BIS Issues “Affiliates Rule” to Dramatically Expand Applicability of Entity and Military End-User Lists

On September 29, 2025, the U.S. Department of Commerce Bureau of Industry and Security (BIS) announced a sweeping Interim Final Rule (IFR), (the “Affiliates Rule”) expanding which entities qualify as Entity List or Military End-User entities, thereby subjecting those entities to elevated export control restrictions under the Export Administration Regulations (EAR). U.S. export restrictions applicable to entities on the Entity List, Military End-User (MEU) List, and Specially Designated Nationals and Blocked Persons (SDN List) now apply to foreign affiliates that are, in the aggregate, owned 50% or more by one or more of the aforementioned entities. An entity that becomes subject to these restrictions because of its ownership structure will be subject to the most restrictive controls that attach to any of its parent entities, regardless of ownership stakes.

BIS explained that this change is intended to counter diversion by closing loopholes that allowed restricted parties to operate through “legally distinct” foreign affiliates and subsidiaries. The Affiliates Rule more closely aligns the BIS standard to the traditional OFAC standard for determining which entities qualify as SDNs under OFAC regulations. 

I. WHAT IS THE AFFILIATES RULE 

Effective September 29, the Affiliates Rule mandates that any non-U.S. entity owned, directly or indirectly, individually or in aggregate, 50% or more by one or more parties on: (i) the Entity List, (ii) the MEU List, and/or (iii) SDNs subject to export controls) is now automatically subject to identical license requirements and restrictions as its listed owner(s), regardless of location. The “Affiliates Rule” does not apply to U.S. entities that are owned by such listed entities. This 50% threshold is a similar standard for how the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) imposes sanctions on parties not included on the SDN List.

• • • Rule of Most Restrictiveness: One difference with OFAC’s 50% rule is that the OFAC 50% rule only aggregates ownership for parties subject to the same restrictions (e.g., an entity 50% or more owned by two SDNs, not an SDN and someone subject to sectoral sanctions). Instead, the Affiliates Rule aggregates ownership between parties subject to different restrictions (e.g., different Entity List and MEU List parties). To account for this difference, the Affiliates Rule states that if multiple listed entities own 50% or more in aggregate, the most restrictive license requirements of any owner apply to the affiliate – even if the more restricted owner has the smaller ownership percentage. This also means that if one or more owners are subject to any of the Foreign Direct Product Rules (FDPR), then the subsidiary caught is subject to the same FDPR requirements.
    •  Inclusion of certain SDNs: Though OFAC administers the SDN List, the Affiliates Rule applies to SDNs identified under §744.8 to better prevent diversion and to “align more closely EAR restrictions with corresponding OFAC restrictions.” This includes SDNs OFAC designated pursuant to Belarus, Russia, WMD, terrorism, narcotic, and criminal network sanctions.
    • Unable to Determine Ownership: BIS added Red Flag 29 explaining that if an exporter has “knowledge” (which includes active and passive knowledge) that a foreign entity is partially owned, directly or indirectly, by a party on a Covered List, and the ownership percentage is unknown, then the exporter has an affirmative obligation to resolve the red flag via additional due diligence or apply for a license from BIS (or determine if a license exception applies, determined by applying the most restrictive requirements).
    • Guidance and Compliance Resources: Supplement No. 8 to Part 744 provides guidelines for applying the Affiliates rule, including best practices for due diligence and handling complex ownership scenarios. The Consolidated Screening List will no longer be exhaustive for export restrictions — companies must independently verify ownership. 
    • Application Procedures: License applications involving affiliates must specify “Affiliates rule” and detail ownership and due diligence. Affiliates may petition for removal or modification of their owner’s listing. 

II. EXEMPTIONS TO THE AFFILIATES RULE

• • • Request to Become Exempt: A party that is subject to these new controls due to ownership by someone on the Entity List and/or MEU List can request that BIS modify the listing to exclude the requester.
    • U.S. Entities Exempt: The Affiliates Rule does not apply to any U.S. entities that otherwise meet the ownership requirements under the Affiliates Rule.
    • Temporary General License (TGL): In addition to the Affiliates Rule, BIS issued a new TGL, which temporarily authorizes two types of transactions with non-listed foreign affiliates caught under the Affiliates Rule. First, it authorizes all exports, reexports, and transfers within countries in Country Groups A:5 or A:6 (per supplement no. 1 to part 740). Second, it authorizes all exports, reexports, and transfers to a country that is not in Country Group E:1 or E:2 (i.e., countries other than Cuba, Iran, North Korea, and Syria) if the entity involved is a joint venture with an entity in the United States or a country in Country Groups A:5 or A:6. The TGL is valid for 60 days after publication. The TGL does not override restrictions in the EAR that are not tied to the Affiliates Rule or to OFAC’s SDN List. 
    • Military End User Limitation: BIS confirmed that the Affiliates Rule does not apply to parties owned by an unlisted military end user (e.g., an entity that may be a military end user due to meeting the relevant definition but is not included on the MEU List).
    • Other Export Lists Not Included: The Affiliates Rule does not apply to the Unverified List or persons subject to Denial Orders.

III. OTHER COMMENTARY FROM BIS:

• • • Merging the Entity List and MEU List: The Affiliates Rule is consistent with prior BIS proposals (see here) to align the MEU List and the Entity List, including by potentially merging the two lists and expanding license requirements for MEUs that are under review. 
    • Public Comments: BIS is accepting comments on the Affiliates Rule for the next 30 days.

IV. IMPACTS OF THE AFFILIATES RULE

• • • Enhance Screening: By significantly expanding the scope of restricted entities and imposing an “affirmative duty” to determine the ownership percentage of foreign counterparties partially owned by listed entities (or to seek a license from BIS), the Affiliates Rule substantially shifts the due diligence burden onto exporters. Companies that have not already done so should consider adopting sanctions-style screening processes, including list-based screening software and ownership tracing tools and processes, to identify counterparties subject to the new requirements. For the moment, screening solutions providers may be limited in their ability to identify subsidiaries and affiliates of companies directly listed on the Entity List or MEU List that were previously outside of scope. As third-party providers work to update their databases to reflect these new obligations, companies must carefully weigh their export control risks against the potentially significant due diligence demands—especially when dealing with counterparties located in high-risk jurisdictions. 
    • Examine Suppliers and Customers and Suspend Affected Exports: Companies should closely review their existing supply chains and customer relationships (particularly those transactions that are not subject to automatic rescreening) to ensure compliance with the Affiliates Rule. Transactions previously permissible—even those subject to enhanced red flag review and strict contractual provisions to avoid diversion to third parties—may now require a license. Where applicable, companies may consider invoking contractual protections, including force majeure clauses, where transactions involve newly restricted parties.
    • Expand Compliance Efforts: Prospectively, companies may also wish to consider closely reviewing their export control compliance frameworks to manage risks associated with onboarding new customers, suppliers, and vendors, and re-screening those same parties to identify newly restricted parties. Specifically, companies may wish to consider updating due diligence procedures, including the nature of ownership information and documentation requested from counterparties, as well as end user certificates and relevant contractual provisions, to reflect new obligations under the Affiliates Rule.
    • Financial Institutions Beware: In line with its increasing export control compliance expectations for financial institutions, BIS specifically highlighted that financial institutions “may also have compliance obligations,” under the future rule, an indirect reference to past BIS and related guidance for financial institutions (see here, here and here) (“BIS Joint Alerts”), which financial institutions should review to ensure their compliance programs adequately address export control restrictions. Beyond the red flags identified in the BIS Joint Alerts, although not explicitly stated in the Affiliates Rule, BIS, FinCEN, and other prudential banking regulators are likely to expect BSA-regulated financial institutions to incorporate Red Flag 29 into their transaction monitoring processes pursuant to their General Prohibition 10 obligations to detect potential suspicious activity indicating export control violations. 
    • Potential Delay of Shipments: As exporters, reexporters, transferors, and other parties continue to adjust to the new regulatory framework, companies should anticipate ripple effects across global supply chains, including supply chain disruptions and shipping delays.
    • China’s Response: While not targeted at China directly, subsidiaries of Chinese companies will be among those most impacted by the Affiliates Rule. China may respond to this action through regulatory development. Additionally, local Chinese companies impacted may be more willing to invoke the Anti-Foreign Sanctions Law (“ASFL”), which prohibits executing foreign “discriminatory restrictive measures” against Chinese individuals and companies and allows persons to bring actions for damages in the event of a violation. As a result, if companies determine they need to conclude or pause activities with Chinese customers or suppliers due to the Affiliates Rule, they should be mindful of the AFSL risks when doing so.
    • Cartels and Foreign Terror Groups: The Trump Administration, through OFAC, has imposed a number of sanctions on cartels and other transnational criminal groups in Mexico and other parts of Latin America, marking them as “Foreign Terror Organizations.” The Affiliates Rule will now apply to these newly designated cartels due to the Affiliates Rule capturing those SDNs subject to export controls (which includes FTOs). This elevates the risk of exporting items from the United States to Mexico.