On September 29, 2025, the US Department of Commerce’s Bureau of Industry and Security (BIS) announced the publication of an interim final rule (the Affiliates Rule) amending the Export Administration Regulations (EAR). This means entities 50% or more owned, directly or indirectly, individually or in the aggregate, by one or more listed entities, including parties listed on either the BIS Entity List or Military End-User (MEU) List, are considered subject to Entity List and/or MEU List restrictions, as applicable.
Previously, a non-US entity 50% or more owned by one or more parties on the Entity List or MEU List was generally not subject to restrictions applicable to its owners, provided the foreign entity was “legally distinct” from its affiliate on the Entity List or MEU List and was not “act[ing] as an agent, a front, or a shell company for the listed entity in order to facilitate transactions that would not otherwise be permissible with the listed entity.” See, for example, this BIS FAQ.
The stated purpose of the Affiliates Rule is to address diversion risk and more closely align EAR restrictions with the so-called “50% Rule” that applies to certain US sanctions administered by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC). OFAC’s longstanding 50% Rule provides that entities 50% or more owned by one or more blocked persons (e.g., parties identified on OFAC’s Specially Designated Nationals and Blocked Persons (SDN) List) are considered blocked “by operation of law” — and also applies in the context of certain non-blocking OFAC sanctions programs (e.g., Russia-related “sectoral sanctions” measures).
While the scope of companies subject to compliance with the Affiliates Rule may not have changed, the rule significantly expands the prohibitions and restrictions under several BIS lists to existing customer, distributor, and other third-party relationships. Therefore, even companies with established compliance programs may face immediate risks if they have not recently rescreened those entities and reassessed their ownership for compliance. Timely analysis and, where appropriate, voluntary self-disclosures or other remedial steps, could be critical to managing and mitigating exposure.
Although the Affiliates Rule is effective from September 29, 2025, BIS is taking comments through October 29, 2025, and providing a limited temporary grace period for certain exports through December 1, 2025. This Client Alert examines the Affiliates Rule by answering 10 key questions.
The Affiliates Rule significantly expands the reach of list-based restrictions under US export controls by extending Entity List and MEU List restrictions to a broader range of foreign entities. In particular, the following foreign entities are now automatically subject to the same export restrictions as their listed owners:
As with OFAC’s 50% Rule, the Affiliates Rule requires calculation of an entity’s ownership by listed or otherwise restricted parties at each level of ownership. For example, if Company A is on the Entity List and owns 50% of Company B, which is not listed, Company B is subject to the restrictions applicable to Company A. If Company B owns 50% of Company C (also not listed), then Company C will be subject to these same restrictions. In addition, like OFAC’s 50% Rule, the Affiliates Rule speaks only to ownership and not to control.
Importantly, the Affiliates Rule only applies to “foreign affiliates,” meaning US entities owned by listed entities are excluded from the application of the Affiliates Rule.
One key difference between the Affiliates Rule and OFAC’s 50% Rule is that, under the Affiliates Rule, an entity owned 50% or more by multiple entities subject to EAR license requirements under the Entity List, MEU List, and/or EAR Section 744.8 is subject to the most restrictive license requirements applicable to one or more of its owners. BIS refers to this principle as the “rule of most restrictiveness.” By contrast, OFAC’s 50% Rule only aggregates ownership for parties subject to the same restrictions.
The Affiliates Rule applies even if the owner that is subject to more restrictive license requirements holds only a minority interest. For example, if an entity is 40% owned by a party on the MEU List and 10% owned by a party on the Entity List, that entity would be subject to the more stringent Entity List restrictions.
A foreign entity 50% or more owned by one or more parties that meet the EAR definition of a “military end user” — as defined in EAR Section 744.21(g) — but are not designated on the MEU List, will not become subject to MEU restrictions under the Affiliates Rule by virtue of this ownership. That said, such a party could still meet the definition of a military end user, irrespective of its ownership.
The Affiliates Rule creates a Temporary General License (TGL) that permits transactions involving a narrow subset of parties restricted under this rule until December 1, 2025. The TGL authorizes exports, reexports, and transfers (in-country) to parties subject to the Affiliates Rule:
The Affiliates Rule introduces a new “Red Flag 29,” which provides that if an exporter has “knowledge” (as broadly defined in the EAR) that a foreign entity has one or more owners on the Entity or MEU List (or unlisted entities restricted based on their ownership) but cannot determine the percentage owned by such parties, then unless a license exception applies, the exporter has an “affirmative duty” to either:
BIS also makes clear that the Affiliates Rule is enforceable on a strict liability basis, meaning “knowledge” that an entity is 50% or more owned by restricted parties is not required to trigger Entity List, MEU, or Section 744.8 requirements. However, BIS notes the agency will consider “knowledge” (which includes “reason to know”) when determining penalty calculations for EAR violations.
BIS also affirmed that the International Trade Administration’s Consolidated Screening List, a publicly accessible database of US-restricted parties, will no longer feature an exhaustive listing of parties subject to Entity List restrictions. BIS notes that, to facilitate compliance, it may follow OFAC’s practice of providing guidance regarding certain entities that may be subject to the Affiliates Rule.
In light of these considerations, companies engaging in EAR-regulated transactions should consider taking steps to reassess their exposure under the Affiliates Rule. These may include (1) implementing screening solutions with the capability to perform 50% ownership analysis, (2) rescreening existing customers, suppliers, distributors, and other counterparties and third-party relationships to check for parties 50% or more owned by entities subject to Entity List, MEU List, or Section 744.8 restrictions, (3) reviewing and revising contractual language in counterparty and third-party agreements to account for the Affiliates Rule, including seeking certifications regarding the ownership of counterparties, and (4) reviewing and revising export control compliance policies and procedures as needed to reflect changes to the relevant legal standards under the Affiliates Rule.
The Affiliates Rule expands the end-user scope of the three Entity List FDP rules (i.e., Entity List FDP rule: Footnote 1, Entity List FDP rule: Footnote 4, and Entity List FDP rule: Footnote 5) and the Russia/Belarus-Military End User and Procurement FDP rule to capture foreign entities owned 50% or more by one or more Entity List parties (or unlisted entities subject to Entity List restrictions based on their ownership), where one or more of the owners meets the relevant end-user criteria under the rule (i.e., is identified in footnote 1, 3, 4, or 5 on the Entity List). This rule applies even if only one minority owner is identified in the relevant footnote.
For example, if Company A is owned 15% by an Entity Listed party with a footnote 3 designation (i.e., a Russian or Belarusian MEU) and 35% by an Entity Listed party with a footnote 4 designation, an exporter would need to consider license requirements that attach to footnote 3 entities and footnote 4 entities to determine the scope of items that require a license to Company A.
The Affiliates Rule does not adopt the 50% ownership rule for other BIS lists, such as the Unverified List or Denied Persons List. BIS requested comments regarding whether it should extend the Affiliates Rule to these other lists.
As referenced above, the Affiliates Rule applies only to foreign entities and does not impose restrictions on US entities that otherwise meet the ownership requirements under the Affiliates Rule.
Non-US parties captured by the Affiliates Rule may request that BIS modify their owner’s listing to exclude the requesting party from the scope of the relevant restriction. Notably, the Affiliates Rule provides that this modification request must come from the foreign entity subject to the Affiliates Rule, not the Entity Listed party. BIS may grant such requests on a case-by-case basis if the End-User Review Committee determines that the affiliate requesting removal does not “pose a significant risk of being or becoming involved in diversion to the listed entity.”
No. Under the Affiliates Rule, Entity List restrictions do not apply to foreign affiliates that are 50% or more owned by one or more entities operating at an address listed on the Entity List if the entities operating at that address are not specifically named on the Entity List. BIS began adding “address-only” listings to the Entity List pursuant to a final rule published on June 18, 2024, to identify addresses that “present[] a high risk of diversion without an associated entity name.”
Concurrent with the publication of the Affiliates Rule, BIS also published several new FAQs.
In addition, the Affiliates Rule adds a new Supplement No. 8 to Part 744, which provides guidance in an EAR-specific context similar to the OFAC guidance document titled Revised Guidance On Foreign Entities Owned By Persons Whose Property And Interests In Property Are Blocked, dated August 13, 2014. Supplement No. 8 outlines the scope and application of the Affiliates Rule, including the “rule of most restrictiveness” and diligence obligations outlined in Red Flag 29. This guidance also instructs exporters, re-exporters, and transferors to “act with caution” when considering a transaction with a foreign entity that “has significant direct or indirect ownership interest that is less than 50% or is a parent entity of listed entities,” as such entities may be the subject of future designation or enforcement actions.