The BIS 50% Rule Proposal Could Transform Export Control Enforcement

The BIS 50% Rule Proposal Could Transform Export Control Enforcement

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Key Takeaways
  • BIS Proposal: The Bureau of Industry and Security is considering a 50% rule that would extend export controls to any entity majority-owned (directly, indirectly, or in aggregate) by a party on the Entity List.
  • Closing Loopholes: The rule aims to prevent blacklisted companies from using subsidiaries and affiliates to evade restrictions.
  • Modeled on Sanctions: The proposal mirrors the US Treasury’s OFAC 50 Percent Rule, shifting export controls from a name-based to an ownership-based system.
  • Global Reach: Thousands of subsidiaries across nearly 100 countries could be impacted if the rule takes effect.
  • Compliance Impact: Businesses may face tougher due diligence requirements, especially in jurisdictions with limited transparency on beneficial ownership.
Deep Dive

The Bureau of Industry and Security (BIS), housed within the US Department of Commerce, is one of Washington’s central gatekeepers of national security and foreign policy. Its mission is carried out largely through export controls, which determine who can access sensitive US-origin goods, software, and technology.

At the heart of BIS’s enforcement arsenal lies the Entity List, a running ledger of foreign organizations, companies, and individuals deemed to be acting against US interests. Placement on this list can stem from activities such as facilitating weapons proliferation, committing human rights abuses, or undermining US national security. Once listed, these entities cannot be supplied with controlled US goods or technologies unless a license is granted. The ripple effects extend beyond the sanctioned party to global supply chains and counterparties doing business with them.

A recurring weakness in export control regimes has been the ease with which listed parties use subsidiaries and affiliates to sidestep restrictions. By spinning up new legal entities, sometimes in opaque jurisdictions, companies can continue accessing restricted technology under a different name. This cat-and-mouse dynamic leaves regulators perpetually reacting, trying to identify the latest front companies established to mask ties to blacklisted parents.

What the Proposed BIS 50% Rule Would Do

To plug this gap, BIS is weighing the introduction of a so-called 50% rule. Under the proposal, any company that is 50% or more owned (directly, indirectly, or in aggregate) by one or more parties on the Entity List would automatically fall under the same restrictions.

The concept borrows directly from the US Treasury’s Office of Foreign Assets Control (OFAC), which has long used a 50 Percent Rule as part of sanctions enforcement. If implemented, the BIS approach would shift export controls from being strictly name-based to being ownership-based.

The implications are far-reaching. Analysts suggest thousands of subsidiaries across nearly 100 countries could suddenly find themselves restricted if the rule takes effect.

Raising the Compliance Bar

For businesses, this change could significantly broaden compliance obligations. It would no longer be enough to screen counterparties against the Entity List alone; companies would need to determine beneficial ownership and ownership percentages to identify whether a customer, supplier, or partner is majority-owned by a listed entity.

This type of diligence can prove especially challenging in jurisdictions with limited corporate transparency. Identifying true beneficial ownership is often complex, requiring deeper investigation and more sophisticated monitoring.

A Step-Change in Export Control Enforcement

The proposed 50% rule represents a potential evolution in the US export control framework. By moving from a system that targets specific names to one that encompasses ownership structures, BIS aims to make it more difficult for restricted entities to exploit subsidiaries and affiliates as workarounds.

At the same time, the proposal underscores the rising burden on global companies to strengthen compliance practices. Businesses involved in cross-border trade, particularly in sensitive sectors like technology, semiconductors, and defense, will need to prepare for enhanced scrutiny of ownership structures.

The BIS 50% rule is still under consideration, but if adopted, it could reshape how export controls are applied and enforced. While the rule promises to close longstanding loopholes and bolster national security, it also raises the stakes for businesses navigating an increasingly complex web of compliance obligations. For risk and compliance leaders, is is paramount to start preparing for a regulatory landscape where ownership matters just as much as names.

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