BIS's 50% Affiliates Rule: Expanding Export Controls To Subsidiaries Of Listed Entities

Overview

On September 29, 2025, the U.S. Department of Commerce's Bureau of Industry and Security ("BIS") announced a new rule expanding the scope of its Entity List and Military End-User ("MEU") List restrictions to cover affiliates of listed entities. This rule, commonly referred to as the "Affiliates Rule," marks a significant shift in U.S. export control policy. Following the BIS announcement, the rule is designed to close longstanding loopholes that have allowed listed entities to evade restrictions by operating through unlisted subsidiaries and affiliates. We note that following the release of this rule, the Trump Administration announced on November 1, 2025, as a part of its economic and trade relations deal with China, that the U.S. will suspend implementation of the Affiliates Rule effective November 10, 2025.

Under the new rule, any foreign entity that is at least 50 percent owned, directly or indirectly, by one or more listed entities will itself be treated as subject to the same licensing requirements and prohibitions as those entities. This includes entities on the Entity List, MEU List, and entities owned by parties covered by § 744.8(a)(1) of the EAR, which captures entities on sanctions-related lists, including the U.S. Treasury Department's Office of Foreign Assets Control's ("OFAC") Specially Designed Nationals and Blocked Persons List.

The rule aligns BIS policy more closely with OFAC, which has long applied a similar 50% rule in the context of sanctions enforcement. See 50% Rule - OFAC. BIS's adoption of this standard reflects a broader effort to harmonize U.S. national security tools and enhance the effectiveness of export controls. In its announcement, BIS emphasized that the rule is intended to prevent circumvention of export restrictions through corporate structuring. Remarking on the action, Under Secretary Jeffrey I. Kessler stated, "For too long, loopholes have enabled exports that undermine American national security and foreign policy interests. Under this Administration, BIS is closing the loopholes and ensuring that export controls work as intended."

The rule also introduces a "red flag" advisory for entities with significant minority ownership by listed parties. While such entities may not meet the 50% threshold, BIS cautions that transactions involving them may still pose national security risks and should be subject to heightened due diligence. This mirrors guidance long issued by OFAC, which similarly warns that entities with substantial but non-majority ownership by sanctioned parties may still present compliance risks. See FAQ 398 - OFAC. BIS's adoption of this advisory underscores a broader trend toward harmonizing U.S. export control and sanctions regimes, and signals to industry that ownership structures below the 50% threshold should not be presumed safe without further scrutiny.

To facilitate compliance during the transition period, BIS issued a Temporary General License (General Order No. 7, TGL) allowing certain transactions with newly covered affiliates until November 28, 2025. The TGL is limited in scope and duration, and was intended to give industry time to adjust to the expanded restrictions. While the White House has since announced a one-year suspension of the implementation of the rule starting November 10, 2025, the TGL remains a relevant reference point for understanding BIS's original compliance timeline. Companies should use this extended window to prepare for full implementation in 2026.

Compliance Considerations

The Affiliates Rule significantly expands the due diligence obligations of exporters, reexporters, and transferors of U.S.-origin items. Key compliance steps include:

• Ownership Screening: Companies must now assess not only direct counterparties but also their ownership structures, including indirect and layered ownership.
• Risk Assessment: Transactions involving entities with minority ownership by listed parties should be flagged for heightened due diligence to ensure compliance.
• Policy Updates: Internal compliance programs should be revised to reflect the expanded scope of restrictions and incorporate new screening protocols.
• Legal Review: Complex ownership scenarios may require additional legal analysis to determine applicability of the Affiliates Rule.

Next Steps

Companies engaged in international trade should act promptly to evaluate the impact of the rule on their operations and supply chains. While the public comment period has now closed, readers can view the final rule, related updates, FAQs, and Federal Register notices on the BIS website.

Although its effective date has been temporarily delayed until late 2026, the Affiliates Rule remains a clear signal that BIS is committed to closing enforcement gaps and strengthening the integrity of U.S. export controls. Companies should use this extended window to prepare for eventual implementation and ensure their compliance frameworks are ready.

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