Industry Official: BIS Says 50% Rule Is 'There to Be Enforced'
The Trump administration has signaled that it may not waste time in enforcing the Bureau of Industry and Security’s new 50% rule, said Gavin Proudley, head of third-party risk proposition at Dow Jones, during the International Compliance Professionals Association's fall conference this week in Texas.
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Asked whether he believes BIS will retroactively enforce the new restrictions, which took effect when they were released Sept. 29 (see 2509290017), Proudley responded, “I don't know the answer to that.” But he also said “we have had conversations with representatives of the administration or BIS, and the answer is: The rule is there to be enforced.”
He compared potential BIS enforcement of the rule to how the Office of Foreign Assets Control enforces its 50% rule, which applies sanctions to any non-designated entity that's majority-owned by a sanctioned entity. With OFAC, there isn’t “a whole lot of focus on whether or not you had not complied with the minutiae of the law. The focus was more on, you're doing business with a [Specially Designated National]," Proudley said.
“So I think my view is that when we look back at the nature of enforcement, it tends to be pretty clear-cut, at least the initial enforcement.”
Proudley added that he expects BIS to “look under every stone” if it finds that a company violated the 50% rule, so businesses should make sure they’re aware of every instance in which they may not be in compliance. “That's where this will become important, when in the context of an investigation, multiple issues are found.”
In addition, he said the BIS rule could lead other governments to impose similar restrictions. The U.K. and the EU also have in place a version of OFAC’s 50% rule for entities they sanction, and China has said it will reject export license applications for certain critical goods to companies on the country’s export control list and their majority-owned affiliates (see 2510090021).
“I think that other jurisdictions will sort of mirror this approach as well,” Proudley said. “This ownership and control issue, this challenge of ownership and control, which is a research challenge, is here to stay. I think we should expect escalation globally. I think the pace of all of this will increase, and I think other jurisdictions are going to come in.”