U.S. Bureau of Industry and Security Amends Export Administration Regulations to Add 50% "Affiliate" Rule for Entity and Military End-User Lists

On Sept. 29, 2025, the U.S. Department of Commerce's Bureau of Industry and Security ("BIS") issued a new interim final rule (the "Rule") that amends the Export Administration Regulations ("EAR").  Under the Rule, any foreign entity owned 50% or more by one or more entities on BIS's Entity List, Military End-User ("MEU") List, or a combination thereof, is automatically subject to the restrictions of such listings, even if the entity is not listed by name.  

In addition, pursuant to EAR § 744.8, the Rule applies to certain categories of persons and entities listed on the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC") List of Specially Designated Nationals and Blocked Persons (the "SDN List").  

The Rule is effective immediately, but BIS will receive public comments through Oct. 29, 2025.  A  Temporary General License permits certain activities involving newly-covered affiliates through Nov. 28, 2025.  

The Entity List and MEU List

BIS regulates the export, reexport, and in-country transfer of a wide range of items that are of U.S. origin, contain certain U.S. components or technology, or are produced using U.S. technology—even if manufactured outside the United States.

The Entity List identifies entities for which there is reasonable cause to believe, based on specific and articulable facts, that the entities have been involved, are involved, or pose a significant risk of being or becoming involved in activities contrary to the national security or foreign policy interests of the United States. Export, reexport, or in-country transfers of regulated U.S.-origin items to or by Entity Listed entities require BIS licensing.  Entity Listed Entities are subject to restrictive licensing requirements, license exception eligibility, and a presumption of denial during license review.  The MEU List (which is not exhaustive) contains entities determined by BIS to be "military end users" or who are engaged in "military end use."   Certain transactions with MEU-listed entities require BIS licensing.

If a foreign affiliate is owned 50% or more by one or more listed entities, the affiliate is subject to the same restrictive licensing requirements and conditions as if listed by name.  

Until now, BIS has been applying a "legally distinct" standard with respect to subsidiaries and other foreign affiliates of entities on the Entity List and the MEU List.  As long as a subsidiary or affiliate was "legally distinct" from the listed entity, it was not deemed to be listed if it was not expressly listed by name.  This led to concerns that listed entities could create subsidiaries and affiliates to circumvent BIS licensing requirements.  

OFAC's "50% Rule"

The new Rule, which BIS labels the "Affiliates" rule, adheres closely to OFAC's longstanding "50% Rule," under which an entity owned 50% or more by one or more persons or entities on the SDN List  is automatically deemed to be on the SDN List, even if not expressly listed by name.   

Violators will be held responsible on a "strict liability" basis.  BIS acknowledges that the Rule "may require additional analysis by the private sector (e.g., exporters, reexporters, or transferors) in order to comply," but adds that "[t]he private sector should already be undertaking this analysis as part of a risk-based approach under OFAC prohibitions to reduce their risk of liability for dealings with blocked persons who are subject to OFAC's 50 percent rule."  OFAC is partly correct, but the diligence is now expanded to encompass affiliations with Entity List and MEU List entities, which was previously not required by BIS.

Red Flags

BIS emphasizes that the Rule "creates an affirmative duty to determine the ownership of other parties to the transaction in order to comply."  BIS cautions that a foreign entity with significant minority ownership by, or other significant ties to, an entity on the Entity List or on the MEU List, or an SDN subject to § 744.8(a)(1), is a "Red Flag" of potential diversion risk.  Examples of such ties include overlapping board membership, or other indicia of control by the listed entity.  Under such circumstances, additional due diligence is necessary, which could be challenging in the face of opaque ownership structures and limited access to accurate ownership data in some jurisdictions.  If an exporter, reexporter, or transferor is unable to determine the ownership percentage of a foreign entity owned by one or more listed entities, it must resolve the Red Flag before proceeding with the transaction, absent a BIS license or an existing exception to the licensing requirement.

The Rule imposes a challenging new diligence requirement, and exporters should promptly  update their compliance programs.  Katten is available to assist with navigating these developments and updating internal procedures.