Last month, the U.S. Department of Commerce's Bureau of Industry and Security (BIS) released its long-anticipated Affiliates Rule, informally known as the "BIS 50 Percent Rule." Modeled after the longstanding 50 Percent Rule imposed by the Department of the Treasury's Office of Foreign Assets Control (OFAC), the BIS Affiliates Rule extends export control restrictions to any foreign entity that is owned — directly or indirectly — 50 percent or more in the aggregate by one or more parties on the BIS Entity List, Military End User (MEU) List, or OFAC Specially Designated Nationals (SDN List) subject to end-user controls under section 744.8 of the Export Administration Regulations (EAR) (together, Restricted End Users). Intended to reduce the risk of diversion, the Affiliates Rule is a departure from BIS's longstanding policy that end use controls apply only to the entities listed on the BIS Entity List or MEU List. Now, end use controls go beyond those explicitly listed. The interim final rule takes effect immediately. Stakeholders have a 30-day window to submit comments, with the deadline set for October 29, 2025. 

From a compliance perspective, the Affiliates Rule is likely to represent a significant shift for some exporters, requiring internal compliance procedures that take into account the risk of exporting items subject to the EAR to unlisted entities captured by the Affiliates Rule. As with nearly all export controls, BIS takes the position that exporters are strictly liable for any violation of the Affiliates Rule, but it will weigh a risk-based internal compliance program heavily in any decision to bring an enforcement action. BIS updated its longstanding Entity List Frequently Asked Questions (FAQs) to assist in these compliance and due diligence efforts. 

In apparent recognition of the breadth of the new rule, BIS also issued a wind-down temporary general license (TGL) allowing certain exports to entities in U.S.-allied countries (i.e., Country Groups A:5 or A:6, see supplement No. 1 to Part 740) or joint ventures (JVs) of most entities headquartered in U.S.-allied countries that fall within the scope of the Affiliates Rule. The TGL expires on November 28, 2025. 

Key Takeaways 

• Heightened Due Diligence Expectations. The Affiliates Rule is likely to represent a significant shift for some exporters, encouraging heightened due diligence to determine full ownership of business partners for certain products and in certain jurisdictions, such as the People's Republic of China (PRC), where many BIS Restricted End Users are located. Commercial screening companies have already started to update lists to incorporate this change. While this is likely to simplify compliance, these lists may not capture all entities subject to the Affiliates Rule, especially as certain jurisdictions take steps to obfuscate the data that such screening companies rely on. Therefore, in addition to confirming with services providers that screening lists have been updated, exporters may consider updates to due diligence questionnaires or certifications to assure they have sufficient information to determine if business partners are subject to the Affiliates Rule.
• Similarities to the OFAC 50 Percent Rule. BIS explicitly modeled the Affiliates Rule after the long-standing OFAC 50 Percent Rule to simplify compliance for exporters accustomed to OFAC compliance. As with the OFAC 50 Percent Rule, the Affiliates Rule applies to entities that are owned individually or in the aggregate by Restricted End Users, which means that ownership of all Restricted End Users must be aggregated to determine whether a foreign entity is subject to control. As with the OFAC 50 Percent Rule, the Affiliates Rule applies to entities that are owned directly or indirectly by Restricted End Users, which means that exporters' due diligence must account for both intermediate and ultimate owners of the foreign entity. Finally, like the OFAC 50 Percent Rule, the Affiliates Rule only applies to subsidiaries owned by Restricted End Users (i.e., "downstream"); parent or sister companies of Restricted End Users (i.e., "upstream") are not within the scope. 
• Differences from the OFAC 50 Percent Rule. Given the differences between BIS export controls and OFAC sanctions requirements, the Affiliates Rule is necessarily different from the OFAC 50 Percent Rule in some ways. First, both U.S. and foreign companies rely on the U.S. banking system, such that OFAC blocking sanctions restrict nearly all dealings with persons subject to the OFAC 50 Percent Rule if a U.S. nexus exists. In contrast, the Affiliates Rule applies only when an item subject to the EAR — such as one that is U.S.-origin or shipped from the U.S. — is being exported, reexported, or transferred. As a result, it is likely to affect a smaller segment of most companies' global operations. Second, whereas OFAC blocking sanctions are uniform across sanctions listings, the license requirements imposed by the BIS Entity List vary from entity to entity. Accordingly, the Affiliates Rule clarifies that the most restrictive license requirements applicable to any one of the Restricted End User parents apply to the 50 percent-owned subsidiary. 
• Affirmative Duty to Determine Ownership When There is "Knowledge" of Ownership by Restricted End Users. In BIS's own words, the Affiliates Rule imposes an "affirmative duty" to determine the ownership of a party to a transaction when there is knowledge that a Restricted End User may have some ownership interest. Such knowledge includes not only actual knowledge, but also reason to know, which may include "overlapping board membership or other indicia of control." In cases where there is such an "affirmative duty," exporters must resolve the red flag, seek a license from BIS, determine that a license exception applies, or decline the transaction. 
• Excluded or Exempted Entities. Certain entities are excluded or otherwise exempted from the Affiliates Rule's scope. For example: 
  • The Affiliates Rule does not apply to any U.S. entities that otherwise meet the ownership requirements under the Affiliates Rule. 
  • The Affiliates Rule does not extend the MEU restrictions to parties owned by an unlisted military end user merely because the owner meets the relevant definition in 15 CFR 744.21(g). In other words, the owner must be included explicitly on the MEU List for the Affiliates Rule to apply downstream.
  • The Affiliates Rule does not extend to entities on the Unverified List (in supplement no. 6 to part 744) or those subject to Denial Orders (issued under part 764). 

For more information, please contact:

Timothy P. O'Toole, totoole@milchev.com, 202-626-5552

Leah Moushey, lmoushey@milchev.com, 202-626-5896

Melissa Burgess, mburgess@milchev.com, 202-626-5914

Collmann Griffin, cgriffin@milchev.com, 202-626-5836

Caroline J. Watson, cwatson@milchev.com, 202-626-6083

Arooshe Giroti, agiroti@milchev.com, 202-626-6060

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