backThe Interim Final Rule significantly expands the number of new and unlisted non-U.S. entities subject to U.S. export controls restrictions
Effective September 29, 2025, the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”), which administers commercial and dual-use export controls pursuant to the Export Administration Regulations (“EAR”), implemented an interim final rule (the “Rule”), 90 Fed. Reg. 47201, known as the “Affiliates Rule.” Under the Affiliates Rule, non-U.S. entities that are owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more entities listed on the EAR’s Entity List or Military End User (“MEU”) List or certain entities listed on the Specially Designated Nationals and Blocked Person List (“SDN List”) maintained by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) will now be subject to restrictions under the EAR. BIS also issued updated Frequently Asked Questions (“FAQs”) about Entity List restrictions.
The Affiliates Rule is modeled after OFAC’s 50 Percent Rule that applies to OFAC’s SDN List. In general, the Rule will result in the imposition of export controls on certain non-U.S. subsidiaries or non-U.S. affiliates owned by restricted parties, even if the subsidiaries or affiliates themselves are not specifically identified by BIS on a restricted party list.
The purpose of the Rule is to expand the entities subject to restrictions under the EAR to address risk that listed entities would utilize non-listed foreign companies to circumvent the controls and divert items subject to the EAR to the restricted entities.
As a result of the Rule, companies will need to reevaluate their diligence practices and any engagements with subsidiaries or affiliates of listed parties.
Entity List, MEU List, and Restrictions on SDNs under the EAR
1. The Entity List
The EAR authorizes BIS to add to the Entity List “entities for which there is reasonable cause to believe, based on specific and articulable facts, that the entity has been involved, is involved, or poses a significant risk of being or becoming involved in activities that are contrary to the national security or foreign policy interests of the United States”115 C.F.R. § 744.16. and entities acting on behalf of such entities.2Id. at § 744.11(b). In general, no person may export, reexport, or transfer (in-country) items subject to the EAR to a listed entity without a license or, if available, license exception once the entity is added to the Entity List. The Entity List specifies which items are subject to this restriction for each listed entity, and, in most cases, all items subject to the EAR, including “EAR99” items, require an individual license from BIS to export, reexport, or transfer to an entity on the Entity List, unless otherwise specified in the Entity List entry for the subject entity. EAR license exceptions may not be used unless authorized in the Entity List entry for the subject entity. BIS reviews license applications pursuant to the review policy stated in the relevant Entity List entry in addition to any other applicable review policy stated elsewhere in the EAR. Entities on the Entity List are generally subject to either a presumption or policy of denial. BIS likely will deny license applications in which a listed entity is a party to the transaction in any manner, unless it can be shown that the transaction is in the interest of U.S. national security or foreign policy.
Prior to the Rule, whether affiliates of an Entity List entity were subject to Entity List restrictions was based on the “legally distinct” standard, which provided that Entity List restrictions only would apply to any affiliates that are not legally distinct from the listed entity.3Bureau of Industry and Security, Expansion of End-User Controls To Cover Affiliates of Certain Listed Entities, Fed. Reg. 47201, 47202 (Sep. 30, 2025) (hereinafter, the “Rule”). In the Rule, BIS states that this standard “can enable diversionary schemes, such as the creation of new foreign companies to evade Entity List restrictions,” which was a primary impetus to change the standard.4See id. As confirmed by BIS in related FAQs, the adoption of the Affiliates Rule means that the Entity List will no longer be an exhaustive listing of non-U.S. entities subject to Entity List license requirements.5Bureau of Industry and Security, Entity List FAQs at A46, updated September 29, 2025, available at https://www.bis.gov/media/documents/entity-list-faqs.pdf.
2. The MEU List
The MEU List relates to restrictions under the EAR on exports, reexports, or in-country transfers of certain items subject to the EAR if the party knows or has reason to know that the items are intended entirely or in part for (1) a “military end use” in Belarus, Burma, Cambodia, China, Nicaragua, Russia, or Venezuela, or (2) a Belarusian, Burmese, Cambodian, Chinese, Nicaraguan, Russian, or Venezuelan “military end user,” wherever located.615 C.F.R. § 744.21. For Burma, Cambodia, China, Nicaragua, Russia, and Venezuela, such restrictions are applicable only to items listed in Supplement No. 2 to Part 744 of the EAR.7Id. at § 744.21(a)(1). For Belarus and Russia, such restrictions are applicable to any items subject to the EAR.8Id. at §744.21(a)(2). The MEU List is a non-exhaustive list of “military end users” under the EAR found at Supplement No. 7 to Part 744 of the EAR. Prior to the Rule, while an entity can be a “military end user” without being included on the MEU List, entities owned by a MEU List Entity were not automatically “military end users.”
3. Restrictions on SDNs
The EAR imposes export licensing requirements on persons designated by OFAC on its SDN List pursuant to certain sanctions programs.9Id. at § 744.8. These restrictions are intended to “supplement and strengthen the sanctions that are imposed by OFAC on these SDNs to better ensure that U.S. national security and foreign policy interests are protected.”10Id. at § 744.8(a)(2). Prior to the Rule, these EAR license requirements only applied to persons specifically designated under the relevant sanctions programs.
The Affiliates Rule
The Rule revises the EAR to make restrictions applicable to entities on the Entity List and MEU List, and SDNs designated by OFAC under certain sanctions programs, applicable to any entity that is owned 50 percent or more, directly or indirectly, by an entity or entities on the Entity List or MEU List or designated by OFAC under certain sanctions programs. Referred to as the “Affiliates Rule,” this standard is based on OFAC’s “50 Percent Rule,” which generally provides that economic sanctions applicable to a person also apply to persons that are owned 50 percent or more, directly or indirectly, individually or in aggregate, by one or more sanctioned persons, regardless of whether such entities are specifically designated.11Office of Foreign Assets Control, Revised Guidance on Entities Owned by Person Whose Property and Interests in Property Are Blocked (Aug. 13, 2014).
As part of the Rule, BIS incorporated guidance on the application of the Affiliates Rule (the “Affiliates Rule Guidance”) under a new Supplement No. 8 to Part 744 of the EAR.12The Rule at 47214. In the Affiliates Rule Guidance, BIS states that the Affiliates Rule applies to the following:
- Any non-U.S. entity owned 50 percent or more by one or more entities on the Entity List, MEU List, or SDNs designated under programs listed in 15 C.F.R. § 744.8; and
- Any non-U.S. entity that is owned 50 percent or more by one or more entities subject to restrictions based upon ownership by listed entities.1315 C.F.R. Supplement No. 8 to Part 744.
Importantly, the Rule states “[a]n entity owned 50 percent or more, directly or indirectly, by multiple entities subject to EAR license requirements pursuant to some combination of the Entity List, MEU List, or SDN List . . . is subject to the most restrictive license requirements, license exception eligibility, and license review policy applicable to one or more of its owners under the EAR.”14 Id. at § (b).
The following are illustrative examples of how the Affiliates Rule applies:
- Company A is listed on the Entity List, requiring a license for all items subject to the EAR with a presumption of denial license review policy. Company B is listed on the Entity List, requiring a license for any item on the Commerce Control List with a case-by-case license review policy. Company C is not listed on the Entity List. If Company A owns 35 percent of Company C and Company B owns 15 percent of Company C, then under the Affiliates Rule, Company C will be subject to Entity List restrictions and whichever of the applicable license requirements and review policies are the most restrictive. Accordingly, a license will be required to export, reexport, or transfer all items subject to the EAR when Company C is a party to the transaction, and a presumption of denial license review policy will apply.
- If neither Company A nor Company B were listed on the Entity List, but both were 50 percent or more owned by entities on the Entity List, then Company A and Company B would both be “entities subject to restrictions based upon ownership by listed entities.” Accordingly, under the Affiliates Rule, Company A and Company B would be subject to Entity List restrictions and Company C, due to the ownership by Company A and Company B, also would be subject to the Entity List restrictions and whichever of the applicable license requirements and review policies are the most restrictive.
Notably, restrictions applicable to entities on the Entity List under the EAR’s Entity List Foreign Direct Product Rules (“EL FDPRs”) also are applicable to “any foreign entity that is owned 50 percent or more, directly or indirectly, individually or in aggregate, by one or more listed entities or unlisted entities that are subject to Entity List license requirements or other Entity List restrictions based upon their ownership.”15See id.at 47205. If a non-U.S. entity is 50 percent or more, directly or indirectly, owned by several entities on the Entity List, the EL FDPR requirements are applicable when at least one of the owners meets the end-user criteria of the EL FDPR.1615 C.F.R. § 734.9(e), (g). The application of the Affiliates Rule to the EL FDPR adds to the complexity of already complicated FDPRs.
Temporary General License
The Rule adds a new Temporary General License (“TGL”) that authorizes until December 1, 2025 certain exports, reexports, or transfers when a non-listed entity subject to the Affiliates Rule is a party to the transaction. The TGL authorizes the export, reexport, or transfer to or within the following:
- Any destination in Country Group A:5 or A:6, which includes close U.S. allies, to the non-listed affiliate entity.
- Any country, other than a Country Group E:1 or E:2 destination (e., embargoed countries and state sponsors of terrorism), when the non-listed affiliate entity is a joint venture with a non-listed entity headquartered in the United States or country in Country Group A:5 or A:6 that itself is not owned 50 percent or more, directly or indirectly, 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 the Entity List or MEU list restrictions.
The TGL may be only used to overcome certain license requirements related to non-listed affiliates and imposes a recordkeeping requirement.
Savings Clause
In addition to the TGL, the Rule includes a savings clause for shipments of items that are removed from eligibility for a license exception or for export, reexport, or transfer without a license as a result of the Rule if those shipments were en route aboard a carrier to a port of export, reexport, or transfer on the effective date of the Rule (i.e., September 29, 2025) pursuant to a contract. Such shipments may proceed to that destination provided that the export, reexport, or transfer is completed no later than October 29, 2025.
Due Diligence Requirements
The Rule states “[e]xporters, reexporters, and transferors are responsible for compliance with the BIS Affiliates [R]ule and can be held liable for unauthorized exports, reexports, or transfers (in-country) on a strict liability basis, so due diligence must be conducted to determine whether a non-U.S. entity is an entity that is owned by one or more listed entities.”17The Rule at 47203. The Rule also states that “[t]he application of the Affiliates [R]ule creates an affirmative duty to determine the ownership of other parties to the transaction in order to comply.”18See id.
BIS acknowledges in the Rule that the application of the Affiliate Rule “may require additional analysis by the private sector (e.g., exporters, reexporters, or transferors) in order to comply.”19See id. at 47202. However, BIS notes that “[t]he private sector should already be undertaking this analysis as part of a risk-based approach under OFAC prohibitions to reduce their risk of liability for dealings with blocked persons who are subject to OFAC's 50 percent rule” and that “BIS anticipates that this experience in complying with OFAC's 50 percent rule should ease the transition for parties in complying with the requirements that this IFR adds to the EAR by adopting” the Affiliates Rule.20See id.
BIS notes that “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 § 744.8(a)(1) present a Red Flag of potential diversion risk to the listed entity” and that “[i]n this type of situation, additional due diligence is necessary.”21See id. at 47203. If the ownership percentage cannot be determined when there is “knowledge” 22The EAR defines “knowledge” as “[k]nowledge of a circumstance (the term may be a variant, such as ‘know, ‘reason to know,’ or ‘reason to believe’) includes not only positive knowledge that the circumstance exists or is substantially certain to occur, but also an awareness of a high probability of its existence or future occurrence. Such awareness is inferred from evidence of the conscious disregard of facts known to a person and is also inferred from a person's willful avoidance of facts.” 15 C.F.R. Part 772. that the non-U.S. entity has direct or indirect owners designated on the Entity List or MEU List, then a license must be obtained from BIS prior to the export, reexport, or transfer, unless the Red Flag is resolved or a license exception is available based on the restrictions applicable to the listed party.2315 C.F.R. Supp. No. 3 to Part 732 § (b)(29); Supp. No. 8 to Part 744 § (b).
Conclusion
The Affiliates Rule significantly expands the scope of unlisted non-U.S. entities that may now be subject to restrictions under the EAR, requiring BIS authorization to export, reexport, or transfer items subject to the EAR when these entities are a party to the transaction. Counterparties with which engagements may not have previously been restricted may now be subject to restrictions and authorization requirements. Consequently, the Affiliates Rule requires companies to engage in substantial ownership due diligence to determine whether or not counterparties are subject to restrictions under the EAR, similar to the type of ownership due diligence that is necessary for compliance with economic sanctions under OFAC’s 50 Percent Rule. Consistent with the due diligence requirements set forth in the Rule, companies should consider reevaluating their processes and procedures for screening and determining counterparty ownership to assess whether the Rule impacts their ability to engage with current or future counterparties.
King & Spalding has a global footprint and a deep bench of former trade and national security government officials that are uniquely positioned to advocate on behalf of clients before BIS, help guide companies in complying with the Affiliates Rule, and designing and implementing compliance policies and procedures, including due diligence processes, consistent with the Rule.