Effective September 29, 2025, the Bureau of Industry and Security issued an Interim Final Rule (IFR) amending the Export Administration Regulations (EAR) to expand the scope of export controls. Under this rule, known as the Affiliates Rule, any foreign entity that is 50 percent or more owned (directly or indirectly, individually or in aggregate) by one or more Entity List, Military End-User (MEU) List, or covered Specially Designated Nationals (SDNs) parties automatically becomes subject to the same restrictions, licensing obligations, and limitations on license exceptions as if it were itself listed. This departs from prior practice, which required a party to be explicitly named. The aim is to prevent the diversion of U.S.-origin items through foreign intermediaries. Additionally, BIS added Red Flag 29 to the EAR: when an exporter knows (or has reason to know) that a foreign party has listed entity owners, it must determine their ownership percentage or, if that’s not possible, obtain a BIS license or invoke a valid exception before proceeding with any transaction. Violations under the Affiliates Rule are subject to strict liability.
Why It Matters This rule significantly expands U.S. export controls by making ownership, not just name-based listing, a trigger for restrictions. As a result:
Thousands of foreign entities not explicitly listed may now be treated as restricted end users based solely on ownership.
All EAR-covered transactions, including exports, reexports, and in-country transfers involving U.S.-origin items, are affected globally.
Exporters must conduct in-depth ownership tracing, including indirect and layered structures.
Strict liability applies: even unintentional oversights can result in violations.
This creates elevated compliance risk for any company with U.S. items in its supply chain, regardless of where it operates.
Real-World Illustrations
(a) Affiliates Rule Scenario A German company is 25% owned by a Chinese Entity List entity and 30% owned by a Belarusian MEU-listed entity (55% total). It is not itself listed.
Impact under BIS 2025 Affiliates Rule:
Treated as a listed entity under the Affiliates Rule;
U.S. exporters must obtain a BIS license for any EAR-controlled exports;
Foreign parties must obtain a license for U.S.-origin or FDP items sent to this company;
U.S. importers need a license only if goods contain U.S. content or are foreign direct products of U.S. tech.
(b) Unresolvable Red Flag Scenario
A Middle Eastern distributor orders EAR controlled parts from a U.S. exporter. The distributor is not listed, but ownership is traced back to a Chinese listed firm through a series of layered offshore entities. The exporter cannot confirm whether the listed entity's stake exceeds 50 %.
Impact under BIS 2025 Affiliates Rule: This situation triggers Red Flag 29. Because there is “knowledge” of listed entity ties but no clear percentage, the exporter must either:
Obtain additional documentation to resolve the ownership percentage.
Apply for a BIS license under the Affiliates Rule, or
Identify a valid license exception before shipping.
Proceeding without resolution or licensing would violate the EAR, even if there was no intent to evade the rule.
What You Must Do Immediately
Audit ownership. Trace your company, suppliers, and customers for direct or indirect 50 %+ holdings by listed parties, even through intermediate entities.
Resolve Red Flags. If you have reason to believe a foreign entity has listed entity owners, you must seek clarity or a license before proceeding. Uncertainty alone is not acceptable.
Reassess your compliance framework. Expand screening to include affiliation and ownership analysis, not just name-based checks; mark and escalate any “significant minority” holdings or overlapping ties; update warranties, contract termination rights, and onboarding protocols.
Use Temporary and Other License Exceptions Where Available. Make use of the Temporary General License (TGL), valid through November 28, 2025, for certain transactions involving newly covered affiliates in permitted jurisdictions or qualifying joint ventures. A separate 30-day in-transit exception applies to shipments that were already en route as of September 29, 2025, under confirmed orders, provided the export, reexport, or in-country transfer is completed by October 29, 2025.
In conclusion, the expanded “Affiliates Rule” significantly increases the compliance burden for companies worldwide that deal with U.S.-origin goods, software, or technology, regardless of where they operate. Foreign ownership is now a critical risk factor, and overlooking it can trigger enforcement under the EAR’s strict liability regime.
Our team advises U.S. and non-U.S. companies, including importers, exporters, logistics providers, and manufacturers, on navigating the shifting regulatory landscape. If your organization needs help reassessing supply chains, screening ownership structures, or responding to a red flag scenario, contact us at (212) 668-0200 or email info@mdrxlaw.com for tailored compliance support.
