BIS Expands End User Export Controls with 50% Rule

The U.S. Commerce Department has expanded export control sanctions by extending them to 50% or more-owned affiliates of restricted parties. This development has a particularly significant impact on China-related export controls compliance, as China is home to a disproportionate share of U.S. export controls-restricted parties.

Following the Treasury Department’s economic sanctions practice, the interim final rule (Affiliates Rule) expands export control restrictions for parties on the Export Administration Regulations Entity List and the Military End-User List (MEU List) and certain Office of Foreign Assets Control (OFAC) sanctioned entities to automatically apply to entities that are 50% or more owned, directly or indirectly, by such expressly restricted parties. BIS is seeking comments from the public on the interim final rule by Oct. 30, 2025.

Especially regarding supply to China, it is crucial that exporters adapt their transaction-screening practices to account for this historic change.

Key Points for Companies

• Critical Change: Previously, Entity List restrictions applied only to the listed entity and not to legally distinct subsidiaries or affiliates. Now, to determine whether a party is subject to Entity List, MEU List or sanctions-related restrictions, one must determine all ownership held in the entity collectively by entities on the Entity List, MEU List and certain persons on OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List) and see if they total 50% or more.
• Most Restrictive Control Applies: The Affiliates Rule is modeled after the 50% ownership rule administered by OFAC. However, unlike the OFAC rule, the Affiliates Rule covers multiple lists with different applicable restrictions. For non-U.S. parties that are owned 50% or more, directly or indirectly, by multiple listed entities, the most restrictive of the license requirements applicable to the foreign entity’s owners applies to the foreign entity (regardless of the percentage ownership held by each entity). Similarly, relevant foreign direct product rules apply if an entity meets the 50% standard and has any ownership by an entity subject to the relevant foreign direct product rule.
• Temporary General License: The rule creates a 60-day temporary general license authorizing exports, reexports and in-country transfers:
  • To or within allied countries listed in Country Groups A:5 and A:6 when a foreign entity captured by the Entity List or MEU List elements of the Affiliates Rule is a party to the transaction; or
  • To or within any non-embargoed jurisdiction if the party to the transaction is a joint venture between a foreign party captured by the Entity List or MEU List elements of the Affiliates Rule and a party headquartered in the United States or a Country Group A:5 or A:6 country that is not captured by the Affiliates Rule.
• Red Flag: BIS has added a red flag to the EAR indicating that if an exporter knows of any ownership by an entity on the Entity List or MEU List or by a party restricted based on ownership pursuant to the Affiliates Rule, it has an affirmative obligation to either (a) resolve the red flag (by determining the collective ownership percentage held in the foreign entity by such restricted entities is less than 50%), or (b) submit a license application to BIS.
• Cascading Ownership Examination: Consistent with OFAC practice, if foreign entity A is captured by the Affiliates Rule and foreign entity A owns 50% or more of foreign entity B, then foreign entity B necessarily is also captured by the Affiliates Rule (notwithstanding that foreign entity B is not 50% or more indirectly owned by one or more listed entities).
• Changes to Company Compliance Programs: Exporters are responsible for compliance with the Affiliates Rule on a strict liability basis. In these circumstances, companies should update due diligence processes to ensure that they establish whether a foreign entity is owned by one or more listed entities or entities restricted based on the Affiliates Rule. While some screening services attempt to account for ownership restrictions, companies should evaluate their systems, processes and vendors to ensure compliance.
• Exclusions Available: The inter-agency End-User Review Committee, which oversees the Entity List, may apply exceptions to the Affiliates Rule on a case-by-case basis if it determines that a foreign entity captured by the Affiliates Rule does not pose a significant risk of diverting EAR items to its listed entity parent(s). Any foreign entity that is captured by the Affiliates Rule may request such an exclusion through a formal request to the End-User Review Committee.