Cari’s Legal Exchange – Trade Shifts: Inside the Affiliates Rule Suspension

Audio Transcript

Cari Stinebower
Good morning, this is Cari Stinebower and Tony Busch from the law firm of Winston & Strawn. We're here today to discuss the BIS Affiliate Rule. September 29th, 2025, was a big day for businesses dealing in U.S.-origin goods. It was the day that the BIS, Bureau of Industry and Security, Affiliate Rule came into effect. It has been stayed for now, but the implications are still monumental. Two months later, and we suspect many months to come, people are still going to be talking about it and what it means. I'm here with Tony to have a quick discussion of what the rule means, even though it has been stayed. Thanks for joining us today, Tony. For listeners who may not follow BIS rulemaking closely, can you briefly explain what the affiliates rule was designed to do and why it represented such a significant shift in how affiliation is evaluated for U.S. export controls purposes?

Tony Busch
Sure. So the Bureau of Industry and Security, or BIS, has long maintained lists such as the entity list and the military and user list that impose a partial sanction on foreign parties. And what the BIS affiliates rule did was it expanded those sanctions to other entities that are affiliated with the listed entities. Unbelievably, as many who are not familiar with the space might feel when you hear about the historical significance of those lists, they did not extend to subsidiaries of those listed entities. So if you were a company operating in Europe and you've got Chinese ownership, and your Chinese owner is on the entity list or the military and user list that's maintained by BIS, those sanctions did not apply to your European subsidiary. But now with the affiliates rule, it does. 

Cari Stinebower
So BIS has temporarily suspended the rule. From your perspective, what were the major legal or practical concerns raised by industry that likely contributed to this pause?

Tony Busch
I think that the rule is so expansive and so punishing that industry was essentially in revolt about how difficult it would be to turn on a dime and start to adapt to sanctions that essentially applied to tens of thousands of additional entities overnight. There was also the synergy of the U.S. approach by President Trump to strike some sort of deal with China to create a more stable economic playing field between the two countries where there was a trade war ratcheting up, China imposing its own export controls on things like critical minerals, the U.S. rolling out the affiliates rule and other rules that really were raising the temperature. And as part of Trump's deal with China, one of the aspects of it was to temporarily suspend this affiliates rule. It provided a nice, quick opportunity to take industry back off the clock, but set the clock for a year in advance so that industry could adapt to what was coming.

Cari Stinebower
So how would the affiliates rule, if implemented as written, have changed compliance obligations for multinationals, particularly in the context of complex corporate structures, joint ventures or minority investments?

Tony Busch
So it really depends on from what perspective we're looking at. I think there's two major buckets.

One, if you're a company that's doing business with entities that are newly sanctioned under the affiliates rule while it was in effect and will be in effect in the future, then you have a concern of whether or not you are sending items subject to the Export Administration regulations to those entities that are now newly sanctioned. And then there's also the flip side of that, where if you're a subsidiary of one of those listed entities that is now having to deal with being a sanctioned entity, now you have the extremely difficult position of having to decide whether you can viably continue with your business lines. I think a lot of U.S. companies are going to have the former problem, which is, you know, which of our customers can receive our products, our software, and our technologies that may be subject to U.S. jurisdiction and therefore cannot, you know, they cannot receive them now because of their problematic ownership. For them, we really would suggest that you take a look at your historical compliance practices. For example, have you requested end-user or end-use certificates from some of your customers in the past? And why did you do so? Was there an elevated risk for those particular customers that you had assessed? Is it because they were owned by someone on the entity list or the military end-user list and you had greater concerns? And going forward, there's going to be a need to perform more due diligence on the ownership of those potentially problematic subsidiaries. One of the things that this rule does is it imposes an affirmative duty on exporters, re-exporters and transferors of items subject to the AR and says to them, essentially, if you know that there's any significant amount of ownership and there's not a clear number there, let's say we ballpark it and say 5 to 10%. If you know that there's 5 to 10% ownership of any of those problematic entities in your customer, you then have an affirmative duty prior to export or re-export to figure out, determine what is the entire ownership structure of your customer.

Cari Stinebower
So you've gone into a little bit of what companies should be doing during the suspense period. Are there any other risk management steps or internal reviews that make sense while the rule is on hold?

Tony Busch
Absolutely.

You know, companies that have had to deal with the OFAC 50% rule, that is the 50% rule imposed under U.S. economic sanctions by the U.S. Department of Treasury's Office of Foreign Assets Control. For companies that have had to deal with that in the past, they should take a very similar approach because the math is very similar or essentially the same to determine whether or not a counterparty has sanctions issues. You know, we talked about the affirmative duty to determine what the ownership structure is. I mean, that is going to impose on U.S. companies or others exporting items subject to the AR to really understand who they're dealing with and who owns and controls those entities. But on the other hand, there's also a very difficult compliance problem for those that are subsidiaries of entities on the entity list or the military end user list. And that is to figure out whether their business lines remain viable. And if not, they may need to seek a, you know, through a petition to what's called the End User Review Committee that's administered by the Bureau of Industry and Security, but has participants from a variety of U.S. government departments to petition that committee and ask for that subsidiary to be removed from the ambit of the rule going forward.

Cari Stinebower
And looking ahead, what would you expect BIS to do with respect to revising or reissuing the rule? Is it in the realm of possibility that they would withdraw it in its entirety or pursue a different approach?

Tony Busch
I think everything's on the table, particularly under this administration. You know, it's been a long-held desire mostly led by Republican politicians, but not necessarily opposed by Democrats, to impose this rule. It was always seen as a weakness of U.S. export controls that the affiliation or affiliation of, for example, a subsidiary to an entity on the list was not sanctionable, was a diversion risk. That was something that was always discussed as a diversion risk, but never a sanctionable. And I think that I think that we should follow closely what the Trump administration plans to do with respect to its foreign policy with China. The most number of entity lists—designated entities and military and user list designated entities—are in China, and therefore that's really going to drive the conversation going forward with respect to the affiliates rule.

Cari Stinebower
Well, thank you, Tony, for your time today, and I think we will continue to work with clients to not only look internally at how they can bolster their compliance policies and procedures, but how they can engage with others in the industry and the administration during this period of suspense in order to hopefully come up with a program that works both for the government and for the U.S. exporters and importers of U.S. origin goods when looking at national security obligations under the export controls aura.

Well, thank you for your time today. And as always, we will keep everyone up to date on the developments of this rule through either additional podcasts or through our website. Thank you.