BIS implements “Affiliates Rule” (a 50% rule) applicable to Entity List and Military End User List

The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued an interim final rule (the “Affiliates Rule”), effective September 29, 2025, automatically imposing corresponding restrictions on entities 50% or more owned directly or indirectly by one or more entities on the Entity List, Military End-User (“MEU”) List, and certain entities on the Specially Designated Nationals and Blocked Persons (“SDN”) List.

BIS also issued a 60-day Temporary General License authorizing transactions with certain non-listed affiliates of listed entities until November 28, 2025.

Background

The Entity List and MEU List identify persons (and in some cases, addresses) located outside the United States that the US Government has determined are acting contrary to the national security or foreign policy interests of the United States. BIS also incorporated certain sanctioned persons from the SDN List into the export control regulations for similar reasons.

Prior to the Affiliates Rule, BIS applied Entity List, MEU List, and export control-related SDN List restrictions only to the specifically named entities and their non-legally distinct branches (i.e., the “legally distinct” standard).

The Affiliates Rule changes this standard by extending Entity List, MEU List, and certain SDN List restrictions to foreign entities owned, directly or indirectly, 50 percent or more by one or more listed entities or entities subject to restrictions under any of the three lists pursuant to the Affiliates Rule (“Restricted Parties”). In doing so, BIS adopted the 50 percent rule long applied by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) to persons on most OFAC sanctions lists.

Key Features of the IFR

50 Percent Affiliates Rule

Any foreign entity that is owned, directly or indirectly, 50 percent or more by one or more listed parties or parties subject to restrictions pursuant to the Affiliates Rule is now automatically subject to the same restrictions as the listed upstream parties. To illustrate, if Company A (an Entity List party) owns 50 percent of Company B (an unlisted party), which owns 50 percent of Company C (an unlisted party), Company C will be subject to the restrictions imposed on Company A.

If the non-listed entity is owned 50 percent or more by more than one Restricted Parties (even if the upstream parties are on different lists), BIS will apply the most restrictive license requirements.

Red Flag (No. 29)

The Affiliates Rule provides that if an exporter cannot determine the ownership percentage of a foreign entity owned by one or more Restricted Parties, the exporter has an affirmative obligation to resolve the “Red Flag” or obtain a BIS license before proceeding with the export, reexport, or in-country transfer.

Further, foreign parties with significant minority ownership by, or other significant ties to an Entity List entity, an MEU List entity, or certain SDNs (for example, as a parent entity or there are overlapping board memberships or other indicia of control over the foreign entity), present a “Red Flag” of potential diversion risk to the listed entity.

Temporary General License

BIS has issued a 60-day temporary general license authorizing certain transactions involving certain non-listed foreign affiliates of listed entities (excluding those captured due to SDN List ownership).

Transactions to or within certain US allies and partner countries (Country Groups A:5 or A:6)¹ are permitted when a party to the transaction is a non-listed foreign affiliate of a listed entity that is 50 percent or more owned by one or more Restricted Parties (based on Entity List or MEU List ownership).

Transactions to or within any destination outside those subject to the most comprehensive US embargoes (Country Groups E:1 and E:2), are permitted when a party to the transaction is a non-listed foreign affiliate of a listed entity that is owned 50 percent or more by one or more Restricted Parties (subject to Entity List or MEU List restrictions) and is part of a joint venture with a non-listed entity headquartered in the US or Country Group A:5/A:6; provided that the joint venture partner is not 50 percent or more owned by one or more Restricted Parties (subject to Entity List or MEU List restrictions).

Guidance and Enforcement

• Due Diligence: Companies must now trace upstream ownership to determine whether counterparties are captured by the expanded rule. Lack of transparency in ownership constitutes a Red Flag that requires either resolution or licensing. The Affiliates Rule creates an affirmative duty on the exporter to determine the ownership of other parties to the transaction.
• Screening Limitations: The Consolidated Screening List (“CSL”), a database maintained by the US government that integrates multiple export-screening lists, will no longer constitute an exhaustive listing of entities subject to export license requirements because affiliates may not appear on the CSL. Companies may need to supplement screening tools with ownership-based diligence and third-party data sources.
• Alignment with Sanctions Compliance: The harmonization with OFAC’s 50 percent rule simplifies compliance frameworks but also expands the population of restricted counterparties.
• Limitation to Specified Restricted Parties Lists: The Affiliates Rule does not apply at this time for the Unverified List (“UVL”) and the Denied Persons List.
• Exclusions may be Possible: The End-User Review Committee (“ERC”) may determine that certain affiliates of a listed entity do not present a significant diversion risk. In such cases, the ERC may apply exceptions on a case-by-case basis and reflect the exceptions on the relevant entry on the Entity List or MEU list. An entity that is subject to restrictions based on the Affiliates Rule may request an exclusion from the ERC to be carved out from the Affiliates Rule.

Implementation and Public Feedback

The interim final rule is effective immediately upon publication for public inspection on September 29, 2025. Stakeholders will have 30 days to submit comments, with comments due no later than October 29, 2025.

The interim final rule is accessible here.

Persons dealing in items subject to US export controls should ensure compliance with all applicable licensing requirements. Consequences of noncompliance can be severe, including significant monetary penalties and in some cases, imprisonment and/or denial of export privileges. If you have any questions or require further guidance, please contact us.

Jaebok Lee (Law Clerk, Washington, DC) and James Tsai (Law Clerk, Washington, DC) contributed to the development of this publication.

_{1 A:5 Countries: Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Türkiye, United Kingdom
A:6 Countries: Albania, Cyprus, Israel, Malta, Mexico, Singapore, South Africa, Taiwan}

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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