The Department of Commerce’s Bureau of Industry and Security (BIS) has published an interim final rule (the Affiliates Rule) expanding the standard for entities captured under BIS export restrictions to include entities with 50% or greater ownership by one or more entities on the BIS Entity List, parties on the Military End-User (MEU) List or certain sanctioned parties. Due to this change, parties will need to include sanctions-style ownership screening in their export control due diligence programs, including for existing counterparties. Although the Affiliates Rule is effective immediately, as of September 29, BIS issued a 60-day Temporary General License (TGL) to permit certain very limited transactions destined for low-risk jurisdictions or to joint ventures involving companies from such countries. BIS is soliciting comments from interested parties until October 29.

Background

The Export Administration Regulations (EAR) administered by BIS restrict certain exports, reexports or transfers (in-country) to parties identified on restricted party lists, including the BIS Entity List, the MEU List and certain sanctions lists maintained by the Office of Foreign Assets Control (OFAC).

Previously, BIS used a “legally distinct” standard to determine if affiliates—including subsidiaries—of companies on the BIS Entity List¹ were subject to export control restrictions. The “legally distinct” standard meant that BIS Entity List restrictions applied to any affiliate that was located in the same country as a listed entity and was not “legally distinct” from the listed entity—even if it operated under a different name. In contrast, legally distinct affiliates owned by a listed entity were not subject to restrictions unless separately identified on the BIS Entity List. In the September 29 announcement, BIS emphasized that this prior standard enabled diversionary schemes to evade BIS Entity List restrictions contrary to US national security and foreign policy interests. As a result, BIS indicated that the Affiliates Rule is intended to close those perceived gaps and expand the effect of OFAC Specially Designated Nationals (SDN) designations to areas previously beyond OFAC’s enforcement reach.

The New “Affiliates Rule”

To address diversion risks, BIS announced the Affiliates Rule, which through operation of law imposes restrictions on entities with 50% or greater ownership, direct or indirect, in the aggregate, by one or more entities on the BIS Entity List, the MEU List or certain sanctioned parties, including SDNs listed under sanctions programs described in 15 CFR § 744.8. BIS has explicitly indicated that it will not be extending the Affiliates Rule to the Unverified List or parties subject to Denial Orders. Further, the End-User Review Committee will make case-by-case exceptions to the Affiliates Rule for affiliates of listed parties that do not pose significant diversion risks.

While the Affiliates Rule draws inspiration from the “50% Rule” employed in OFAC sanctions, it differs in important ways. Unlike OFAC’s SDN List, which imposes a standard set of comprehensive restrictions, the BIS Entity List may subject parties to different types of export restrictions. To address this, BIS has introduced the “Rule of Most Restrictiveness.” If a subsidiary is majority-owned by two or more parties on the BIS Entity List, the most restrictive license requirements, license exception eligibility and license review policy of the listed entities will apply. Similarly, if a subsidiary is majority-owned by two or more BIS Entity List companies subject to different Foreign Direct Product Rules, both Foreign Direct Product Rules apply to the subsidiary. Therefore, all BIS Entity List, MEU List and SDN ownership interests—even if just a de minimis amount—must be identified to determine which restrictions apply to the subsidiary restricted under the Affiliates Rule.

Compliance Obligations Under the Affiliates Rule

The Affiliates Rule imposes significant due diligence and compliance obligations on companies engaged in export transactions. As BIS explains in the notice, compliance with export controls, including the Affiliates Rule, is often subject to strict liability. Parties should therefore conduct a full ownership analysis of recipients or end users before exporting, reexporting or transferring items subject to US export control jurisdiction.

BIS has notably emphasized that the Affiliates Rule creates an “affirmative duty” to determine ownership of parties in a transaction and that parties should be aware that “significant minority ownership” by BIS Entity List entities, MEU entities or SDNs described in 15 CFR § 744.8—even if short of the majority interest that triggers the Affiliates Rule—will still present a “Red Flag” of potential diversion risk, requiring additional due diligence.² Further, companies unable to determine the ownership of a foreign transaction party may be unable to proceed with export transactions. BIS introduced Red Flag 29, which states that if a company has knowledge that a foreign transaction party is owned by one or more BIS Entity List or MEU List entities but cannot determine the ownership percentages, the company must resolve the Red Flag before proceeding with the transaction or, alternatively, must obtain a BIS license (unless an exception applies).

Implementation Timing and Temporary General License

The Affiliates Rule became effective as of September 29. However, until November 28, certain transactions involving a non-listed foreign entity subject to the Affiliates Rule will be authorized under a TGL. Authorized transactions include:

• exports, reexports and transfers (in-country) to or within any destination in Country Group A:5 or A:6; and
• exports, reexports and transfers (in-country) to or within any country other than Country Group E:1 or E:2, when the non-listed foreign entity is a joint venture with a non-listed entity headquartered in the United States or Country Group A:5 or A:6 that is not itself subject to the Affiliates Rule.

The TGL may be used only to overcome license requirements described in the BIS Entity List or MEU List. Any additional license requirements and recordkeeping requirements set forth in Part 762 of the EAR will still apply.

Request for Comments

BIS is accepting comments from interested parties until October 29, 2025.

Implications for Companies

The Affiliates Rule has significant implications for the global operations of companies, especially those that operate in high-risk jurisdictions like China or Russia where there is a relatively higher incidence of parties on the BIS Entity List and MEU List and opaque corporate ownership structures. Companies should therefore take swift action to review their end-to-end counterparty interactions to determine their risks and implement appropriate risk mitigation measures. The immediate effective date of the Affiliates Rule, combined with issuance of a TGL that covers only limited transactions, may necessitate immediate actions like halting business and/or seeking authorization from BIS for transactions with parties that may now be prohibited absent a license. To ensure prospective compliance, companies should also promptly educate global business units on the broad reach of the Affiliates Rule and update policies and procedures to require enhanced ownership diligence of counterparties in export transactions and escalation of transactions that trigger Red Flag 29.