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The US Commerce Department's Bureau of Industry and Security (BIS) has introduced a major revision of the Export Administration Regulations (EAR), 15 C.F.R. Part 730 et seq., through an Interim Final Rule (IFR) extending EAR-based licensing controls on entities designated on the Entity List or Military End Users (MEU) List or subject to EAR § 744.8 to affiliates in which they have a 50% or greater ownership interest directly or indirectly, whether held individually or in the aggregate with other listed entities.1Effective 29 September 2025, this rule, dubbed the "Affiliates Rule," aims to counter evasions of the EAR through complex ownership structures and subsidiary networks. BIS emphasized that the Affiliates Rule closes a critical loophole in export controls and strengthens the effectiveness of US export controls.
The Affiliates Rule introduces challenging new compliance obligations for US and non-US companies alike when dealing with exports, reexports, and in-country transfers of EAR items, particularly in regions and sectors where ownership structures are opaque or complex. Under the new rule, companies must quickly evaluate the sufficiency of their existing due diligence procedures and make updates to conform to the new requirements. In some cases, companies may be able to leverage existing compliance processes around the long-standing 50 percent rule applied under sanctions programs administered by the US Department of the Treasury's Office of Foreign Assets Control (OFAC). However, because the scope of the Entity List and MEU List are different, a wholesale re-screen of customers, suppliers, end users, and other parties to transactions will be required.
BIS has also issued revised Entity List FAQs to incorporate guidance on the Affiliates Rule.
Key Features of the Affiliates Rule
50% Ownership Threshold
Any affiliate owned in the aggregate 50% or more directly or indirectly by one or more Entity List or MEU List designees is automatically subject to the same export license requirements as its listed parent.2
Aggregation of Multiple Shareholders
The Affiliates Rule applies based on the aggregated direct and indirect shareholding of all designated entities with direct or indirect ownership interests. This is true even if the multiple direct or indirect owners are not affiliated with each other or are identified on different lists. For example, a company owned 25% by an Entity List designee and 25% by a company on the MEU List would be covered by the Affiliates Rule.In such cases, the most restrictive licensing requirement would apply. In the above example, if the relevant Entity List licensing requirement is for all EAR items (whereas the MEU List restrictions are narrower), the Entity List restrictions will apply even though the Entity List designee has only a 25% ownership interest in the affiliate.
Extraterritorial Application
As with the EAR generally, the Affiliates Rule applies to any export, reexport, or transfer (including in-country transfers) involving an item subject to EAR jurisdiction3where an affiliate captured by the rule is a transaction party (i.e., purchaser, consignee, or end user). This includes transactions involving items subject to EAR jurisdiction that take place entirely outside the United States without any nexus to US territory or US persons.
Strict Liability Standard
BIS guidance on the Affiliates Rule states that BIS will enforce the Entity List, MEU List, Section 744.8, and Affiliates Rule on a strict liability basis, meaning that affirmative "knowledge" of restricted entity involvement is not required to trigger the end-user requirements under the EAR. However, BIS further advises that the agency will consider the person's level of "knowledge" when determining penalty calculations for EAR-related violations to the Affiliates Rule. While not specifically requiring diligence in all cases, the strict liability standard places an onus on an exporter, reexporter, or transferor to develop sufficient screening and recordkeeping processes to verify transaction parties' bona fides.
Affirmative Diligence Duty to Resolve Red Flags
The Affiliates Rule also establishes a presumption (Red Flag 29)4that requires any exporter, reexporter, or transferor to seek a license if they have knowledge or reason to know that a foreign entity that is a party to the transaction has one or more owners that are listed on the Entity List or the MEU List but are unable to determine the percentage of ownership by those listed entities. Such a presumption and duty to resolve the red flag could arise, for example, where an exporter knows that a counterparty has an Entity List entity as a shareholder but is unable to determine reliably the exact percentage of such shareholding.
Temporary General License (TGL)
BIS also has established a very limited 60-day (unless extended) TGL authorizing transactions involving entities captured by the Affiliates Rule in two scenarios. The first is an export or reexport to, or transfer within, any destination in countries identified in Country Groups A:5 or A:6 in Supplement No. 1 to EAR Part 740 (consisting of US multilateral security partners and other trustedtrading partners). The second is to any destination other than embargoed countries (e.g., other than sanctioned countries such as Cuba, Iran, North Korea, and Russia) when a transaction party captured by the rule is a joint venture with a non-listed entity (not otherwise captured by the Affiliates Rule) that is headquartered in the United States or a country in Country Groups A:5 or A:6.
US Affiliates Exempted
The Affiliates Rule explicitly exempts from coverage any US affiliates of foreign designated entities that otherwise could be captured by the rule.
Expansion of Designation Effect Globally
BIS took advantage of the Affiliates Rule to close another loophole in coverage of the Entity List, MEU List, and § 744.8. Previously, designation of an entity located in a specific country did not extend to branches or sales offices in another country that are not legally distinct from the listed entity. Now, the designation will automatically encompass all such branches and sales offices wherever located.
Opportunity to Comment
Although as an IFR the Affiliates Rule has immediate effect, BIS has invited comments from interested parties. Such comments must be received by BIS no later than 29 October 2025.
BIS's Rationale for the Affiliates Rule
BIS explained that its previous approach—limiting Entity List, MEU List, and § 744.8 restrictions to only the specifically identified entities—has allowed diversionary tactics to proliferate. This has led to listed entities establishing subsidiaries and shell entities under different names to continue accessing US goods, software, and technology. The Affiliates Rule is intended to close that gap by extending restrictions to affiliates owned 50% or more that may have been serving as a supply channel to evade applicable controls.
While acknowledging that the Affiliates Rule will increase compliance burdens on parties dealing with EAR items, BIS suggested that harmonizing diligence procedures with OFAC's 50% rule will ease compliance because many companies already apply that standard in their sanctions compliance programs.
Implications for Exporters, Reexporters, and Transferors
Expanded Due Diligence Obligations
Screening solely for named entities against the BIS's Entity List and MEU List will no longer suffice as parties must now also determine whether a transaction party is owned directly or indirectly by one or more listed entities and, if so, determine the ownership percentages. This may require reviewing corporate registries, beneficial ownership records, shareholder agreements, and—where information is unavailable—seeking certifications or representations from counterparties or applying for licenses (see discussion of Red Flag 29, above). Diligence should extend to all parties involved in a transaction such as purchasers, consignees, or end users and (as discussed below) companies should consider incorporating additional compliance termsand conditions related to the Affiliates Rule in their contracts and end user certification processes.
BIS has not yet clarified or provided examples of what specific diligence will be sufficient to address red flags when it is known that a designated entity is within a transaction party's shareholder mix. For example, while the Affiliates Rule states there is an "affirmative duty to determine the percentage of ownership of those listed entities," it may be enough to conduct diligence sufficient to infer shareholding below 50%, such as by confirming that non-listed entities own in the aggregate greater than 50%.
Increased License Applications
In cases of uncertainty, exporters must submit BIS license applications before proceeding with a transaction. Although BIS will try to process applications expeditiously, in reality this will slow down transactions that might involve a direct or indirect ownership interest of a listed entity by at least several weeks. Companies with ongoing international sales and services obligations or with long lead times should review transaction parties promptly and assess whether there are listed party ownership issues that may require BIS licensing.
Compliance Considerations
Exporters, reexporters, and transferors should promptly assess the sufficiency of their compliance procedures and undertake needed enhancements, which may include the following.
Ownership Mapping and Screening Tools
Companies should ensure that existing screening solutions capture beneficial ownership and aggregation of ownership percentages of transaction parties. Manual review and escalation to compliance and legal personnel may be required in jurisdictions with complex and opaque ownership structures and where shareholding cannot be sufficiently ascertained. Companies should seriously consider denied party screening software that performs continuous screening to ensure adequate checking of transaction parties, and affiliates, occurs at all stages of a transaction.
Internal Policies and Training
Compliance personnel should update internal manuals and procedures to reflect the Affiliates Rule and ensure that relevant personnel, including sales, procurement, and logistics, are knowledgeable and sensitive to potential red flags. Adequate screening records should be maintained to satisfy record-keeping requirements for the applicable statute of limitations period.
Contractual Provisions and Certifications
It may be prudent to require transaction parties to provide representations of their direct and indirect shareholders and to confirm no ownership by listed entities. This may prove challenging where there is no privity with certain transaction parties, such as consignees and end users with which there is no direct contract relationship.
Coordination with Other Compliance Processes
Many companies already undertake diligence on transaction parties' shareholding structure to assess application of the OFAC50% rule and may also conduct shareholding diligence for other purposes, such as anti-corruption compliance. Those diligence processes can be leveraged for compliance with the Affiliates Rule. Of course, because the Affiliates Rule applies to non-US companies dealing with EAR items, there will likely be many companies having to assess transaction parties' ownership structures for the first time.
Conclusion
Our US National Security and Law practice group and International Tradepractice grouphavesignificant experience assisting clients on EAR compliance including developing sufficient procedures to screen transaction parties for restricted list concerns. For further information, please contact a member of our US National Security and Lawpractice group orInternational Trade practice group.
Footnotes
1 In addition to Entity List and MEU List entities, the Affiliates Rule also applies to entities designated on OFAC's Specially Designated Nationals and Blocked Persons List that are subject to EAR-based licensing requirements under EAR § 744.8.
2 BIS has confirmed in the FAQs that the Affiliates Rule applies based on a strict percentage ownership test and not whether the affiliate is controlled by the designated entity. Of course, such control relationship presents a risk that the affiliate could get separately designated, and it also is a red flag that there may be some share ownership by a designated person triggering an affirmative obligation to conduct further diligence to confirm ownership, as discussed further herein.
3 Items subject to EAR jurisdiction include commodities, software, and technology produced in or exported from the United States, items produced outside the United States that incorporate above de minimis U.S. controlled content, and certain foreign-produced items that are the "direct product" of identified U.S. software and technology. See EAR § 734.4(a).
4 This presumption is set forth as Red Flag 29 in BIS's "Know Your Customer" guidance. See Supplement No. 3 to EAR Part 732.
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.
