On May 13, 2025, the U.S. Department of Commerce's Bureau of Industry and Security (BIS) announced it will not be enforcing the Biden-era Artificial Intelligence (AI) Diffusion Rule (AI Diffusion Rule), which was set to take effect on May 15, 2025, and initiated formal rescission of the rule. 

The AI Diffusion Rule would have imposed a worldwide licensing requirement for certain advanced computing integrated circuits (ICs) and related items, coupled with a complex licensing framework allowing certain exports, reexports, or transfers (in country) of these items in circumstances deemed to present low risk from a national security perspective. Since its publication in January 2025, the rule had faced pushback, including from industry, allied countries who would have been subject to license requirements, and members of Congress. Following rescission, BIS controls on advanced computing ICs and related items¹ revert to the December 2024 status quo, with sales permitted for many destinations but strict controls to China or other destinations specified in Country Groups D:1, D:4, and D:5.²

BIS noted it will amend the Export Administration Regulations (EAR) and issue a replacement rule in the future, likely to streamline controls on advanced computing ICs and related items to certain key markets, while attempting to crack down on diversion of these items to China and other D:5 countries. 

Consistent with this focus on diversion, BIS issued three pieces of guidance for industry:

• Industry Guidance to Prevent Diversion of Advanced Computing Integrated Circuits (Advanced Computing IC Diversion Guidance), which provides guidance on red flags and recommended due diligence practices to avoid diversion of advanced computing ICs to China.
• BIS Policy Statement on Controls that May Apply to Advanced Computing Integrated Circuits and Other Commodities Used to Train AI Models (AI Model Catch All Policy), which cautions that exports, reexports, or transfers to Infrastructure as a Service (IaaS) providers (e.g., data centers) may be caught by "catch all" controls if used to support training of AI models on behalf of parties headquartered in China or other D:5 countries. 
• Guidance on Application of General Prohibition 10 (GP10) to People's Republic of China (PRC) Advanced-Computing Integrated Circuits (ICs) (Huawei IC Guidance), which emphasized "the risks of using PRC advanced-computing ICs, including specific Huawei Ascend chips" anywhere in the world on the basis that such chips "were likely developed or produced in violation of U.S. export controls." 

Taken together, these developments indicate heightened expectations that, while certain exports may be simpler on their face with the rollback of the AI Diffusion Rule, the government expects potential exporters and other companies touching advanced computing ICs to engage in heightened due diligence to prevent the diversion of U.S.-made advanced computing ICs and the proliferation of Chinese-made advanced computing ICs. 

Key Takeaways

• BIS is focused on preventing diversion of advanced computing ICs and expects the same of industry. Echoing past BIS guidance to counter diversion of lower tech ICs to Russia and Iran, BIS issued new guidance focused on advanced computing ICs. Many red flags in this guidance will be familiar to IC manufacturers and distributors, including lack of online presence, use of addresses often associated with shell company activity (residential addresses, mail centers, virtual offices), and co-location with addresses already included on BIS or U.S. Department of the Treasury lists. Others are tailored for advanced computing ICs, including anomalous purchases of advanced computing ICs compared to purchases before controls were imposed in 2022 or purchases customers that do not appear to have a business model or infrastructure for AI model training. The recommended due diligence actions identified by BIS track these red flags:
  • Evaluate the customer's date of incorporation, address, and use of the item(s)
  • Inform customers that the ICs would require a license if transferred to certain jurisdictions
  • Seek end-user certification with detailed information and intended use
  • Request written attestation from the data center (and, if possible, independently verify that certification)
  • Evaluate data centers for capability to operate the equipment 
• BIS quietly expands "catch-all" export controls involving IaaS providers. Although the rescission of the AI Diffusion Rule will roll back restrictions on AI model weights, the new AI Model Catch-All Policy quietly implements potentially broader "catch-all" end-use and end-user controls covering certain IaaS services providers (such as data centers). In effect, the AI Model Catch-All Policy puts IaaS providers on notice that customers headquartered in China and other D:5 countries may be using IaaS to train AI models related to military intelligence or weapons of mass destruction, which may allow BIS to impute "knowledge" of a violation of the EAR in some cases. Manufacturers, distributors, and resellers of advanced computing ICs, as well as the IaaS service providers who rely on such products, may consider updating policies and procedures based on BIS's Advanced Computing IC Diversion Guidance when products or services are used to train AI models on behalf of Chinese companies. 
• BIS turns its focus on Huawei advanced computing ICs, provides further guidance on scope and use of GP10. BIS's Huawei IC Guidance takes the position that certain Huawei advanced computing ICs, including but not limited to the Huawei Ascend 910B, Ascend 910C, and Ascend 910D,³ were designed or manufactured in violation of the EAR. Accordingly, under GP10, any selling, transferring, exporting, reexporting, financing, ordering, buying, removing, concealing, storing, using, loaning, disposing of, transporting, forwarding, or otherwise servicing of these items is a presumptive violation of the EAR, whether inside or outside the U.S. BIS warns that it may seek to enforce this position through civil or criminal actions or loss of export privileges. Companies outside the U.S. that use Huawei advanced computing ICs, especially to train AI models, may risk being added to the BIS Entity List or denied export licenses. The Huawei IC Guidance is the latest in a series of BIS's use of GP10 to address everything from Russia-controlled U.S. aircraft to guidance for financial institutions. 
• Heightened enforcement risk and alignment with the U.S. Department of Justice (DOJ). On May 13, Matthew Galeotti, Head of the DOJ Criminal Division, released a memorandum that laid out the Division's priorities for white collar criminal enforcement, which included trade and customs. The DOJ also expanded its Corporate Whistleblower Awards Pilot Program to cover "corporate sanctions offenses" and "trade, tariff, and customs fraud by corporations." This alignment among various agencies of the U.S. government signals heightened enforcement risk for companies engaging in transnational trade related to items and locations of particular interest in U.S. foreign policy, including advanced computing ICs and the PRC.

For more information, please contact:

Timothy P. O'Toole, totoole@milchev.com, 202-626-5552

Ann Sultan, asultan@milchev.com, 202-626-1474

Melissa Burgess, mburgess@milchev.com, 202-626-5914

Collmann Griffin, cgriffin@milchev.com, 202-626-5836

Caroline J. Watson, cwatson@milchev.com, 202-626-6083

Annie Cho, acho@milchev.com, 202-626-1570

Peter Kentz, pkentz@milchev.com, 202-626-5891

Rebecca Tweedie, rtweedie@milchev.com, 202-626-1487

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¹Items covered by Export Control Classification Numbers (ECCNs) 3A090.a, 4A090.a, as well as corresponding .z ECCNs in Categories 3, 4, and 5, such as servers classified in 5A992.z, and associated software and technologies.
²i.e., those countries subject to stricter export controls because of national security concerns or concerns about the diversion of missile technology, as well as those countries subject to U.S. arms embargoes.
³Also referred to as "Ascent 910D" in BIS guidance – likely a scrivener's error.

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