On September 29, 2025, the U.S. Commerce Department’s Bureau of Industry and Security issued its Affiliates Rule, extending export controls to entities that are owned 50 percent or more by entities on its restricted lists. As a result, companies must not only know who they are doing business with, but they must also know the parent entities, all the way up the chain of ownership.
The rule imposes a significant burden on companies involved in international trade, which must now thoroughly understand and document their supply chains, including third-party ownership and opaque business structures.
While seemingly daunting, this is a surmountable problem that is familiar to those with experience in foreign supply chain compliance and quality control.
What Changed
Previously, export restrictions applied only to specifically named entities on government lists like the Entity List and Military End User List. Now, any foreign entity that is 50 percent or more owned by a restricted entity – directly or indirectly – automatically inherits the same restrictions as its parent. This mirrors the Treasury Department’s sanctions program, creating consistency but significantly expanding the compliance landscape.
Why This Matters
Among the challenges created by the Affiliates Rule are the following:
- Opacity is now a red flag. If you cannot determine whether a business partner has restricted ownership, you must either resolve that uncertainty or obtain a license before proceeding. Lack of transparency itself triggers compliance obligations.
- Standard screening is insufficient. The government’s Consolidated Screening List will no longer capture all restricted parties. Companies must now conduct ownership-based due diligence, potentially requiring third-party data sources and more extensive vetting procedures.
Navigating the New Landscape
For a variety of reasons, the United States has stepped up economic sanctions on countries, companies and individuals around the world over the last decade. This has led to ever more complex efforts to shield true ownership and thereby circumvent sanctions, including the use of shell companies, transferring ownership of assets to individuals to avoid asset freezes, adjusting ownership stakes to below thresholds that trigger restrictions, and the use of bank accounts in third countries, among many others.
While these strategies to avoid transparency are complex, investigators have built up the knowledge and skills needed to unravel business structures and shed light on ownership opacity. One case from our portfolio – while it took place before the Affiliates Rule – illustrates how experienced investigators can help to navigate the new landscape.
A European chemicals company instructed Nardello & Co. to carry out an investigation into a Ukrainian trading company that had recently and inexplicably instructed the client to make payments to a low-profile Hong Kong entity. Through analysis of Ukrainian and other public domains, and on-the-ground inquiries in the country, we found that the trading company had an opaque ownership structure and generated negative media coverage for involvement in a business dispute in Belarus, though no issues of major compliance concern. However, we found that the Hong Kong company was controlled by a Cypriot entity, the principals of which had featured in high-profile corruption and fraud scandals, including several in Ukraine and Russia.
Immediate Action
Companies subject to the Affiliates Rule should take the following steps now:
- Conduct a comprehensive review of the international supply chain, customer base, and distribution network. Identify foreign entities in the ecosystem and investigate their ownership structures, particularly for companies in sensitive markets or technology sectors.
- Enhance compliance screening protocols. Traditional list-based screening must be supplemented with ownership analysis. This may require the services of outside investigators.
- Document due diligence efforts. When ownership information is difficult to obtain, create a record of attempts to gather information. This demonstrates good-faith compliance efforts.
Looking Ahead
Companies should not wait to act. The compliance obligations are in effect now, and the basic framework is unlikely to change substantially.
Companies that take proactive steps to investigate their supply chains and strengthen their compliance infrastructure by working with experienced investigators will be better positioned to navigate the new requirements, while avoiding costly disruptions to their international operations.
