The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) released an interim final rule that automatically applies Entity List and Military End User (“MEU”) List restrictions to any entity that is 50% or more owned by one or more listed entities, MEUs, or other sanctioned parties. This IFR will be known as the “Affiliates Rule” and is effective September 29, 2025.
BIS stated this rule is intended to close prior listing loopholes used by foreign actors for diversionary and circumvention tactics and is designed to be generally consistent with the Office of Foreign Assets Control’s (“OFAC”) 50 Percent Rule.
Below is a summary of the key points of the IFR.
License Requirements
Under BIS’s Affiliates Rule, any entity that is at least 50% owned, directly or indirectly, by one or more entities on the Entity List, the MEU List, or designated as an SDN pursuant to the OFAC sanctions programs listed in EAR § 744.8(a)(1) will be subject to the same EAR licensing requirements as the listed entity. Further specifics of the Affiliates Rule include:
- The Affiliates Rule only applies to MEUs that are listed on the MEU List in Supplement No. 2 to Part 744 of the EAR (as opposed to those MEUs who meet the definition of “military end user” in EAR § 744.21(g) but are not specifically listed on the MEU List).
- The Affiliates Rule applies to SDNs specifically designated pursuant to an OFAC sanctions program listed in EAR § 744.8(a)(1) and also to entities owned by one or more SDNs who themselves may be blocked under OFAC’s own 50 Percent Rule.
- When different listed entities combine ownership percentages to exceed the 50% threshold, BIS will apply the most restrictive license requirements to the unlisted entity, regardless of that owner’s ultimate percentage interest.
The Affiliates Rule does not apply to parties and ownership interests of entities listed on BIS’s Unverified List (“UVL”) or Denied Persons List.
Due Diligence Expectations and Liability
The Affiliates Rule creates a new Red Flag 29 for foreign parties with significant minority ownership by, or other significant ties to (e.g., “overlapping board membership or other indicia of control”), an Entity List entity, an MEU List entity, or an SDN subject to EAR § 744.8(a)(1). BIS states that such ownership or ties present a diversion red flag, and if an exporter cannot determine the ownership percentage of the non-listed foreign affiliate, the exporter must either resolve the red flag, submit a license application to BIS, or identify an available license exception.
Exporters can be held liable for unauthorized exports, reexports, or transfers (in-country) on a strict liability basis, and therefore the Affiliates Rule therefore creates an affirmative duty to determine the ownership of other parties to the transaction in order to comply. Further, BIS also noted that other parties, such as freight forwarders and financial institutions, may also have compliance obligations under the Affiliates Rule.
Temporary General License and Public Comments
The IFR also contains a Temporary General License (“TGL”) that authorizes certain exports to non-listed foreign affiliates through November 28, 2025. Specifically, the TGL authorizes exports, reexports, or transfers (in-country) to the following destinations for transactions involving a non-listed foreign entity that is owned 50 percent or more, individually or in aggregate, by one or more listed entities on the Entity List or MEU List, or by unlisted entities that are subject to Entity List or MEU license requirements or other Entity List or MEU restrictions based upon their ownership :
- To or within any destination in Country Group A:5 or A:6; and
- To or within any country other than Country Group E:1 or E:2 when the non-listed foreign affiliate is a joint venture with a non-listed entity headquartered in the U.S. or Country Group A:5 or A:6 that itself is not subject to license requirements under the Affiliates Rule.
BIS is also accepting comments on the IFR through October 29, 2025.
Savings Clause
The IFR also contains a savings clause that permits exports, reexports, and transfers (in-country) of items that would require a license under the IFR but were en route aboard a carrier to a port of export, reexport, or transfer (in-country) as of September 29, 2025, provided the items arrive at their final destination by October 29, 2025.
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