Authors: Andrea Little Limbago and Mackenzie Clark
For months, there have been rumors the US Department of Commerce’s Bureau of Industry and Security (BIS) would expand its Entity and Military End-User list to also include subsidiaries. On September 29th, this update was finally announced, expanding each list to automatically include subsidiaries and affiliates owned 50% or more by existing listed entities, such as Huawei.
Aiming to close loopholes that previously allowed companies to circumvent restrictions, this policy shift comes at a time of both heightened geopolitical tensions as well as tit-for-tat restrictions between the US and China. Specifically, this is the latest activity in a series of restrictions aimed at emerging technologies deemed critical to US national security. With such a significant increase in compliance requirements, the BIS 50% rule introduces new complexities for global supply chains, requiring companies to conduct deeper due diligence on partners and suppliers.
The Day that Became an Inflection Point in Regulatory Policy
Compared to recent years, export controls have been less prolific but nevertheless remain a core tool in global geo-economic competition. In the last few months, for example, the US placed an export ban on Nvidia chips, before releasing the ban, only to have China then ban the chips themselves. These followed bans in 2022 that limited the export of AI-chips and tools.
This BIS 50% rule diverges from previous restriction policy updates in several ways. The update builds upon the last decade of export controls that have targeted emerging technologies and added over 1,500 companies to the BIS Entity List over that time. However, instead of introducing new parent companies, it leans on the existing list and expands it to include their subsidiaries. This approach is not unprecedented, but rather mirrors the 50 percent rule used in the US Department of Treasury’s Office of Foreign Assets Control (OFAC) lists.
In this regard, the new BIS rule dramatically increases the scope of entities sanctioned under the Entity List and Military End User Lists. As of September 29th, interos.ai has tracked approximately 3,000 companies that are currently actively listed on at least one of the relevant BIS lists. Using interos.ai corporate ownership data, there are over 2,800 companies that meet the criteria to be sanctioned under the new ownership rule, effectively doubling the size of the companies listed. These companies include those directly owned 50% or more by a currently listed company, as well as those that are indirectly controlled by a listed company.
Rethinking Supply Chain Visibility in a Shifting Regulatory Landscape
By expanding the Entity List and Military End User List to cover affiliates, the BIS has made supply chain visibility and risk management more critical than ever. Companies can no longer solely rely on the primary entity’s status. They must map ownership structures and monitor all subsidiaries and affiliates to avoid inadvertent violations. This impacts sourcing, procurement, and partner selection, especially for firms relying on international suppliers in sensitive sectors like semiconductors and telecommunications.
Importantly, these regulatory shifts are indicative of the complex transformations reshaping the geopolitical landscape. Although the rule is aimed at restricting exports to China and Russia, the impact is global. While most of the new companies added are indeed located in China and Russia, companies within 74 countries are potentially impacted, with over three dozen companies in Canada alone.
Build Supply Chain Resilience with Proactive Compliance
To avoid compliance violations and supply chain disruptions, companies must act quickly to safeguard their operations. Key steps to consider include:
- Audit suppliers and partners: Identify any entities now covered under the expanded rules.
- Map ownership structures: Understand parent companies and subsidiaries to uncover hidden exposure.
- Implement automated monitoring: Track ownership changes and regulatory status in real time using tools like interos.ai.
- Strengthen due diligence processes: Vet new partners thoroughly before onboarding.
Strengthen Your Supply Chain Against Emerging Risks
interos.ai helps companies gain complete visibility into their global supply chains so they can adapt quickly, maintain compliance, and protect operations from costly disruptions. To safeguard your supply chain against emerging risks like these, speak with one of our supply chain experts today.