Not Your Usual Monday: BIS Adopts 50 Percent Rule For Entity List, MEU List & Related EAR Controls

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On September 29, the Department of Commerce, Bureau of Industry and Security (BIS) published the public inspection copy of an Interim Final Rule (IFR) amending the Export Administration Regulations (EAR) to extend Entity List, Military End-User (MEU) List, and SDN-related EAR controls under § 744.8 to foreign affiliates¹ owned 50% percent or more (directly or indirectly) by listed entities. The rule will become effective on the date of publication, which is expected to be September 30.

Under this "Affiliates rule"² a non-listed foreign entity held 50% or more by one or more listed parties becomes subject to the same licensing requirements, license exceptions, and review policy as if it were itself listed, applying the most restrictive treatment among its listed owners. This is akin to the 50 percent rule imposed by the Department of Treasury, Office of Foreign Assets Control (OFAC) for its Specially Designated Nationals (SDN) List. BIS notes that under the prior "legally distinct" test, listed entities could evade controls by creating new subsidiaries, and the new rule aims to prevent diversion.

Effective the same day, BIS also provides a limited 60-day Temporary General License (TGL) for the newly-covered foreign affiliates. The TGL applies to certain transactions involving non-listed affiliates in Country Groups A:5 or A:6, and in some cases to affiliates outside those Country Groups where the affiliate is in a qualifying joint venture with a U.S. or A:5/A:6-headquartered partner not itself 50% or more owned by listed parties.

The IFR also introduces "Red Flag 29," requiring exporters to investigate ownership when they know a foreign entity has listed owners and to resolve the red flag or seek a license if ownership cannot be reliably determined. Importantly, exporters face strict liability for violations under the Affiliates rule, which creates an affirmative duty to determine ownership of foreign entities that are parties to a transaction.

Notably, the IFR allows for case-specific exclusions or carve-outs by the End-User Review Committee (ERC) for particular affiliates (i.e. the Affiliates rule might not always apply to every 50% affiliate).

The IFR also adds Supplement No. 8 to Part 744, which provides OFAC-style guidance on applying the Affiliates rule and includes practical examples. Exporters should also expect BIS to expand this guidance through FAQs and related materials.

Until further modification, the IFR does not adopt the Affiliates rule for the Unverified List (UVL) or parties under Denial Orders under Part 764.

Practical Implications for Exporters & Compliance Teams:

• Breathe, and do not panic. The Affiliates rule is significant, but it builds on OFAC's long-standing 50 percent rule, and most compliance teams already have processes and tools that can be adapted to include BIS's Lists.
• Broaden due diligence and ownership screening. Companies must now screen not just against BIS published lists, but analyze ownership structures to detect whether a foreign entity is 50% or more controlled by listed parties (directly or indirectly).
• Treat "unknowns" cautiously. If a company cannot determine the ownership percentage of a foreign party with listed links, Red Flag 29 requires exporters to resolve the uncertainty, obtain a license, or not proceed (unless a license exception clearly applies).
• Do not ignore minority ownership. Even if a listed party owns less than 50% or has other indicia of control (such as board overlap), BIS considers that a diversion risk and exporters must apply heightened due diligence.
• Use the license process to resolve uncertainty. If a company applies for a BIS license in such a case and BIS determines the affiliate is not covered, it will return the application "without action" and confirm that no license is required. BIS may also issue FAQ guidance to inform other exporters of its determination.
• Apply the "most restrictive" standard. If multiple listed parties hold interests, apply the strictest license requirements among them when dealing with the affiliate.
• Monitor and manage exclusions. In jurisdictions or transactions where a listed party has secured a carve-out for a given affiliate, companies must document and verify that status (and any corresponding modifications in the Entity or MEU List entry).
• Track the temporary license window. The 60-day TGL will end on November 29, 2025. Exporters should view it as short-term relief only—not a long-term compliance strategy.
• Integrate with OFAC / sanctions compliance. The BIS rule aligns closely with OFAC's 50 percent rule. Firms already conducting ownership analysis under sanctions programs may find synergies in aligning BIS and OFAC processes.
• Update compliance policies and systems. Ensure your company's internal compliance manuals, transaction checklists, KYC tools, and training reflect the new obligations and Red Flag 29, and that your company's screening vendors or systems can handle ownership aggregation.
• Reassess FDP exposure. Because the IFR makes conforming changes to the Foreign Direct Product (FDP) rules, affiliates captured by the new rule may also fall within the scope of the Entity List and Russia/Belarus FDP rules, extending license requirements to certain foreign-produced items.
• Consider submitting comments. BIS will accept comments for 30 days from publication; use this opportunity to propose refinements, request clarifications, or advocate for carve-outs.

Footnotes

1. U.S. affiliates are excluded.

2. BIS's own designation for its 50 percent rule.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.