To comply with both U.S. sanctions and export controls, U.S. exporters now have an affirmative duty to thoroughly investigate foreign ownership. 50% restricted ownership is the trigger, and extensive due diligence is the key.
Here's the Explainer (and some recommendations):
The US Government Makes Trade Compliance Complicated.
The United States imposes most sanctions on individuals, entities, and certain industry sectors/uses through Treasury's Office of Foreign Assets Control ("OFAC"). State also manages separate sanctions programs.
Separately, the US restricts exports according to the category of the item. This is usually the bailiwick of Commerce's Bureau of Industry and Security ("BIS"). However, "defense-related" items listed on the listed on the United States Munitions List are governed by State's Directorate of Defense Trade Controls and are much more highly restricted.
Some sanctions have exceptions. Additionally, in most cases a license permits you to engage in otherwise-prohibited activity. Licensing availability depends on which sanction/export control applies.
OFAC's 50% Rule Is Well-Known.
Sanctions are enforceable when published in the Federal Register. This means that some, but not all, blocked counterparties are published on publicly available lists. As noted in last month's blog, this is because of OFAC's 50% Rule:
OFAC considers any entity owned 50 percent or more (directly or indirectly and in the aggregate) by one or more blocked parties to be "deemed blocked" (even if it is not itself listed). (See FAQ 398)
In other words, you must not solely depend on published lists. Instead, OFAC expects you to examine actual ownership (and ultimate beneficial ownership) to determine aggregate ownership by blocked parties. (Be sure to keep good records of this due diligence to demonstrate good faith.)
The 50% Rule Has Now Been Adopted by the BIS.
Effective September 29, 2025, BIS published an Interim Final Rule (IFR) that does the same thing in the world of export controls: a non-listed foreign entity owned 50% or more by most listed parties is "deemed" subject to the same restrictions as if it were itself listed. (In the case of a conflict between restrictions, the most restrictive treatment will apply.)
While not all restricted lists are currently covered at present, all ownership percentages should in practice be examined because:
- Any restricted list can generate a red flag deserving additional review, and
- The IFR adds an official Red Flag to BIS's Know Your Customer guidance creating the affirmative duty (i) to determine foreign entity ownership percentages and, if not possible, (ii) to not proceed (without a license or exception).
What Should We Do?
There is a limited temporary general license in play until November 29, 2025 (unless extended). However, we recommend promptly incorporating these additional due diligence activities into your export compliance program.
- If you haven't started actively investigating the direct and ultimate beneficial ownership of your counterparties...START DOING IT.
- Broaden your current OFAC-based ownership analysis to cover BIS export controls. Reflect this in revised policies and enhanced systems.
- Use all tools at your disposal – electronic and manual (e.g., questionnaires and telephones) to determine ownership.
- Escalate any unknown ownership for legal/compliance review (and presume a denial unless a license or exception applies).
- Keep complete and accurate records of all approvals and denials.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
