We have been talking about it for months, and now it is a reality. Effective September 30, 2025, BIS is implementing a 50% Affiliates Interim Rule modeled on the OFAC 50% Rule, which will create thousands of “hidden” affiliated entities that will not show up as restricted/export-controlled “hits” when conducting a consolidated list screen. Before issuance of this new rule, parent, subsidiaries and affiliated companies were considered to be independent entities and thus if one company was listed on the entity or MEU list, its associated companies (i.e. parent or affiliates) were not considered to be blocked/denied or restricted parties as long as they were not a branch of the listed entity and operated as a “legally distinct” entity from the listed company. The 50% rule significantly alters the compliance landscape and creates a scenario where thousands of legally distinct but “hidden” entities are now subject to licensing requirements. If an entity is directly or indirectly 50% or more owned by a listed entity on the BIS entity or Military End User (MEU) list such “hidden” entities will, effective September 30th, 2025 be restricted from receiving exports, re-exports, and transfers that are subject to the EAR without BIS authorization, which in most cases will take the form of a license. In addition, the BIS 50% rule will be extended to entities and all related companies that are blocked entities subject to the Department of the Treasury, Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) controls. Deep screening by direct and indirect ownership, thus, now becomes a must for US exporters in order to mitigate compliance risk. BIS is implementing this major expansion and broadening of export compliance responsibilities due to the ease with which denied/restricted parties on the entity and MEU lists could take advantage of a loophole to evade entity list or MEU restrictions by setting up and doing business through legally distinct front companies or third/affiliated parties that were legally distinct but under their ownership and/or control. Under the new interim rule, BIS is implementing a two-month temporary General license that will provide a narrow 60-day carve-out allowing for some limited non-licensed exports, reexports, and transfers to non-listed entities that are caught by the new interim rule if located in Group A:5 and A:6 countries. BIS is accepting comments on the new interim rule.
It should also be noted that BIS has instructed the trade that in cases where an entity is less than 50% minority owned by one or more listed entities (i.e. Entity list, MEU or SDN), exporters need to consider such scenarios as a red flag and should not proceed with the transaction unless proper due diligence (with detailed recordkeeping) can fully resolve the red flag concern. Applying for a license in such situations is a recommended possible option.
For more information or to discuss submission of comments to the regulators at BIS, please contact TSI Global Consulting at 210-757-0618 or e-mail jonathan.fink@tsiglobalconsulting.com.
