The Bureau of Industry and Security (BIS), part of the US Department of Commerce, is reportedly exploring a new “50% rule” that could significantly alter how export controls are enforced.
The proposal aims to stop entities from using subsidiaries to circumvent existing restrictions, a loophole that has long challenged regulators, claims Moody’s.
Currently, the BIS maintains the Entity List, which names individuals, organisations, and government agencies barred from receiving certain US-origin goods, software, or technology without a licence. Entities are added if they are suspected of activities contrary to US national security or foreign policy interests, such as the distribution of weapons or human rights abuses.
When an entity appears on the list, US exporters need a licence to supply them with controlled items. However, in practice, many businesses have sought to bypass this requirement by creating subsidiaries under different names, often in jurisdictions where ownership structures are difficult to trace. This forces regulators to continually update the list as new entities emerge.
The proposed 50% rule would address this problem by extending export controls to any company that is owned 50% or more, directly or indirectly, by one or more parties on the Entity List. This approach mirrors the US Treasury’s Office of Foreign Assets Control (OFAC) 50 Percent Rule, widely used in sanctions enforcement.
If adopted, the rule would shift the BIS framework from a name-based to an ownership-based model, making it harder for listed parties to evade restrictions. Reports suggest that thousands of subsidiaries across nearly 100 countries could be impacted if the rule comes into force.
For businesses, the proposal could significantly increase compliance obligations. Companies engaged in international trade might need to conduct deeper due diligence on customers, suppliers, and partners to identify majority ownership links to listed entities. This could be especially challenging in jurisdictions where beneficial ownership data is scarce or unavailable.
Ultimately, the BIS’s 50% rule could strengthen US national security measures by closing loopholes in the export control regime. However, it may also introduce new compliance complexities for businesses as they adapt to a potentially stricter regulatory environment.
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