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Export Controls

Oct 23, 2025

4 minutes

The New BIS 50% Rule: Answers to 9 Frequently Asked Questions

By Kharon Staff
When the U.S. Bureau of Industry and Security (BIS) adopted its long-anticipated 50% “Affiliates” rule last month, it closed a longstanding loophole in export controls.

It also opened up a well of questions from industry.

The bones of the new BIS rule appear straightforward: It automatically subjects entities that are owned 50% or more by U.S.-listed parties to export licensing requirements themselves. But how does that math under the rule work, exactly? And what specific requirements apply where?

We’re answering your most frequently asked questions about the Affiliates Rule below, and we’re planning to update, too, as more come in. (Have your own questions on how the rule works? Submit them to us here.)

1. What does the Affiliates Rule apply to?

The rule applies to entities owned 50% or more in the aggregate, directly or indirectly, by:
  • parties on the Entity List, which are subject to individual licensing requirements and policies on top of those found elsewhere in the Export Administration Regulations (EAR).
  • parties on the Military End-User (MEU) List, which is maintained by BIS and require licenses for transactions involving certain sensitive items, such as chemicals, computers, sensors, and aircraft and navigation tech.
  • certain parties on the U.S. list of Specially Designated Nationals (SND)—but not all.
Parties on those lists have thousands of majority-owned subsidiaries that, under the rule, will now be presumed subject to export restrictions. But few of those subsidiaries have ever appeared on a government blacklist, meaning that the U.S. government’s Consolidated Screening List “will no longer comprise an exhaustive listing of foreign entities subject to Entity List license requirements,” BIS said.

2. Which SDNs fall within the scope of the regulations?

Many, but not all. The Affiliates Rule specifically applies licensing restrictions to the sanctions program administered by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) identified in § 744.8(a)(1) of the EAR.

That includes sanctions related to:
  • Russia and Belarus;
  • terrorism;
  • weapons of mass destruction and proliferation;
  • and narcotics trafficking and transnational criminal networks.

3. What doesn’t the Affiliates Rule apply to?

  • U.S. companies. Because the rule relates to exports, it doesn’t apply to U.S.-based companies that may be owned 50% or more by listed foreign parties.
  • Entities that are only controlled—but not owned—50% or more by a listed party. Like OFAC’s longstanding 50% rule, BIS’s rule applies to ownership stakes in an entity, not to control. That said, BIS notes in its own FAQ that foreign parties that have significant minority ownership or other close ties to listed parties still present red flags, requiring heightened due diligence to mitigate potential diversion risks. (More on this in a later question.)
  • The non-listed parents of listed entities. The Affiliates Rule only flows downstream, to the subsidiaries of listed parties; it doesn’t flow upstream. If a party is on the Entity List but its parents are not, its export restrictions would not apply to those parents.
  • Other SDNs outside of the specifically listed sanctions programs, such as programs that specifically target parties in the Balkans, South Sudan, Venezuela or Iran. That doesn’t mean those parties’ subsidiaries are safe trading partners, of course: U.S. exports to Iran have long been banned, for instance, and the U.S. government has widely sanctioned the subsidiaries of Iranian sanctioned actors as is.

4. What about entities operating from the same address as a listed entity, or operating out of addresses on the Entity List?

While BIS began adding address-only listings to the Entity List last year, the focus of the Affiliates Rule is just on majority-owned entities. Addresses associated with listed parties—such as those used by corporate service providers or logistics hubs—do not, on their own, bring entities under the scope of the rule.

However, BIS has cautioned that subsidiaries or counterparties operating out of high-risk addresses on the Entity List may pose diversion concerns and therefore warrant heightened scrutiny.

5. How does aggregate ownership apply under the Affiliates Rule?

The rule’s 50% threshold sums across all listed owners, even if they’re on different lists. If listed parties’ ownership share hits 50% in aggregate, the Affiliates Rule applies.

For example: If one entity on the Entity List owns 25% of a company and an entity on the MEU List owns another 25% stake in it, then BIS would consider that subsidiary to be 50% owned in the aggregate by listed parties and therefore subject to licensing requirements.

6. What are the responsibilities under the Affiliates Rule if a listed party is a minority owner of a company?

Majority ownership is the clear focus here, but BIS’s rule also notably warns of risks tied to “significant minority ownership” by, or leadership ties to, foreign parties on the Entity List, MEU List or SDN List.

Such ties “present a Red Flag of potential diversion risk to the listed entity,” the Affiliates Rule says. “In this type of situation, additional due diligence is necessary, especially given the opaque ownership structures and limited access to accurate ownership data in certain jurisdictions.”

7. What are the responsibilities under the rule if you can’t verify U.S.-listed parties’ ownership stakes in a company?

The Affiliates Rule introduces Red Flag 29, which establishes that if an exporter has “knowledge” that a foreign entity is owned directly, indirectly or in part by listed parties, the exporter must determine the ownership percentage. Where ownership cannot be verified, exporters “have an affirmative duty” to secure a BIS license before moving forward with a transaction.

8. How does the Affiliate Rule assess a chain of partial ownership?

The math can get tricky here. 

Say Entity List Company A owns a 35% share of a non-listed Company C, while Entity List Company B owns another 15%, for an even 50% in the aggregate. If Company C in turn owns 50% of a non-listed fourth company, Company D, Company D would also be subject to the Affiliates Rule and its licensing requirements. 

Why? Similar to OFAC’s rule, the math for the BIS 50% rule here “resets” at each level of subsidiary ownership. Each entity in a downstream subsidiary chain that is owned 50% or more by restricted parties is considered restricted itself. Company C therefore is considered restricted, so its 50% ownership of Company D results in Company D being considered restricted, too.

9. If my company is based outside the U.S., is the Affiliates Rule something I need to worry about?

It might depend on your supply chain. The Affiliates Rule applies extraterritorially through the EAR, which governs not only items exported from the U.S. but also certain foreign-produced items that contain U.S.-origin technology or software. 

Share your own questions with the Kharon Brief here.

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