Expansion of end-user controls to cover affiliates: BIS adopts 50 percent ownership rule for Entity List, Military End User List, and SDN affiliates

On September 30, 2025, the Bureau of Industry and Security (BIS) published an interim final rule (IFR) amending the Export Administration Regulations (EAR) to expand end-user controls and address diversion risks associated with foreign affiliates of restricted parties.

The IFR departs from BIS’s longstanding “legally distinct” standard, which extended the licensing restrictions applicable to a party on the Entity List (EL) (Supplement No. 4 to Part 744) only to foreign entities that were not legally distinct from the EL party. This included, for example, branch offices.

The IFR now implements a new foreign “affiliated entities” standard, which automatically extends the export control restrictions applicable to EL entity to any foreign entity that it owns, directly or indirectly, 50 percent or more. The IFR also applies the “affiliated entity” standard to foreign affiliates 50-percent or more owned by entities on the Military End User (MEU) List (Supplement No. 7 to Part 744), as well to foreign affiliates of entities designated as Specially Designated Nationals (SDNs) under specified sanctions programs.

BIS describes the new standard as aligning the EAR with the 50-percent ownership standard long used by the Department of the Treasury’s Office of Foreign Assets Control (OFAC) and as enhancing national security and foreign policy objectives by closing loopholes that previously allowed listed entities to circumvent restrictions through legally distinct affiliates.

Today’s change significantly expands compliance requirements because exporters, reexporters, and transferors of items subject to the EAR must now conduct an ownership inquiry to identify and screen the owners of non-US parties against the EL and MEU List, which is not automatically flagged by most screening tools. Additionally, pursuant to a new EAR Red Flag introduced by BIS today, if an exporter, reexporter, or transferor identifies some level of ownership held by an EL or MEU listed entity, but cannot identify the precise ownership percentage, the party must obtain a license from BIS prior to proceeding with the transaction.

The IFR is effective as of September 29, 2025. However, it includes a savings clause, as well as a narrow temporary general license (TGL) which permits, for 60 days (until November 28, 2025), certain exports, re-exports, and transfers to unlisted affiliates of EL and MEU listed parties.

BIS is accepting public comments on the IFR until October 29, 2025.

Overview of the Interim Final Rule

Adoption of the rule

The IFR establishes that any foreign entity owned 50 percent or more, individually or in aggregate, by one or more entities on the EL, MEU List, or certain designations on the SDN List is automatically subject to the same license requirements and restrictions as its listed owners. If an entity is owned by multiple listed parties with differing license requirements, the most restrictive requirements govern. The IFR also covers entities for which ownership information cannot be determined, requiring exporters, re-exporters, or transferors to resolve the ownership “red flag” or obtain a license from BIS before proceeding.

Expansion of licensing requirements and compliance obligations

The IFR amends multiple parts of the EAR (15 CFR Parts 732, 734, 736, 744, and 748) to implement the IFR across the EL, MEU List, and SDN-related controls. Foreign affiliates subject to the rule may request removal or modification of their restrictions through established procedures. BIS further notes that it may allow for exceptions to the foreign affiliates rule on a case-by-case basis if BIS determines that the affected foreign affiliates do not pose a significant risk of being or becoming involved in diversion to the listed entity. These exclusions will be identified in the relevant entry on the EL or MEU List. BIS’s End-User Review Committee will conduct their case-by-case review based on the procedures described in Supplement No. 5 to Part 744 of the EAR. Exporters, re-exporters, and transferors are now required to conduct due diligence to determine ownership of foreign entities involved in transactions, and are subject to strict liability for unauthorized exports, re-exports, or transfers.

Specific to MEU entities, the rule extends the restrictions down to subsidiaries only if the MEU is on the MEU List, unless the non-listed foreign affiliate of the listed entity separately meets the MEU definition.

To account for the expansion of the EL restrictions, BIS also amends the Entity List Foreign-Direct Product (FDP) Rules and the Russia/Belarus-Military End User and Procurement FDP Rule in EAR Part 734. The end-user scope of the respective FDP Rules is expanded to account for additional end-users that are now subject to the EL restrictions under the IFR. As a result, additional foreign-made items that meet the product scope of the Entity List FDP Rules and the Russia/Belarus-Military End User and Procurement FDP Rule are now subject to the EAR if destined to a non-listed entity that is subject to the respective EL restrictions.

Temporary general license

The rule includes a TGL that, for 60 days (until November 28, 2025), allows exports, re-exports, or in-country re-transfers to continue provided the exports, reexports, or transfers are to non-listed foreign affiliates of listed entities and the transaction is destined to (i) a Country Group A:5 or A:6 destination or (ii) any country not in Country Group E, if the non-listed foreign affiliate of the listed entity is a joint venture with a non-listed entity headquartered in the US, or Country Group A:5 or A:6.

The rule also includes a savings clause that allows items that are “en route aboard a carrier to a port of export, reexport, or transfer (in-country)” as of September 29, and that only require a license because of the rule change, to continue so long as the transaction is completed by October 29, 2025.

Guidance and red flags

BIS has added Supplement No. 8 to Part 744, which provides guidelines for applying the IFR, including due diligence expectations for entities with less than 50-percent listed ownership. Supplement No. 3 to Part 732 was also amended to add Red Flag 29, requiring parties to resolve ownership uncertainties before proceeding with transactions.

Practical impacts

The expansion of end-user controls under this rule significantly increases the scope of entities subject to EAR license requirements, particularly in jurisdictions in which ownership structures are opaque. BIS notes in the IFR that, as a result of this rule, the Consolidated Screening List will no longer comprise an exhaustive listing of foreign entities subject to EL license requirements, because it only includes entities expressly listed on the EL. Companies engaged in exports, reexports, or transfers of items subject to the EAR must, in many cases, immediately triage their foreign ship-to, payor, and consignee lists; revamp their compliance procedures to identify and screen for foreign affiliates of listed entities, MEUs, and SDNs; and implement new tools to conduct enhanced ownership screening. Each step will need to be taken in short order, with some shipments potentially suspended, to avoid running afoul of the new EAR standard that is already in effect.

Potential penalties

Currently, civil violations of the EAR can result in a maximum penalty of $374,474 for violations of the Export Controls Act of 2018 (15 CFR § 764.3(1)(i)) and $377,700 for violations of the International Emergency Economic Powers Act (15 CFR § 764.3(1)(i)).

Learn more

To learn more about the implications of the IFR for your business; how DLA Piper can assist with determining proactive steps to reduce the risk of an export violation involving an EL, MEU, or SDN entity; or submission of public comments to BIS, please contact any of the authors.