The Bureau of Industry and Security (BIS), part of the US Department of Commerce, plays a key role in safeguarding national security and foreign policy interests through export controls. A central tool in this effort is the Entity List, which restricts certain foreign individuals, organizations, and government agencies from accessing US-origin goods, software, and technology. Entities are added to the list if they are suspected of engaging in activities contrary to US interests—such as distributing weapons, committing human rights abuses, or threatening national security.
When an organization is placed on the Entity List, US exporters must obtain a license to supply them with controlled items. This can have implications not just for the listed entity but also for associated supply chains and other business relationships.
One of the longstanding challenges in export control enforcement is the use of subsidiaries to try to circumvent restrictions. Historically, some companies have tried to avoid controls by creating new affiliates under different names, often in jurisdictions with opaque ownership structures. This has made it difficult for regulators to track and enforce restrictions.
To address the issue of misusing subsidiaries, the BIS is introducing the Affiliates Rule, commonly referred to as the 50% rule. When introduced it’s likely that entities that are at least 50% owned—directly, indirectly e.g., there is ownership via subsidiary or intermediary companies, or in aggregate—by one or more parties on the Entity List, Military End-User (MEU) List, or a Specially Designated National (SDN) subject to EAR § 744.8(a)(1) could become subject to the same export restrictions as those entities who are explicitly listed. This would mark a shift from a name-based enforcement model to an ownership-based one. The BIS rule is modeled on the OFAC 50% rule, which has long been a cornerstone of US sanctions enforcement.
Introduction of the BIS 50% rule has been suspended for a year and will now go into effect on November 10, 2026. Despite the postponement, many companies have started and will continue screening against the BIS 50% list to better understand risk exposure and determine if they need to make changes to their coverage.
It is important to be prepared for the new deadline to mitigate last-minute compliance risks. The rule may be paused, but the need for readiness and the benefits of acting in advance, are ever present. According to the BIS, thousands of subsidiaries across nearly 100 countries could be affected by this change.
In addition to the Entity List, the new rule would also apply to entities affiliated with parties on the Military End-User (MEU) List. The MEU List identifies foreign parties involved in military activities or supporting military end uses that may raise national security concerns.
The extension of the 50% ownership rule to include affiliates of MEU-listed entities is intended to limit indirect access to sensitive US technologies by organizations with military associations.
The rule introduces a new Red Flag compliance requirement. The BIS is warning that if a foreign company is minority owned or strongly connected in some other way—for example through board membership, shared management, or significant financial tie—to another company that’s already on a restricted list, like the Entity List, MEU List, or certain OFAC SDN lists, that could present a “red flag.”
And if an exporter can’t determine the ownership percentage of a foreign entity that may be affiliated with a listed party, they need to either:
This puts greater emphasis on understanding beneficial ownership structures, which may be challenging in jurisdictions where corporate ownership information is not publicly disclosed or readily available.
The BIS’s 50% rule represents an evolution in the US export control framework by shifting from a name-based to an ownership-based model, thereby potentially enhancing the effectiveness of export controls and supporting US national security objectives.
However, the rule may also introduce new compliance challenges. For example, businesses engaged in international trade may need to prepare for expanded due diligence obligations, particularly around identifying ownership structures and resolving Red Flags.
Ownership matters. The BIS 50% Rule is set to reshape global trade compliance by closing loopholes and exposing hidden risks.
In this episode of our podcast, Moody’s Industry Practice Lead, Hera Smith, breaks down:
Check out the new Moody's data visualization, which illustrates how the US's new 50% rule could impact trading globally. It includes details about the volume of impacted entities by country worldwide.
For information on Moody’s beneficial ownership data and entity verification solutions, please get in touch—we would love to hear from you.
*Disclaimer: This content is for informational purposes only and reflects our understanding of the subject matter as of the date of publication. It does not constitute legal, regulatory, or compliance advice.