Understanding BIS's Affiliates Rule And Compliance Implications

Key Takeaways

• The U.S. Department of Commerce's Bureau of Industry and Security ("BIS") issued an interim final rule (the "IFR" or "Affiliates Rule") that applies Export Administration Regulations ("EAR") end user restrictions to any entity owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more listed entities on the Entity List, Military End User ("MEU") List, or certain Specially Designated Nationals ("SDNs") covered by EAR § 744.8(a)(1).
• The IFR shares similarities with the Office of Foreign Assets Control's ("OFAC") 50 Percent Rule and closes a long-standing gap under the EAR's prior "legally distinct" standard, which had limited restrictions to the entity specifically listed (and its non-legally distinct branches). However, there are also important differences that must be taken into account when updating compliance policies and procedures.