This article was last updated on November 7, 2025 with an Editor’s Note, but originally published on October 16, 2025.
Editor’s Note: On November 1, 2025, the Trump Administration announced as part of its Deal on Economic and Trade Relations with China that it would suspend implementation of the interim final rule titled Expansion of End-User Controls to Cover Affiliates of Certain Listed Entities (i.e., the BIS Affiliates Rule discussed in this article) for one year, starting on November 10, 2025. However, unless the Affiliates Rule is amended prior to is intended future reimplementation, this article’s examination of the Rule and relevant compliance considerations would remain the same. At-risk businesses could benefit from this additional time to better prepare their compliance programs for the Affiliates Rule’s reimplementation. The original article is as follows.
On September 29, 2025, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) joined the ranks of the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) in adopting its own version of the 50 Percent Rule with immediate effect. BIS’s new “Affiliates Rule” applies to its Entity List, Military End-User (“MEU”) List, and certain OFAC Specially Designated Nationals (“SDN”) programs identified in the Export Administration Regulations (“EAR”), 15 C.F.R. parts 730–774.
This represents a major expansion of BIS’s compliance framework and a convergence with OFAC’s long-standing approach to ownership aggregation. For businesses involved in global trade, the result is an immediate increase in due-diligence obligations—especially when dealing with affiliates of listed entities.
This article closely examines the similarities and differences between OFAC’s 50 Percent Rule and BIS’s nascent Affiliates Rule, and offers key compliance considerations for businesses navigating both regimes. Readers already acclimated with OFAC, BIS, and their respective regulatory jurisdictions can skip the proceeding Agency Introductions section.
Agency Introductions
OFAC—administers and enforces U.S. economic sanctions programs. As discussed in our earlier article, Navigating U.S. Economic Sanctions, these laws generally prohibit U.S. persons from engaging in transactions with sanctioned countries (e.g., Iran, North Korea), regions (e.g., Crimea), governments (e.g., Venezuela), or persons (e.g., individuals and entities on OFAC’s Specially Designated Nationals and Blocked Persons (“SDN”) List) unless authorized or statutorily exempt. Even non-U.S. persons can face prohibitions if a U.S. nexus exists—such as payments cleared through U.S. financial institutions—and there remains an ongoing risk of “secondary sanctions” even without a U.S. connection.
Prohibitions can be broad and comprehensive (e.g., dealings with Iran or Cuba, or with persons on OFAC’s SDN List), or more limited (e.g., restrictions on new debt or equity for persons on OFAC’s Sectoral Sanctions Identifications (“SSI”) or Non-SDN Menu-Based Sanctions (“NS-MBS”) Lists).
BIS—administers U.S. export controls under the EAR, which regulate the export, reexport, or in-country transfer of items (commodities, software, and technology) subject to U.S. jurisdiction. A BIS license or license exception may be required depending on the receiving parties to the transaction and the destinations involved.
All U.S.-origin items are subject to the EAR, as are certain foreign-made items that incorporate or involve certain controlled U.S.-origin content, or that are produced involving certain specified U.S. technology or software (See, Foreign Direct Product (“FDP”) Rules in 15 C.F.R. § 734.9), in certain instances.
Items subject to the EAR are either identified on the EAR’s Commerce Control List (“CCL”) under a corresponding Export Control Classification Number (“ECCN”)—generally controlled because of their dual-use nature for both military and civilian applications—or they are otherwise considered “EAR99,” which consists of all low-grade technology or consumer goods (e.g., even a pencil made in the U.S. is EAR99).
For purposes relevant here, generally a BIS license is required—subject to a presumption of denial—for the export, reexport, or transfer (in-country) of any items subject to the EAR to a party identified on the BIS Entity List, either as the purchaser, intermediate consignee, ultimate consignee, or end-user. In accordance with § 744.21 of the EAR, a BIS license is also required for the export, reexport, or transfer (in-country) of certain specified items subject to the EAR when an entity listed on BIS’s MEU List is a party to the transaction. These license requirements are in addition to those specified for an item on the CCL.
Jurisdictional Overlap—although OFAC and BIS’s legal frameworks are distinct, overlap often occurs regarding comprehensively sanctioned jurisdictions (See, the EAR’s embargo controls in Part 746) and the EAR’s end-user/end-use based controls in relation to OFAC’s SDN List in § 744.8 (See also, our prior article on BIS’s SDN Crossover Rule, which imposes separate BIS licensing requirements for SDN List designated entities under programs identified in § 744.8). In addition, certain parties on BIS’s Entity List are also separately designated on OFAC’s sanctions lists, simultaneously subjecting them to both agency’s regulations. Therefore, Violations under one regime can also give rise to violations under the other, and relevant licenses may be required from both agencies for a given transaction.
OFAC’s 50 Percent Rule
OFAC’s current 50 Percent Rule, issued on August 13, 2014 (but initially implemented on February 14, 2008), provides that any entity owned in the aggregate, directly or indirectly, 50 percent or more by one or more blocked persons is itself considered blocked—regardless of whether the entity appears on the SDN List. It initially applied to entities owned by persons identified on the SDN List, but has since been expanded to blocked governments (e.g., Venezuela), and persons identified on several other OFAC sanctions lists (e.g., SSI List) that are nonetheless sanctioned but not “blocked.” Even the ownership interests of persons blocked/sanctioned under different OFAC sanctions programs are to be aggregated for purposes of the Rule’s applicability.
When OFAC’s 50 Percent Rule applies as a result of an SDN or other blocked persons ownership interests, U.S. persons that are or come within the possession or control of the constructively blocked entity’s property interests will be required to block it and report to OFAC, and U.S. persons will be prohibited from engaging in virtually any transactions with it unless authorized or statutorily exempt. If the Rule applies because of the ownership interests of a person identified on other applicable sanctions lists (e.g., SSI List), short of full blocking programs, then those less restrictive prohibitions would be extended (i.e., “constructively sanctioned”).
Ownership vs. Control
Unlike the U.K. and E.U. version of the rule, OFAC’s 50 Percent Rule is purely ownership-based—it does not extend to entities merely controlled by blocked persons. An entity that is controlled (but not owned 50 percent or more) by one or more blocked/sanctioned persons is not considered automatically blocked/sanctioned under the Rule. However, OFAC cautions that dealings with such entities may still present sanctions risk, particularly if the blocked person acts on behalf of the entity (e.g., entering into a contract with the entity that is signed by the blocked person). See also, OFAC FAQ #400 (note: there is judicial precedent that could ultimately hinder OFAC’s ability to do deem such conduct to amount to a violation).
Illustration
If an entity is owned 50% in the aggregate by two SDNs under Executive Order (“E.O.”) 14024, it becomes “constructively blocked” under that program even if not named on the SDN List. Downstream entities owned 50% or more by that constructively blocked entity are likewise blocked.
BIS’s 50 Percent Rule (“Affiliates Rule”)
Prior to BIS’s implementation of its own 50 Percent Rule in 2025, based on its published Entity List FAQs (which are still available at the time of this publication), the agency maintained that Entity List restrictions did not automatically apply to a listed entity’s legally distinct “[s]ubsidiaries, parent companies, and sister companies…” (as opposed to a branch or operation division of the listed entity, which would be considered a dealing with the listed entity itself). The agency warned exporters to exercise due diligence on such affiliates but stopped short of extending the restrictions by ownership.
The new Affiliates Rule significantly changes the prior approach, and in axing it BIS noted that it could enable diversionary schemes involving listed entities and their unlisted affiliates. The Rule provides that the same license requirements, exceptions, and review policies specified for a listed entity on the Entity List, MEU List, or SDNs designated under programs listed in § 744.8, apply to any foreign entity that is owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more listed entities or entities that are subject to restrictions based upon their ownership (“constructively listed”).
Ownership calculation under the Affiliates Rule does not apply where a foreign entity’s ownership includes entities that are operating at an address listed on the Entity List, if the entities operating at that address are not specifically identified on the Entity List (although such addresses still pose diversion risks per BIS).
“Rule of Most Restrictiveness”
When multiple owners exist some combination of the relevant BIS lists (for example, one under the Entity List and another under OFAC’s SDN List per § 744.8), the entity is subject to the most restrictive applicable license requirements and review policy.
Ownership calculation under the Affiliate Rule does not apply where a foreign entity’s ownership includes entities that are operating at an address listed on the Entity List, if the entities operating at that address are not specifically identified on the Entity List. Although such addresses still pose diversion risks per BIS.
Illustration
An entity owned 25 percent by an Entity List person and 25 percent by an MEU List company meets the 50 percent. Consequently, under the rule of most restrictiveness, the stricter of the two regimes’ requirements applies.
An entity owned 50% by an entity that is itself subject to relevant restrictions based upon its own ownership structure alone but not identified on any relevant lists (i.e., constructively listed), will have the same restrictions and conditions of the underlying listed entity extended to it as well.
“Red Flag 29”
Where an exporter, reexporter, or transferor cannot determine the ownership percentage of a foreign entity that is an entity owned, directly or indirectly, by one or more listed entities, they must resolve a new “Red Flag 29” that has been added to Supplement No. 3 to Part 732, obtain a license from BIS, or identify an applicable license exception prior to proceeding. Red Flag 29 creates an affirmative duty for such exporters, reexporters, or transferors to determine the percentage of ownership by those entities, or to otherwise apply for and obtain a BIS license (or available exception) before proceeding. If BIS is unable to make a determination during the course of reviewing such license applications that an entity’s ownership indeed satisfies the Affiliates Rule, it will return the application without action noting that a license is not required.
Ownership vs. Control
In implementing the Affiliates Rule, BIS also notified the public that foreign parties with significant minority ownership by, or other significant ties to (e.g., overlapping board membership or other indicia of control) a listed entity—but not satisfying ownership requirements under the Rule—present a Red Flag of potential diversion risk and additional due diligence is necessary.
Conforming EAR Amendments
BIS added conforming changes in § 734.9 (Foreign Direct Product Rules) and created a new Supplement No. 8 to Part 744, which provides interpretive guidance modeled on OFAC’s 2014 Guidance. A Temporary General License (General Order No. 7) currently authorizes certain limited transactions involving non-listed affiliates captured by the new Rule.
BIS vs. OFAC List Removals/Modifications
OFAC and BIS both historically have their own respective regulatory procedures in place for listed entities to request their removal. Under the Affiliates Rules’ amendments to the EAR, foreign entities captured by the Rule may also request modification of the relevant Entity List or MEU List entry to exclude their name from an owner(s) entry listing. We have previously written about removal from the Entity List, and I suspect the same considerations generally apply for unlisted entities seeking such modification requests to an entry listing on either the Entity List or MEU list (e.g., undertaking or proposing necessary ownership divestments/transfers).
OFAC, by contrast, has no formal regulatory procedures in place for constructively blocked/sanctioned entities to request similar modification to an owner(s) sanctions list entry. See, 31 C.F.R. § 501.807. OFAC has previously published a handful of FAQs wherein it clarified to the public that a specific entity is not considered blocked under its 50 Percent Rule based on information available to the agency (See e.g., FAQs #1131, #1073, and #1074). However, it remains unknown whether these FAQs were published at the behest of any informal requests made to OFAC and/or of its own motion for some policy reason.
Key Similarities and Differences
A summary of key similarities and differences between OFAC and BIS’s renditions of the 50 Percent Rule are as follows:
| Aspect | OFAC 50 Percent Rule | BIS Affiliates Rule |
| Threshold | Aggregate ownership ≥ 50% by one or more listed or constructively blocked/sanctioned entities | Aggregate ownership ≥ 50% by one or more listed or constructively listed entities |
| Aggregation | Yes, across different covered sanctions programs | Yes, across covered lists |
| Scope of Applicability | Only if OFAC explicitly extends the Rule to a list and underlying programs (e.g., SDN, SSI) via regulations or published guidance | Limited to Entity List, MEU List, and OFAC SDNs designated under programs listed in § 744.8. BIS Unverified List and Denial Orders list currently excluded. |
| “Most Restrictive” Principle | Not addressed by OFAC | Explicitly incorporated |
| Control Test | Not applicable, but potential red flag | Not applicable, but potential red flag |
| Due Diligence Duty if Ownership Uncertain | Implicit since strict liability area of law | Explicit via “Red Flag 29” in the EAR |
| When Ownership Threshold Cannot be Confirmed | May apply for a license before proceeding (unless license exception applies) | No official procedure, but in theory could apply for interpretive guidance |
| Removal/Modification Procedures | None for constructively blocked/sanctioned entities | Modification available for Entity List and MEU List affiliated entities |
BIS’s approach closely mirrors OFAC’s methodology but introduces two meaningful refinements that OFAC could arguably benefit from:
- A clear “rule of most restrictiveness” in its regulations clarifying which restrictions prevail when multiple lists are implicated in an ownership aggregation scenario; and
- An explicit affirmative duty to verify ownership when information is uncertain—transforming what was once best practice pre-Affiliates Rule into a compliance requirement.
One other key difference between the two rules is the relevant infancy of BIS’s Affiliates Rule for the EAR in comparison to OFAC’s longstanding and more well-established 50 Percent Rule already being a core aspect of its sanctions regime. BIS has since published a helpful set of FAQs to shed more light on the scope of the Affiliates Rule, but only time will tell how it will be enforced, interpreted by the agency in more ambiguous/unforeseen contexts (e.g., how will divestitures be addressed by BIS?), and how it will be interpreted by Federal courts in any judicial challenges. For example, OFAC civil enforcement history involves a number of cases stemming from violations related to its 50 Percent Rule, which can be assessed by industry for trends and compliance takeaways.
Compliance Considerations
Businesses with existing operational risks that have been assessed for dealing with entities potentially subject to OFAC’s 50 Percent Rule should already have relevant controls in place to identify such parties and will therefore have an easier time accounting for BIS’s Affiliates Rule in their compliance programs. However, the risks for engaging in prohibited dealing with entities potentially subject to OFAC’s 50 Percent Rule does not necessarily overlap with the risks for engaging in prohibited transactions with parties subject to BIS’s Affiliates Rule (e.g., the Entity List heavily targets China, whereas OFAC sanctions programs are less China focused), and in any event such risks and existing controls need to be periodically re-assessed, especially in consideration of the expansive scope of the Affiliates Rule. Therefore, at-risk businesses should consider the following non-exhaustive list in their compliance efforts (to the extent not already in place and/or for enhancement purposes):
- Identify items at high risk for diversion to prohibited end-users, end-uses, and destinations thatyour business deals in, as this increases the risk-profile for purposes of the Affiliates Rule and OFAC’s 50 Percent Rule, and the need for relevant controls.
- Enhanced screening tools capable of mapping the beneficial ownership of customers and counterparties, including in coordination with restricted party screening software tools to identify problematic parties prior to onboarding or executing transactions. The Department of Commerce’s Consolidated Screening List (“CSL”) is no longer enough, as it will not identify any constructively listed entities for purposes of the Affiliates Rule. Unfortunately, such private third-party tools can be pricy, to the detriment of many small businesses that are otherwise at risk with global operations. However, resource permitting, they generally create the best line of defense.
- Requesting ownership information from customers and counterparties before onboarding and/or executing transactions—especially those that may be higher risk—for restricted party screening purposes and to identify problematic entities under the Affiliates Rule and OFAC’s 50 Percent Rule. This less automated approachwill be more of a challenge for businesses with high volumes of transactions or higher-risk customer/counterparty bases. However, it may be less of a financial challenge than private third-party tools.
- Periodic re-verification of ownership data, given frequent changes in corporate structures.
- Escalation controls for problematic ownership—establish internal procedures for when ownership and/or control stakes of listed or constructively listed persons is identified and regulatory concerns need to be resolved. These typically include immediate escalation to compliance or legal teams (including outside counsel if necessary) for adjudication, the suspension of transactions pending resolution, and documentation of the ownership structure and rationale for any licensing or interpretive guidance requests to either agency.
- Review and learn from OFAC civil enforcement history involving its 50 Percent Rule (some of which we’ve previously assessed), as they provide invaluable insights into regulator expectations, red flags, and effective remedial compliance measures). Be on the lookout for future BIS enforcement activity to learn from as well.
- Training of company personnel and agents that are at higher risk (e.g., finance teams, procurement, logistics) on the scope of the respective 50 Percent Rules, to recognize red flags related to restricted affiliates, and to maintain detailed audit trails of ownership verification efforts.
- Testing relevant compliance controls periodically to ensure any gaps are quickly addressed.
Although businesses with robust OFAC compliance programs will generally have a head start in complying with the Affiliates Rule, I would posit that even before BIS’s implementation of the Rule the agency still expected enhanced due diligence when it came to dealing with affiliates of listed entities. Therefore, while the regulatory risks may have changed under the EAR’s Affiliates Rule, especially as to potential violations and accountability, due diligence expectations are similar. Nevertheless, as is the case whenever a significant sanctions or export controls update takes place, businesses should reassess their risk profiles in light of BIS’s new expectations to ensure they have the sufficient controls.
The author of this blog post is Kian Meshkat, an attorney specializing in U.S. economic sanctions and export controls matters. If you have any questions please contact him at meshkat@meshkatlaw.com.
