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Key Takeaways
- A new BIS rule expands U.S. export controls to cover any entity with 50% or more ownership by parties on the Entity List or Military End-User List, aligning export controls with existing OFAC standards.
- Exporters must now conduct enhanced due diligence to determine ownership of foreign transaction partners in order to ensure compliance.
- Limited relief is available for shipments already en route by September 29, 2025, and for certain other transactions via a temporary general license valid through December 1, 2025.
In a significant—but anticipated—change to the U.S. export control regime, the Bureau of Industry and Security (BIS) released an interim final rule amending the Export Administration Regulations (EAR) by adding the Affiliates Rule, which expands end-user controls imposed on parties listed on the Entity List and Military End-User (MEU) List to all entities owned 50% or more by such listed parties.
The Affiliates Rule is effective as of September 29, 2025, though a limited Temporary General License permits certain transactions until December 1, 2025.
BIS is accepting public comments on the interim final rule through October 29, 2025.
A New Standard: The 50% Ownership Rule
Historically, BIS applied a "legally distinct" standard to the EAR, meaning only entities explicitly named on the Entity List (including any local branch or sales office that is not legally distinct from the listed entity) were subject to restrictions. This approach excluded subsidiaries of the listed entity unless they were also explicitly listed. EAR restrictions regarding exports to persons listed on the MEU List, and regarding export transactions involving a person on the Office of Foreign Assets Control's (OFAC) Specially Designated Nationals (SDN) List, also operated according to the same "legally distinct" standard. By contrast, broader U.S. economic sanctions restrictions on dealings with SDNs have long been judged under a different standard, which treats any entity 50% or more owned by an SDN as de facto sanctioned.
The interim final rule replaces the "legally distinct" standard with a "50% ownership" threshold, aligning BIS policy with the OFAC's long-standing practice. Under the interim final rule, EAR restrictions on persons listed on the Entity List, MEU List, or SDN List apply with equal force to any foreign entity that is directly or indirectly, individually or in aggregate, at least 50% owned by one or more such persons.1
Under the interim rule, entities that are subject to the Affiliates Rule because they are 50% or more owned by entities on the Entity List or MEU List may submit a request to BIS for modification of the parent entity's Entity List or MEU List entry to specifically exempt the affiliate entity.
The Rule of Most Restrictiveness
Additionally, the interim final rule incorporates a "rule of most restrictiveness," such that an entity that is at least 50% owned, in the aggregate, by multiple entities listed on some combination of the Entity List, MEU List, or SDN List is subject to the most restrictive EAR license requirements, license exception eligibility, and license review policy applicable to any of its listed parents.
Revised EAR Red Flag Guidance
The interim final rule also includes an addition to the BIS's "'Know Your Customer' Guidance and Red Flags" (Supplement No. 3 to EAR Part 732). New Red Flag 29 notes that if an exporter knows that a foreign entity that is a party to the export transaction has one or more owners that appear on the Entity List, MEU List, or SDN List, it has an affirmative duty to determine the percentage of ownership by such owner(s). If the exporter cannot determine the ownership percentages of such entities, it must proceed on the assumption that the 50% threshold is met, including obtaining a license from BIS prior to proceeding with the export unless a license exception is available.
Implications for Exporters and Compliance Programs
U.S. export controls are predominantly a strict liability regime, and exporters (including reexporters and in-country transferors) of commodities, software, or technology subject to the EAR can be held liable for unauthorized transactions involving entities subject to the interim final rule even if they lack knowledge that such entities are owned by listed persons.
Accordingly, exporters of items subject to the EAR must ensure they collect ownership information as part of the "Know Your Customer" diligence they conduct on foreign transaction partners and include such ownership information in their list-based screening process. Exporters that are U.S.-based or have a significant U.S. presence may already conduct such diligence to comply with OFAC's 50% ownership rule, but such ownership diligence may be entirely new to non-U.S. companies that reexport or transfer U.S. technology abroad. For such foreign companies, the interim final rule may significantly increase the compliance burden, requiring them to conduct significant additional due diligence in connection with export transactions and to incur the delay and expense of applying for an export license or qualifying for an export license exception if such due diligence raises unresolved red flags.
Short-Term Limited Relief: Savings Clause and Temporary General License
Shipments of items removed from eligibility for export, reexport, or transfer without a license or pursuant to a license exception as a result of this Affiliates Rule and which were already en route on September 29, 2025, may proceed to their destination provided the shipment is completed no later than October 29, 2025.
To further ease the transition, BIS has issued a limited temporary general license (TGL) valid through December 1, 2025, allowing some, but not all, transactions that would fall under the new rules. Namely, the TGL permits exports, reexports, and transfers that are:
- To or within any destination in Country Group A:5 or A:6, or
- To or within any destination other than Country Group E:1 or E:2 (i.e., not Cuba, Iran, North Korea, or Syria) when the entity subject to the Affiliates Rule is a joint venture with an entity headquartered in the United States or Country Group A:5 or A:6, which is not itself listed or subject to the Affiliates Rule.
Footnote
1. As further clarified in BIS Entity List FAQ 43, the Affiliates Rule is limited to legal ownership and does not extend to control that a listed entity may hold over a nonlisted entity in which it holds a significant minority investment. However, FAQ 43 highlights that such entities present diversion risks and may be future targets for listing.
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