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The United States ("US") Department of Commerce's Bureau of Industry and Security (the "BIS") has issued an interim final rule, effective 29 September 2025, that significantly expands the scope of US export controls by introducing a new 'Affiliates Rule'.
What has changed?
Previously, US export controls (governed by the Export Administration Regulations ("EAR")) only applied to entities specifically named on the Entity List (which include, for example certain Chinese, Russia and Iranian banks, shipping companies and manufacturers). On application of the new Affiliates Rule, the EAR now applies to foreign (non-US) affiliates which are 50% or more owned (directly or indirectly) by parties which appear on the Entity List, Military End-User List and which are subject to certain US sanctions.
This broader application is similar to the "50% rule" applied by the US Office of Foreign Assets Control ("OFAC") in respect of sanctions. The introduction of the Affiliates Rule assists the BIS in closing a loophole where restricted companies could operate through overseas "front companies."
Why this matters
Local companies which may be unknown to the BIS and are therefore not included on the Entity List, may be now affected as a result of the listing of their owners. The application of the EAR will typically introduce a requirement to obtain a licence in order to export, re-export or transfer (in-country) items which are subject to the EAR (including, but not limited to, items originating in the US) to the 'listed' company. The BIS asserts its jurisdiction over the item and there is accordingly no need to establish any other US nexus - e.g. the involvement of a US person – for the EAR to apply. The Affiliates Rule will have a significant impact for newly covered companies, who may expect to face the following challenges:
- procurement issues, with US-suppliers, or other third-party suppliers who deal in US-origin goods ceasing supply;
- logistical issues, e.g. shipping companies refusing to ship goods;
- more onerous due diligence screening process, as companies now need to go beyond merely verifying if a company is on the Entity List, and will need to introduce ownership based analyses of third-parties in order to assess the potential applicability of the EAR.
What should companies do?
While the BIS has provided for a very limited short-term Temporary General License (expiring 28 November 2025), the Affiliates Rule is effective immediately. Immediate steps to consider in response include:
- assessing existing ownership structure to determine whether the EAR may apply to your company as a result of the Affiliates Rule;
- conducting an assessment of your vendors and customers to identify any companies likely to be subject to the EAR, and the impact thereof; and
- reviewing your existing due diligence procedures to ensure they include sufficient ownership-based.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
