Growing Trade Compliance Hurdles: BIS Adopts the 50% Rule for Entity List and MEU List Entities

BIS has included a 60-day Temporary General License (“TGL”) that temporarily authorizes certain export, reexport, and transfer (in-country) transactions involving non-listed foreign affiliates — that will be otherwise covered by the new rule. This transition period will allow companies to assess their compliance programs before the new rule is fully enforced.

Overview of the Rule

The new rule considers both direct and indirect ownership, meaning that subsidiaries can be subject to the same export licensing requirements and prohibitions as their intermediate and ultimate owners. If the entity is owned 50% or more, directly or indirectly, individually or in the aggregate, by one or more parties on the Entity List or MEU List, the same export restrictions will apply to that entity. The new 50% rule does not apply, however, to all lists — for example, it does not apply to subsidiaries of entities on the Unverified List or that are subject to Denial Orders under Part 764 of the Export Administration Regulations.

In implementing the new rule, BIS stresses that previously, companies on the Entity List or MEU List could avoid export control restrictions by using unlisted subsidiaries or related entities to receive export-restricted items. Now, parties exporting, reexporting, or transferring items subject to U.S. export controls will have an affirmative duty to confirm the ownership of transaction parties in order to ensure compliance with U.S. export controls and the new 50% rule. The new rule introduces Red Flag 29 in Supplement No. 3 to Part 732, which obligates exporters, upon knowledge that a foreign entity has listed owners, to conduct appropriate due diligence to ascertain ownership, and either resolve the “Red Flag” or seek a license if ownership cannot be reliably determined.

Impact of the Rule

The shift to imposing a 50% rule with respect to the Entity List and the MEU List has broad impacts on companies exporting, reexporting, or transferring items subject to U.S. export controls. There are potentially thousands of subsidiaries that are majority-owned by listed parents, thereby increasing the compliance burden on entities that are engaging in export-related activities.

Additionally, as BIS notes, screening through the Consolidated Screening List (“CSL”) is no longer sufficient for export control compliance. As a result of the new rule, the CSL will no longer include all parties subject to Entity List and MEU List restrictions. Where an exporter, reexporter, or transferor knows that an entity is at least partly owned by an entity on the Entity List or MEU List, but cannot affirmatively determine the ownership percentage, that exporter, reexporter, or transferor must obtain a license or resolve the Red Flag before it can proceed with any export-related transaction. Even if a party is not aware of any ownership by an Entity List or MEU List person, export control restrictions are enforced on a strict liability basis. Thus, companies are incentivized to undertake additional compliance steps to mitigate the risk of potential violation.

BIS does have the ability to apply exceptions to the new 50% rule by indicating on the Entity List or MEU List that (1) the 50% rule does not apply to any foreign affiliate owned by a particular listed entity, or (2) a specific foreign affiliate is excluded. Outside of those exclusions, all other entities will be subject to the same export restrictions as their 50% or greater owners.

Compliance Considerations

Given that the TGL is set to expire on November 28, 2025, companies engaging in export activities will need to review and potentially revise their compliance requirements quickly in order to comply with the new rule. Companies should consider the following, among other things, as they undertake this review:

• Companies that have been screening export transaction parties manually using the CSL may need to review their procedures to determine whether alternative screening options are available and necessary to include ownership screening for Entity List and MEU List entities.
• Companies engaging in periodic screening may need to increase the frequency of re-screens given how often company ownership can change. Because ownership interests are aggregated, a 1% ownership change can tip the scales and result in an entity being subject to export restrictions that were not previously an issue, if the entity already had 49% ownership by Entity List or MEU List entities. Continuous screening and monitoring can help to mitigate the risks of changes in ownership structures.
• As compliance procedures are reviewed, companies may need to revise their policies and procedures and update employee training to address the new BIS 50% rule. Doing so can identify potential red flags, mitigate risks, and unearth new compliance challenges not previously identified.
• Companies may also need to adjust contract language and evaluate long-term supply contracts or other ongoing contractual relationships. Some contracts might need to be terminated or renegotiated to ensure compliance with the BIS 50% rule going forward. A review of termination and force majeure options might be necessary where long-term contracts can no longer be fulfilled absent a license from BIS.

¹ Expansion of End-User Controls to Cover Affiliates of Certain Listed Entities, 90 Fed. Reg. 47201 (Sept. 30, 2025) (to be codified at 15 C.F.R. pts. 732, 734, 736, 744, and 748), https://www.govinfo.gov/content/pkg/FR-2025-09-30/pdf/2025-19001.pdf.