Guide: US BIS 50% Affiliate Rule

🔒 BIS now restricts entities 50%+ owned by listed parties. Stronger due diligence and compliance required to avoid violations. We explain.

Background

The Bureau of Industry and Security (BIS) has issued an interim final rule expanding export controls to subsidiaries of entities on the Entity List and Military End-User (MEU) List. Companies should strengthen due diligence on end-users in export transactions.

The Entity List targets parties involved in activities against U.S. national security or foreign policy. The MEU List applies when goods could be used in, or diverted to, military applications. Licenses are generally presumed denied, and license exceptions are limited.

Key Change: The 50 Percent Rule

Previously, only specifically named entities were restricted, even if subsidiaries or affiliates were closely tied. This created loopholes that could allow diversion schemes.

The new rule automatically subjects any entity at least 50 percent owned by one or more listed entities to the same restrictions. Exceptions may be granted case by case. BIS notes this aligns with the Treasury Department’s OFAC ownership standard.

Red Flags and Due Diligence

BIS highlights that significant minority ownership, overlapping boards, or other signs of control by listed entities create a potential diversion risk. Exporters must resolve these red flags before exporting, reexporting, or transferring goods.

Compliance will require more time and resources, especially where ownership structures are opaque. The Consolidated Screening List will no longer reflect all affected subsidiaries; it will only show named entities.

Conclusions

The rule closes loopholes in U.S. export controls, strengthening national security protections. Companies face greater responsibility to assess ownership and control structures of foreign partners.

Recommendations

• Conduct thorough ownership due diligence for all foreign entities in export transactions.

• Implement procedures to identify red flags such as minority ownership or overlapping board members.

• Factor in additional time and resources for license applications or exceptions.

• Align Entity List/MEU List compliance processes with existing OFAC ownership checks where possible.

• Consult your ST&R professional to ensure transactions meet the new requirements.