The Bureau of Industry and Security (BIS), part of the US Department of Commerce, has long played a central role in safeguarding national security and foreign policy interests through export controls.
According to Moody’s, a core tool in its framework is the Entity List, which restricts certain foreign organisations, individuals, and government agencies from accessing US-origin goods, software, and technology.
Entities are placed on the list when suspected of activities deemed contrary to US interests, such as distributing weapons, committing human rights abuses, or threatening national security.
When an organisation appears on the Entity List, US exporters must obtain a licence before supplying them with controlled items. This not only impacts the targeted entity but can also have knock-on effects across wider supply chains and business relationships.
A major challenge for regulators has been companies using subsidiaries to sidestep these restrictions. Some organisations have managed to set up new subsidiaries or affiliates under different names, often in jurisdictions with limited transparency on ownership structures. As a result, regulators often find themselves chasing newly created entities designed to avoid the restrictions imposed on their parent companies.
To counter this loophole, BIS is considering the introduction of a “50% rule”. Under this proposal, any company owned 50% or more—directly, indirectly, or in aggregate—by one or more parties on the Entity List would automatically be subject to the same export restrictions. This approach draws on the US Treasury’s Office of Foreign Assets Control (OFAC) 50 Percent Rule, a cornerstone of US sanctions enforcement.
If adopted, the BIS 50% rule would shift export control enforcement from a name-based system to an ownership-based one. Reports suggest that thousands of subsidiaries across nearly 100 countries could be affected by this measure, significantly widening the scope of compliance requirements.
The proposed rule aims to close a critical gap in the current framework. At present, only entities explicitly named on the Entity List face restrictions. Expanding this to cover any majority-owned subsidiaries—even if unnamed—would make it harder for listed parties to exploit ownership structures to evade controls.
However, this shift could also present new challenges for businesses. Companies involved in international trade may need to strengthen due diligence efforts to uncover beneficial ownership details, particularly in countries where corporate information is difficult to access.
As the proposal moves through consultation stages, businesses will likely need to prepare for a more stringent export control regime. By moving towards an ownership-based model, BIS hopes to reinforce the integrity and effectiveness of US export controls while aligning with broader national security objectives.
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