(a) Scope. These guidelines relating to the status of foreign affiliates of listed entities owned by individuals or entities identified on the Entity List, 'Military End-User' (MEU) List, or Specially Designated Nationals (SDN) List under programs listed in § 744.8(a)(1) of this part. This supplement sets forth guidelines with respect to foreign affiliates of listed entities owned, directly or indirectly, individually or in aggregate, 50 percent or more by one or more listed entities on the Entity List in supplement no. 4 to this part, the MEU List in supplement no. 7 to this part, by one or more SDNs designated under programs listed in § 744.8(a)(1) of this part, or by one or more entities subject to restrictions based upon ownership by listed entities, as well as for when an exporter, reexporter, or transferor cannot determine the ownership percentage of a foreign entity that is an entity owned, directly or indirectly, by one or more listed entities on the Entity List or the MEU List, because the involvement of such entities as party to the export, reexport, or transfer (in-country) presents a diversion concern.

(b) Application of Affiliates rule. Any foreign entity that is owned, directly or indirectly, individually or in aggregate, 50 percent or more by one or more entities listed on the Entity List, 'military end-users' on the MEU List, or SDNs designated under programs listed in § 744.8(a)(1), or by one or more entities subject to restrictions based upon ownership by listed entities, is considered to be a diversion concern to such listed entities or SDNs. A license is required for any transaction where that foreign entity is a party to the transaction to the same degree as if the export, reexport, or transfer (in-country) was being exported, reexported, or transferred (in-country) to its owners. Consequently, any foreign entity owned 50 percent or more by one or more entities on the Entity List, MEU List, or SDNs designated under programs listed in § 744.8 is itself considered to be listed on the Entity List, MEU List, or subject to the requirements under § 744.8, respectively. An entity owned 50 percent or more, directly or indirectly, by multiple entities subject to EAR license requirements pursuant to some combination of the Entity List, MEU List, or SDN List designated under programs listed in § 744.8(a)(1), is subject to the most restrictive license requirements, license exception eligibility, and license review policy applicable to one or more of its owners under the EAR. If an exporter, reexporter, or transferor cannot determine the ownership percentage of a foreign entity that is an entity owned, directly or indirectly, by one or more listed entities on the Entity List or MEU List, they must resolve the Red Flag or obtain a license from BIS prior to proceeding with the export, reexport, or transfer (in-country) (see Red Flag 29 in supplement no. 3 to part 732).

(c) Due diligence for foreign entities of listed entities with less than 50 percent ownership by listed entities or SDNs or for parent entities of listed entities. Exporters, reexporters, and transferors are advised to act with caution when considering a transaction with a non-Entity List, non-MEU List, or non-§ 744.8 foreign entity in which one or more entities identified on the Entity List, MEU List, or SDNs designated under programs identified in § 744.8 has a significant direct or indirect ownership interest that is less than 50 percent or is a parent entity of listed entities. Such entities may be the subject of future designation on the Entity List, MEU List, or the SDN List under one of the designations identified in § 744.8, or of enforcement actions. Exporters, reexporters, and transferors should undertake due diligence to ensure that items exported to the entity are not destined for the Entity List party, MEU List party, or SDN and are reminded that the EAR imposes licensing requirements, such as end-user and end-use based restrictions in part 744 of the EAR, that could apply to such companies even if they are legally separate from the listed entity.