This rule change will significantly expand the scope of EAR end-user controls and impose new compliance obligations for exporters and reexporters with respect to ownership-based screening. Although the rule took effect immediately (subject to a temporary general license for certain transactions), BIS is accepting public comments through October 29, 2025, and may revise aspects of the rule based on the feedback it receives.
New Ownership-Based Standard
Historically, BIS took the position that only specifically identified entities were subject to the EAR’s Entity List-based licensing requirements. Affiliates, even if owned by listed parties, were not automatically covered. This meant that technically an exporter of items or technology subject to the EAR only had to conduct name-based screening on its counterparties, without additional diligence on their ownership and the status of their parent companies. Nonetheless, it has usually been prudent to ensure that a listed entity had not simply changed its name or transferred its entire business to another company, as that could be viewed as an evasion.
The Affiliates Rule now expressly applies to any foreign entity that is owned 50 percent or more, directly or indirectly, individually or in the aggregate, by one or more parties on:
- The Entity List;
- The MEU List; and
- Certain OFAC sanctions programs incorporated by reference under EAR § 744.8(a)(1).
As a result, these entities are now subject to the same licensing requirements as their listed owners. If ownership is split among multiple listed parties, the most restrictive licensing policy applies.
Affirmative Due Diligence Obligations
Under the new rule, exporters must assess whether any foreign counterparty is majority-owned by one or more companies on the lists identified above as well as companies that are majority-owned by unlisted companies subject to restrictions due to ownership by listed companies. In other words, if Company X is 50 percent or more owned by Company Y, which is 50 percent or more owned by a listed company, both Company X and Company Y would be subject to restrictions applicable to the listed company.
If the exporter is aware of any such ownership interest, it must either:
- Confirm that the listed party does not hold a majority interest;
- Apply for a BIS license; or
- Rely on an applicable license exception.
Where ownership cannot be verified, BIS now imposes an affirmative obligation to treat the entity as restricted unless and until the question is resolved. Note that while the lists subject to the rule are enforceable on a strict liability basis (which means “knowledge” is not required), “knowledge” is considered as a factor in assessing penalty calculations for violations of the EAR.
Changes to the Foreign Direct Product Rules
BIS also made conforming changes to the Foreign Direct Product (FDP) rules under EAR § 734.9:
- The Entity List FDP rule now applies to any foreign entity 50 percent or more owned by listed parties (where at least one owner meets the end-user criteria in § 734.9(e)).
- The Russia/Belarus MEU FDP rule under § 734.9(g) is similarly extended.
These changes further expand EAR jurisdiction over items manufactured abroad using controlled U.S. technology or software.
Red Flag 29 and Enhanced Compliance Expectations
The IFR adds a new Red Flag 29 to Supplement No. 3 to Part 732. Where an exporter knows that a party is owned by a listed entity but cannot determine the ownership percentage, that now triggers a red flag, implying heightened diligence obligations. BIS expects companies to investigate and resolve the ownership question, apply for a license or determine whether a license exception is available.
BIS also cautions against ignoring minority ownership or other ties (e.g., overlapping directors, shared infrastructure) that could indicate a risk of diversion, particularly in opaque jurisdictions.
Temporary General License and Exceptions
To ease the transition, BIS issued a Temporary General License (TGL) valid for 60 days (through November 29, 2025). The TGL allows continued exports, reexports and transfers:
- To or within any destination in Country Group A:5 or A:6 when a party to the transaction involves otherwise covered affiliates.
- To or within any destination other than Country Group E:1 or E:2 when: (a) a party to the transaction involves an otherwise covered affiliate and (b) such party is a joint venture with a non-listed entity headquartered in the United States or Country Group A:5 or A:6 that is not an otherwise covered affiliate.
Entities impacted by the Affiliates Rule may also seek exclusion by submitting a modification request under § 744.16(e), per procedures outlined in Supplement No. 5 to Part 744. BIS may grant case-by-case exceptions where the foreign affiliate does not pose a significant diversion risk.