On September 30, 2025, the Bureau of Industry and Security (“BIS”) issued an interim final rule (“IFR”) that significantly revises the scope of the Export Administration Regulations (“EAR”) by extending Entity List restrictions to cover affiliates of listed parties. Effective on the date of filing for public inspection, the IFR abandons the longstanding “legally distinct” standard, under which only entities expressly enumerated on the Entity List—or branches not legally separate from those entities—were subject to licensing requirements. In its place, BIS adopts the “Affiliates rule,” which imposes licensing requirements and restrictions on any foreign entity owned, directly or indirectly, fifty percent or more by one or more entities on the Entity List. BIS justified the change as necessary to counter diversion risks created when listed entities establish legally distinct subsidiaries abroad to continue procuring items subject to the EAR through ostensibly unlisted intermediaries.

The IFR reflects BIS’s determination to align the EAR with the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), which has long applied a fifty percent ownership rule in connection with the Specially Designated Nationals and Blocked Persons List. BIS observed that this approach is familiar to industry and that harmonizing standards across regulatory regimes reduces compliance inefficiencies. At the same time, BIS emphasized that adoption of the Affiliates rule does not curtail the End-User Review Committee’s (“ERC”) ability to impose Entity List restrictions on affiliates with less than fifty percent listed-party ownership if articulable facts demonstrate diversion risk. In so doing, BIS closes a long-criticized compliance gap while preserving its discretionary authority to address more complex ownership arrangements and control structures that might otherwise fall below a rigid threshold.

For exporters, reexporters, and transferors, the IFR imposes a heightened due diligence obligation. BIS makes clear that industry participants bear an affirmative duty to determine whether transaction counterparties are owned, directly or indirectly, fifty percent or more by listed parties. Where ownership cannot be determined with certainty, a newly codified “Red Flag 29” obligates companies either to resolve the ownership question, apply for a license, or identify a narrow license exception prior to proceeding. Failure to do so risks strict liability under the EAR, as BIS stresses that actual knowledge is not required to establish a violation. Further, in cases where multiple listed entities with differing licensing requirements collectively own a majority interest in a foreign affiliate, the rule of “most restrictiveness” applies, meaning the affiliate becomes subject to the most stringent review policy applicable to any of its listed owners.

The Affiliates rule is not confined to the Entity List. The IFR expressly extends the same fifty percent ownership principle to the “Military End User” (“MEU”) List and to parties blocked under the programs enumerated in EAR § 744.8. BIS defended this harmonization as necessary to eliminate inconsistencies across overlapping control lists and to foreclose opportunities for evasion. The agency clarified, however, that the Affiliates rule will not apply to the Unverified List or to parties subject to Denial Orders, as both categories remain subject to separate regulatory processes. Even so, BIS invited public comment on whether extending the rule to these categories would further strengthen diversion controls.

Recognizing that the immediate application of these new requirements could disrupt legitimate commercial activity, BIS concurrently issued a Temporary General License (“TGL”) to provide limited relief. The TGL authorizes specified exports, reexports, and in-country transfers involving certain non-listed foreign affiliates of Entity List or MEU List parties, particularly in circumstances involving joint ventures with U.S. or allied-country companies. The authorization is narrowly circumscribed, remains valid for sixty days following the date of filing for public inspection, and is subject to rigorous recordkeeping requirements under Part 762 of the EAR. BIS also amended its “Know Your Customer” Red Flags to incorporate Red Flag 29, and added Supplement No. 8 to Part 744, which provides guidance on applying the Affiliates rule and clarifies the due diligence obligations that now attach to complex ownership structures.

The regulatory impact of these changes is substantial. BIS estimates that the adoption of the Affiliates rule will generate an additional 245 license applications annually, comprised of increases tied to new Entity List, MEU List, and § 744.8 obligations, offset slightly by a reduction associated with the temporary authorization. In addition, BIS anticipates 35 additional appeals for modification or removal requests under revised § 744.16(e). The agency concedes that these increases will impose greater compliance burdens on industry, but views them as a necessary cost to safeguard U.S. national security and foreign policy interests. For industry participants, the IFR requires an immediate reassessment of compliance programs, with ownership analysis and tracing of corporate structures now elevated to a central component of transaction screening. The adoption of the Affiliates rule confirms that BIS will no longer tolerate reliance on the formal separateness of legally distinct affiliates to evade export control restrictions, and that exporters must adapt their internal processes accordingly.