If you work anywhere near clean energy, tax credits, or infrastructure finance, you have probably heard the phrase “Foreign Entity of Concern” tossed around lately. Sometimes it sounds ominous. Other times it feels frustratingly vague. Either way, it matters now more than ever.
The One Big Beautiful Bill Act reshaped how the U.S. looks at foreign involvement in clean energy projects. The goal is simple on paper: keep strategic tax incentives from flowing to entities tied to geopolitical rivals. In practice, though, figuring out whether a company counts as a Foreign Entity of Concern, or FEOC, can feel like peeling an onion. There are layers, and some of them sting.
Let’s slow it down and walk through how the government actually decides who falls into this bucket, using plain language and real-world context.
What does “Foreign Entity of Concern” even mean?
At its core, a Foreign Entity of Concern is an organisation the U.S. government believes could pose national security, economic, or supply chain risks. This is not about where a company sells products or where its customers live. It is about ownership, control, influence, and in some cases, political alignment.
Under current law, FEOC status is closely tied to four countries: China, Russia, North Korea, and Iran. These are often called “Covered Nations.” Any meaningful connection to them raises eyebrows.
That does not mean every company operating in China is automatically an FEOC. It also does not mean a U.S. company is immune. The rules focus less on labels and more on who pulls the strings.
The first bucket: Specified Foreign Entities
Most FEOC determinations start with something called a Specified Foreign Entity, or SFE. Think of this as the bright red zone.
An entity is considered an SFE if it falls into certain clearly defined categories. For example, companies owned or controlled by the government of a Covered Nation land here. So do state-backed enterprises and agencies. If a national government holds the reins, even quietly, the analysis usually stops right there.
The definition also sweeps in entities already flagged under other federal laws. That includes foreign terrorist organisations, certain military-linked entities, and companies specifically designated under federal statutes that restrict access to U.S. tax incentives, including some entities identified through OFAC-related authorities.
There is another category that surprises people. If a company is designated under U.S. laws addressing forced labour, including certain determinations related to Xinjiang, it may be treated as a Specified Foreign Entity for clean energy credit purposes.
In short, SFEs are entities the government has already decided it does not want benefiting from U.S. clean energy incentives. No gray area. No wiggle room.
Ownership matters more than logos
Now let’s talk about ownership, because this is where things get tricky.
A company can be treated as an FEOC if ownership or control thresholds are met, including situations where certain foreign parties directly or indirectly hold a majority interest. Those parties include governments of Covered Nations, agencies tied to those governments, or individuals who are citizens or nationals of those countries and not also U.S. persons.
Picture a manufacturing firm incorporated in Delaware. On paper, it looks American. But if a state-owned enterprise from China holds 60 percent of the shares, that Delaware company is treated as foreign-controlled. The address on the letterhead does not save it.
The same logic applies if the company’s primary place of business is in a Covered Nation. Even without majority foreign ownership, the company’s primary place of business and operational center can become relevant when combined with other ownership or control factors.
This ownership test is one of the most straightforward FEOC criteria, yet it is also one of the most commonly overlooked during early diligence.
Foreign-influenced entities: the gray zone
If SFEs are the red zone, what are often described as foreign-influenced entities — a practical term used to explain situations where foreign parties have meaningful influence without outright ownership — represent the yellow light. This is where most confusion lives.
A problematic foreign party does not fully own an FIE, but that party has meaningful influence. Influence can show up in several ways.
One example is the board or executive power. If a Specified Foreign Entity has the authority to appoint a board member, CEO, CFO, or similar senior officer, that is a problem. Even one seat at the table can matter.
This is why FEOC analysis is not just a corporate org chart exercise. You have to look at equity, debt, governance rights, and contracts together.
The sleeper issue: effective control
Here is where many companies get caught off guard.
Even without ownership or board seats, a foreign party can still create FEOC risk through “effective control.” This usually happens through contracts or licensing agreements.
Imagine a U.S. developer signs a long-term agreement with a foreign supplier. The contract allows the supplier to decide how much equipment is produced, when it is produced, and who it is sold to. That supplier might not own a single share of the developer, but functionally, it is calling the shots.
Under the law, that can be enough to count as effective control.
The same concern applies if a foreign entity controls data access, factory operations, maintenance, or key intellectual property. If a project cannot operate independently without ongoing foreign permission, regulators will take a hard look.
This is especially relevant for FEOC compliance in manufacturing-heavy credits like 45X, where technology licensing is common.
Public companies are not immune
There is a common myth that publicly traded companies are safe by default. Not quite.
Public companies are less likely to be treated as Specified Foreign Entities under the rules, but they are not automatically exempt, particularly if certain ownership, governance, or control rights exist. But they can still be foreign-influenced entities.
If an SFE has the right to appoint an executive or board member at a public company, that influence matters. If a public company signs contracts that hand over effective control, that matters too.
Conclusion
The FEOC framework reflects a bigger shift. Clean energy is no longer just about climate goals. It is about supply chains, national security, and long-term independence.
Understanding how a Foreign Entity of Concern is identified is not just a compliance exercise. It is a way to protect projects, investors, and reputations before problems surface.
If there is one takeaway, it is this: FEOC risk rarely announces itself loudly. It hides in footnotes, side letters, and legacy agreements. The earlier you look, the better you sleep later.
