BIS Adopts 50% “Affiliates Rule”: Implications for Compliance and Enforcement

On September 29, 2025, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) published an Interim Final Rule significantly expanding the scope of list‑based U.S. export controls (the “Affiliates Rule”). Effective immediately, the Affiliates Rule extends license requirements associated with the Entity List, the Military End User (“MEU”) List, and certain sanctions programs under § 744.8 of the Export Administration Regulations (“EAR”) to entities directly or indirectly owned 50 percent or more, individually or in aggregate, by listed parties, in any foreign country. BIS also issued a narrow Temporary General License (“TGL”) providing limited transitional relief through November 28, 2025, for certain entities caught by the new rule located in destinations listed in Country Groups A:5 and A:6 , as well as for certain joint venture (“JV”) entities that have a JV partner headquartered in the same jurisdiction.

BIS intends for this expanded application of the relevant lists to be consistent with the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”)’s 50 Percent Rule, which also automatically applies sanctions prohibitions to parties owned 50 percent or more, individually or in aggregate, by sanctioned parties.  

Many companies will need to revisit their export control screening procedures and resources, and may need to take immediate steps to evaluate ownership of existing customers, partners, and counterparties.  Given the geographies and industries represented on the BIS Entity List and MEU list, these steps will be particularly important for companies with operations and sales in China and Russia, and in high-technology industries, such as semiconductors, aerospace, artificial intelligence, and other dual-use technologies. Companies and organizations should also consider commenting on the rule, including through trade associations, and engaging with BIS to inform future developments on this issue.

To help provide guidance and answer questions about the Affiliates Rule, Morrison Foerster’s National Security Group will host two webinars for the following time zones:

• Monday, October 6, 2025 — 9:15 AM PST | 12:15 PM EST | 6:15 PM CET [Registration Link]
• Tuesday, October 7, 2025 — 10:00 AM HKT / SGT | 11:00 AM JST [Registration Link]

Key Takeaways

• Significant Expansion of List-Based Export Control License Requirements – The Affiliates Rule extends Entity List, MEU List, and § 744.8 SDN restrictions to entities 50 percent or more owned by one or more listed entities. 
• Flow-Down Restrictions – Entities owned 50 percent or more by more than one listed entity are subject to the most severe restrictions among the owners, including any requirements applicable under Foreign Direct Product Rules (“FDPRs”).
• New Diligence Requirement – The Affiliates Rule imposes an “affirmative duty” to confirm the ownership percentage of any entity owned by a listed entity and to seek BIS licenses for “unresolvable Red Flag entities.”
• Narrow Temporary General License – BIS issued a 60-day TGL for affiliates not previously subject to these restrictions and located in Group A:5 or A:6 countries.
• Not All BIS Lists Are Included – The Affiliates Rule does not extend to all BIS lists, such as the Unverified List (“UVL”) in Supplement No. 6 to § 744, or the Denied Parties List.
• Consolidated Screening List (“CSL”) No Longer Complete – With the expanded reach of the Entity List and other prohibitions, additional diligence is now required beyond usage of the CSL.
• Limited Window for Comments – BIS is accepting comments on the rule until October 29, 2025.

Key Elements and Implications

New License Requirements for 50 Percent-Owned Entities

The Affiliates Rule represents a substantial departure from the “legally distinct” standard previously applied by BIS under FAQ 134, which stated that subsidiaries and other affiliates of listed entities were not “per se” subject to restrictions unless separately identified on a restricted list. Under the Affiliates Rule, BIS restrictions under the Entity List, MEU List, and § 744.8 now automatically apply to entities owned 50 percent or more directly or indirectly by one or more listed parties.

Since the restrictions flow from list-based controls rather than other “knowledge”-based provisions in § 744, BIS will enforce against restrictions based on 50 percent ownership on a strict liability basis. According to BIS, “knowledge” is not required to trigger these end‑user requirements under the EAR, though it may be considered in penalty calculations for violations. See, e.g., Q.42 from the updated BIS Entity List FAQs.

“Affirmative Obligation” to Confirm Ownership Percentages

BIS created a new affirmative duty to determine the ownership of counterparties as part of ensuring compliance with the Affiliates Rule. Critically:

• Exporters, reexporters, or transferors with “knowledge”—defined as actual knowledge or reason to know—that a non-U.S. party has one or more owners listed on the Entity List, MEU List, or otherwise subject to license requirements based on ownership now have an affirmative duty to determine the percentage of ownership or to obtain a license from BIS, unless an exception applies.

This new obligation flows from new Red Flag 29, which BIS added to its “Know Your Customer” Guidance in Supplement No. 3 to § 732 of the EAR.  The new Red Flag identifies a scenario where an exporter, reexporter, or transferor has “knowledge” that a foreign entity has one or more owners that are designated on the Entity List or MEU List, or that are unlisted but are themselves subject to license requirements or other restrictions under the Affiliates Rule. Red Flag 29 specifies that a company with such knowledge must make an “affirmative” determination of the percentage of ownership by such listed or unlisted entities. If the company cannot determine this percentage, it is required to either obtain a license from BIS or identify an applicable license exception before proceeding with transactions with these so-called “unresolvable Red Flag entities.” 

Should a company fail to apply for a license and the transaction is later determined to have been subject to the Affiliates Rule, BIS may treat the decision to proceed as evidence of “knowledge” of a violation, which could result in increased penalties under the EAR.  See, e.g., Q.41.

Flow-Down of Most Restrictive Status and Foreign Direct Product Rule Footnotes

For entities owned 50 percent or more by multiple listed entities, the Affiliates Rule establishes that the most restrictive status among listed entities will flow down to the unlisted affiliate, including the most restrictive license requirements, license exception eligibility, and license review policies applicable to any of its owners. These restrictions will flow down even where the most restricted entity represents only a small percentage of the 50 percent aggregated ownership. See, e.g., Q.44 (discussing the “rule of most restrictiveness”).

Importantly, the Affiliates Rule also extends the application of the Entity List’s FDPRs. For example, certain FDPRs are triggered only if the activity involves a party that is designated on the Entity List by certain footnotes. Under the new rule, even if a footnote-designated entity holds only a minority ownership stake in a 50 percent-owned affiliate, such ownership is sufficient to bring the affiliate within the scope of the new rule if the aggregate ownership with other Entity List parties is 50 percent or greater. For example, an affiliate that is 45 percent-owned by a non-footnote-designated entity and 5 percent-owned by a footnote-designated entity would now be subject to the Entity List FDPR restrictions of the footnote-designated entity. This reflects BIS’s new approach that even a small relevant ownership stake can trigger FDPRs if aggregate ownership meets the 50 percent threshold.

New Guidance in Supplement No. 8 to § 744 on “Significant” Ownership Interests and “Parent Entities”

BIS issued new guidance in Supplement No. 8 to § 744, paragraph (c), advising companies to “act with caution” when transacting with affiliates in which a listed party has a “significant” (but less than 50 percent) ownership interest or when a “parent” entity of a listed entity is involved. Even if not automatically covered by the Affiliates Rule, additional due diligence is warranted as a result of “opaque ownership structures and limited access to accurate ownership data in certain jurisdictions.”  BIS also states that entities with “significant minority ownership by, or other significant ties to” a listed entity—such as “overlapping board membership or other indicia of control”—present a “Red Flag” of potential diversion risk to the listed entity.  See Q.43.

New Temporary General License for Transactions Involving U.S. Allied/Partner Countries 

To mitigate the immediate impact of the rule on unlisted affiliates located in U.S. allied and partner countries, BIS issued a new, 60-day TGL to Supplement No. 1 to § 736 of the EAR. The TGL authorizes two types of transactions:

(1) Transactions with certain non-listed entities to or within destinations in Country Group A:5 or A:6 (e.g., shipment of an item to Taiwan or Singapore (Country Group A:6 destinations) to a non-listed, but 50 percent-owned affiliate of a Chinese company on the Entity List); and

(2) Transactions with non-listed JV entities, provided that (A) the transaction is not to or within destinations in Country Group E:1 or E:2 (embargoed destinations), and (B) the entity is a JV with a non-listed entity headquartered in the United States or in a destination in Country Group A:5 or A:6 (assuming such entity is not also 50 percent-owned).  

The TGL will expire on November 28, 2025—60 days after the date of filing for public inspection (September 29, 2025). (Note: BIS has identified two different expiration dates for the TGL: November 28, 2025 (preamble), and December 1, 2025 (Supplement No. 1 to § 736). BIS may clarify this in the near future.)

What to Do Next

The Affiliates Rule increases compliance expectations for companies engaged in cross‑border export, reexport, and transfer activity. BIS explicitly advises that additional time and resources are required to ensure compliance. Companies must now be prepared to trace corporate ownership structures, including indirect holdings, and to act when such ownership information is incomplete. Moreover, BIS notes that the CSL is “no longer . . . an exhaustive listing” of foreign entities subject to Entity List license requirements, given that the CSL does not reflect affiliates caught by the new 50 percent ownership threshold. Q.46. BIS acknowledges that private-sector screening tools may assist in achieving compliance, including vendors already offering screening for OFAC’s 50 Percent Rule. See, e.g., Q.47.

Companies should move quickly to review their compliance programs, especially their screening processes, to ensure that they account for ownership by designated parties. 

Internal procedures should be updated to reflect the new Red Flag 29 guidance, and compliance staff should be trained on how to respond when confronted with “unresolvable Red Flag entities.” Companies should also consider whether they may need to rely on the TGL—and begin preparing for its expiration on November 28, including by applying for exceptions. Finally, companies should consider submitting comments to BIS to help shape future rulemaking. 

Morrison Foerster’s National Security practice is closely monitoring the situation and stands ready to advise.