On September 29, 2025, the U.S. Department of Commerce's Bureau of Industry and Security ("BIS") announced an Interim Final Rule ("IFR") that aligns the Entity List and Military End User ("MEU") List of the Export Administration Regulations ("EAR") with the 50 Percent Rule administered by the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC").1 Once effective, any entity 50% or more owned, directly or indirectly, by one or more Entity List or MEU List parties will be subject to the same EAR restrictions as the listed party.
Background
The Entity List is a set of specific foreign parties that are subject to license requirements for the export, reexport, and/or transfer (in-country) of items subject to the EAR. Many parties included on the Entity List are subject to policies of denial for all items subject to the EAR; however, certain listed parties are subject to policies and requirements that are narrower in scope. Historically, Entity List-related licensing requirements have not applied to subsidiaries, parent companies, sister companies, or other legally distinct affiliates that are not themselves listed on the Entity List. However, where a non-designated party is affiliated with a party on the Entity List, exporters have been encouraged to conduct enhanced due diligence to assure themselves that (1) items are not ultimately destined for the listed entity and (2) the affiliate is a separate legal entity (as opposed to a branch or operating division of the listed entity).
The MEU List is a list of end users that BIS has determined are "military end users" or are engaged in "military end uses." Under the EAR, transactions involving either "military end users" or parties engaged in "military end uses" often require a license from BIS (e.g., for any item subject to the EAR for Russian and Belarusian military end users, or for specific controlled items for Burmese, Cambodian, Chinese, Nicaraguan, and Venezuelan military end users). Notably, the MEU List is not exhaustive—i.e., non-designated parties can still be deemed military end users if they meet certain criteria specified in the EAR. Nevertheless, BIS publishes the MEU List as a tool to help exporters identify end users that BIS has formally determined meet the regulatory criteria for designation.
The Affiliates Rule
The IFR—or "Affiliates Rule"—extends the restrictions of the Entity List and MEU List designations to parties that are 50% or more owned, directly or indirectly, individually or in the aggregate, by parties that are included on the Entity List and MEU List. This change aligns the Entity List and MEU List with the restrictions of many of OFAC's sanctions lists, including the Specially Designated Nationals and Blocked Persons List, which have been subject to OFAC's 50 Percent Rule.
Prior to the IFR, the restrictions of an Entity List or MEU List designation applied only to the listed party and did not automatically extend to subsidiaries. BIS noted that this change was intended to prevent "diversionary schemes, such as the creation of new foreign companies to evade Entity List restrictions"; limit the ability for restricted parties to "deceive exporters, reexports, and transferors into providing items in violation of the Entity List restrictions that apply to the listed entities"; and mitigate the need for "BIS to expend substantial efforts to address the tactics that listed entities would adopt to circumvent their placement on the Entity List."2
In addition, in connection with publication of the Affiliates Rule, BIS is:
- Clarifying the minority ownership by a party included on the Entity List is a "red flag" that necessitates the performance of enhanced due diligence (which BIS emphasized is an "affirmative duty" of exporters); and
- Making corresponding changes to related rules, such as specific foreign direct product rules related to the Entity List.
Although the IFR takes effect immediately upon publication in the Federal Register, BIS has published a Temporary General License ("TGL") to stay the effect of this change for 60 days, following publication. The TGL applies to:
- a licensable transaction within Country Groups A:5 or A:6 involving a party newly subject to controls pursuant to the Affiliates Rule; and
- a licensable transaction anywhere in the world (except for Cuba, Iran, North Korea, or Syria) involving such a party, where such party is in a joint venture with a non-listed entity headquartered in the United States or Country Groups A:5 or A:6 that is not itself subject to export restrictions (including by application of the Affiliates Rule). Although Country Groups A:5 and A:6 collectively cover a broad range of countries,3 some major countries—including China—are omitted.
Takeaways
- The Affiliates Rule will significantly expand the number of parties subject to export restrictions under the EAR.
- As a result of the Affiliates Rule, exporters will need to conduct additional due diligence of parties owned or otherwise affiliated with parties included on the Entity List or MEU List (including, specifically, entities in which a designated party possesses a minority interest).
Footnotes
1 Press Release, Bureau of Industry and Security, "Department of Commerce Expands Entity List to Cover Affiliates of Listed Entities" (Sept. 29, 2025), https://www.bis.gov/press-release/department-commerce-expands-entity-list-cover-affiliates-listed-entities.
2 "Expansion of End-User Controls to Cover Affiliates of Certain Listed Entities," available online at https://public-inspection.federalregister.gov/2025-19001.pdf (Sept. 29, 2025) (to be codified at 15 C.F.R. pts. 732, 734, 736, 744, and 748).
3 Countries that fall into either Country Group A:5 or A:6 include Albania, Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Ireland, Israel, Italy, Japan, Latvia, Lithuania, Luxembourg, Malta, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Türkiye, and the United Kingdom.
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