What a BIS 50% Rule Would Mean for Compliance, Enforcement and Chinese Tech Firms
By Ryan Bacic
Landon Heid, President Trump’s pick to be the next export administration chief at the Bureau of Industry and Security (BIS), had raised the possibility at his Senate hearing of automatically subjecting subsidiaries owned 50% or more by U.S.-blacklisted companies to trade restrictions, too.
According to a recent Bloomberg report, that change is now coming.
A 50% rule that applies to subsidiaries of entities subject to export restrictions could bring a major expansion in U.S. enforcement and force a major expansion in compliance screening.
And it would be the latest action in the Trump administration’s larger focus on China’s tech sector.
The details: There are still a lot of moving pieces here. But the planned subsidiary rule, Bloomberg wrote Friday, “could be unveiled as soon as June” and would apply trade restrictions in relation to subsidiaries of companies on the BIS Entity List, the Military End User list and the list of Specially Designated Nationals.
Treasury’s Office of Foreign Assets Control has long had its own 50% rule, applying to the subsidiaries owned 50 percent or more in the aggregate by one or more blocked parties. The push for a similar rule at BIS appears to be rooted in the risks of diversion of advanced technologies and other dual-use goods.
Kharon research and reporting has documented previously how companies in China, in particular, often leverage or spin up subsidiaries to continue their trade after being listed by the U.S.
Expert insight: Matt Axelrod, former assistant secretary for export enforcement at BIS, said in a Kharon webinar last week that the possibility of such a rule “has been a debate internally for a while.”
“I think it is frustrating to BIS, and certainly to the enforcement side of BIS from a national security perspective, that this doesn't exist,” he said, “because of how easy it can be for an entity-listed company to set up a different subsidiary, and that’s not caught by the entity list.”
But Axelrod, now a partner at Gibson Dunn, noted that implementation would have its challenges, including the need for interagency buy-in. That widened impact of a BIS listing could yield a reduction in the number of entities that it adds in the first place.
“If it's going to impact not just that one unit but the entire company, right, there might be a part of that company that DOD relies on very heavily,” Axelrod noted.
Case study: The U.S. scrutinized the network of companies believed to be supporting China’s balloon program after a Chinese high-altitude balloon in 2023 flew over sensitive sites in U.S. airspace, was intercepted and was shot down.
In its response, the U.S. added Geovis Technology Co., Ltd. to the Entity List in 2024 for its “connections to companies that support China’s High Altitude Balloon program.” Geovis Technology owns a 65% stake in a subsidiary, Geovis Environment Technology Co., Ltd.
Geovis Environment Technology has sold services related to equipment construction and upgrades directly to its listed parent, Kharon found. It also has sold data analysis and processing systems to the National University of Defense Technology, which has been on the U.S. Entity List since 2015 for using “U.S.-origin” processors to produce a pair of supercomputers.
Geovis Environment Technology has sold its services, including in research and development and data-set construction, to a pair of the university’s suppliers as well, strengthening the connection.
Current Entity List rules do not target Geovis Environment Technology with the restrictions that its listed parent faces.
But a 50% rule would be poised to change that—and a lot more, too.
