Client Alert: October 2, 2025
BIS Issues Interim Final Rule Extending Entity List Controls to Majority-Owned Affiliates: On September 29, 2025, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued an interim final rule (the “Affiliates rule”) amending the Export Administration Regulations (EAR) and significantly expanding the reach of the BIS Entity List, Military End-User (MEU) List, and sanctions-related trade restrictions by extending such restrictions to majority-owned, non-U.S. subsidiaries of listed entities.
Modeled on the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) 50% rule, the Affiliates rule provides that any non-U.S. company that is owned, directly or indirectly, fifty percent or more by one or more parties already designated on the Entity List, the MEU List, or certain OFAC sanctions lists, even if not explicitly listed, will automatically be subject to the same licensing requirements and restrictions as the listed parent entity. In other words, companies that are not explicitly named on these restricted party lists may now be deemed covered for export restrictions solely because of their ownership structure.
The Affiliates rule clarifies that ownership interests held by multiple listed parties may be aggregated to meet the 50 percent threshold, and that the most restrictive set of licensing requirements applicable to any parent entity will apply. BIS has also introduced a new “Red Flag 29,” which obligates exporters, reexporters, and transferors to conduct enhanced diligence in cases where ownership information is unclear. In situations where exporters/reexporters cannot reasonably determine whether the 50 percent threshold is met, BIS expects companies either to assume that a license is required and obtain one, or to resolve the red flag through additional due diligence. The Affiliates rule further requires applicants for BIS licenses to disclose whether an end-user is covered by the Affiliates rule, including ownership percentages and the methodology used to make that determination.
Recognizing the compliance challenges created by this sudden expansion of trade restrictions, BIS has also announced a 60-day Temporary General License (TGL) authorizing certain transactions with newly-covered foreign affiliates to mitigate immediate disruptions while companies adjust internal due diligence and compliance processes. Foreign entities that become subject to trade restrictions under the Affiliates rule may petition BIS’s End-User Review Committee to seek exclusion from their listed parent’s designation.
The Affiliates rule represents one of the most consequential expansions of U.S. export controls in recent years. It will require U.S. and multinational companies to conduct due diligence to determine the ownership structures of non-U.S. counterparties not only for sanctions purposes, but now for export control purposes. Companies should review their compliance policies and procedures to include this new requirement if they handle U.S. origin goods, technologies, and software. Companies should move quickly to assess their exposure and ensure that their compliance programs are aligned with the new requirements.
If you have any questions, please do not hesitate to contact us.
Attorney Advertising: These materials were prepared for general informational purposes only based on information available at the time of publication and are not intended as, do not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. LMD Trade Law PLLC (and its attorneys and employees) shall not have any liability in connection with any use of these materials. The sharing of these materials does not establish an attorney-client relationship with the recipient and should not be relied upon as an alternative for advice from qualified counsel. Please note that facts and circumstances may vary, and prior results do not guarantee a similar outcome.