Was It a Bird, Was It a Plane? No, It Was the BIS Affiliates Rule!

Read our two alerts on the Affiliates Rule here and here.

It applied the export control restrictions applicable to Entity List entities, organizations on the Military End Users (MEU) List, and some (but not all) Specially Designated Nationals (SDNs) to all entities (except US entities) owned 50% or more, directly or indirectly, by one or more of the foregoing WORLDWIDE. Then, over the course of this past weekend, the new Affiliates Rule was suspended for one year. Just like that. And not by the agency that promulgated the rule, BIS, either.

Instead, it was the US Secretary of Treasury who announced the suspension in a Fox Business interview on October 30. Then, the White House published a fact sheet on November 1 that stated, in its entirety, “The United States will suspend for one year, starting on November 10, 2025, the implementation of the interim final rule titled Expansion of End-User Controls to Cover Affiliates of Certain Listed Entities.” That means a suspension of the Affiliates Rule controls from November 10, 2025, to November 9, 2026 (unless of course, something else happens).

We fear that the Affiliates Rule, like the AI Diffusion Rule, may continue to lurk deep within the inner reaches of the Export Administration Regulations (EAR), like a K-pop demon, confusing US exporters (as well as the world). Our only consolation is that the US government shut down before the eCFR could be updated with the Affiliates Rule. But what about when the government reopens? Will BIS allow the Rule to go into the eCFR and cause more confusion? We hope not. Will BIS itself make any statement or leave it to the White House and the Secretary of Treasury to explain what parts of the EAR are in effect?

These are serious questions, but not the ones you want us to answer. Below we attempt to answer the practical questions.

FAQs

Q1: I bought really expensive third-party provider software to help my company comply with the Affiliates Rule. Can I get my money back?

A1: That sounds like a contracts question to us, and we are export control specialists. Next question please (but you might want to consult your contract or just try pleading).

Q2: I bought really expensive third-party provider software. Should I return it or hang in for the long haul?

A2: You might give the software a serious whirl. The suspension lasts only a year, and of course, if the US-China deal falls through, we suspect the suspension will be out the window in a flash, and the Affiliates Rule will fly back in (weak attempt to continue Superman or K-pop Demon Hunters analogies). Moreover, keep in mind that your deals may last well over a year if it takes you months or a year or more to make the product, or if you will have a maintenance and support contract lasting more than one year. You do not want to agree to do business with a subsidiary of an Entity List entity now if that business will impose a contractual obligation you will not be able to fulfil without a BIS license in a year (or less time). Think of this as a (not so free) one-year trial period when you can try out the software without the business government breathing down your back. This temporary “reprieve” also gives a little breathing room to be thoughtful about your company’s risk profile and to put in place (and document!) your internal processes so that you are more prepared when the time comes for implementation.

Q3: I couldn’t afford/bring myself to buy really expensive third-party provider software. Should I buy it or wait?

A3: Notwithstanding valiant attempts to be ready for the Affiliates Rule, unexpected elements (including the inclusion of MEUs and SDNs) may have slowed the roll out for some providers. Moreover, some providers are integrating their offerings with screening software for a unified solution. We would recommend giving it a few months for the software gurus to fine tune their software offerings, and for competition between the providers to (hopefully) bring down the prices.

Of course, underlying all of this is that the suspension of the Affiliates Rule is only temporary. Companies that use this time to identify their areas of risk under the rule and put in place processes and measures to address those risks may be able to position themselves for less disruption when the rule does take effect.