BIS Adopts 50% ‘Affiliates’ Rule Across Entity List and Other End-User Based Export Controls

The new “Affiliates Rule,” which also introduces eye-popping obligations for exporters to affirmatively investigate their counterparties’ ownership structure, is intended to align with OFAC’s longstanding “50 Percent Rule,” aiming to address risks of diversion and applies globally.

Effective Date and Comments

• The Rule is effective immediately.
• The Rule creates a Temporary General License (TGL) for certain transactions involving affiliates covered by the rule and expires November 28.
• Public comments are due no later than Wednesday, October 29.

What Is New

The new Rule is complicated and significantly expands end-user controls in relation to the Entity List, Military End-User (MEU) List, specified Specially Designated National (SDN)-programs in §744.8(a), and Entity List-related Foreign Direct Product Rules in §734.9(e) (FDP Rules).

The Rule also dramatically increases exporters’ due diligence obligations with a new Red Flag that, as BIS makes clear in the Rule’s preamble, “creates an affirmative duty to determine the ownership of other parties to the transaction” (emphasis added). Screening the names of transaction parties against the Consolidated Screening List (CSL) is no longer sufficient for purposes of the EAR, as it will not capture all covered affiliates.

For the purposes of this alert, we have summarized the main changes below. As more guidance is published on the Rule, we will continue to provide updates.

• Ownership Calculations: Like OFAC’s 50 Percent Rule, the calculation of ownership percentage for purposes of indirect ownership is separately conducted for each level of ownership. For example, if Company A is on the Entity List and owns 50% of Company B, which is not listed on the Entity List, Company B is subject to the restrictions applicable to Company A under the Affiliates Rule. If Company B, in turn, owns 50% of Company C (also not listed on the Entity List), then Company C is also subject to the same restrictions. The Affiliates Rule aggregates ownership across the Entity List, MEU List, and specified SDN programs in §744.8(a).
• Entity List: Restrictions now automatically apply to any foreign entity directly or indirectly owned 50% or more, individually or in the aggregate, by one or more Entity List parties (including by unlisted entities that themselves are restricted due to their ownership). Branches and non‑legally distinct operations remain covered. If an exporter, re-exporter, or transferor cannot determine the ownership percentage of a foreign entity that is owned directly or indirectly by one or more listed entities, they must resolve the Red Flag (see below) or obtain a license from BIS prior to proceeding.
• MEU List: MEU restrictions extend to affiliates of listed entities directly or indirectly owned 50% or more, individually or in the aggregate, by one or more entities on the MEU List. An affiliate’s ownership by entities meeting the definition of Military End User in §744.21 but which are not named on the MEU List do not trigger the Affiliates Rule, unless the affiliate itself is a “military end user.” As with the Entity List restrictions, where ownership cannot be determined, the Red Flag (see below) must be resolved, or a license must be obtained.
• SDN-Related Controls (§ 744.8): BIS adopts the 50% standard for transactions involving persons blocked under specified OFAC programs, including parties that have been sanctioned in connection with Russia’s invasion of Ukraine. EAR license requirements apply whether a party is named on the SDN List or deemed blocked by ownership.
• “Most Restrictive Rule”: If multiple restricted owners exist (Entity List, MEU List, § 744.8 SDNs) that directly or indirectly own 50% or more of the affiliate, individually or in the aggregate, the affiliate is subject to the most restrictive license requirements, license exception eligibility, and review policy applicable to any of the restricted owners. Importantly, this “most restrictive” requirement applies regardless of the percentage of ownership, provided that the aggregate ownership is 50% or greater. In effect, this could require that detailed ownership information be obtained in order to evaluate the applicable requirements and licensing policy.
• Foreign Direct Product (FDP) Rules: Conforming changes extend the Entity List FDP rules, as well as the Russia/Belarus MEU and Procurement FDP rule, to covered affiliates, meaning that foreign-produced items meeting the criteria of the relevant FDP rule by virtue of the involvement of a covered affiliate will now be subject to license requirements based on this ownership. That’s right — FDP rule compliance now potentially includes investigating the ownership structure of all downstream counterparties.
• Red Flag 29 and Due Diligence Duty: If you have reason to know a counterparty likely has one or more owners that are covered by the Affiliates Rule but cannot determine the counterparty’s ownership percentages, you have an affirmative duty to resolve the red flag by confirming that your transaction is not subject to the Rule’s new restrictions. Otherwise, you must obtain a BIS license or rely on an available license exception before proceeding.
• CSL No Longer Exhaustive: The Consolidated Screening List will not capture all covered affiliates; additional ownership diligence is required.
• Petitions: Non‑listed foreign affiliates covered only by ownership may request modification of the relevant Entity List or MEU List entry to exclude them.
• Savings Clause: Certain shipments already en route aboard a carrier as of September 29 pursuant to actual orders may proceed without a license if completed no later than October 29.

Temporary General License

For 60 days (i.e., until the end of November 28), BIS is temporarily allowing certain exports, re-exports, or transfers of items that would otherwise be restricted because of who owns or controls the company involved.

The TGL applies to companies that are not themselves on the Entity list or MEU List but are directly or indirectly owned 50% or more, individually or in the aggregate, by one or more listed entities. The transaction must involve either:

1. An export, re-export, of transfer to or within a destination in Country Group A:5 or A:6.
2. An export, re-export, of transfer to or within any destination except Country Groups E:1 and E:2 (i.e., Cuba, Iran, North Korea, Syria) where the restricted affiliate is a joint venture (JV) with another partner company that is based in the United States or Country Group A:5 or A:6, and that partner must not be 50% or more owned by a restricted party.

The TGL does not authorize transactions involving restricted affiliates involving ownership by an SDN under a program specified in § 744.8. This means that under the “most restrictive rule,” if a restricted affiliate is owned in any percentage, big or small, by an SDN sanctioned under a § 744.8, then the TGL is unavailable. Finally, the TGL only overcomes the Affiliate Rule’s ownership‑based license requirements. All other EAR requirements still apply, and recordkeeping is required.

Who Is Impacted

This rule broadly affects almost all exporters, re-exporters, transferors, US and non‑US manufacturers relying on FDP rules, financial institutions, freight forwarders, resellers, and JV partners with global operations.

In particular, companies operating in countries or sectors with complex or opaque ownership (e.g., private companies, investment structures, corporate services hubs) face heightened diligence burdens.

Immediate Action Items

Considering the immediate enforcement of this rule, affected companies should consider taking immediate action items to update their compliance and diligence efforts. Specifically:

• Review all business with potentially covered affiliates. Transactions involving exports, re-exports, or transfers to entities that might be part of the same ownership structure as a company on the Entity List, MEU List, or the SDN List pursuant to § 744.8 should be closely scrutinized. These transactions should be treated as high-risk, unless you affirmatively confirm that the Affiliates Rule does not apply, determine that the TGL or another exception is available, or obtain a license.
• Update screening. Incorporate ownership analysis into restricted‑party screening; do not rely solely on name lists or the CSL.
• Enhance Know Your Customer (KYC) and documentation. Implement procedures to identify direct and indirect owners, aggregate stakes, and resolve Red Flag 29. Maintain records of screening and KYC efforts.
• Revisit existing business relationships. Reassess risk where listed parties (or unlisted covered affiliates) have ties to a counterparty or business partner, including significant minority stakes or indicia of control such as board membership.
• Consider petitions. Covered affiliates with low diversion risk may seek exclusion by requesting that BIS modify their parent companies’ entries on the relevant list.

For assistance with ownership diligence frameworks, TGL eligibility, license strategy, or comments on the IFR, please contact our Export Controls & Economic Sanctions team.