A precision-engineering company in Germany ships a component to a trading house in Singapore. The component contains US-origin technology. The Singapore entity re-sells to a buyer in a third market. Three weeks later, the compliance team discovers that the end-user operates in a jurisdiction subject to comprehensive US sanctions. Who carries the exposure? The answer turns on two separate but overlapping US regimes – OFAC and the Export Administration Regulations administered by BIS – and the distinction between them is not academic. It decides whether the German exporter, the Singapore intermediary, or both face civil or criminal liability under US law.
As of April 2026, re-export and extraterritorial reach under US law operates through two analytically distinct but practically overlapping tracks. OFAC's prohibitions follow the nexus of US persons, US-origin property, and US correspondent banking, reaching transactions worldwide whenever any of those contacts exist. BIS and the Export Administration Regulations (EAR) – the US Commerce Department's export-control rules governing dual-use and commercial goods – impose a separate obligation: any item subject to the EAR requires US Government authorisation for re-export to certain destinations, end-users, or end-uses, regardless of the nationality of the re-exporter. Both regimes operate simultaneously, and the stricter prohibition governs.
This analysis compares the two regimes on seven dimensions – jurisdictional reach, the operative trigger, the ownership and control test, licensing routes, enforcement posture, the interaction with UK and EU rules, and practical risk flags – so that compliance teams and their advisers can structure a re-export transaction with clear eyes.
What makes a re-export transaction "US-controlled"?
A re-export transaction falls within US control when it touches one of a defined set of nexus points – and the two regimes define those nexus points differently. Under OFAC, the critical connections are: involvement of a US person (a US national, permanent resident, entity organised under US law, or any person in the United States); the presence of US-origin property; or the use of US correspondent banking infrastructure. Any one of those contacts is sufficient to bring a cross-border transaction within OFAC's jurisdiction. The regime is sanctions-programme specific: the exact prohibitions depend on which programme applies, but the jurisdictional hook is consistent across them.
The EAR operates on a different jurisdictional theory. The key concept is subject to the EAR: an item remains within BIS's regulatory reach wherever in the world it travels, once it meets certain origin or content thresholds. The most significant mechanism is the de minimis rule: a foreign-made item that incorporates US-controlled content above a specified percentage threshold by value is subject to the EAR for re-export purposes even if it was never exported from the United States at all. A second mechanism is the foreign direct product rule (FDPR): foreign-produced items that are the direct product of certain US technology or software can also be subject to the EAR. These rules mean that a manufacturer in Taiwan, a distributor in the Netherlands, or a trading house in Dubai may be subject to BIS's re-export controls on items they sourced entirely outside the United States, so long as the item traces back to qualifying US technology.
The practical question for any cross-border business is therefore not simply "did we import this from the United States?" but rather "does this item contain US-origin content above the threshold, or was it produced using US technology caught by the FDPR?" In our experience, the second question is frequently not asked at the point of sale – and that gap is where enforcement risk concentrates.
Where do the two regimes diverge on the ownership and control test?
OFAC and BIS apply materially different ownership and control analyses, and understanding the distinction is critical to transaction screening. Under OFAC, the governing principle is the 50 percent rule: an entity owned 50 percent or more in the aggregate by one or more blocked persons is itself treated as blocked, regardless of whether it appears on the SDN List (OFAC's list of Specially Designated Nationals and blocked persons) by name. The rule is arithmetically precise. Two blocked persons each holding 26 percent of a target entity reach the threshold together. A compliance team that screens only named SDN entities without mapping the ownership chain will miss this exposure entirely.
The EAR's approach to ownership is directed differently. BIS maintains the Entity List – a roster of foreign persons subject to additional licence requirements – and the Denied Persons List. The listing decision is individual: BIS lists specific entities it has determined present an unacceptable risk of diversion. There is no mechanical percentage ownership rule equivalent to OFAC's 50 percent standard. However, BIS guidance addresses the risk that an unlisted entity is a front or controlled by a listed entity: the Know Your Customer standard under the EAR requires exporters and re-exporters to look beyond the immediate buyer if red flags suggest diversion. An entity substantially controlled by an Entity List party should not receive goods subject to the EAR as if it were a clean end-user, even without a formal listing.
This divergence has a direct practical consequence. For a re-export transaction, a compliance team must run two separate analyses. First, an OFAC ownership-chain screen: does any blocked person own 50 percent or more of the end-user, directly or indirectly? Second, a BIS entity screen: does the end-user or any intermediary appear on the Entity List or Denied Persons List, and are there red flags suggesting the immediate buyer is a conduit for a listed party? The two analyses will not always produce the same result. An end-user may be clean for OFAC purposes but listed by BIS, or blocked under OFAC's 50 percent rule without appearing on any BIS list.
How does licensing work under each regime, and when is it available?
Both OFAC and BIS offer licensing routes for transactions that would otherwise be prohibited, but the structures and realistic grant rates differ substantially. Under OFAC, a specific licence (a case-by-case authorisation to conduct an otherwise prohibited transaction) is available in principle for most programmes. OFAC also issues general licences (standing authorisations that permit a defined category of transactions without a separate application), and for many re-export questions the first step is to determine whether a relevant general licence already covers the proposed activity. Comprehensive-sanctions programmes typically permit far fewer categories than targeted programmes.
BIS licensing under the EAR follows a parallel structure. Licence exceptions – standing authorisations analogous to OFAC's general licences – are built into the regulations themselves and operate automatically when the conditions are met. They are tied to the item's ECCN (Export Control Classification Number under the US Commerce Control List) and to the destination, end-user, and end-use. If no licence exception applies, a specific licence application to BIS is required. BIS applies a policy of approval, approval subject to conditions, or denial depending on the programme. For re-exports to parties on the Entity List, licence applications are subject to a policy of denial in many cases, which means approval is the exception rather than the rule.
The interaction point matters for practitioners. Where a re-export requires both an OFAC authorisation and a BIS licence, both must be obtained. An OFAC general licence does not substitute for a BIS licence exception, and vice versa. In our cross-border practice, we frequently encounter transactions where the client has obtained one authorisation and incorrectly assumed the other requirement is satisfied. That assumption is wrong under both regimes.
The position above covers the standard case. Your facts – the counterparty, the goods classification, the route, and the combination of regimes in play – change the analysis significantly. For an early-stage assessment of a re-export transaction's licensing requirements, contact Calder & Vance at info@caldervance.com.
What is the extraterritorial reach of OFAC versus the EAR in practice?
Both regimes assert extraterritorial jurisdiction, but the theories differ and the practical reach is not identical. OFAC's extraterritorial reach operates principally through two mechanisms: the US person prohibition and secondary-sanctions risk. The US person prohibition means that non-US entities with US-person employees, directors, or shareholders may find that those individuals are personally prohibited from facilitating transactions even where the entity itself is not directly covered. Secondary sanctions – measures that expose non-US persons to OFAC designation risk for engaging in specified conduct with certain designated parties – extend US policy influence into transactions that have no direct US nexus, applying economic pressure through the threat of loss of access to US markets and the US financial system.
The EAR's extraterritorial reach is technology-based rather than person-based. The FDPR, expanded in recent years, brings non-US produced items within BIS's jurisdiction when they are produced using certain US-controlled semiconductor manufacturing equipment, software, or technology. This rule has created significant compliance obligations for manufacturers in jurisdictions that do not consider themselves subject to US export control – a point of particular tension with both EU and UK exporters who maintain their own independent dual-use control regimes.
For a Singapore trading house or a German manufacturer, the practical implication is that the question "are we subject to US law?" cannot be answered simply by reference to the entity's nationality or the location of the transaction. The analysis requires a review of: whether any US persons are involved in approving or facilitating the transaction; whether the goods or technology have US-origin content above the applicable threshold; whether the goods were produced using US-controlled technology caught by the FDPR; and whether the transaction falls within any secondary-sanctions perimeter. Each test is independent.
How do UK and EU export-control regimes interact with the US position?
A cross-border re-export transaction almost never sits within US law alone. Where goods pass through or originate from the United Kingdom or the European Union, two additional layers of control apply. Both the UK and the EU maintain their own dual-use export-control regimes – administered by the ECJU in the UK and governed by an EU-wide regulation in the EU – that impose independent licensing requirements for specified goods exported to certain destinations, end-users, or end-uses. These regimes are not simply mirrors of the EAR: the classification systems and licence exception structures differ, and an item that is freely exportable under the EAR may require a UK or EU licence, or vice versa.
The UK and EU regimes do not include a direct-product rule equivalent to the US FDPR. This creates a genuine divergence: a UK or EU manufacturer exporting a foreign-produced item may be subject to BIS's FDPR re-export requirements even if UK or EU rules impose no obligation. The EU Blocking Statute – a regulation designed to protect EU persons from the extraterritorial application of certain US measures – is sometimes cited as a counterweight, but it does not extinguish US jurisdiction and creates its own compliance problem: an EU entity may face EU sanctions for complying with US requirements that the Blocking Statute prohibits following. In our experience, this tension requires careful jurisdiction-specific advice rather than a single answer.
For UK-origin goods, OFSI administers financial sanctions that are distinct from ECJU's export-licensing remit. Where a UK exporter deals with a counterparty subject to UK financial sanctions, both OFSI and ECJU controls may apply simultaneously, independent of whatever BIS or OFAC position governs. The OFAC and OFSI sanctions lists are maintained separately and are not identical: a party on the SDN List may not be designated under UK financial-sanctions regulations, and OFSI designations do not automatically track OFAC additions.
If a transaction has already been flagged for potential dual-control exposure, an early review can preserve options that narrow considerably with time. For a confidential review, write to info@caldervance.com.
Regime divergence on a criterion-by-criterion comparison
Practitioners advising on re-export compliance benefit from mapping the two regimes against the same set of criteria rather than treating them as a unified system. The following dimensions capture the most practically significant differences.
Jurisdictional trigger. OFAC's reach is activated by US-person involvement, US-origin property, or US correspondent banking. The EAR's reach is activated by the item being "subject to the EAR" – which may arise from US-origin content (de minimis rule) or from the FDPR, regardless of whether the re-exporter has any other US connection. These triggers operate independently; a transaction can fall within one without the other, within both, or – rarely – within neither.
Listed-party screening. OFAC requires a screen against the SDN List and an ownership-chain analysis applying the 50 percent aggregation rule. BIS requires a screen against the Entity List and Denied Persons List, plus a Know Your Customer analysis for red flags of diversion. The lists are not co-extensive: a clean OFAC screen does not confirm a clean BIS position.
Licensing structure. OFAC: general licences operate automatically if the conditions are met; specific licences are available case-by-case. BIS: licence exceptions are built into the EAR and operate automatically; specific licences are available, with grant policy varying by destination and end-user. Neither general licence satisfies the other regime's requirement.
Secondary-sanctions exposure. OFAC maintains extensive secondary-sanctions programmes that expose non-US persons to designation risk for conduct that the US has targeted as contrary to its foreign-policy objectives. The EAR does not have a secondary-sanctions mechanism in the same sense; enforcement is primarily direct – against parties who re-export items subject to the EAR in violation of the rules – rather than through designation of non-US parties for engaging with a third party.
Record-keeping. Both regimes impose record-keeping obligations for authorised transactions. OFAC requires that records of licensed transactions be maintained for five years. BIS imposes a parallel record-keeping obligation for items subject to the EAR. In our practice, record-keeping deficiencies frequently compound the original control failure during enforcement proceedings: a business that cannot demonstrate the due diligence it conducted at the time of the transaction is in a materially worse position than one with a clear contemporaneous record.
What are the principal risk flags in a re-export chain?
In a recent matter, a manufacturing group operating between Europe and South-East Asia identified mid-contract that an intermediary in its distribution chain had been added to the Entity List during the transaction period. The goods were subject to the EAR by virtue of their US-origin content. The group had not established a trigger in its contract requiring re-screening against BIS lists after initial due diligence. We assessed the group's position under both the EAR and the relevant OFAC programme, advised on voluntary self-disclosure to BIS, and helped the group design a contract re-screening mechanism for future transactions. The matter illustrates a pattern we see repeatedly: initial due diligence is conducted but not maintained through the transaction lifecycle.
The most common risk flags in a re-export chain include the following. First, opaque ownership: the immediate buyer is identifiable, but the chain behind it is not screened against the OFAC 50 percent rule. Second, geography: the goods transit through or are destined for a jurisdiction subject to comprehensive US sanctions under any OFAC programme. Third, classification gaps: the exporter has classified the item for export but has not assessed whether the de minimis or FDPR rules make it subject to the EAR for purposes of a downstream re-export by a third party. Fourth, intermediary red flags: the buyer is located outside the destination jurisdiction, requests unusual shipping arrangements, or declines to disclose the end-user. Fifth, temporal gaps: screening is conducted at contract inception but not refreshed when new listings are published or the transaction timetable extends.
What happens when a re-exporter discovers a potential violation after the goods have moved? The answer under both OFAC and BIS involves a time-sensitive analysis. OFAC's enforcement guidance recognises voluntary self-disclosure as a significant mitigating factor. BIS operates a similar VSD (voluntary self-disclosure to a regulator) programme, with the potential for substantially reduced penalties where disclosure is timely, complete, and followed by remediation. The window for disclosure to be treated as truly voluntary is finite: once a matter comes to the regulator's attention through other means, the voluntary character is lost. Early legal review is therefore not a precaution – it is a decision with direct consequences for the penalty exposure.
When should a cross-border business involve counsel?
Three situations call for immediate engagement of specialist counsel. The first is a screening hit or a red flag identified during due diligence on a re-export transaction: the question of whether the transaction can proceed, and on what terms or under what authorisation, requires a prompt legal analysis before any goods move. The second is a discovered past re-export that may not have complied with the EAR or with OFAC rules: the VSD analysis must be conducted quickly, and legal privilege over the internal investigation needs to be established from the outset. The third is a contract or distribution structure that involves third-country intermediaries receiving goods subject to the EAR or containing US-origin content: these structures require upfront re-export compliance advice built into the contractual architecture, not retrofitted after a problem arises.
A note on the myth that sometimes circulates in compliance teams: that re-export controls apply only to goods originally exported from the United States. This is incorrect. The de minimis rule and the FDPR together mean that items assembled entirely outside the United States, and never exported from US territory, can be subject to the EAR. A Singapore distributor receiving components from a Taiwanese manufacturer may have BIS re-export obligations if the components incorporate US-origin chips above the threshold or were produced using US-controlled semiconductor equipment. Assuming that "no US export" means "no US re-export obligation" is one of the most common and costly misreads of the EAR in cross-border supply chains.
How do you know whether your distribution or re-export chain has been mapped correctly against both OFAC and BIS requirements? That question deserves a careful, structured answer before the transaction completes – not after a hold is placed on a shipment.
Related practices
- Deemed export and technology controls under BIS and the EAR – licensing, classification, and end-use compliance for technology transfers to foreign nationals
- Re-export and extraterritoriality: OFAC compared with Canada's sanctions regime – divergence between US and Canadian controls on re-export chains
- Re-export and extraterritoriality: OFAC compared with the EU regime – how the EAR and EU dual-use rules interact on re-export and the Blocking Statute tension