Bureau of Industry and Security Significantly Expands Applicability of Entity List and MEU List Restrictions
By John H. Kester
The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) on Monday announced an interim final rule (“IFR”) stating that any entity that is at least 50 percent owned by one or more entities on the Entity List or the Military End-User List (“MEU List”), directly or indirectly, individually or in aggregate, will itself automatically be subject to Entity List/MEU List restrictions. The rule has downstream effect, meaning that if, e.g., an Entity List listed entity owns 50 percent of Company B which in turn owns 50 percent of Company C, even Company C is subject to Entity List restrictions. See, FAQ Answer 52.
The Entity and MEU Lists impose supplemental export license requirements on parties whose activities BIS has deemed contrary to U.S. national security or foreign policy interests, or who present an unacceptable risk that goods will be used in or diverted to a military end use.
The IFR was published on the Federal Register on September 30th and was effective as of September 29th. It will not restrict shipments of items en route aboard a carrier to a port of export, reexport or transfer (in-country), on September 29, 2025, pursuant to actual orders for export, reexport, or transfer (in-country) to or within a foreign destination, provided the export, reexport, or transfer (in-country) is completed no later than on October 29, 2025. Additionally, there is a Temporary General License (“TGL”) authorizing certain export, reexport, and transfer (in-country) transactions involving non-listed 50-percent or more owned foreign affiliates of parties on the Entity or MEU Lists; the TGL is set to expire November 28.
BIS characterized the IFR as closing a significant loophole and broadly strengthening the export control regime. The Entity and MEU Lists previously excluded all entities that were not specifically named, even if there were extensive corporate and financial ties with listed entities. This change is significant in part because it means that entities that are not specifically listed may nonetheless be subject to the restrictions imposed by those Lists, and a BIS license may be required to export to them. In an FAQ related to this so-called “Affiliates Rule,” for example, BIS cautioned that the Consolidated Screening List “will no longer comprise an exhaustive listing of foreign entities subject to Entity List license requirements”; it additionally stated that “[c]ertain non-listed foreign affiliates of listed entities are also subject to the Entity List license requirements and other requirements because they meet the Affiliates Rule criteria.” See, FAQ Answers 46 and 1, respectively.
BIS additionally explained that for purposes of the Affiliates Rule it is concerned with ownership as opposed to control: “An entity that is controlled (but not owned 50 percent or more) by one or more listed entities is not considered to automatically meet the Affiliates Rule criteria.” See, FAQ Answer 43.
In addition to the aforementioned change, BIS noted that it will see as a red flag significant minority ownership by an Entity List/MEU List entity or an SDN, and that exporters consequently must conduct additional due diligence. See, FAQ Answer 43. Moreover, where an exporter, reexporter or transferor knows a foreign entity has at least one owner on the Entity or MEU Lists, “it has an affirmative duty to determine the percentage of ownership by those listed entities” and if unable to so determine, to apply for a license from BIS. See, FAQ Answer 41.
In light of these changes, exporters would be prudent to:
- Reevaluate their compliance screening process such that they ensure they are not, g., merely searching against names on the Entity and MEU Lists;
- Ensure that they have screening mechanisms in place to catch those entities which are 50-percent-or-more owned by an entity on the Entity and/or MEU List (or by an entity owned by such listed entity pursuant to the downstream effect of the 50 percent rule), even where such owned entities are not specifically listed on the Entity and MEU lists;
- Ensure that they are screening for significant minority ownership by Entity, MEU, and SDN list entities, such that they are able to recognize when additional due diligence is required.
Please let us know if you have any questions about the rule, implementing compliance changes to account for the new restrictions and due diligence obligations, or anything else.
John H. Kester jkester@gkglaw.com
Oliver M. Krischik okrischik@gkglaw.com
