STOP Shells Act Tightens Export Controls on U.S.-Owned Foreign Subsidiaries Tied to Restricted Entities

The Suppressing Tactics of Prohibited Shells Act, or the STOP Shells Act, is all about closing loopholes in U.S. export controls. Specifically, this bill mandates that the Secretary of Commerce must apply existing U.S. export licensing requirements to subsidiaries or affiliates of foreign companies that are already on the government’s restricted lists—like the Entity List or the Military End User List. The catch? This only applies if U.S. interests own 50% or more of that affiliate, whether directly or indirectly (Sec. 2).

Who’s Getting the New Compliance Homework?

Think of the Entity List and the Military End User List as the government’s "Do Not Trade With" lists for national security reasons. Right now, if a foreign company is on one of these lists, U.S. companies have restrictions on selling certain technology or goods to them. This bill extends that reach. If a foreign company is restricted, and they have a subsidiary that happens to be 50% or more owned by U.S. investors or companies, that subsidiary now gets treated the same way as the restricted parent company when it comes to U.S. export licenses (Sec. 2).

This is a big deal for U.S. businesses operating globally. Say you’re a U.S. tech firm with a 51% stake in a manufacturing plant overseas. If the foreign parent company of that plant lands on the Entity List, your jointly owned plant suddenly has to jump through all the export control hoops for certain U.S. technology, software, or components. This creates immediate, complex compliance costs and operational headaches for those U.S. businesses and investors who thought they were just running a joint venture.

The Foreign Direct Product Rule Check-Up

The bill also introduces a required step before the Secretary of Commerce can add a new entity to these restricted lists. Before listing a company, the Secretary must first assess whether applying the Foreign Direct Product Rule (FDPR) would achieve the necessary national security or foreign policy goals (Sec. 2). The FDPR is a powerful tool that essentially says if a foreign-made item uses certain U.S. technology or software, it still falls under U.S. export controls. This move forces the Commerce Department to justify why they are adding a company to the list versus using the already potent FDPR to control the flow of U.S. technology.

This assessment must be reported to Congress within two days of the listing decision. For those in the tech and manufacturing sectors, this is a small win for transparency, as it requires the government to show its work and explain its strategy when restricting trade. However, a two-day notification window is very tight, meaning Congress—and the public—will be informed almost immediately after the decision is final, leaving little room for proactive input.

The National Security Exit Ramp

In a nod to flexibility, the bill gives the Secretary of Commerce an escape clause: a case-by-case waiver for the new subsidiary licensing requirements (Sec. 2). If the Secretary determines that granting an exemption is necessary for U.S. national security, they can issue one. But they can’t do it alone; they must consult with the Secretaries of State, Defense, and Energy first. If a waiver is issued, Congress must be notified within two days, along with a detailed explanation of why the waiver serves U.S. national security interests.

While this waiver provision is meant to prevent unintended harm to critical U.S. interests, it does introduce a subjective element. The definition of what is "necessary for U.S. national security" is broad, and this provision effectively grants the Secretary significant discretionary power. For companies facing new licensing burdens, this is the only path out, but the process relies heavily on interagency consensus and a compelling national security justification, which can be hard to predict.