U.S. Commerce Department Bureau of Industry and Security Adopts “50 Percent Rule” for Export Controls

On September 29, 2025, the U.S. Department of Commerce Bureau of Industry and Security (BIS) published its long-awaited interim final rule (the Affiliates Rule) to extend significant licensing restrictions to foreign subsidiaries of entities designated under certain U.S. export controls and sanctions lists. The Affiliates Rule mimics the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) 50 percent rule. Specifically, the BIS rule imposes the same export license requirements as the parent company on any foreign entity owned 50% or more, directly or indirectly, individually or in aggregate, by one or more entities on the identified lists. BIS also published FAQs related to the new rule.

Previously, if a foreign entity was not explicitly named on any of the relevant lists, exports, reexports, and transfers to the entity would not have been subject to the relevant licensing requirement even if the entity’s ownership could be traced to entities on these lists. The new rule seeks to close that gap. It aims to prevent diversionary schemes to evade the restrictions that come with being on these lists. BIS believes that compliance obligations will increase but should be manageable given companies’ existing compliance procedures under OFAC’s 50 percent rule.

The Affiliates Rule restrictions stem from two lists maintained by BIS in the Export Administration Regulations (EAR) and a subset of a third: (1) the BIS Entity List; (2) the BIS Military End-User (MEU) List, and (3) certain persons designated on OFAC’s Specially Designated Nationals and Blocked Persons list (SDN List) (collectively the Lists):

• Entity List. Severe restrictions apply to the export of items subject to the EAR to entities on the Entity List. The Entity List was initially created in 1997 to prevent the proliferation of weapons of mass destruction and focused mainly on entities involved in aerospace and chemicals industries. It included approximately 200 entries at that time. Over time, both the size and the scope of the Entity List have grown exponentially. As of September 29, 2025, the Entity List includes 3,163 entities, primarily in China, in industries with significant dual-use applications such as telecommunications, AI, biotech, quantum information systems, and semiconductors.

• MEU List. Severe restrictions also apply to the export of a narrower set of items subject to the EAR for “military end uses” or to “military end users” in certain countries. The MEU List is an illustrative — not exhaustive — list of military end users subject to these restrictions. Notably, however, the Affiliates Rule only applies to those military end users that are actually listed on the MEU List. The MEU List is relatively recent, having been established in 2020. All the entities currently listed on the MEU List are from China.  

• Certain parties on the SDN List. Section 744.8 of the EAR restricts the export of items subject to the EAR to persons or entities listed on the OFAC SDN List for reasons related to Russia’s invasion of Ukraine, terrorism, weapons of mass destruction, and narcotics trafficking or other criminal networks. The Affiliates Rule considers this subset of SDN List entries as another “list” that can trigger downstream restrictions.

Here are our seven key takeaways on the interim final rule:

1. The Affiliates Rule is effective immediately but includes a 60-day temporary general license for entities in certain U.S.-allied countries. The Affiliates Rule was published as an interim final rule and is effective immediately. However, it establishes a 60-day temporary general license authorizing certain transactions with nonlisted entities that would otherwise be subject to the Affiliates Rule’s restrictions if the exports are to specified allied countries (Country Group A:5¹ or A:6² in the EAR) or to other nonsanctioned countries where the recipient is a joint venture with a company headquartered in the United States or specified allied country.
2. Ownership is aggregated across lists to meet the 50% threshold, and the most restrictive upstream restriction applies. When determining ownership, the Affiliates Rule calls for the aggregation of owners across the three Lists described above (the Entity List, MEU List, and certain persons on the SDN List). This aggregation ensures that listed entities cannot dilute restrictive measures through shared ownership structures. For example, if Company A is on the Entity List and owns 15% of Company C and Company B is on the MEU List and owns 35% of Company C, exports to Company C would require a license under the Affiliates Rule. Moreover, when there are different license requirements applicable to the parent companies, the strictest requirement governs regardless of the relative ownership stake. BIS refers to this as a “rule of most restrictiveness.”
3. The Affiliates Rule imports the OFAC 50 Percent Rule, and BIS is seeking comments. BIS expressly stated that the Affiliates Rule adopts OFAC’s 50 percent rule in the export controls context. The new rule is intended to address the risk of circumvention of export controls and to reduce the administrative burden on BIS to specifically identify and add subsidiaries of entities BIS has already added to the relevant export controls lists. That said, BIS published the Affiliates Rule as an interim final rule and is seeking public comments for 30 days. BIS specifically seeks input on whether the 50 percent ownership threshold should be lowered and whether to extend the rule to other EAR end-user lists. While comments may address any aspect of the rule, BIS’s targeted questions indicate that it might be considering stricter applications of the rule.
4. The Affiliates Rule allows for case-by-case exceptions. Currently, the Affiliates Rule applies to all foreign entities owned 50% or more by entities listed on any of the Lists. However, the End-User Review Committee (ERC) (the interagency committee responsible for updating the Entity List and MEU List, among other things) can exempt affiliated entities that would otherwise be in scope of the Affiliates Rule on a case-by-case basis where it determines that they do not present a significant risk of diversion to a listed entity. The Affiliates Rule does not elaborate further on the standard that ERC is expected to apply in this review, which suggests that ERC will retain broad discretion in its assessment for such exceptions.
5. The Affiliates Rule requires parties to confirm ownership details once they know that a foreign entity has any owner on a List. BIS issues “Red Flags” to serve as guidance for warning signs for potential export control violations that require the exporter to exercise due diligence. The Affiliates Rule creates new Red Flag 29, which provides that if an exporter, reexporter, or transferor has “knowledge” that a foreign entity has one or more owners that are listed on the Lists or that are unlisted entities subject to license requirements or other restrictions based on their ownership, it has an “affirmative duty” to determine the percentage of ownership of those listed entities; if that is not possible, it must obtain a license from BIS.
6. The requirements under each List will continue to be enforced based on strict liability. The Affiliates Rule emphasizes that the specific requirements for each of the Lists are enforceable on a strict liability basis. This means that there is no “knowledge” requirement to trigger these end-user requirements under the EAR, and the new Red Flag 29 has not altered this structure. Thus, while BIS expects that exporters proactively investigate ownership structures and seek licenses where uncertainty exists, liability under the EAR can attach regardless of actual or constructive knowledge.
7. The Affiliates Rule has implications for investors. Although the Affiliates Rule directly imposes due diligence obligations on exporters, it also impacts nonexporters, including investors, who should assess whether potential portfolio companies fall within the Affiliates Rule’s scope. If a potential portfolio company comes within the scope of the Affiliates Rule, the portfolio company would essentially be barred from receiving U.S. technology. Under such circumstances, the expected value of the portfolio company may be diminished. Investors should carefully consider the implications of investments in such entities and with entities on the Entity List or the MEU List, even where such investments are not restricted or prohibited. 

Companies should revisit their diligence programs to ensure compliance with the Affiliates Rule. As an initial step, parties should check with their restricted party screening vendors to understand what information is used in their screening services and, on that basis, evaluate what, if any, additional diligence obligations a company may have as a result of the Affiliates Rule. Certain changes may be necessary: For example, BIS has explicitly warned that the Consolidated Screening List is no longer an exhaustive listing of foreign entities subject to Entity List restrictions. BIS expects parties to proceed carefully given the prevalence of opaque ownership structures and the limited availability of accurate ownership data in certain jurisdictions.

Sidley attorneys are closely monitoring BIS’ rollout of the Affiliates Rule and are available to answer your questions. 

¹ As of September 30, 2025, these countries are Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Türkiye, and United Kingdom.
² As of September 30, 2025, these countries are Albania, Cyprus, Israel, Malta, Mexico, Singapore, and Taiwan.