On May 13, 2025, the Department of Commerce formally signaled its intention to rescind the Biden Administration’s Framework for Artificial Intelligence Diffusion (AI Diffusion Rule) two days before the January 2025 Interim Final Rule was slated to go into effect. The Commerce Department’s Bureau of Industry and Security (BIS) indicated that it would not enforce the AI Diffusion Rule and “will issue a replacement rule in the future.” Simultaneously, BIS issued new nonregulatory guidance that may trigger export licensing requirements for AI-related transactions.
The rescission of the AI Diffusion Rule did not come as a surprise. As we described in a prior WilmerHale client alert, the AI Diffusion Rule was an ambitious, late-breaking effort by the Biden Administration to stymie US adversaries’ efforts to develop advanced AI models through the imposition of (i) new export controls on certain closed-weight AI model exports and (ii) new restrictions, structured around the creation of new country tiers, on exports of semiconductors necessary to train AI models. Almost immediately after its issuance, the AI Diffusion Rule generated significant debate among certain industry leaders, with some predicting that it would negatively impact US competitive advantage and others praising its restrictions on the spread to US adversaries of cutting-edge AI technology. More recently, several media outlets had forecasted the AI Diffusion Rule’s rescission in parallel with President Trump’s trip to the Middle East this week, during which the leaders of several US companies have been seeking to expand and deepen their investments in AI technologies abroad.
Despite the significance for US companies of the Commerce Department’s announcement of the AI Diffusion Rule’s rescission, the Trump Administration has maintained the strategic aims underpinning the AI Diffusion Rule itself —namely, to keep US adversaries from gaining access to critical American AI technologies—given, for example, the Trump Administration’s recent actions to restrict exports of certain higher-end chips to the People’s Republic of China (China). It is also too soon to assume that more restrictive measures are off the table going forward. Both Commerce Secretary Howard Lutnick and Under Secretary Jeffrey Kessler have recently said they want to significantly increase penalties against companies that violate export controls, particularly where those violations involve exports to China. Another senior BIS official also recently confirmed BIS’s focus on AI, especially by disrupting the diversion of advanced integrated circuits (ICs) to China.
Consistent with these statements, on the same day that BIS announced the Biden-era AI Diffusion Rule’s rescission, BIS also issued three new guidance documents alerting industry to the consequences of allowing US AI models to be used for training and inference of Chinese models, potential tactics to protect supply chains against diversion tactics, and the risks of using Chinese advanced computing ICs. Although not issued as regulations, these new guidance documents confer “knowledge” on the exporter community that can trigger export licensing requirements for items that could otherwise be exported without licenses.
BIS Policy Statement on Controls that May Apply to Advanced Computing ICs and Other Commodities Used to Train AI Models
On May 13, 2025, BIS published guidance titled “BIS Policy Statement on Controls that May Apply to Advanced Computing Integrated Circuits and Other Commodities Used to Train AI Models.” In this statement, which communicates to US industry BIS’s enforcement posture, BIS stated that access to advanced computing ICs and commodities for training AI models has the potential to enable military-intelligence and weapons of mass destruction (WMD) end uses in Country Group D:5 countries, including China, or Macau.1
BIS then identified activities that could require an export license where there is knowledge that the AI model will be used for WMD or military-intelligence end use—such as exports, reexports or transfers (in-country) of advanced computing ICs and commodities such as foreign infrastructure-as-a-service (IaaS) providers (e.g., data center providers)—and the consequences for not doing so. The guidance notably provides that such license restrictions also apply to US persons that provide any “support” or perform any contract, service or employment when there is “knowledge” such activity will be used for, or may assist in, the training of AI models for or on behalf of parties headquartered in D:5 countries, including China, or Macau.
Industry Guidance to Prevent Diversion of Advanced Computing ICs
Additionally, BIS issued new guidance aimed at preventing diversion of advanced computing ICs controlled by the Export Administration Regulations (EAR). This guidance contains a non-exhaustive list of “red flags” and recommended due diligence practices intended to “assist companies in evaluating whether a party or an identified activity may be connected to export control evasion”2 with respect to advanced computing ICs governed by 3A090.a, 4A090.a, and corresponding “.z” classifications found in Categories 3, 4 and 5 of the Commerce Control List.
First, BIS describes several transactional and behavioral red flags indicative of potential diversion. This non-exhaustive list includes instances where:
- The customer never previously received ICs prior to 2022;
- A domestic or foreign customer provides only a residential address for purchases in quantities inconsistent with personal use;
- The party identified as the ultimate consignee does not typically engage in a field or business that requires the use of a large number of advanced computing ICs;
- The customer shares an address matching or similar to that of an entity on the Consolidated Screening List, including the Entity List, the Specially Designated Nationals List and the State Department’s Statutorily Debarred Parties List;
- Where the customer operates data centers, the customer fails to affirm it has the infrastructure to operate the ICs or commodities containing the ICs; or
- The customer provides IaaS and does not or cannot affirm that its own customers are headquartered outside China, or are located outside of China and Macau.
BIS also identified several due diligence measures for companies that export advanced computing ICs or commodities containing such ICs. Most of these measures are consistent with BIS’s long-standing “Know Your Customer” guidance. Certain measures nonetheless contain specific new thresholds for concern, including a recommendation to probe whether data centers have the infrastructure to operate servers containing advanced ICs greater than 10 megawatts.
Companies should pay close attention to transactions involving these newly identified red flags and due diligence measures. Recently, a senior BIS official participating in a panel discussion on regulatory enforcement said that BIS plans to pursue more significant penalties in cases where red flags were present or where exporters failed to conduct adequate due diligence.
Guidance on Application of General Prohibition 10 to Chinese Advanced Computing ICs
BIS also promulgated specific guidance warning industry that Huawei Ascend ICs were improperly manufactured in violation of US export controls, and as such, any purchase or use of these ICs would violate the EAR’s General Prohibition 10 (GP 10), which prohibits any actions to “sell, transfer, export, reexport, finance, order, buy, remove, conceal, store, use, loan, dispose of, transport, forward, or otherwise service” items subject to the EAR that are exported or planned to be exported “with knowledge that a violation of the EAR . . . is about to occur, or is intended to occur in connection with the item.”3 BIS has recently emphasized that GP 10’s sweeping scope extends to entities such as financial institutions that support but are not directly engaged in the relevant export.4
The new guidance cautions that activities prohibited by GP 10 “could result in substantial criminal and administrative penalties,” including “imprisonment, fines, loss of export privileges, or other restrictions.”
The BIS guidance further establishes that the Huawei Ascend chip5 is classified as ECCN 3A090. The guidance then provides that these ICs fall within the ambit of GP 10 because the items are captured by the Foreign Direct Product Rule (which applies to products designed or produced with certain US-origin software or technology) or may have otherwise been produced, purchased or ordered by a prohibited Entity List designee. The guidance further states that such ICs may also have prohibited Entity List designees involved in the transaction, which would again provide jurisdiction for GP 10. The only exception enumerated by the guidance is when the item is obtained “solely for the purpose of technical analysis or evaluation (such as destructive testing) to determine the technical capabilities of an individual IC,” in which case BIS will not pursue enforcement.
More broadly, we highlight the possibility that BIS could also increase enforcement against individuals who support but do not directly engage in prohibited export transactions beyond the use of GP 10. In particular, we are monitoring the heightened use of provisions that penalize persons who provide “material support” to designated persons or in connection with prohibited transactions.
Over the Horizon
In the coming weeks, WilmerHale will closely monitor any regulatory developments and will be prepared to advise clients on how to navigate the uncertain regulatory domain applicable to AI-related technologies. In particular, we will monitor whether the Trump Administration reimposes controls on exports of closed model weights, as contemplated by the AI Diffusion Rule, and, relatedly, whether the Administration plans any new restrictions on open model weights. We will also monitor how the Administration revisits the “low processing performance exemption” in the prior rule, which would have enabled the export of chips below a specific threshold to most countries.
The newly issued guidance documents suggest that, notwithstanding the rescission of the AI Diffusion Rule, BIS will likely increase enforcement of AI-related exports under still-applicable authorities, including the provision of services that constitute support when there is “knowledge” that such activity will be used for, or may assist, the training of AI models for or on behalf of parties in or headquartered in China or other countries of concern.
Footnotes
