BIS adopts 50% "affiliates rule"
Date of publication: September 30, 2025
Overview
The Bureau of Industry and Security (BIS) has issued an interim final rule (IFR) that fundamentally expands end‑user controls under the Export Administration Regulations (EAR). Going forward, any foreign entity that is owned, directly or indirectly, 50% or more (individually or in the aggregate) by:
- one or more Entity List parties,
- one or more entities on the Military End‑User (MEU) List, or
- certain Specially Designated Nationals (SDNs) covered by EAR § 744.8.
is itself automatically subject to the same EAR license requirements and restrictions that apply to its listed owner(s). BIS refers to this as the "Affiliates rule," aligned with the U.S. Treasury’s OFAC 50% rule.
Key dates
The IFR is scheduled for Federal Register publication on September 30, 2025.
There will be a 30-day comment period for the public, beginning on the date of publication. Based on the September 30th publication, the comment period will close October 30, 2025. Comments can be submitted via Regulations.gov using Docket No. 250509‑0083; RIN 0694‑AK11; ID BIS‑2025‑0017.
The restrictions in the rule are effective September 29, 2025. Some exceptions will be available up to 60 days after publication in the Federal Register.
A Temporary General License (TGL), valid for 60 days from the filing-for-public‑inspection date, has been established to allow limited continuity for certain transactions involving newly captured non‑listed foreign affiliates while companies adjust.
What changed at a glance
- Automatic coverage of majority‑owned foreign affiliates: If a foreign company is 50%+ owned (directly or indirectly, individually or in aggregate) by one or more listed parties, the same license requirements, license exception availability, and license review policies apply to that affiliate as if it were the listed owner itself.
- Rule of "most restrictiveness": If multiple listed owners with different controls collectively own 50%+ of an affiliate, the most restrictive set of EAR requirements among those owners governs the affiliate.
- Global scope clarified: These end‑user restrictions apply worldwide (not only in the country under which the listed party appears).
- Strict‑liability compliance posture: Exporters, re-exporters, and transferors are responsible for determining ownership and complying; "knowledge" is not required for a violation, although it matters for penalty calculations.
- Consolidated Screening List (CSL) no longer exhaustive for Entity List purposes: Because non‑listed 50%+ affiliates are not name‑listed, screening must include ownership analysis.
Where and how the affiliates rule applies
- Entity List (Supplement No. 4 to Part 744):New text extends Entity List requirements to covered foreign affiliates; adds "most restrictiveness" tie‑breaker; and requires action if ownership cannot be determined.
- MEU List (Supplement No. 7 to Part 744) and § 744.21: Same 50% standard and most‑restrictive rule. Clarification: if an unlisted foreign affiliate is owned solely by unlisted MEUs (and is not itself a "military end user"), § 744.21 license requirements do not extend to that affiliate.
- § 744.8 (SDN‑related controls):BIS now applies an OFAC‑style 50% ownership test for EAR purposes for SDNs covered by § 744.8(a)(1). These EAR controls complement OFAC blocking and help cover deemed exports/reexports and non‑U.S.‑person transactions.
Notable carve-out
With respect to entities at "listed addresses," the Affiliates rule does not apply merely because an entity operates from an address that appears on the Entity List unless that particular entity is specifically identified on the List. BIS notes these addresses are often associated with high‑risk corporate service or logistics hubs, but the address alone does not trigger affiliate coverage.
Foreign-direct product (FDP) rule alignments
§ 734.9(e) and (g) have been amended. The end‑user scope of both the Entity List FDP rules and the Russia/Belarus‑MEU/Procurement FDP rule now expressly includes covered 50%+ foreign affiliates. If multiple listed owners exist (e.g., footnote 1 and footnote 3 entities), the affiliate is subject to the combined end‑user scope, and the most restrictive requirements apply.
“Red flag 29” and due diligence expectations
A new Red Flag 29 (Supplement No. 3 to Part 732) has been added. If you know a foreign counterparty has one or more listed owners (Entity List or MEU List, or an unlisted entity already subject to ownership‑based restrictions), you have an affirmative duty to determine the percentage of ownership. If you cannot determine it, you must resolve the red flag, obtain a BIS license, or use a truly available license exception before proceeding.
BIS also signals heightened diligence where listed parties hold significant but sub‑50% stakes, or where there are other indications of control (e.g., overlapping boards). These present diversion risk "red flags," even if not automatically covered by the 50% rule.
Temporary general license (TGL) – general order No. 7
To allow limited continuity for certain transactions involving newly captured non‑listed foreign affiliates while companies adjust, a TLG has been established.
Authorizations are valid for for 60 days from filing-for-public‑inspection and will cover:
- Exports, reexports, or transfers to/within any destination in Country Groups A:5 or A:6, when a party is a non‑listed foreign affiliate captured by the Affiliates rule (Entity List or MEU List ownership).
- Exports, reexports, or transfers to/within any destination other than Country Groups E:1 or E:2 when the party is such a non‑listed foreign affiliate AND the transaction involves a joint venture with a non‑listed U.S.- or A:5/A:6‑headquartered partner that is not itself 50%+ owned by listed parties.
The TGL only overcomes license requirements arising from §§ 744.11 and 744.21 for the covered affiliate. All other EAR requirements (including any other license triggers) still apply.
The IFR includes language to allow requests to narrow or exclude coverage as well. A foreign affiliate captured solely by ownership may request modification of the owner’s Entity List entry to exclude itself (§ 744.16(e)). A similar pathway to seeking exclusion for MEU/Entity List ownership-based captures (§ 744.21(b)(2)). BIS notes it may also, case‑by‑case, exclude affiliates via explicit entry language if it determines diversion risk does not warrant coverage.
Clarifications and examples embedded in the rule
The following are a few examples clarified within the rule:
- Indirect and aggregate ownership counts: Two listed owners with 35% and 15% stakes, respectively, meet the 50% threshold together; you then apply the most restrictive owner’s requirements to the affiliate.
- Cascading to sub‑subsidiaries: If a now‑captured affiliate (itself unlisted) owns 50%+ of another entity, the coverage can cascade, because that intermediate entity is "subject to restrictions based upon ownership."
- U.S. entities not covered by the Affiliates rule: The rule targets "foreign entities." U.S. entities owned by listed foreign parents are not automatically covered by this Affiliates rule (but other EAR or OFAC obligations may still apply).
- Listed‑address nuance: Merely sharing a "listed address" does not make an otherwise separate entity a covered affiliate unless the entity is specifically enumerated.
Practical implications and action items
With these latest changes, companies should review their existing screening and due diligence practices to ensure that they remain compliant. Reasonable care practices should include:
- Move from name‑only screening to ownership‑based screening by Entity List, MEU List, and specified SDNs. Your restricted‑party screening must now incorporate 50%+ ultimate and intermediate ownership analysis for foreign counterparties.
- Map current counterparties for exposure; prioritize high‑risk jurisdictions and sectors.
- Update policies for "most restrictiveness." If multiple listed owners are present, apply the tightest applicable license requirements, exceptions, and review policies across those owners.
- Implement escalation for Red Flag 29. When you know there is listed ownership but cannot verify percentages, halt, escalate, and either (a) resolve ownership, (b) apply for a license, or (c) rely on a valid license exception (rare).
- Reassess CSL reliance. The CSL will not enumerate non‑listed affiliates captured by the 50% rule; supplement your tools and data sources accordingly.
- Consider TGL usage promptly. The TGL is short‑lived (60 days). If you need it, ensure all conditions are met, document eligibility, and maintain Part 762 records. Pre‑draft license applications for hard‑to‑verify cases.
- Train teams on new FDP end‑user scope. Foreign‑produced items may become "subject to the EAR" via FDP rules when a covered affiliate is the end user. Ensure engineering, sales, and compliance understand these triggers.
- Document due diligence. Keep clear files on ownership mapping, control indicators, and any outreach to counterparties or data vendors used to establish ownership percentages. Refresh recordkeeping templates to capture ownership due diligence and TGL reliance.
Conclusion
This new IFR addresses what BIS stated was a vulnerability as the previous "legally distinct" standard enabled circumvention via creation or use of legally separate but majority‑owned affiliates. Aligning with OFAC"s 50% approach aims to close diversion pathways, reduce piecemeal listing actions, and harmonize private‑sector compliance expectations across sanctions and export‑control regimes. Although this new rule will certainly require companies to take additional steps to ensure compliance, aligning with OFAC 50% provides a more standardized approach for the trade when it comes to due diligence.
For more information on how ONESOURCE Global Trade solutions can assist you in managing supply chain risk, denied party screening and regulatory compliance, contact your Account Manager or Client Success Manager.