The BIS Affiliates Rule (50% Rule) Explained: 5 Things Japanese Companies Must Check Before the November 10, 2026 Enforcement

Hello, this is Hamamoto from TIMEWELL. The question I have been hearing most often lately from people newly assigned to export control roles is this: "What exactly is the BIS Affiliates Rule (the 50% Rule)? Does it even apply to us?" This article is written for professionals who know Japan's Foreign Exchange Act but are not yet familiar with the EAR. Ahead of the full enforcement on November 10, 2026, I have organized the key points you need to grasp, starting from what the terms actually mean.

What you will learn in this article

• What the BIS Affiliates Rule (the 50% Rule) changes, so you can understand its structure in three minutes
• Why it applies to Japanese companies even if you do not export to the United States (how extraterritorial reach works)
• The timeline from the September 2025 publication to the November 10, 2026 resumption, and what the current "suspension period" means
• A three-point check to determine whether it affects your company, and the penalties for violations
• The five practical steps you should take, and answers to common misunderstandings

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First, understand just three terms

Before we get into the main topic, let me organize the bare minimum of terms you need to know. With just these three, the rest of the article will read smoothly.

Term	Plain explanation
EAR	The US Export Administration Regulations. The US equivalent of Japan's Foreign Exchange Act and Export Trade Control Order. It regulates the export and re-export of products that contain US-origin goods or US technology.
Entity List	A restricted list of foreign companies and individuals that the US has designated as requiring a license when you export to them. The so-called blacklist.
BIS	The Bureau of Industry and Security at the US Department of Commerce. The enforcement agency that administers the EAR and manages the Entity List.

These appear throughout this article, so if you get lost, come back here to check.

Key point so far: The EAR is the US version of the Foreign Exchange Act, the Entity List is the US version of a blacklist, and BIS is the agency that runs them.

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What is the BIS Affiliates Rule (the 50% Rule)?

In a single sentence

Any subsidiary or affiliate in which a company named on the Entity List holds 50% or more of the shares is automatically treated the same as the listed company itself. This is the core of the Affiliates Rule. It is commonly called the "BIS 50% Rule."

Its formal name is "Expansion of End-User Controls To Cover Affiliates of Certain Listed Entities." BIS published it as an Interim Final Rule on September 29, 2025.

What is new about it

The traditional Entity List restricted only the companies named on it individually. A compliance officer's job was complete once they confirmed that a counterparty's name did not appear on the list.

Under the new rule, however, relationships like the one in the following diagram automatically become subject to control as well.

[Entity List company]  Company A
        |
        | holds 50% or more of the shares
        v
[Not listed]  Company B  <- automatically subject to the same license requirements as Company A
        |
        | Company B in turn holds 50% or more of the shares
        v
[Not listed]  Company C  <- Company C may also become subject to control (cascade application)

In other words, even a company whose name is not on the list will be treated as if it were listed, on the basis of its parent's capital structure.

Why it was created

In the reasoning section of the Federal Register notice, BIS pointed to the risk that listed companies could evade controls through their subsidiaries (diversion). If a parent company could simply set up a new subsidiary and continue transacting after being listed, the controls would become a dead letter. Closing that loophole is stated as the purpose of this rule.

The three lists it applies to

The Affiliates Rule is tied to the following three lists.

1. Entity List (described above)
2. Military End User List (MEU List): a list of foreign entities of concern for military end-use
3. Certain SDN List parties under 15 CFR §744.8: among the US Treasury OFAC sanctions targets, those under the sanctions programs enumerated in the EAR

A distinctive feature is that you may aggregate ownership stakes across these three lists. For example, if an Entity List company holds 15% of Company X and an MEU List company holds 35% of Company X, the combined 50% means Company X also becomes subject to control. This is a BIS-specific feature not found in the predecessor Treasury OFAC 50% Rule (discussed later).

Key point so far: We have entered an era where "not on the list" does not necessarily mean "safe." You must trace back to the parent company and multiple shareholders to make the 50% determination.

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What changes and when (timeline)

The Affiliates Rule has a complicated history between publication and full enforcement. Let me organize it as a timeline.

Date	Event
September 29, 2025	BIS publishes the Affiliates Rule as an Interim Final Rule, effective the same day
October 29, 2025	Public comment deadline
Late October 2025	US-China summit (Busan, South Korea) agrees to a mutual suspension of controls (per media reports)
November 10, 2025	BIS publishes a one-year suspension, in exchange for China's one-year suspension of rare earth and related export controls
November 10, 2025 to November 9, 2026	Suspension period (where we are now)
November 10, 2026	Full enforcement (scheduled to resume)

The important thing here is that the current status is "suspended," not "repealed." The Federal Register text explicitly states that it "will resume on November 10, 2026." Depending on US-China trade relations and industry trends, further postponement or amendment remains possible, but the most practically prudent posture is to prepare on the assumption that it will resume, and fine-tune if there is a policy change.

If you delay your preparation on the assumption that it will be postponed, you will not be ready in time when it resumes. Given the work involved in organizing ownership-structure data, a year and a half of lead time is, if anything, on the short side.

Key point so far: It is currently suspended, but scheduled to resume on November 10, 2026. The right view is to treat this as a preparation period.

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A three-point check for whether it affects your company

"We don't export directly to the US, so this has nothing to do with us." This line of thinking is dangerous. Whether the Affiliates Rule affects your company can be determined by the following three points.

Check 1: Do you handle US-origin goods or US technology?

The EAR's jurisdiction extends to US-origin goods, products that contain US-made software or technology above a certain percentage, and items subject to the FDPR (Foreign Direct Product Rule).

The FDPR is a mechanism under which the EAR applies even to products manufactured abroad using US technology or design data. For example, a semiconductor designed with US semiconductor design tools and manufactured in Taiwan can become subject to the EAR even when a Japanese company exports it to China.

Points to check:

• Whether the product contains US-origin semiconductors, components, or software
• Whether US-made equipment or design tools are involved in the product's design or manufacture
• Whether there is any US technology you have received under license

Check 2: Do you understand your counterparties' ownership structures?

This is the blind spot for Japanese companies. The affiliates newly captured by the Affiliates Rule do not appear on the US government's Consolidated Screening List (CSL). That is because BIS does not publish a "roster of affiliates that are subject to control."

In other words, unless you investigate all the way to your counterparty's beneficial owners, you cannot determine whether there is a risk.

Points to check:

• Whether you can trace your counterparties (direct customers plus end users) all the way to their parent and ultimate parent companies
• Whether you hold up-to-date figures for the ownership ratios of joint ventures (JVs)
• Whether you have a system in place to confirm the ownership structures of Tier 2 and Tier 3 suppliers, and of sales destinations via distributors and agents

Check 3: Do you do business with China or Russia?

Many Entity List companies are located in China or Russia, but entities in the EU, Japan, Switzerland, India, and elsewhere are also included. In particular, you should focus your verification on cases involving the following transactions or relationships.

Priority verification targets:

• You have sales subsidiaries or joint ventures in China or Russia
• You handle semiconductors, AI, quantum, communications equipment, or manufacturing equipment for customers in China or Russia
• You conduct R&D or joint ventures with Chinese state-owned enterprises (SOEs)

Even if you do not match all three, if even one applies, it is worth starting an actual investigation at this stage.

Key point so far: You cannot make the determination based on "do you export to the US" alone. Make a comprehensive judgment based on three points: products containing US-origin or US technology, the counterparty's ownership structure, and the destination.

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The risks if you violate the rule

If you were to violate the Affiliates Rule, what penalties would be imposed? Let me organize the structure of the penalties.

Civil penalties (administrative penalties)

• Up to approximately USD 374,474 per violation (after inflation adjustment as of January 15, 2025; revised annually), or twice the value of the transaction, whichever is greater
• Added up for each violation

The phrase "per violation" deserves caution. If multiple transactions are challenged, the fines snowball.

Criminal penalties

• Up to 20 years of imprisonment and a USD 1 million fine per violation (or both)
• Applies in cases of willful violation

Other sanctions

• Denial of export privileges (Denial Order): the violator is excluded from all transactions under EAR jurisdiction
• Temporary Denial Order (TDO): a provisional export ban
• Addition to the Entity List: the risk that the violating company itself ends up on the list

Related past cases

For reference, here are past cases of Entity List violations. These predate the Affiliates Rule, but after enforcement, the same sanctions could be triggered for transactions via affiliates. In 2023, Seagate agreed to a USD 300 million settlement (paid over five years) for selling hard disk drives to Huawei (with 429 violations found). In 2017, ZTE was fined a total of roughly USD 1.2 billion across multiple authorities for re-exporting US products to Iran and North Korea.

Does "I didn't know" work as a defense?

The Affiliates Rule adopts strict liability. This is the idea that a violation is established based on the outcome alone, without asking whether there was "intent" or "negligence."

"I had no idea that our counterparty was a 50% subsidiary of an Entity List company." Even if you make that argument, the violation still stands. Not knowing may be a factor that reduces the severity of the penalty, but it cannot let you escape the violation itself.

Key point so far: A violation carries fines of tens of millions of yen to billions of yen per case. And because it is strict liability, "I didn't know" is not a ground for exemption.

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The five practical steps you should take

From here, let me organize, in five steps, the concrete practical work you should do "now," during the suspension period.

Step 1: Take inventory of your counterparty list

First, exhaustively identify your counterparties. The customer lists managed by the sales department, the supplier databases of the procurement department, the sales destinations of overseas subsidiaries. When information is scattered, gaps and omissions occur.

What to do:

• Build a list that covers not only direct customers but also ultimate end users
• Include joint ventures (JVs), agents, and sales partners
• Map the destination, the products handled, and whether US-origin components are included

Step 2: Make ownership structures visible

For the counterparties on your inventoried list, trace back to the parent and ultimate parent companies to make the ownership structure visible. Unlisted Chinese companies and joint ventures, in particular, can be impossible to track fully from public information alone.

What to do:

• Gather public information such as commercial registries, shareholder rosters, and securities reports
• Use commercial databases (D&B, Refinitiv, various screening tools, etc.)
• Trace the chain of 50% determinations (cascade) three to four layers deep

This is the biggest bottleneck. It tends to take tens of minutes to several hours of manual work per company, and if you have hundreds of counterparties, you may need hundreds to thousands of hours of effort. This is an area where manual labor alone has its limits, and automation using a knowledge graph becomes a realistic option.

Step 3: Review your screening system

Verify whether your existing export control screening tools can make determinations by tracing back to beneficial owners. A system that only matches against the names of companies listed on the Entity List cannot handle the Affiliates Rule.

What to do:

• Confirm the coverage of your current tools (does it only match list names, or does it include ownership structures?)
• If functions are lacking, consider adding, replacing, or developing tools in-house
• Change your operations so that screening is done not only at the start of a transaction but also periodically and automatically

Step 4: Revise export control regulations and contracts

Update your internal export control regulations and your contract templates with counterparties to comply with the Affiliates Rule.

What to do:

• Clearly state in your regulations the "obligation to investigate ownership structures in compliance with the 50% Rule"
• Add to your contracts with counterparties an "obligation to notify if there is a change in ownership structure" and a "transaction-suspension clause if they become an Entity List-related company"
• Add a field for owner information to your end-use statements

Step 5: Internal training and operational adoption

Finally, make the new rule known to staff on the ground. The goal is a state in which the people who originate transactions, such as managers in sales, procurement, and overseas subsidiaries, can themselves notice "this might be a Red Flag." The standard approach is to turn the BIS-published Entity List FAQs 41 to 53, and especially FAQ 29 (Red Flag), into internal training materials, and to embed them in operations through regular training once or twice a year and mandatory e-learning at the start of a transaction.

If you try to do Steps 1 and 2 manually, many companies can expect an effort on the scale of hundreds to a thousand hours. To have your system in place before the suspension period ends, the realistic move is to start considering tool use early.

Key point so far: Inventory -> make ownership structures visible -> overhaul screening -> revise regulations -> training, in five steps. Step 2 in particular is where you are most likely to hit the wall of manual work.

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For those who want to visualize their risk in five seconds

If, having read this far, you feel anxious about whether your company can handle it, I recommend first trying out TRAFEED (formerly ZEROCK ExCHECK) to check your counterparties' capital-relationship chains. With a knowledge graph of more than 200 million records spanning papers, patents, researchers, corporations, and regulatory lists, you can visualize parent companies, subsidiaries, and affiliated companies in five seconds. There is a more detailed guide at the end of this article as well.

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Common misunderstandings / FAQ

Q1. We don't export to the US, so this doesn't apply to us, right?

A. It very likely does apply. The Affiliates Rule applies to all transactions involving items under EAR jurisdiction (US-origin goods, products containing US-made software above a certain percentage, and items subject to the FDPR). Even when a Japanese company ships from Japan to an affiliate in China, it is subject to extraterritorial application if US-origin semiconductors or design data are included.

Q2. With the one-year suspension, will it really be enforced in November 2026?

A. The Federal Register text explicitly states that it will "resume on November 10, 2026." However, depending on US-China trade relations and pushback from industry, the possibility of further postponement or amendment remains (this is purely an outlook based on media reports and policy trends). The most practically prudent posture is to prepare on the assumption that it will resume, and fine-tune if there is a policy change. If you delay your preparation on the assumption that it will be postponed, you will not be ready in time when it resumes.

Q3. Is checking the Consolidated Screening List (CSL) enough?

A. It is not enough. The affiliates newly captured by the Affiliates Rule do not appear on the CSL. BIS does not publish a "roster of affiliates that are subject to control," and you must investigate your counterparties' ownership structures yourself. The CSL is effective for checking "the listed companies themselves," but additional investigation is essential for the 50% determination.

Q4. Do the EU and UK have the same 50% Rule?

A. As of May 2026, the EU and UK do not have a provision equivalent to the US-style "50% Rule." Under EU individual sanctions, there is an interpretation that "companies owned or controlled by a sanctioned party are also subject" (the criterion being "more than 50% or de facto control"), but the institutional design differs from the US Affiliates Rule.

Q5. How does it differ from the OFAC (US Treasury) 50% Rule?

A. The OFAC 50% Rule is an economic sanctions framework that has been in operation since the late 1990s, automatically treating companies that are 50% or more owned by an SDN List party as SDNs themselves. The BIS Affiliates Rule "transplants" this concept into export controls, expanding the scope to the Entity List, MEU List, and certain SDNs, and adding the unique feature that ownership can be aggregated across different lists.

Comparison item	OFAC 50% Rule	BIS Affiliates Rule
Jurisdiction	Treasury OFAC	Commerce BIS
Effect	Asset freeze, transaction ban	Automatic application of license requirements
Aggregation across lists	Within the same program only	Can be aggregated across the three lists

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Summary

Finally, let me organize the key points of this article.

• The Affiliates Rule (the 50% Rule) is a new US rule that automatically makes subsidiaries and affiliates 50% or more owned by companies on lists such as the Entity List subject to the same controls
• It was published on September 29, 2025, is currently in a one-year suspension period, and full enforcement is November 10, 2026
• Even if you do not export directly to the US, it applies to Japanese companies if your products contain US-origin goods or US technology (extraterritorial application)
• A violation carries up to approximately USD 374,474 per case, and criminal penalties of up to 20 years of imprisonment. Because it is strict liability, "I didn't know" does not work
• What you should do during the suspension period is the five steps of taking inventory of counterparties -> making ownership structures visible -> overhauling screening -> revising regulations -> training. Making ownership structures visible, in particular, is where you are most likely to hit the wall of manual work

Recommended reading

• Risk-perspective explanation of the Export Control Affiliates Rule
• Entity List screening and customer due diligence
• A basic guide to ECCN classification

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For those anxious about whether they can handle it in-house

Extraterritorial controls like the BIS Affiliates Rule cannot be addressed by checking direct Entity List entries alone. You need to retroactively investigate the 50%-or-more ownership relationships of your counterparties' parent and subsidiary companies, and determining affiliates that do not appear on the CSL becomes the practical wall.

TRAFEED (formerly ZEROCK ExCHECK) visualizes a counterparty's capital-relationship chain, parent and subsidiary companies, and affiliated companies in five seconds, using a knowledge graph of more than 200 million records spanning papers, patents, researchers, corporations, and regulatory lists. With domestic server operation in the AWS Tokyo region, it can handle confidential information safely as well.

See TRAFEED's features in detail　Book a free 30-minute consultation

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References

Federal Register (original text of publication)

• Federal Register: Expansion of End-User Controls To Cover Affiliates of Certain Listed Entities (2025/09/30)
• Federal Register: One Year Suspension of Expansion of End-User Controls for Affiliates of Certain Listed Entities (2025/11/12)

BIS official announcements

• BIS Press Release: Department of Commerce Expands Entity List to Cover Affiliates of Listed Entities
• BIS Entity List FAQs
• BIS Penalties Page

Japanese government / JETRO

• JETRO: Trump administration expands the scope of export controls to cover subsidiaries of EL-listed companies (2025/09)
• JETRO: US Commerce Department publishes FAQ on the "Affiliates Rule" strengthening export controls, imposing an active confirmation obligation on exporters (2025/10)

Commentary from law firms and specialist institutions

• Davis Polk: BIS adopts 50% Rule — what you need to know
• Kharon: The BIS 50% Rule FAQ
• Baker McKenzie Japanese-language Client Alert (2025/12)
• EY Japan: Rebuilding risk management in economic security with the BIS "50% Rule" in mind (2025/11)
• CSET (Georgetown): Translation of MOFCOM Notice 2025 No. 61