On October 9, 2025 via 90 Fed. Reg. 48193 (“FRN”), the Department of Commerce Bureau of Industry Security (“BIS”) added 29 entries (26 entities and 3 addresses) located in China, Hong Kong, Turkey, and the U.A.E. to the Entity List . These entities were involved in diverting U.S. origin commodities to Iran for use in Unmanned Aircraft Systems (UAS)/ Unmanned Aircraft Systems (UAVs) or aircraft in violation of the U.S. Export Administration Regulations (EAR).
Why This Matters
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First Update to the Entity List since Implementation of the BIS Affiliate Rule (AKA 50% Beneficial Ownership Rule)
Under the new Affiliate Rule, implemented on September 29, 2025, companies are prohibited from engaging in a transaction without prior USG authorization with an unlisted entity that is 50% or more owned, in the aggregate, by an entity or entities identified on the BIS Entity List (EL) and the Military End User (MEU) list and the Dept. of Treasury’s Office of Foreign Asset Controls (OFAC) Specially Designated National List (SDN) List.
Companies must obtain the parent companies and owners of an entity up through to the ultimate beneficial owner and screen the entities against the EL, the MEU, and SDN for potential matches and ownership that is greater than then 50% threshold.
The requirement to screen for 50% ownership is not a new requirement – it is a requirement under the OFAC sanction programs – however under the BIS Affiliate Rule companies must review the licensing requirements or prohibitions for each owner identified on SDN, the EL, and MEU and apply the most restrictive requirement to the transaction.
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Companies Must Adopt New Strategies and Tools to Comply with the Expanded Use of the 50% Beneficial Ownership Rule and Frequent Updates to the Lists
Performing 50% Beneficial Ownership screening and managing the rescreening of parties to a transaction (e.g. purchase, end user, freight forwarder, supplier, etc.) due to frequent updates to the lists will be challenging for companies with limited resources. Since September 29 when the Affiliate Rule was implemented, OFAC and BIS collectively added more than 150 entities over five different updates to the SDN and Entity list.
To manage these compliance requirements more efficiently, companies should use third-party sanctioned/restricted party ownership research services that dive deep into the Beneficial Ownership structure to augment existing sanctioned/restricted party screening tools. These tools should include persistent screening of the parties to the transaction against changes to the sanctioned/restricted party lists or a mechanism to regularly upload a list of parties for screening. Companies not using such services should supplement standard third-party services with internal sanction ownership research by utilizing publicly available information (e.g. investor reports, business documents filed with government, information from media outlets etc.) to fill potential gaps that exist between when an entity is added to a list to when the third-party service completes their research and updates their lists.
Lastly, company personnel conducting the screenings must be trained not only to use the screening tools but also to conduct sanctioned/restricted ownership research, identify and mitigate compliance risk or escalate to senior management when the risk cannot be mitigated.
On Our Radar
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U.S . Origin Components Were Recovered from the UAS/UAV wreckage
The US Government stated in the FRN that it has identified the entities who diverted U.S. origin commodities to Iran from information found on the U.S. origin commodities recovered in the UAS/UAV wreckage, presumably manufacturer’s name or logo, part number serial number, etc.
The FRN does not mention the manufacturer's role in the investigation, nonetheless, this underscores the importance of screening the parties to the transaction and particularly the end use/end user of the exported commodities. Moreover, companies should keep records of their due diligence efforts, such as end use statements or other documents, if their products are later found in an unauthorized country or application, to assist the government in their investigation.
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The Additions Included the China and Hong Kong Subsidiaries of Arrow Electronics, a U.S. Electronics Distributor
BIS added the China and Hong Kong subsidiaries of Arrow Electronic to the BIS EL for facilitating the purchase of U.S. origin electronics found in the wreckage of UAS operated by Iranian proxies. Arrow Electronics stated they are in discussions with BIS to resolve this issue. It will be interesting to see if the compliance actions taken by BIS are contained to the China and Hong Kong subsidiaries or if at a later date it spills over to the parent company.
Regardless of outcome, this action highlights the importance of ensuring that your foreign subsidiaries and affiliates compliance with U.S. export regulations are imperative and validating end use/end user and screening the parties to the transaction are mandatory not optional.
What’s Next?
- Education - business functions, e.g. business development, purchasing, order entry/contract etc., that engage in transactions with foreign parties on the new requirements. Include foreign subsidiaries and affiliates in this process.
- Discuss strategies for collecting and screening ultimate beneficial ownership information to ensure compliance.
- Explore third-party screening solutions to augment and streamline your existing screening processes.