50% Rule and the BIS Entity List

The Bureau of Industry and Security (BIS) publishes a list of legal persons (and addresses, too!) that are subject to specific license requirements when it comes to purchasing a list of specified items of US origin (often referred to as dual-use goods, suited for both civilian and military use).

Earlier this year, the world was caught off guard with DeepSeek’s AI model, which was powered by Nvidia’s chips, despite the US export restrictions.

One may argue that the country has accumulated the chips long in advance; however, some believe the import of sensitive technology was done on an ongoing basis, bypassing US export controls via third-parties and jurisdictions. The question is how?

One way for an entity to bypass the US export controls is to form a distinct legal entity that is not subject to the US export restrictions.

Yes, that easy.

However, the above loophole may not be of much use much longer.

The BIS is actively considering to mimic the OFAC’s 50% Rule to its exports controls program. According to various sources, this may be done as early as June 2025.

What does this mean for business?

Companies will need to examine ownership structures, focusing on the Ultimate Beneficial Ownership (UBO) structures behind when exporting dual-use goods and technologies.

The BIS 50% Rule shall apply, requiring an export license, if it is established that the entity is 50% or more aggregately owned by one of the listed companies.

Expect more screening, more false positives, more complexity and more work for compliance specialists globally.

Report on DeepSeek from the US Congress, sparking the discussion

What happens if one does not comply? Fines and prison time.

Thanks for reading,

Alexey