Expansion of End-User Controls To Cover Affiliates of Certain Listed Entities

<RULE> DEPARTMENT OF COMMERCE <SUBAGY>Bureau of Industry and Security</SUBAGY> <CFR>15 CFR Parts 732, 734, 736, 744, and 748</CFR> <DEPDOC>[Docket No. 250509-0083]</DEPDOC> <RIN>RIN 0694-AK11</RIN> <SUBJECT>Expansion of End-User Controls To Cover Affiliates of Certain Listed Entities</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Bureau of Industry and Security, Department of Commerce. <HD SOURCE="HED">ACTION:</HD> Interim final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> In this interim final rule (IFR), the Bureau of Industry and Security (BIS) amends the Export Administration Regulations (EAR) to address diversion concerns involving entities on the Entity List and certain other restricted end users. Under this IFR, any entity that is at least 50 percent owned by one or more entities on the Entity List will itself automatically be subject to Entity List restrictions. This is a marked improvement over the current standard, which excludes all entities that are not specifically included on the Entity List, regardless of affiliation with Entity List entities. This IFR similarly applies restrictions to entities at least 50 percent owned by listed `military end users' and certain sanctioned parties. The 50 percent ownership standard in this IFR is designed to be consistent with longstanding Department of the Treasury practice, so as to limit the additional burden on the business community. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> • <E T="03">Effective date:</E> This rule is effective September 29, 2025. • <E T="03">Modification request date:</E> Non-listed foreign affiliates of listed entities, regardless of the foreign country where they are located, that are subject to restrictions under the Affiliates rule based on ownership by an Entity List party or Military End User may request modification of the relevant entry following the process in § 744.16(e) or § 744.21(b)(2) at any time on or after September 29, 2025. • <E T="03">Temporary General License (TGL) validity date.</E> General Order No. 7, TGL—Non-listed foreign affiliates of listed entities, which permits certain export, reexport, and transfer (in-country) transactions involving non-listed 50-percent or more owned foreign affiliates of parties on the Entity List or Military End-User List, as specified in supplement no. 1 to part 736 under paragraph (g). This TGL expires on November 28, 2025. • <E T="03">Comment date:</E> Comments must be received by BIS no later than October 29, 2025. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Comments on this rule may be submitted to the Federal rulemaking portal at: <E T="03">www.regulations.gov.</E> The regulations.gov ID for this rule is: BIS-2025-0017. Please refer to RIN 0694-AK11 in all comments. All filers using the portal should use the name of the person or entity submitting the comments as the name of their files, in accordance with the instructions below. Anyone submitting business confidential information should clearly identify the business confidential portion at the time of submission, file a statement justifying nondisclosure and referring to the specific legal authority claimed, and provide a non-confidential version of the submission. For comments submitted electronically containing business confidential information, the file name of the business confidential version should begin with the characters “BC.” Any page containing business confidential information must be clearly marked “BUSINESS CONFIDENTIAL” on the top of that page. The corresponding non-confidential version of those comments must be clearly marked “PUBLIC.” The file name of the non-confidential version should begin with the character “P.” Any submissions with file names that do not begin with either a “BC” or a “P” will be assumed to be public and will be made publicly available at: <E T="03">https://www.regulations.gov.</E> Commenters submitting business confidential information are encouraged to scan a hard copy of the non-confidential version to create an image of the file, rather than submitting a digital copy with redactions applied, to avoid inadvertent redaction errors which could enable the public to read business confidential information. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Chair, End-User Review Committee, Office of the Assistant Secretary for Export Administration, Bureau of Industry and Security, Department of Commerce, Phone: (202) 482-5991, Email: <E T="03">ERC@bis.doc.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> <HD SOURCE="HD2">A. The Entity List</HD> The Entity List (supplement no. 4 to part 744 of the EAR (15 CFR parts 730-774)) identifies entities for which there is reasonable cause to believe, based on specific and articulable facts, that the entities have been involved, are involved, or pose a significant risk of being or becoming involved in activities contrary to the national security or foreign policy interests of the United States, pursuant to § 744.11. The EAR impose additional license requirements on, and limit the availability of most license exceptions for, exports, reexports, and transfers (in-country) when a listed entity is a party to the transaction. The license review policy for each listed entity is identified in the “License Review Policy” column on the Entity List, and the impact on the availability of license exceptions is described in the relevant <E T="04">Federal Register</E> rule that added the entity to the Entity List. BIS places entities on the Entity List pursuant to parts 744 (Control Policy: End-User and End-Use Based) and 746 (Embargoes and Other Special Controls) of the EAR. The End-User Review Committee (ERC), composed of representatives of the Departments of Commerce (Chair), Defense, Energy, State and, where appropriate, the Treasury, generally makes decisions regarding additions to, removals from, or other modifications to the Entity List. The ERC makes decisions to add an entry to the Entity List by majority vote and makes decisions to remove or modify an entry by unanimous vote. <HD SOURCE="HD2">B. Scope of Entries Listed on the Entity List</HD> <HD SOURCE="HD3">1. Entity List Legally Distinct Standard</HD> Prior to this IFR, BIS used a `legally distinct' standard for applying restrictions to subsidiaries and other foreign affiliates of entities identified on the Entity List. Under this standard, Entity List restrictions for listed entities have extended to the foreign entity listed on the Entity List, as well as any related foreign entity located in that same country that is not legally distinct from the listed foreign entity. For example, a branch of a listed entity, even if operating under a different name, was considered to be subject to Entity List restrictions, because the branch is not legally distinct from the listed entity. Conversely, the Entity List requirements for a listed entity did not extend to a foreign affiliate owned by a listed entity that was legally distinct from the listed entity, unless BIS separately listed that legally distinct foreign affiliate on the Entity List. BIS is concerned that the old approach can enable diversionary schemes, such as the creation of new foreign companies to evade Entity List restrictions. Creation of such companies may allow listed entities to deceive exporters, reexporters, and transferors into providing items in violation of the Entity List restrictions that apply to the listed entities. Furthermore, the old approach required BIS to expend substantial efforts to address the tactics that listed entities would adopt to circumvent their placement on the Entity List. BIS frequently published additional final rules to identify legally distinct foreign affiliates of listed entities that also warranted being listed on the Entity List. Even with these additions, there remained a risk that entities would create additional non-listed foreign companies to try to circumvent the intent of the controls. The creation of such new foreign companies would in turn require BIS to devote significant additional time and resources to issuing rules adding them to the Entity List. With this IFR, BIS is reducing future piecemeal regulatory activity to expand Entity List restrictions. Because of such diversion concerns, BIS has determined that to protect U.S. national security and foreign policy interests, the Entity List restrictions should also extend to certain foreign companies that are subsidiaries or other foreign affiliates owned by listed entities. <HD SOURCE="HD3">2. The 50 Percent Ownership Rule</HD> The Department of the Treasury's Office of Foreign Assets Control (OFAC) uses a 50 percent ownership rule in connection with the Specially Designed Nationals and Blocked Persons List (SDN List) and may also apply the 50 percent rule when issuing other sanctions prohibitions, including less than full blocking restrictions. Sanctions maintained by OFAC prohibit all transactions by U.S. persons, wherever they are located, or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons, unless authorized by a general or specific license issued by OFAC or exempt under OFAC's regulations. All property and interests in property of blocked persons that are in the United States or in the possession or control of U.S. persons may not be transferred or otherwise dealt in and must be reported to OFAC. Under the 50 percent rule, entities which are owned 50 percent or more, directly or indirectly, individually or in aggregate, by one or more blocked persons are generally considered blocked, regardless of whether such entities are specifically added to the SDN List. OFAC's 50 percent rule addresses, among other objectives, threats of circumvention through unlisted subs ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 102k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━