Secretary of State, included on the Specially Designated Nationals 
and Blocked Persons List (SDN List) maintained by the Department of the 
Treasury's Office of Foreign Assets Control (OFAC), and alleged by the 
Attorney General to have been involved in various illegal activities, 
including espionage and arms exports, for which a conviction was 
obtained, respectively. Subparagraph (C) states that a foreign entity 
is a FEOC if it is ``owned by, controlled by, or subject to the 
jurisdiction or direction of a government of a foreign country that is 
a covered nation (as defined in [10 U.S.C. 4872(d)(2)]).'' The 
``covered nations'' are the People's Republic of China (PRC), the 
Russian Federation, the Democratic People's Republic of North Korea, 
and the Islamic Republic of Iran (10 U.S.C. 4872(d)(2)). BIL section 
40207(a)(5) provides no further definition of the term ``foreign 
entity'' or of the terms used in subparagraph (C).
    Subparagraph (E) of BIL section 40207(a)(5) provides an additional 
means by which an entity may be designated to be a FEOC: a foreign 
entity is a FEOC if it is ``determined by the Secretary [of Energy], in 
consultation with the Secretary of Defense and the Director of National 
Intelligence, to be engaged in unauthorized conduct that is detrimental 
to the national security or foreign policy of the United States.'' The 
Secretary of Energy has not exercised this authority, as of this date.
    In addition to affecting which entities DOE will prioritize as part 
of its BIL section 40207 Battery Materials Processing and Battery 
Manufacturing and Recycling Grant Programs, the ``Foreign Entity of 
Concern'' term is cross-referenced in section 30D of the Internal 
Revenue Code (IRC) (26 U.S.C. 30D), as amended by the Inflation 
Reduction Act of 2022 (IRA). Section 30D provides a tax credit for new 
clean vehicles, including battery electric vehicles. Section 30D(d)(7) 
excludes from the definition of ``new clean vehicle'' ``(A) any vehicle 
placed in service after December 31, 2024, with respect to which any of 
the applicable critical minerals contained in the battery of such 
vehicle (as described in [section 30D(e)(1)(A)]) were extracted, 
processed, or recycled by a [FEOC] (as defined in section 40207(a)(5) 
[of BIL] (42 U.S.C. 18741(a)(5))), or (B) any vehicle placed in service 
after December 31, 2023, with respect to which any of the components 
contained in the battery of such vehicle (as described in section 
30D(e)(2)(A)) were manufactured or assembled by a [FEOC] (as so 
defined).''
    On December 4, 2023, DOE published in the Federal Register its 
notice of proposed interpretive rule and request for comments related 
to the definition of FEOC contained in section 40207(a)(5) of BIL (88 
FR 84082). The comment period closed on January 3, 2024.
    After careful consideration of available information related to the 
battery supply chain and comments received, DOE is now issuing this 
final guidance regarding which foreign entities qualify as FEOCs, under 
BIL 40207(a)(5)(C), as a result of being ``owned by, controlled by, or 
subject to the jurisdiction or direction of a government of a foreign 
country that is a covered nation.'' For the purposes of this document, 
DOE uses the term ``interpretive rule'' and ``guidance'' 
interchangeably. At a future date, DOE may decide to initiate a 
separate rulemaking to implement the Secretary's ``determination 
authority'' contained in BIL section 40207(a)(5)(E) (42 U.S.C. 
18741(a)(5)(E)).
    To get the benefit of input from the public and interested 
stakeholders, the Department specifically requested comments on its 
proposed interpretation of the terms discussed in its proposed 
interpretive rule (88 FR 84082). The proposed interpretive rule was 
intended to solicit public feedback on DOE's interpretation to better 
understand stakeholder perspectives prior to implementation of 
finalized guidance. The Department considered all comments received 
during the public comment period and modified its proposed approach, as 
appropriate, based on public comment as described in section III of 
this document.
    This final guidance proceeds as follows: Section II of this 
document provides a discussion of comments received and DOE's response 
to those comments; section III of this document provides an explanation 
of final interpretation and changes from the proposed interpretive 
rule; section IV of this document provides information on Regulatory 
Review of this interpretive guidance; section V of this document 
provides DOE's final interpretive rule on the definition of Foreign 
Entity of Concern; and section VI of this document provides the 
approval of the Office of the Secretary.

II. Discussion of Comments

A. Summary of Comments

    DOE received 84 comment submissions in response to the proposed 
interpretive rule. Comments were received from original equipment 
manufacturers; cell producers; materials suppliers; component 
suppliers; trade organizations; a nonprofit organization; a consultant; 
foreign governments; and individuals. Forty-two--half of the total 
comments received--were from anonymous sources. Several comments 
included confidential business information, along with a non-
confidential version to be uploaded to the docket for public viewing. 
Additionally, at the request of the governments of the Republic of 
Korea, Chile, and Australia, DOE met with delegations from each 
country. Meeting notes of these ex parte communications have been 
posted to the public docket. Commenters generally expressed support for 
the issuance of guidance, welcoming additional clarity on the 
definition of the term ``foreign entity of concern.'' Many comments 
raised specific concerns about the feasibility of compliance without 
bright-line administrable standards to govern which entities qualify as 
FEOCs. Many other submissions raised specific concerns about rules that 
too narrowly construe the term FEOC, raising concerns about 
manipulation of the battery supply chain by covered nations. Other 
submissions were more general in nature and did not provide specific 
comments on the proposed interpretive rule itself. All submissions were 
carefully reviewed, and DOE thanks the public for its engagement. DOE's 
responses to comment within the scope of this interpretive rule have 
been grouped by the topic area to which they pertain and are summarized 
as follows.

B. Foreign Entity

    Comment: Multiple commenters sought clarity on how the guidance 
intends to treat a U.S.-headquartered company with its principal place 
of business in the United States but operating in a covered nation. 
Specifically, the commenters questioned whether such a U.S. entity's 
operations within a covered nation can be considered a FEOC under the 
guidance

[[Page 37081]]

even if the U.S. entity does not fall into the definition of ``foreign 
entity.''
    Response: The guidance includes in the definition of ``foreign 
entity'' any ``partnership, association, corporation, organization, or 
other combination of persons organized under the laws of or having its 
principal place of business in a foreign country.'' If a U.S.-
headquartered company has operations in a foreign country but has not 
organized under the laws of that country, then the guidance would not 
consider them to be a foreign entity. However, entities that operate 
within covered nations are typically required to be organized under the 
laws of that nation, and if that is the case, then such entities will 
be considered foreign entities, and thus subject to the jurisdiction of 
the covered nation's government. In this scenario, even though the 
operations of the U.S. entity located in the covered nation are 
considered a FEOC, this designation would not flow back to the U.S. 
entity's operations in the United States or other third-party 
countries.

C. Government of a Foreign Country

    Comment: One commenter requested that DOE provide a definitive list 
of individuals who are considered to be current or former senior 
government officials and therefore considered part of the ``government 
of a foreign country.'' The commenter argued that determining which 
officials are considered ``senior'' and whether their family members 
hold interests in a company will not always be readily apparent.
    Response: While DOE understands the commenter's concern, DOE 
declines to make this change. Compiling a complete list of current and 
former senior government officials would prove challenging given that 
the list would likely be subject to frequent change, difficult to 
predict, and very likely underinclusive. Furthermore, DOE does not have 
the resources to do so for every company that may be in the battery 
supply chain; however, individual participants in the battery supply 
chain will be in a position to individually analyze their specific 
upstream suppliers and ask those suppliers to provide information 
necessary for such an evaluation. DOE's guidance provides additional 
clarity for such evaluation by identifying markers of when an 
individual official should be considered ``senior,'' and in the case of 
the People's Republic of China (PRC), identifying particular Chinese 
Communist Party (CCP) entities whose current and former members should 
be considered senior foreign political figures.
    Comment: Several other commenters requested that DOE provide 
greater clarity for the definition of ``senior foreign political 
figure,'' particularly regarding whether (a) there is a time period 
that may pass after which a former official can no longer be considered 
a part of the government of a foreign country; (b) what level an 
official must be to be considered ``senior;'' and (c) for the PRC, 
whether ``senior foreign political figure'' is limited to individuals 
with membership on the CCP entities identified in the guidance.
    Response: There is no designated amount of time for how long an 
individual may be a former official and avoid being considered a 
``senior foreign political figure.'' The concerns that arise from 
representing the government in a senior role and from membership on the 
CCP bodies identified in the guidance, for which former membership is 
considered, do not dissipate over time just because an individual no 
longer represents that government or political body.
    The standard for determining whether a particular individual is a 
``senior'' figure under the guidance is whether the individual 
exercises ``substantial authority over policy, operations, or the use 
of government-owned resources.'' In the context of the PRC, the 
guidance identifies particular CCP entities whose members should be 
considered to be senior officials of a ``dominant or ruling foreign 
political party.'' These bodies do not constitute all senior foreign 
political figures in the PRC, however. Apart from roles within a 
dominant political party, a senior official who works for the 
government of a covered nation in an official capacity, whether at a 
government ministry, for a state-owned enterprise (SOE), or within the 
military, may also be considered a ``senior foreign political figure.'' 
DOE declines to specify particular government positions that qualify as 
``senior,'' but believes the standard provided (i.e., ``a position of 
substantial authority over policy, operations, or the use of 
government-owned resources'') provides a reasonable standard with which 
to evaluate companies in the battery supply chain.
    Comment: Other commenters argued that a determination of senior 
political figure ownership and involvement in private companies would 
be unduly onerous and may not be feasible. Relatedly, one commenter 
asked for greater clarity on what level of diligence and processes 
companies are expected to undertake to determine whether individuals or 
their family members who control entities within their supply chain 
qualify as senior foreign political figures.
    Response: DOE's guidance has been drafted to provide a reasonable 
interpretation of the statutory definition of FEOC contained in 42 
U.S.C. 18741(a), while taking into account administrability concerns. 
While outside the scope of this guidance, for the purposes of 
determining eligibility for the 30D tax credit, the Treasury 
Department's final regulations on Clean Vehicle Credits under Sections 
25E and 30D; Transfer of Credits; Critical Minerals and Battery 
Components; Foreign Entities of Concern published elsewhere in this 
issue of the Federal Register and associated guidance (Rev. Proc. 2023-
38) identify due diligence measures, including the potential for 
attestations of compliance from companies within a manufacturer's 
supply chain, that can be used to provide reasonable assurance that an 
entity's supply chain is free of FEOCs, including control by senior 
foreign political figures.
    Comment: One commenter noted that the proposed interpretive rule 
suggests that local or subnational government-owned enterprises are 
considered to be part of the ``government of a foreign country'' and 
questioned whether all SOEs should be considered part of the 
``government of a foreign country'' such that an entity controlled by 
an SOE at a level of 25% or more would also be a FEOC.
    Response: DOE agrees that all SOEs, whether local or national, 
should be considered to be instrumentalities of a national or 
subnational government, and thus part of the ``government of a foreign 
country.'' As such, a national SOE's voting rights, equity interests, 
or board seats in an entity can be combined with a local SOE's 
ownership of the same entity to reach the 25% FEOC threshold for 
control of that entity.
    Comment: One commenter asked for clarity as to whether, with 
respect to the PRC, a ``dominant or ruling political party'' in the 
interpretation of ``government of a foreign country'' refers only to 
the central party, or to local party apparatuses as well.
    Response: The guidance includes local and subnational government 
officials in the definition of government of a foreign country, and 
therefore senior government officials at the local and subnational 
level should be considered to be part of the government of a foreign 
country. When it comes to senior officials from a dominant or ruling 
party, DOE's final interpretive guidance also makes clear that the list 
of specific CCP entities that are

[[Page 37082]]

considered part of the ``government of a foreign country,'' includes 
current, but not former, members of local or provincial Chinese 
People's Political Consultative Conferences (CPPCC).

D. Subject to the Jurisdiction

    Comment: One commenter urged DOE to clearly define the term 
``principal place of business'' in the guidance.
    Response: DOE intends for the term ``principal place of business'' 
to be interpreted consistent with standard practice. The guidance is 
informed by the United States Supreme Court's formulation in Hertz 
Corp. v. Friend, in which a principal place of business is considered 
to be the ``place where a corporation's officers direct, control, and 
coordinate the corporation's activities [and] in practice it should 
normally be the place where the corporation maintains its 
headquarters--provided that the headquarters is the actual center of 
direction, control, and coordination, i.e., the `nerve center.' '' 559 
U.S. 77, 92-93 (2010).
    Comment: Multiple commenters argued that all subsidiaries of FEOCs 
should be considered FEOCs themselves, even when the parent entity is 
only a FEOC via jurisdiction due to it being headquartered within a 
covered nation.
    Response: DOE declines to make this change. DOE's interpretive 
guidance is intended to clarify the statutory terms in a way that gives 
effect to the purpose of the statutory provisions to which it applies. 
The term FEOC within section 40207, as it applies to both DOE's battery 
materials processing and battery manufacturing and recycling grant 
programs and to the 30D tax credit, is intended to both reduce reliance 
upon covered nations in the battery supply chain and provide a pathway 
for companies in the United States and third-party countries to 
increase production of critical minerals, battery components, and 
battery materials. At this time, DOE concludes that United States or 
third-party country subsidiaries of entities that are headquartered 
within a covered nation do not necessarily pose the same risk to the 
battery supply chain as subsidiaries that are FEOCs by virtue of the 
government of a covered nation holding, directly or indirectly, 25% or 
more of the equity interests, board seats, or voting rights of the 
subsidiary. This is due to: (a) their location within the United States 
or third-party countries; and (b) the lack of direct control by the 
government of a covered nation. In addition, DOE's interpretation 
serves the intended purpose of the statute by providing a pathway for 
the onshoring and friend-shoring of critical minerals, battery 
components, and battery materials. This contrasts with the primary 
purpose of the CHIPS and Science Act of 2022, and the implementation of 
the Department of Commerce's substantially similar FEOC provision, 
which concerns the prevention of transfers of semiconductor technology 
to covered nation governments.
    Comment: More than one of the commenters that urged that all 
subsidiaries of FEOCs be considered FEOCs themselves, expressed concern 
that companies headquartered in the PRC, even when privately held with 
no formal control by the government of the PRC, may receive significant 
government subsidy, grants, and debt financing to pursue expansion 
outside of the PRC. One of these commenters urged DOE to aggressively 
assess whether such companies are actually private or are engaged in 
activities designed to avoid FEOC designation.
    Response: DOE considered whether to expand the definition of 
``control'' under this interpretive rule to incorporate companies that 
are controlled by the government of a covered nation by virtue of 
significant investments by that government of the kind identified by 
the commenters (e.g., subsidies, grants, or debt financing) from the 
government of a covered nation. However, DOE has not yet identified a 
sufficiently bright-line rule for such investments that would be 
administrable by entities in the battery supply chain or by vehicle 
manufacturers. Accordingly, DOE declines to make this change to the 
interpretive guidance at this time. With respect to its evaluation of 
applications for domestic battery material processing, manufacturing, 
and recycling grants under section 40207 of BIL, DOE notes that it will 
conduct a holistic risk evaluation process related to research, 
technology, and economic security. Such evaluation will include 
consideration of financial support by countries of concern, including 
the PRC. In addition, DOE may consider government investment as part of 
its exercise of the Secretary of Energy's authority under BIL section 
40207(a)(5)(E) to designate an entity a FEOC if it is ``engaged in 
unauthorized conduct that is detrimental to the national security or 
foreign policy of the United States.'' Furthermore, DOE will continue 
to monitor the battery supply chain market and may consider revisiting 
this issue in the future through updated interpretive guidance defining 
control by the government of a covered nation based on significant 
investments from that government. Any information that may assist DOE 
in monitoring the battery supply chain market may be submitted to the 
email address identified in the ``For Further Information'' section of 
this document.

E. Owned by, Controlled by, or Subject to the Direction

    Comment: Several commenters asked whether, when calculating an 
entity's voting rights, equity interests, or board seats held by the 
government of a covered nation, the guidance requires that these 
calculations be made in combination or independently.
    Response: DOE responds with the following clarification. The 25% 
threshold applies to each metric independently, not in combination. For 
example, and assuming no other relevant circumstances, if an entity has 
20% of its voting rights, 10% of its equity interests, and 15% of its 
board seats each held by the government of a covered nation, these 
percentages would not be combined to equal 45% control, but would each 
be evaluated independently, resulting in the entity being controlled at 
the level of the highest metric (i.e., 20%) and thus not considered a 
FEOC. That said, DOE recognizes that significant levels of government 
control in all three metrics may still raise concerns. As such, as 
indicated above in response to a previous comment, DOE may incorporate 
such considerations into its evaluation of applications for grants 
under section 40207 of BIL, through utilization of the Secretary's 
authority under BIL section 40207(a)(5)(E), or through revisions to the 
interpretive guidance upon evidence of evasive gamesmanship with 
respect to the 25% threshold.
    Comment: One commenter asked for greater clarity on what 
constitutes voting rights, equity interests, and board seats for the 
purposes of calculating whether a 25% controlling interest exists. 
Specifically, the commenter asked (a) whether DOE intended to refer to 
``traditional voting rights belonging to common stockholders or the 
voting rights of owners'' or to ``the voting rights of a board;'' (b) 
how to calculate the value of an individual board seat; and (c) what 
constitutes equity interests for the purposes of the guidance.
    Response: As previously stated, DOE notes that each of these 
metrics of control is intended to be calculated independently. For 
``voting rights,'' DOE intends to refer to the voting rights of owners, 
as suggested by the commenter. This means that the voting power of 
owners of different types of stock, to the

[[Page 37083]]

extent this information is reasonably ascertainable, should be 
considered in calculating whether a FEOC controls 25% of the voting 
rights in an entity. For ``board seats,'' DOE intends for the value of 
a board seat to equal the value of its voting power on the board. So, 
if one board seat is held by a representative of the government of a 
covered nation and that seat holds 25% of the board voting power, then 
that entity would be considered a controlled FEOC. For ``equity 
interests,'' DOE intends to refer to percent value of the ownership 
interest, to include capital or profit interests and contingent equity 
interests, in the company held by an individual or entity, with the 
amount of contingent interest that can be reasonably determined 
included for the purpose of determining FEOC compliance.
    Comment: Several commenters raised concerns that the analysis 
required to evaluate the FEOC compliance of a manufacturer's supply 
chain, including the voting rights, board seats, and equity interests 
for privately held companies, will be unduly burdensome and create 
administrability problems. Other commenters, however, stated that the 
FEOC guidance is stringent but, for the most part, workable.
    Response: DOE's guidance has been drafted to give a reasonable 
interpretation to the statutory definition of FEOC contained in 42 
U.S.C. 18741(a), while taking into account administrability concerns. 
The due diligence measures required for determining FEOC compliance for 
purposes of determining eligibility for the 30D tax credit and for 
DOE's BIL 40207 grant programs are outside the scope of this guidance.
    Comment: One commenter stated that the 25% threshold for control is 
too bright-line and will allow an entity to drop its covered nation 
government ownership stake to 24.9% to avoid being deemed a controlled 
FEOC. Several other commenters stated their support for the 25% bright-
line threshold and the guidance's alignment with the Department of 
Commerce's FEOC definition in its Final Rule on Preventing the Improper 
Use of CHIPS Act Funding (CHIPS Rule) as published in the Federal 
Register on September 25, 2023 (88 FR 65600).
    Response: DOE declines to make a change. The guidance attempts, to 
the greatest degree possible, to establish bright-line rules to allow 
individual entities seeking to take advantage of BIL section 40207 and 
IRC section 30D to readily evaluate whether their upstream suppliers 
should or should not be considered FEOCs. Without that clarity, 
individual entities would be unable to properly evaluate their supply 
chains. To the extent that an entity changes its ownership structure to 
fall below the 25% threshold, DOE views such restructuring as a 
desirable dilution of covered nation government control, consistent 
with the purposes of the FEOC restrictions in BIL section 40207 and IRC 
section 30D, as DOE understands them.
    Comment: Similarly, another commenter stated that DOE's 
interpretation of indirect control allows for an entity to alter its 
ownership structure to skirt the FEOC ban, by nesting control and 
allowing control to defuse through levels of subsidiaries.
    Response: DOE declines to make a change. First, not all ownership 
stakes dilute in a tiered ownership structure. Specifically, DOE notes 
that the guidance makes clear that the controlling stake of a parent 
company with 50% or more interest in a subsidiary does not attenuate. 
Thus, the covered nation government's level of control would not 
attenuate in a situation where there exist tiers of subsidiaries that 
are owned at a level of 50% or more. Second, DOE's approach to 
calculating indirect control recognizes the reality that, in the case 
of multiple tiers of minority control by a covered nation government, 
the actual ability of the covered nation government to influence the 
operations of a subsidiary may become materially attenuated.
    Comment: One commenter asked for clarification on why DOE used the 
parenthetical phrase ``(including the government of a foreign country 
that is a covered nation)'' in the interpretation of ``control,'' since 
the focus of the guidance relates to control by the government of a 
covered nation.
    Response: The interpretation of ``control'' in the guidance is 
meant to encompass both situations where the government directly 
controls an entity and when the government may indirectly control an 
entity through another entity that is not itself the government of a 
covered nation. In addition, the ``control'' definition is also 
embedded into the interpretation of ``foreign entity,'' to identify 
situations where a U.S. entity is considered to be ``foreign'' as a 
result of control. The parenthetical is intended to make clear that 
``control'' refers to both direct and indirect control by the 
government, and control within the interpretation of ``foreign 
entity.''
    Comment: Several commenters asked for clarification on how to 
evaluate levels of control within a joint venture. Specifically, the 
commenters questioned whether a joint venture should be evaluated using 
the licensing and contracting provision of the guidance or if joint 
ventures should be evaluated solely under the 25% control prong.
    Response: DOE responds by clarifying that whether a FEOC holds a 
controlling interest in a JV entity (through voting rights, equity 
interests, or board seats) is determined under the 25% control 
threshold. Thus, a separate entity that exists as a 50-50 JV, in which 
one of the members of the JV is a FEOC, would be considered to be a 
FEOC. In a situation where a FEOC maintains less than 25% control of a 
JV, the JV agreement would not confer ``effective control'' of the JV 
entity unless, by its terms, it gives a FEOC the right to determine the 
quantity or timing of production; to determine which entities may 
purchase or use the output of production; to restrict access to the 
site of production to the contractor's own personnel; or the exclusive 
right to maintain, repair, or operate equipment that is critical to 
production.
    Comment: One commenter asked for clarification as to whether the 
``effective control'' definition only applies when the other entity 
(licensor/contractor) is a FEOC.
    Response: DOE responds that the ``effective control'' definition in 
the guidance is only relevant as it relates to licenses and contracts 
with an entity considered to be a FEOC. The language of the guidance 
has been edited to clarify.
    Comment: Multiple commentors asked for clarification on whether the 
``effective control'' test in the definition of ``owned by, controlled 
by, or subject to the direction'' applies only when the licensor or 
contractor is a FEOC because it is subject to at least 25% control by 
the government of a covered nation or also when the licensor or 
contractor is a FEOC due to being ``subject to the jurisdiction'' of a 
covered nation.
    Response: DOE responds by clarifying that an entity can be subject 
to effective control through a license or contract with any entity that 
is deemed a FEOC, whether via the 25% threshold for control or via 
jurisdiction. The proximity of a FEOC to the government of a covered 
nation, even when the government does not have a controlling stake in 
the company, raises similar concerns in the context of a license or 
contract with a non-FEOC, and the non-FEOC should retain the identified 
rights to avoid effective control by the FEOC.
    Comment: One commenter suggested that DOE modify the fifth right to 
be reserved within a license or contract with a FEOC, which requires 
that IP and technology that is the subject of the

[[Page 37084]]

contract be accessible to the non-FEOC entity ``notwithstanding any 
export control or other limit on the use of intellectual property 
imposed by a covered nation subsequent to execution.'' The commenter 
suggested that the provision could be interpreted to call for the 
defiance of foreign laws.
    Response: To ensure that a license or contract with a FEOC does not 
result in effective control, a non-FEOC should reserve the listed 
rights at the time of entering into the license or contract. DOE's view 
is that new export controls would not be applicable to IP that has 
already been transferred, i.e., IP licenses with an effective date 
prior to implementation of a new export control. That said, it is not 
DOE's intent that this language place a manufacturer in the position of 
having to violate a foreign law. Therefore, DOE has edited the fifth 
right to state that the parties to the given license or contract commit 
that the non-FEOC party will retain access to and use of any 
intellectual property, information, and data critical to production 
``for the duration of the contractual relationship.''
    Comment: One commenter requested confirmation on their 
understanding of the first and fifth rights identified by DOE to be 
retained by a non-FEOC entity entering into a license or contract with 
a FEOC. Specifically, the commenter stated its understanding that the 
first right would allow the non-FEOC entity to acquire information from 
the FEOC related to the quantity of critical minerals or components 
necessary to manufacture a battery or battery component, and the fifth 
right would allow the non-FEOC entity to obtain assistance from the 
FEOC in operating, maintaining, and repairing equipment critical to 
production.
    Response: The commenter is correct that the non-FEOC entity would 
be able to obtain information and assistance from the FEOC as described 
above. The determining factor as to whether the retained rights have 
prevented ``effective control'' by a FEOC under the guidance is whether 
the non-FEOC entity has the right of access and the authority to make 
decisions. In order to fully exercise those rights, however, it may be 
necessary for the non-FEOC entity to obtain information and assistance 
from the FEOC entity.
    Comment: In the context of the ``effective control'' definition and 
the safe harbor rights identified in the guidance, one commenter 
requested that DOE provide a limited exception or transition period for 
licenses and contracts that were signed between enactment of the IRA 
and the issuance of DOE's proposed interpretive guidance, if the non-
FEOC entity can establish that the FEOC entity does not have effective 
control through alternate means.
    Response: DOE's guidance is limited to providing an interpretation 
of the statutory term ``foreign entity of concern,'' and related terms. 
Whether to provide an exception or transition period to eligibility for 
a particular program or incentive is out of scope of this interpretive 
guidance.

F. Other Comments

i. General Comments Related to Proposed Interpretive Rule
    Comment: Several commenters urged DOE to create a definitive list 
of entities considered to be FEOCs.
    Response: DOE declines to make this change. The criteria for 
``foreign entities of concern'' were articulated in the Infrastructure 
Investment and Jobs Act (IIJA). DOE recognizes that, for some of the 
criteria, in particular the criteria related to foreign entities that 
have been alleged by the Attorney General to have been involved in 
certain activities for which a conviction was obtained, there may not 
be a consolidated, readily available list. For the criteria that are 
the subject of this guidance (i.e., a foreign entity that is ``owned 
by, controlled by, or subject to the jurisdiction or direction of the 
government of a covered nation''), DOE is not in a position to provide 
a comprehensive list of every entity that qualifies as a FEOC. 
Providing a definitive list of FEOCs could result in attempts to evade 
the rule through corporate restructuring that does not change actual 
control and would be overly burdensome on DOE to create and maintain 
such a list for the entire battery supply chain. Accordingly, the 
guidance provides standards to assist companies in determining whether 
the particular entities in their battery supply chain are FEOCs. These 
companies are better positioned than DOE to conduct due diligence on 
and obtain certifications from entities within their supply chain, with 
whom they maintain a contractual relationship. DOE expects that, given 
the guidance provided in this final interpretive rule, relevant 
entities can exercise appropriate diligence to identify entities that 
fall within the criteria articulated in the IIJA.
    Comment: Several commenters urged DOE to establish a voluntary pre-
review process to allow manufacturers to submit to DOE potential 
licenses and contracts with FEOCs to determine whether it would lead to 
effective control by the FEOC. Several of the commenters also requested 
that such a pre-review process be structured in a confidential manner.
    Response: While DOE requested comment on the desirability of 
establishing and the potential structure of a pre-review process for 
licenses and contracts, DOE is declining to establish such process at 
this time. Instead, as established in the Treasury Department's 30D 
rule and associated guidance, DOE will play a pivotal role in reviewing 
all of the documentation that is provided to the IRS for the purpose of 
determining eligibility for the 30D tax credit. DOE's review of 
licenses and contracts for effective control will take place through 
that process.
    Comment: Multiple commenters urged DOE to use the determination 
authority provided in section 40207(a)(5)(E) of BIL to allow the 
Secretary of Energy, in consultation with the Secretary of Defense and 
the Director of National Intelligence, to designate an individual 
entity as a FEOC ``engaged in unauthorized conduct that is detrimental 
to the national security or foreign policy of the United States.''
    Response: DOE responds that it continues to consider whether and 
how to use the determination authority in BIL section 40207(a)(5)(E).
ii. Comments Related to Treasury's 30D Rule
    Comment: One commenter urged DOE to clearly define the terms of 
``critical minerals,'' ``components,'' and ``materials'' in this 
guidance.
    Response: DOE declines to make this change. The definitions 
identified by the commenter are relevant to DOE's interpretative 
guidance only insofar as it applies to eligibility for the 30D tax 
credit. The Treasury Department has defined these terms in the relevant 
regulations.
    Comment: Several commenters suggested that the U.S. Government 
should consider providing extensions of time for compliance with FEOC 
sourcing rules or waivers of any penalties involving `unintentional' 
transactions with entities later determined to be FEOCs as the industry 
tries to implement these new rules. Another commenter expressed strong 
support for phasing out the Treasury Department's transition rule for 
non-traceable critical minerals.
    Response: DOE's guidance is limited to providing an interpretation 
of the statutory term ``foreign entity of concern,'' and related terms. 
As such, comments related to extensions of time to allow for a 
transition period, waiver of penalties associated with an

[[Page 37085]]

unintentional interaction with a FEOC, or transition rule phase-outs 
are outside the scope of this interpretive guidance.
    Comment: One commenter expressed concerns that the Federal 
government has failed to provide a harmonized definition of the term 
``foreign entity of concern,'' specifically noting its belief that DOE 
and the Treasury Department, for the purposes of the 30D tax credit, do 
not have a common definition of FEOC.
    Response: DOE and the Treasury Department have harmonized their 
FEOC definitions for the purposes of implementing the 30D tax credit, 
as Treasury has incorporated DOE's FEOC guidance into its 30D rule.
    Comment: One commenter expressed concern that some critical 
minerals producers would not be able to certify compliance with FEOC 
rules because they use a mixture of ingredients from FEOC and non-FEOC 
sources that cannot be separated physically.
    Response: DOE's guidance is limited to providing an interpretation 
of the statutory term ``foreign entity of concern,'' and related terms. 
This comment is out of scope of this interpretive guidance.
    Comment: Several commenters requested clarification from DOE as to 
what sort of documentation and materials DOE would deem sufficient to 
certify FEOC compliance with the Internal Revenue Service for the 
purposes of the 30D tax credit and for the battery ledger identified in 
the Treasury Department's 30D rule. For instance, one commenter asked 
whether a guarantee letter from a third-party manufacturer or supplier 
that confirms it is a non-FEOC is sufficient to substantiate its non-
FEOC status to the IRS.
    Response: DOE's guidance is limited to providing an interpretation 
of the statutory term ``foreign entity of concern'' and related terms, 
and this comment is outside the scope of this interpretive guidance. 
The due diligence measures required for determining FEOC compliance for 
purposes of determining eligibility for the 30D tax credit and for 
DOE's BIL 40207 grant programs are outside the scope of this guidance.
iii. Comments Related to the Inflation Reduction Act
    Comment: DOE received several comments, both positive and negative, 
about the relative merits of the Inflation Reduction Act. Some of these 
commenters stated that the IRA will support energy reliability, clean 
energy production, and a variety of other goals. Other commenters 
stated that IRA provisions limiting eligibility for government 
incentives (e.g., excluding new clean cars from eligibility if they 
source from FEOCs) is discriminatory, protectionist, and violates basic 
principles of the World Trade Organization.
    Response: DOE notes that all of these comments are directed at the 
underlying statute, which is outside the scope of this interpretive 
guidance.

III. Explanation of Final Interpretation and Changes From the Proposed 
Interpretive Rule

A. Purpose

    The term FEOC, as used in both BIL section 40207 and IRC section 
30D, is intended to address upstream supply chains of individual 
entities that may benefit from direct or indirect Federal government 
financial support. As such, the interpretations proposed here are 
intended to be structured as, to the greatest degree possible, bright-
line rules that allow individual entities to readily evaluate whether 
their supply chain includes FEOCs. In the case of the Battery Materials 
Processing and Battery Manufacturing and Recycling Grants programs in 
BIL section 40207, a bright-line rule will afford eligible entities 
using their grants for battery materials processing or advanced battery 
component manufacturing greater clarity in avoiding using battery 
materials supplied by or originating from a FEOC; similarly, such a 
rule will afford those eligible entities using their grants for battery 
recycling greater clarity in avoiding the export of recovered critical 
materials to a FEOC.

B. Foreign Entity

    DOE's final interpretive rule does not make any changes to its 
interpretation of the term ``foreign entity.'' To be considered a FEOC 
under BIL section 40207(a)(5) (42 U.S.C. 18741(a)(5)), the statute 
requires that the entity be a ``foreign entity.'' However, section 
40207 does not define ``foreign entity.''
    The interpretation of ``foreign entity'' in this final guidance 
aligns closely with the definition of ``foreign entity'' contained in 
the 2021 National Defense Authorization Act (NDAA) (15 U.S.C. 4651(6)), 
which informs certain Department of Commerce programs related to 
semiconductors. Both the interpretation in this guidance and the 2021 
NDAA definitions define foreign entities to include three main 
categories of entities: (1) a government of a foreign country and a 
foreign political party; (2) a natural person who is not a lawful 
permanent resident of the United States, citizen of the United States, 
or any other protected individual (as such term is defined in 8 U.S.C. 
1324b(a)(3) (addressing unfair immigration-related employment 
practices)); or (3) a partnership, association, corporation, 
organization, or other combination of persons organized under the laws 
of or having its principal place of business in a foreign country.
    DOE's interpretation specifically provides that entities organized 
under the laws of the United States that are subject to the ownership, 
control, or direction of another entity that qualifies as a foreign 
entity will also qualify as ``foreign entities'' for the purposes of 
BIL section 40207(a)(5)(C). The 2021 NDAA definition of foreign entity 
allows for U.S. entities to be considered foreign in this way and also 
provides an additional list of criteria by which such persons may be 
considered foreign due to their relationship with the three main 
categories of foreign entities. While these criteria are relevant for 
the purposes of the Department of Commerce programs at issue, which are 
primarily concerned with preventing the transfer of semiconductor 
technology to covered nation governments, DOE assesses that the 
criteria are not necessary for the purpose of evaluating covered 
nation-associated risk to the battery supply chains, because the 
natural persons and corporate entities that are relevant to the battery 
supply chain are already encompassed in the identified criteria for 
``foreign entity.'' DOE's interpretation ensures that the government of 
a covered nation cannot evade the FEOC restriction simply by 
establishing a U.S. subsidiary, while otherwise maintaining ownership 
or control over that subsidiary.

C. Government of a Foreign Country

    DOE's final interpretive rule makes minor, clarifying changes to 
its interpretation of the term ``government of a foreign country.'' The 
term ``government of a foreign country'' is a term used to determine 
whether an entity is ``owned by, controlled by, or subject to the 
jurisdiction or direction of a government of a foreign country.'' It is 
also used in the interpretation of ``foreign entity'' in paragraph (i) 
of section V.B of this document.
    DOE's interpretation of the term ``government of a foreign 
country'' contained within this notice includes subnational 
governments, which can have significant ownership or control of firms 
in the vehicle supply chain. In the covered nations at issue here, 
there exist many subnational and local government-owned entities, that 
play a large role in their nation's economies,

[[Page 37086]]

and local SOEs are a large driver of regional economies. This term also 
includes instrumentalities, which include separate legal entities that 
are organs of a state but where ownership may be unclear, such as a 
utility or public financial institution. This interpretation aligns 
with the definition of ``foreign government'' promulgated by the 
Department of the Treasury in its regulations implementing the 
Committee on Foreign Investment in the United States (CFIUS) program 
(31 CFR 800.221). That definition includes ``national and subnational 
governments, including their respective departments, agencies, and 
instrumentalities.''
    DOE's interpretation of the term ``government of a foreign 
country'' also includes senior foreign political figures. This 
inclusion recognizes the reality of government influence over business 
entities in covered nations, which is often exercised through 
individuals representing the government on corporate boards or acting 
at the direction of the government or to advance governmental interests 
when serving as an equity owner or through voting rights in an 
otherwise privately held business. This interpretation aligns with the 
Defense Department's National Industrial Security Program Operating 
Manual (NISPOM) regulatory definition of ``foreign interest'' (32 CFR 
117.3) and associated ``foreign ownership, control or influence'' 
(FOCI) regulations (32 CFR 117.11), which recognize as FOCI the 
influence of a representative of a foreign government with the power to 
direct or decide issues related to a U.S. entity. In addition, in order 
to deal with the situation in which officials leave their official 
positions in order to exert the same type of influence on behalf of the 
government, the interpretation also includes former senior government 
officials and former senior party leaders. Inclusion of former 
officials is consistent with regulatory definitions in other contexts. 
As stated in response to comments above, the guidance does not limit 
the ``former'' designation to a particular period of time, as the 
concerns arising from membership on the CCP bodies identified below, do 
not dissipate over time just because an individual no longer serves as 
a member of that body. For example, the Bank Secrecy Act (BSA) private 
banking account regulations (relating to due diligence program 
requirements for private banking accounts established, maintained, 
administered, or managed in the United States for foreign persons) 
administered by the Department of the Treasury's Financial Crimes 
Enforcement Network (FinCEN) include both current and former officials 
in the definition of ``senior foreign political figure'' (31 CFR 
1010.605(p)). Those regulations provide further interpretation of the 
term ``senior official'' that DOE has also included to provide 
additional clarity.
    DOE's final interpretive rule clarifies that ``senior foreign 
political figure'' includes both individuals who are senior officials 
in the government and senior officials within a dominant or ruling 
political party, as well as family members of such individuals. In the 
specific context of the PRC, DOE considers ``senior foreign political 
figure'' to include (a) individuals currently or formerly in senior 
roles within the PRC government, at the central and local levels; (b) 
individuals currently or formerly in senior roles within the Chinese 
Communist Party (CCP) and bodies and commissions under the Central 
Committee; (c) current and former members of the CCP Central Committee, 
the Politburo Standing Committee, the Politburo, the National People's 
Congress and Provincial Party Congresses, and the national Chinese 
People's Political Consultative Conference (CPPCC); and (d) current but 
not former members of local or provincial CPPCCs.
    Finally, the inclusion of immediate family members of senior 
foreign political figures in the interpretation of ``government of a 
foreign country'' aligns with the BSA private banking regulation. Those 
regulations include the immediate family members of a senior foreign 
political figure in their definition of ``senior foreign political 
figure'' (31 CFR 1010.605(p)(1)(iii)). Immediate family members in 
those regulations mean spouses, parents, siblings, children, and a 
spouse's parents and siblings (31 CFR 1010.605(p)(2)(ii)).

D. Subject to the Jurisdiction

    DOE's final interpretive rule does not make any changes to its 
interpretation of the term ``subject to the jurisdiction.'' If an 
entity is ``subject to the jurisdiction'' of a government of a foreign 
country that is a covered nation, the entity is a FEOC. DOE's 
interpretation provides an objective standard, consistent with the 
common understanding of ``jurisdiction,'' rather than a subjective 
standard that relies upon an individual nation's understanding of its 
own jurisdictional reach. As such, the interpretation first recognizes 
that any organization formed under the laws of the government of a 
covered nation is a national of that nation and therefore subject to 
its direct legal reach. Cf. 28 U.S.C. 1332(c)(1) (noting that, for the 
purposes of diversity jurisdiction, ``a corporation shall be deemed to 
be a citizen of every . . . foreign state by which it has been 
incorporated and of the . . . foreign state where it has its principal 
place of business''). In addition and as stated above in response to 
comments, determining an entity's principal place of business under the 
guidance should be guided by the United States Supreme Court's 
formulation in Hertz Corp. v. Friend, in which a principal place of 
business is considered to be the ``place where a corporation's officers 
direct, control, and coordinate the corporation's activities [and] in 
practice it should normally be the place where the corporation 
maintains its headquarters--provided that the headquarters is the 
actual center of direction, control, and coordination, i.e., the `nerve 
center.' '' 559 U.S. 77, 92-93 (2010).
    Second, DOE's interpretation accounts for the fact that several 
critical segments of the battery supply chain today are predominantly 
processed and manufactured within covered nation boundaries,\1\ and 
recognizes that a covered nation will be able to exercise legal control 
(potentially forcing an entity to cease production or cease exports) 
over an entity with respect to any critical minerals that are 
physically extracted, processed, or recycled, any battery components 
that are manufactured or assembled, and any battery materials that are 
processed within those boundaries, even if the entity is not legally 
formed under the laws of the covered nation. See Fourth Restatement 
(Foreign Relations) (2018) section 408 (stating that ``[i]nternational 
law recognizes a state's jurisdiction to prescribe law with respect to 
persons, property, and conduct within its territory''). At the same 
time, DOE's interpretation recognizes that such an entity, which is not 
legally formed in a covered nation but has production activities inside 
a covered nation, may also have separate production activities that 
occur outside the covered nation. In that case, the covered nation does 
not have jurisdiction over those outside production activities. 
Therefore, under the guidance, an entity that is not legally 
incorporated in a covered nation could nevertheless be considered a 
FEOC under the jurisdiction prong with respect to the particular 
critical minerals, battery components, or battery materials that are 
subject to the jurisdiction of a covered nation. But the entity would 
not be considered a FEOC

[[Page 37087]]

with respect to its activities related to other critical minerals, 
battery components, or battery materials that are not subject to the 
jurisdiction of a covered nation.
---------------------------------------------------------------------------

    \1\ 100-day-supply-chain-review-report.pdf (whitehouse.gov).
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    Finally, when an entity is a FEOC due to it being ``subject to the 
jurisdiction'' of a covered nation, subsidiaries of the FEOC are not 
automatically considered to be FEOCs themselves based solely on their 
parent being a covered nation jurisdictional entity. A subsidiary 
entity would be considered a FEOC itself, however, if it is also either 
(1) ``subject to the jurisdiction'' of the covered nation, pursuant to 
section V.D of this document, or (2) ``controlled by'' a covered nation 
government (including via direct or indirect control, such as through 
joint ventures, or via contracts that confer effective control to a 
FEOC), pursuant to section V.E of this document.
    DOE's interpretation is supported by statutory and regulatory 
choices made in similar contexts, including: the 2021 NDAA definition 
of ``foreign entity'' (15 U.S.C. 4651(6)); and the NISPOM regulatory 
definition of ``foreign interest'' (32 CFR 117.3). The interpretation 
of ``subject to the jurisdiction'' provides clarity to original 
equipment manufacturers (OEM) that removing FEOCs from their supply 
chain will require removal of any critical minerals, battery 
components, and battery materials that are directly produced within the 
boundary of a covered nation.

E. Owned by, Controlled by, or Subject to the Direction

    DOE's interpretive rule is largely consistent with the proposal but 
makes some clarifying edits in response to comments. If an entity is 
``owned by, controlled by, or subject to the direction'' (hereinafter 
``control'') of a government of a foreign country that is a covered 
nation, the entity is a FEOC. The term is also used in paragraph (iv) 
of DOE's interpretation of foreign entity to account for situations 
where a U.S. entity is sufficiently controlled to be considered 
foreign. DOE's interpretation provides for both (1) control via the 
holding of 25% or more of an entity's board seats, voting rights, or 
equity interest, and (2) control via license or contract conferring 
rights on a person that amount to a conferral of control.
    As previously stated in response to comments, DOE considered 
whether to expand the definition of ``control'' under this interpretive 
rule to incorporate companies that are controlled by the government of 
a covered nation by virtue of significant investments by that 
government of the kind identified by commenters (e.g., subsidies, 
grants, or debt financing). However, DOE has not yet identified a 
sufficiently bright-line rule for such investments that would be 
administrable by vehicle manufacturers in the context of the Treasury 
Department's 30D tax credit. Accordingly, DOE declines to make a change 
to the interpretive guidance at this time, but may incorporate 
consideration of such government investments into its evaluation of 
applications for domestic battery material processing, manufacturing, 
and recycling grants under section 40207 of BIL, or through utilization 
of the Secretary's exercise of her authority under BIL section 
40207(a)(5)(E) to designate an entity a FEOC if it is ``engaged in 
unauthorized conduct that is detrimental to the national security or 
foreign policy of the United States.'' Furthermore, DOE will continue 
to monitor the battery supply chain market and may consider revisiting 
this issue in the future through updated interpretive guidance defining 
control by the government of a covered nation based on significant 
investments from that government. Any information that may assist DOE 
in monitoring the battery supply chain market may be submitted to the 
email address identified in the ``For Further Information'' section of 
this document.
i. Control via 25% Interest
    DOE's interpretation of control is informed by careful analysis of 
corporate structure within the battery supply chain. In the battery 
industry, the primary methods by which a parent entity, including the 
government of a foreign country, exercises control over another entity 
is through voting rights, equity interests, and/or its boards of 
directors. Parent entities may exercise control via majority equity 
interest, voting rights, or board seats, and also through minority 
holdings. Furthermore, parent entities may act in concert with other 
investors to combine minority holdings in order to exercise control. As 
a result, an effective measure of control is one that considers 
multiple permutations of majority and minority holdings of equity 
interest, voting rights, and board seats that can cumulatively confer 
control. In response to comments, DOE's final interpretation clarifies 
that each of these metrics--voting rights, equity interests, and board 
seats--are evaluated independently. As noted above, and assuming no 
other relevant circumstances, if an entity has 20% of its voting 
rights, 10% of its equity interests, and 15% of its board seats each 
held by the government of a covered nation, these percentages would not 
be combined to equal 45% control, but would result in the entity being 
controlled at the level of the highest metric (i.e., 20%), and thus, 
not considered a FEOC. That said, DOE recognizes that significant 
levels of government control in all three metrics may still raise 
concerns. As such, as indicated above in response to comments, DOE may 
incorporate such considerations into its evaluation of applications for 
grants under section 40207 of BIL, through utilization of the 
Secretary's designation authority under BIL section 40207(a)(5)(E), or 
through revisions to the interpretive guidance upon evidence of evasive 
gamesmanship with respect to the 25% threshold.
    While there are several prominent companies within the battery 
supply chain that are majority-owned by covered nation governments, 
particularly in the upstream mining segment, the predominant form of 
state ownership and influence in most segments of the battery supply 
chain is through minority shareholding, voting rights, or board seats. 
DOE has evaluated a range of supply chain entities for which covered 
nation governments and officials with cumulative holdings between 25% 
and 50% have meaningful influence over corporate decision-making, even 
in cases of subsidiary entities operating in other jurisdictions and in 
the case of multiple minority shareholders acting in concert. However, 
DOE's assessment of the battery supply chain strongly suggests that 
minority control can attenuate with multiple tiers of separation 
between the state and the firm performing the covered activity.
    DOE recognizes that a bright-line metric for control will be 
necessary to ensure that OEMs can feasibly evaluate the presence of 
FEOCs within their supply chains. Informed by empirical evidence in the 
battery supply chain and choices made in other regulatory contexts, as 
discussed further below, DOE's interpretation establishes a 25% 
threshold and guidance on calculating the attenuation of control in a 
tiered ownership structure. In the case of majority control by a 
covered nation government, that control is not diluted such that 
outright ownership (50%+) confers full control. This ensures that a 
covered nation government is still considered to control, indirectly, a 
majority-owned subsidiary of a government-controlled company. However, 
multiple layers of minority control by a government may become so 
attenuated that an entity would no longer be classified as a FEOC. This

[[Page 37088]]

bright-line threshold and guidance on how to calculate control will 
enable an evaluation of battery supply chains and facilitate any 
required reporting or certification of whether that supply chain 
includes products produced by a FEOC. This same analysis applies to 
joint ventures, such that if the government of foreign country that is 
a covered nation controls, either directly or indirectly, 25% or more 
of a joint venture, then that joint venture is a FEOC.
    DOE's interpretation is supported by choices made in a variety of 
statutory and regulatory regimes, while the identified methods of 
control account for specific circumstances present in the battery 
industry. DOE takes a broad approach to the interests that count 
towards the 25% threshold, considering board seats, voting rights, or 
equity interest. This is consistent with FOCI regulations, which 
evaluate ownership based on equity ownership interests sufficient to 
provide ``the power to direct or decide issues affecting the entity's 
management or operations'' (32 CFR 117.11(a)(1)). The interpretation 
that the interests of two entities with an agreement to act in concert 
may be combined to establish a controlling interest is similar to 
concepts in Securities and Exchange Commission rules defining 
beneficial ownership in instances of shareholders acting in concert (17 
CFR 240.13d-5) and CFIUS regulations that consider arrangements to act 
in concert to determine, direct, or decide important matters affecting 
an entity as one means by which two or more entities may establish 
control over another entity (31 CFR 800.208(a)). Different thresholds 
of control are used in different statutory and regulatory contexts 
(see, for example, 26 U.S.C. 6038(e)(2), (3) (defining control with 
respect to a corporation to mean actual or constructive ownership by a 
person of stock possessing more than 50% of the total combined voting 
power of all classes of stock entitled to vote or 50% of the total 
value of shares of all classes of stock of a corporation, and control 
with respect to a partnership to generally mean actual or constructive 
ownership of a more than 50% capital or profit interest in a 
partnership); and 26 U.S.C. 368(c) (defining control with respect to 
certain corporate transactions to mean the ownership of stock 
possessing at least 80% of the total combined voting power of all 
classes of stock entitled to vote and at least 80% of the total number 
of shares of all other classes of stock of the corporation)). However, 
there are a number of analogous regulatory contexts in which a 25% 
threshold for considering an entity controlled is used. For instance, 
the Department of Commerce's CHIPS Rule, implementing a very similar 
FEOC provision, uses a 25% threshold with respect to voting interest, 
board seats, or equity interest. The State Department, in its 
International Traffic in Arms Regulation (ITAR) regulations, 
established a presumption of foreign control where foreign persons own 
25% or more of the outstanding voting securities of an entity, unless 
one U.S. person controls an equal or larger percentage (22 CFR 120.65). 
FinCEN's BSA private banking account regulations (31 CFR 
1010.605(j)(1)(i)) and Beneficial Ownership Reporting Rule (31 CFR 
1010.380(d)) also contain 25% ownership thresholds. See also 15 CFR 
760.1(c) (defining ``controlled in fact'' using a 25% threshold for 
cases where no other person controls an equal or larger percentage of 
voting securities). In some of these other contexts, the 25% 
calculation is based on a particular form of control (e.g., only voting 
rights). DOE's interpretation broadens the ways in which an entity can 
be controlled at a 25% level, because doing so accords with statutory 
concerns related to the corporate structure of the battery industry.
    In response to comments above, DOE also clarified that ``equity 
interests'' refers to all ownership interests, including capital or 
profit interests and contingent equity interests. ``Contingent equity 
interests'' is a defined term in the CFIUS regulations (31 CFR 
800.207), and DOE intends for the concept of contingent equity 
interests in the interpretive rule to be understood largely consistent 
with the CFIUS regulations. For the purpose of determining FEOC 
compliance, the amount of the contingent interest that can be 
reasonably determined, as understood in 31 CFR 800.308(a)(3), should be 
included in the 25% control calculation, without consideration of 
whether conversion is imminent or within the control of the equity-
owning entity as set forth in 31 CFR 800.308(a)(1-2).
    DOE's interpretation of indirect control includes guidance on how 
to calculate the attenuation of control in a tiered ownership 
structure. In the case of majority control at any level, that control 
is not attenuated such that outright ownership (50%+) confers full 
control. The proposed approach recognizes the reality that a parent 
entity that holds a majority of the voting rights, equity interests, or 
board seats in a subsidiary has unilateral control over that subsidiary 
and can direct that subsidiary's ability to exercise influence and 
control over its own subsidiaries. However, in the case of multiple 
tiers of minority control by a government, the actual ability of the 
government to influence the operations of a subsidiary may become 
materially attenuated. This understanding of how to calculate a parent 
entity's indirect ownership and control of sub-entities is similar to 
OFAC's 50% Rule, under which ``any entity owned in the aggregate, 
directly or indirectly, 50% or more by one or more blocked persons is 
itself considered to be a blocked person.'' See U.S. Dept. of the 
Treasury, Revised Guidance on Entities Owned by Persons Whose Property 
and Interests in Property are Blocked (Aug. 13, 2014).
    As previously stated, when calculating whether an entity is a FEOC 
based on whether the government of a covered nation directly or 
indirectly holds 25% or more of its voting rights, equity interest, or 
board seats, DOE's interpretation would not factor in any voting share, 
equity interest, or board seats held by an entity that is a FEOC solely 
by virtue of being subject to the covered nation's jurisdiction.
    The following scenarios illustrate indirect control in a multi-
tiered ownership structure, which could contain more tiers than 
illustrated here. For simplicity, these examples only evaluate control 
via voting rights and assume no other relevant circumstances.
    1. If Entity A cumulatively holds 25% of Entity B's voting rights, 
then Entity A directly controls Entity B. If Entity B cumulatively 
holds 50% of Entity C's voting rights, then Entities B and C are 
treated as the same entity, and Entity A also indirectly controls 
Entity C.
    [cir] If Entity A is the government of a foreign country that is a 
covered nation, Entities B and C are both FEOCs.
    2. If Entity A cumulatively holds 50% of Entity B's voting rights, 
then Entity A is the direct controlling ``parent'' of Entity B, and 
Entities A and B are treated as the same entity. If Entity B 
cumulatively holds 25% of Entity C's voting rights, then Entity C is 
understood to be directly controlled by Entity B and indirectly 
controlled by Entity A.
    [cir] If Entity A is the government of a foreign country that is a 
covered nation, Entities B and C are both FEOCs.
    3. If Entity A cumulatively holds 25% of Entity B's voting rights, 
then Entity A directly controls Entity B. If Entity B cumulatively 
holds 40% of Entity C's voting rights, then Entity B directly controls 
Entity C. However, because Entity A does not hold 50% of the voting 
rights of Entity B, and Entity B does not hold 50% of the voting rights 
of Entity C, Entity A's indirect control

[[Page 37089]]

of Entity C is calculated proportionately (25% x 40% = 10%). Based on 
that proportionate calculation, Entity A will be considered to hold 
only a 10% interest in Entity C, which is insufficient to meet the 25% 
threshold for control contemplated under this proposed guidance.
    [cir] If Entity A is the government of a foreign country that is a 
covered nation, Entity B is a FEOC. But Entity A holds only a 10% 
interest in Entity C, which is less than the 25% threshold requirement 
to deem Entity C controlled by Entity A. Therefore, Entity C is not a 
FEOC via the indirect control of Entity A.
ii. Control via Licensing and Contracting
    DOE is concerned that if its interpretation of the term ``control'' 
covered only direct and indirect holding of board seats, voting rights, 
and equity interest by the government of a covered nation, then a 
government may seek to evade application of the rule by instead 
exercising its control over a FEOC that enters into a license or 
contract with a non-FEOC entity such that the non-FEOC serves as the 
producer of record while the FEOC maintains effective control over 
production. Because such arrangements would defeat congressional 
intent, DOE's interpretation of ``control'' includes ``effective 
control'' through contracts or licenses with a FEOC that warrant 
treating the FEOC as if it were the true entity responsible for any 
production. DOE's interpretive rule clarifies that ``effective 
control'' through a license or contract can be exercised by any entity 
designated as a FEOC, whether through 25% control by the government of 
a covered nation or through jurisdiction. The proximity of a FEOC to 
the government of a covered nation, even when the government does not 
have a controlling stake in the company, raises similar concerns in the 
context of a license or contract with a non-FEOC, and the non-FEOC 
should retain the identified rights to avoid effective control by the 
FEOC.
    Many contractual and licensing arrangements do not raise these 
concerns. Therefore, to provide a reasonably bright-line test for 
evaluation of battery supply chains that may include numerous contracts 
and licenses, DOE's interpretation in section V.E of this document 
contains a safe harbor for evaluation of ``effective control.'' A non-
FEOC entity that can demonstrate that it has reserved certain rights to 
itself or another non-FEOC through contract would not be deemed to be a 
FEOC solely based on its contractual relationships.
    DOE also recognizes that even if an entity's contractual 
relationship with a FEOC confers effective control over the production 
of particular critical minerals, battery components, or battery 
materials, for purposes of determining eligibility for the 30D tax 
credit and for and DOE's BIL 40207 grant program, the contracting 
entity would not necessarily be controlled by the government of a 
covered nation for critical minerals, battery components, or battery 
materials that were not produced pursuant to that contract or license. 
Therefore, under the guidance, an entity could be considered a FEOC 
with respect to the particular critical minerals, battery components, 
or battery materials that are effectively produced by the FEOC under a 
contract or license but not with respect to other critical minerals, 
battery components, or battery materials that are produced by the 
entity outside the terms of the contract or license with a FEOC.
    The concept that an entity can be controlled via contract is 
supported by choices made in various regulatory contexts, including 
CFIUS regulations that include an understanding that control can be 
established via contractual arrangements to determine, direct, or 
decide important matters affecting an entity (31 CFR 800.208(a)). 
Further, intellectual property can be licensed restrictively, or even 
misused, to give the intellectual property owner rights beyond the 
typical ability to exclude others from making, using, selling, and/or 
copying the intellectual property for a limited time. In this scenario, 
even if a non-FEOC entity owns a facility, which is not separately 25% 
controlled by the government of a covered nation, the facility and/or 
its operations could still be effectively controlled by a FEOC licensor 
or contractor through other mechanisms. Accordingly, DOE's definition 
of effective control identifies criteria that would indicate that a 
license or contract provides the licensor or contractor with the 
ability to make business or operational choices that otherwise would 
rest with the licensee or principal. The criteria selected reflect 
various known mechanisms in restrictive or overreaching licenses, such 
as lack of access by the licensee or principal to information and data 
(e.g., control parameters or specification and quantities of material 
input for equipment) that are necessary to operate equipment critical 
to production at necessary quality and throughput levels. This lack of 
access could be tantamount to the licensor or contractor having 
effective control over the licensee or principal.

IV. Regulatory Review

    DOE considers this guidance to be a final interpretive rule under 
the Department's authority to interpret section 40207(a)(5) of the 
Infrastructure Investment and Jobs Act (42 U.S.C. 18741(a)(5)). As an 
interpretive rule, this rule is exempt from the notice-and-comment 
rulemaking requirements of the Administrative Procedure Act (APA) (5 
U.S.C. 553(b)(A)). Because no notice of proposed rulemaking is 
required, the Regulatory Flexibility Act does not require an initial or 
final regulatory flexibility analysis (5 U.S.C. 603(a), 604(b)).
    This interpretive rule is significant guidance under Executive 
Order 12866 because of the substantial public interest and policy 
importance with respect to the interpretation of the definition of a 
FEOC. It also affects a variety of entities and other Federal agencies. 
This interpretive rule has, thus, been reviewed by the Office of 
Management and Budget (OMB), Office of Information and Regulatory 
Affairs (OIRA).
    The Department has determined that this final interpretive rule 
does not impose any new or revise any existing recordkeeping, 
reporting, or disclosure requirements on the public that would be 
considered information collections requiring approval by the OMB in 
accordance with the Paperwork Reduction Act (44 U.S.C. 3501-3521).
    Finally, as required by 5 U.S.C. 801, DOE will report to Congress 
on the promulgation of this interpretive rule prior to its effective 
date. The report will state that OIRA has determined that the rule does 
not meet the criteria set forth in 5 U.S.C. 804(2).

V. Final Interpretive Rule on the Definition of Foreign Entity of 
Concern

A. Overview

    DOE clarifies the term ``foreign entity of concern'' by providing 
interpretations for the following terms within BIL section 
40207(a)(5)(C) (42 U.S.C. 18741(a)(5)(C)): ``foreign entity;'' 
``government of a foreign country;'' ``subject to the jurisdiction;'' 
and ``owned by, controlled by, or subject to the direction.'' These 
terms are interpreted separately, recognizing that the terms have 
unique meaning. DOE also interprets additional terms as necessary to 
provide clarity.
    For DOE's final guidance, an entity is determined to be a FEOC 
under BIL section 40207(a)(5)(C) if it meets the definition of a 
``foreign entity,'' (section V.B of this document) and either is 
``subject to the jurisdiction'' of a covered nation government (section 
V.D of this

[[Page 37090]]

document) or is ``owned by, controlled by, or subject to the 
direction'' (section V.E of this document) of the ``government of a 
foreign country'' (section V.C of this document) that is a covered 
nation.

B. Foreign Entity

    DOE interprets ``foreign entity'' to mean:
    (i) A government of a foreign country;
    (ii) A natural person who is not a lawful permanent resident of the 
United States, citizen of the United States, or any other protected 
individual (as such term is defined in 8 U.S.C. 1324b(a)(3));
    (iii) A partnership, association, corporation, organization, or 
other combination of persons organized under the laws of or having its 
principal place of business in a foreign country; or
    (iv) An entity organized under the laws of the United States that 
is owned by, controlled by, or subject to the direction (as interpreted 
in subsection E) of an entity that qualifies as a foreign entity in 
paragraphs (i)-(iii).

C. Government of a Foreign Country

    DOE interprets ``government of a foreign country'' to mean:
    (i) A national or subnational government of a foreign country;
    (ii) An agency or instrumentality of a national or subnational 
government of a foreign country;
    (iii) A dominant or ruling political party (e.g., Chinese Communist 
Party (CCP)) of a foreign country; or
    (iv) A current or former senior foreign political figure.
    Senior foreign political figure means (a) a senior official, either 
in the executive, legislative, administrative, military, or judicial 
branches of a foreign government (whether elected or not), (b) a senior 
official of a dominant or ruling foreign political party, and (c) an 
immediate family member (spouse, parent, sibling, child, or a spouse's 
parent and sibling) of any individual described in (a) or (b). In order 
to be considered ``senior,'' an official should be or have been in a 
position of substantial authority over policy, operations, or the use 
of government-owned resources.

D. Subject to the Jurisdiction

    DOE interprets that a foreign entity is ``subject to the 
jurisdiction'' of a covered nation government if:
    (i) The foreign entity is incorporated or domiciled in, or has its 
principal place of business in, a covered nation; or
    (ii) With respect to the critical minerals, components, or 
materials of a given battery, the foreign entity engages in the 
extraction, processing, or recycling of such critical minerals, the 
manufacturing or assembly of such components, or the processing of such 
materials, in a covered nation.

E. Owned by, Controlled by, or Subject to the Direction

    DOE interprets that an entity is ``owned by, controlled by, or 
subject to the direction'' of another entity (including the government 
of a foreign country that is a covered nation) if:
    (i) 25% or more of the entity's board seats, voting rights, or 
equity interest, with each metric evaluated independently, are 
cumulatively held by that other entity, whether directly or indirectly 
via one or more intermediate entities; or
    (ii) With respect to the critical minerals, battery components, or 
battery materials of a given battery, the entity has entered into a 
licensing arrangement or other contract with another entity (a 
contractor) that entitles that other entity to exercise effective 
control over the extraction, processing, recycling, manufacturing, or 
assembly (collectively, ``production'') of the critical minerals, 
battery components, or battery materials that would be attributed to 
the entity.
    Cumulatively held. For the purposes of determining control by a 
foreign entity (including the government of a foreign country), control 
is evaluated based on the combined interest in an entity held, directly 
or indirectly, by all other entities that qualify under the above 
interpretation of ``foreign entity.'' Additionally, if an entity that 
qualifies as a ``government of a foreign country that is a covered 
nation'' enters into a formal arrangement to act in concert with 
another entity or entities that have an interest in the same third-
party entity, the cumulative board seats, voting rights, or equity 
interests of all such entities are combined for the purpose of 
determining the level of control attributable to each of those 
entities.
    Indirect control. For purposes of determining whether an entity 
indirectly holds board seats, voting rights, or equity interest in a 
tiered ownership structure:
     If a ``parent'' entity (including the government of a 
foreign country) directly holds 50% or more of a ``subsidiary'' 
entity's board seats, voting rights, or equity interest, then the 
parent and subsidiary are treated as equivalent in the evaluation of 
control, as if the subsidiary were an extension of the parent. As such, 
any holdings of the subsidiary are fully attributed to the parent.
     If a ``parent'' entity directly holds less than 50% of a 
``subsidiary'' entity's board seats, voting rights, or equity interest, 
then indirect ownership is attributed proportionately.
    Section III.E.i of this document, contains multiple examples 
illustrating how to determine when an entity is indirectly controlled 
under this interpretive rule.
    Effective control means the right of the FEOC contractor, whether 
the entity is a FEOC via 25% control or via jurisdiction, in a 
contractual relationship to determine the quantity or timing of 
production; to determine which entities may purchase or use the output 
of production; to restrict access to the site of production to the 
contractor's own personnel; or the exclusive right to maintain, repair, 
or operate equipment that is critical to production.
    In the case of a contract with a FEOC, a contractual relationship 
will be deemed to not confer effective control to the FEOC if the 
applicable agreement(s) reserves expressly to one or more non-FEOC 
entities all of the following rights:
    (i) To determine the quantity of critical mineral, component, or 
material produced (subject to any overall maximum or minimum quantities 
agreed to by the parties prior to execution of the contract);
    (ii) To determine, within the overall contract term, the timing of 
production, including when and whether to cease production;
    (iii) To use the critical mineral, component, or material for its 
own purposes or, if the agreement contemplates sales, to sell the 
critical mineral, component, or material to entities of its choosing;
    (iv) To access all areas of the production site continuously and 
observe all stages of the production process; and
    (v) At its election, to independently operate, maintain, and repair 
all equipment critical to production and to access and use any 
intellectual property, information, and data critical to production, 
for the duration of the contractual relationship.

VI. Approval of the Office of the Secretary

    The Secretary of Energy has approved publication of this 
notification of final interpretive rule.

Signing Authority

    This document of the Department of Energy was signed on April 18, 
2024, by Giulia Siccardo, Director, Office of Manufacturing and Energy 
Supply Chains, pursuant to delegated authority

[[Page 37091]]

from the Secretary of Energy. That document with the original signature 
and date is maintained by DOE. For administrative purposes only, and in 
compliance with requirements of the Office of the Federal Register, the 
undersigned DOE Federal Register Liaison Officer has been authorized to 
sign and submit the document in electronic format for publication, as 
an official document of the Department of Energy. This administrative 
process in no way alters the legal effect of this document upon 
publication in the Federal Register.

    Signed in Washington, DC, on April 22, 2024.
Treena V. Garrett,
Federal Register Liaison Officer, U.S. Department of Energy.
[FR Doc. 2024-08913 Filed 5-3-24; 8:45 am]
BILLING CODE 6450-01-P