The U.S. export control regulator has adopted a 50% rule, confirming that entities majority-owned by parties subject to U.S. export restrictions will themselves face those same restrictions.

The decision comes from the U.S. Department of Commerce's Bureau of Industry and Security (BIS), the federal body responsible for administering the Export Administration Regulations (EAR). Under the adopted rule, any company in which a restricted party — whether listed on the Entity List, the Denied Persons List, or otherwise subject to EAR restrictions — holds a 50% or greater ownership stake inherits that restricted status automatically.

What the rule does

The 50% rule addresses a long-standing gap in U.S. export control enforcement. Previously, a subsidiary that was majority-owned by an entity on a restricted-party list did not itself appear on any list. Exporters could ship controlled items to that subsidiary without triggering a licensing requirement, even though the ultimate beneficiary was a listed party.

The adopted rule closes that gap. It operates by attribution: ownership of 50% or more transmits the restrictions of the parent to the subsidiary. The subsidiary need not be separately designated or named in the Federal Register. The restriction follows the ownership stake.

Practical consequences for practitioners

For export compliance teams and outside counsel, the rule shifts the burden of diligence. Screening a counterparty against the consolidated restricted-party lists is no longer sufficient. Counsel must now determine ownership structures — identifying who holds 50% or more of a prospective customer, distributor, or joint-venture partner, and tracing those stakes up the chain where layered ownership exists. Where a listed entity holds a majority position, the transaction requires a license or must be halted, exactly as if the listed party itself were the counterparty. Practitioners should also revisit existing distribution agreements and standing authorization terms to ensure that ownership-change representations and screening covenants capture attribution under the new rule. Contractual reps and warranties, annual certifications, and audit rights may all need revision.

Why it matters

The rule removes what enforcement authorities had viewed as an evasion route. Restricted parties could previously continue to access U.S.-origin controlled goods and technology through majority-owned affiliates that carried no listing of their own. By attributing restrictions through ownership, the regulator extends the reach of the EAR across corporate structures without undertaking entity-by-entity designations.

The measure also aligns U.S. practice with the expectations of allied export control regimes, in which ownership-based attribution has become a standard feature of restricted-party screening. Multinational companies with U.S.-origin items, software, or technology in their supply chains should treat the adopted rule as a trigger for comprehensive reassessment of their screening protocols.

Compliance steps to consider

Counsel advising on export controls should consider several immediate actions. First, update automated screening systems to flag counterparties with majority ownership by any restricted party, not merely parties that appear on the lists themselves. Second, incorporate ownership-disclosure obligations into onboarding documentation for new customers and intermediaries. Third, review legacy transactions and open orders to determine whether any existing counterparties are now captured by attribution. Fourth, assess whether any current licensing arrangements or license exceptions relied upon remain available where a majority owner is listed.

The stakes are significant. Violations of the EAR carry civil penalties, criminal exposure, and denial of export privileges. The adoption of the 50% rule means companies can no longer point to the absence of a listing as a defense where ownership ties to a restricted party are present and discoverable.

Compliance officers should also brief sales and business-development teams, who often serve as the first point of contact with prospective customers and may not appreciate that an unlisted entity can still be off-limits. Training materials, screening questionnaires, and escalation procedures should reflect the attribution principle from the date the rule takes effect.

The bottom line

The U.S. export control regulator's adoption of the 50% rule makes ownership the operative test for restricted status. Majority ownership by a listed party now carries the party's restrictions with it. Companies dealing in items subject to the EAR should treat ownership diligence as an integral part of restricted-party screening, and should act promptly to bring their compliance programs into line with the new standard.