Preparing for a Major Shift in Export Control Policy
A major policy shift has been announced, and U.S. industry has begun preparing for the implementation of the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) 50% rule (the “Affiliates Rule”) – similar in concept to the one enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).Since the announcement in September 2025, BIS has paused implementation of the rule until November 2026, delaying its entry into force while the agency considers next steps.
The rule significantly broadens the scope of responsibility for exporters, suppliers, and manufacturers navigating U.S. export controls, making hidden ownership a frontline trade management issue.
Here, we break down what business leaders need to know now, covering the rule’s implications, licensing regime, enforcement risk, and best practices to establish effective and sustainable controls.
What Is the BIS 50 Percent Rule/Affiliates Rule?
The rule, announced by BIS on September 29th after months of anticipation, would extend existing trade restrictions to subsidiaries and affiliates that are at least 50% or more owned by parties on the BIS Entity List or Military End-User List (MEU List), or by certain parties on the Specially Designated Nationals (SDN) List. This is similar in concept to the OFAC 50 Percent Rule, which considers any entity that is 50% or more owned by one or more sanctioned parties to be automatically blocked. While OFAC has long maintained its 50 Percent Rule for sanctioned parties, BIS previously did not impose licensing requirements on legally distinct entities that were majority-owned by parties listed on its various restricted lists, resulting in a known loophole for diversion through majority-owned affiliates. By aligning with Treasury’s long-standing ownership rule, BIS is reinforcing a whole-of-government effort to close loopholes and tighten export controls against adversaries exploiting global supply chains.The Affiliates Rule also introduces Red Flag 29, which establishes that when an exporter has “knowledge” that listed parties have an ownership stake in an entity, the exporter has an affirmative duty to determine the percentage of ownership by those listed entities. If the exporter is unable to determine the ownership percentage, they must obtain a license from BIS prior to proceeding with a transaction.
Why BIS Is Making the Change
While implementation and enforcement of the Affiliates Rule is currently paused, BIS is directly targeting diversion schemes in which listed parties set up affiliates or shell firms to keep U.S. goods and technology flowing despite restrictions.“For too long, loopholes have enabled exports that undermine American national security and foreign policy interests,” Jeffrey Kessler, Undersecretary of Commerce for Industry and Security, said in a statement upon the formal announcement of the Interim Final Rule. “Under this Administration, BIS is closing the loopholes and ensuring that export controls work as intended.”
As Matt Axelrod, former Assistant Secretary for Export Enforcement at BIS, explained in a previous Kharon webinar before the rule was announced: “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, 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.”
While the Entity List and MEU List cover around 3,500 named parties, the new BIS Affiliates Rule, when implemented, would expand its reach to thousands of additional subsidiaries worldwide – many of which have never appeared on any sanctions or export controls list.
Kharon research has long documented how U.S.-origin goods and technology can continue flowing to subsidiaries of listed entities – especially in China’s tech sector – and has also tracked how listed companies often establish new subsidiaries and affiliates to carry on the same business after their parent is flagged.
Common Misconceptions About BIS Restrictions
While the rule is paused, these misconceptions remain relevant for companies preparing for its potential implementation.“Our customer isn’t on the Entity List or Military End-User List (MEU List).”
That may not be enough. If your customer is majority-owned directly or indirectly by a listed company, they will be subject to U.S. export restrictions – regardless of whether they’re named.
“This won’t apply to us because we’re not U.S.-based.”
BIS rules extend extraterritorially under certain circumstances. Foreign-made items that incorporate controlled U.S. content or tech may still fall under BIS jurisdiction.
“We already comply with OFAC’s 50% Rule.”
The BIS 50% Rule differs in enforcement from the OFAC 50 Percent Rule. Since most BIS Entity List and MEU List parties are not on OFAC’s SDN List, compliance with one does not equate to compliance with the other.
Export Control Compliance Challenges
Exporters, reexporters, and transferors would have an affirmative duty under the rule to determine ownership of counterparties before proceeding with a transaction. Companies must therefore invest in tools, data, and processes to identify hidden ownership connections and avoid diversion risks.Adhering to the BIS 50 Percent Rule ("Affiliates Rule"): A Compliance Checklist
As the compliance landscape continues to shift, organizations should begin preparing by:- Screening for Ownership Exposure
Go beyond name-based screening. Conduct due diligence on whether any customers, distributors, or resellers are majority-owned by entities on the BIS Entity List or MEU List. Kharon maintains the leading data on majority-owned subsidiaries of listed parties, as well as parties with minority and unknown ownership stakes, built to support the detection of sanctions and trade controls evasion. Developed over many years, it enhances ownership-based screening and reduces the risk of missed exposure. - Mapping Corporate Structures and Beneficial Ownership
Complex corporate structures can obscure risk. Use relationship mapping tools to identify ultimate parent companies, cross-holdings, and subsidiaries that may carry hidden exposure. Kharon provides the only solution purpose-built to surface these relationships at the scale and depth required for export controls compliance. - Staying Current with Policy Changes and Best Practices
Monitor BIS announcements, expert analysis such as the Kharon Brief and Readbook newsletter, and public enforcement trends. Early detection of regulatory shifts will give your team a critical advantage in managing change. - Preparing Documentation and Defensibility
Keep internal records ready to demonstrate screening and due diligence practices. This includes ownership reports, supplier attestations, and documentation of how business decisions were made in light of pending rules.
Mitigating Risk with Kharon
Kharon’s risk intelligence platform enables businesses and compliance teams to:- Identify subsidiaries and affiliates tied to restricted parties – an area where Kharon has deep, long-standing experience. Kharon’s platform has supported ownership- and control-based screening for years, well ahead of current policy discussions.
- Analyze corporate ownership and network relationships.
- Map exposure to high-risk end users.
- Identify diversion exposure via non-transparent routing or intermediaries that obscure end-use or end-users.
- Integrate advanced trade intelligence that maps relationships to flagged counterparties, defense-linked entities, and illicit procurement channels.
The Bottom Line
With the recent announcement–and subsequent pause–of the BIS Affiliates Rule, U.S. companies and multinationals with products subject to BIS restrictions should assess potential exposure and monitor developments closely. For companies exporting products subject to BIS restrictions, the risk environment is tightening. Acting now to assess ownership exposure and strengthen compliance controls will help avoid disruption later.
