Commerce Department Issues Weekend Guidance Closing AI-Chip Loophole for Overseas Subsidiaries of Chinese Firms
BIS clarified on May 31 that advanced-computing export licenses are required for any entity whose ultimate parent is headquartered in Country Group D:5 or Macau, even when located outside.
Overview
The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued guidance on Sunday, May 31, clarifying that an export license is required to ship advanced computing items to entities headquartered in Country Group D:5 or Macau, or to entities whose ultimate parent company is headquartered there — “even if the entities themselves are located outside Country Group D:5 or Macau,” according to the BIS guidance document. Country Group D:5 includes China.
The guidance addresses what reporting has described as a loophole that let overseas subsidiaries of Chinese firms acquire advanced AI chips without a license. The Department of Commerce said the licensing requirements “applied to all businesses with headquarters or a parent company in China,” Al Jazeera reported.
What We Know
BIS framed the document as a clarification of an existing rule rather than a new restriction. “This license requirement was first introduced on November 17, 2023,” the guidance states, and was implemented through an end-user control covering advanced computing items specified under Export Control Classification Numbers 3A090.a and .b, 4A090.a and .b, and related .z paragraph items.
Those ECCNs cover Nvidia’s Blackwell and Rubin processor families, AMD’s MI350x, and related high-bandwidth memory, Tech Times reported.
The notice walks through how the rule moved through the regulations. According to the BIS guidance, the AI Diffusion Rule transferred the requirement for the “.a” items into a new worldwide license requirement in January 2025, and “In May 2025, BIS announced that it would not be enforcing the AI Diffusion Rule’s new compliance requirements.” Reuters likewise reported that the Commerce Department “created the opening when it announced in May 2025 that it would not be enforcing the AI Diffusion rule issued in the last days of the Biden administration,” in coverage carried by Investing.com.
The new guidance states that because the underlying license requirement predates the AI Diffusion Rule, the non-enforcement policy does not extend to shipments destined for entities headquartered in — or with an ultimate parent headquartered in — Country Group D:5 or Macau. “Exporters should continue to seek BIS licenses for such transactions,” the document says, unless a specified license exception is available.
BIS also told data-center operators they need not halt existing activity on account of the notice: “Bona fide operators of data centers who are otherwise engaged in activities consistent with the EAR are not required to cease the ongoing use, storage, disposal, or servicing of advanced computing items because of this guidance, until further notice from BIS,” per the guidance.
Reporting on the practical stakes points to chips that may have reached Chinese firms through foreign units. The Commerce Department “moved to close a potential loophole that may have led companies to export the world’s most advanced chips - like Nvidia’s most sophisticated Blackwell processors - to subsidiaries of Chinese companies located outside China,” Reuters reported in coverage carried by Investing.com. The guidance suggests those chips may have reached Chinese-firm subsidiaries in locations such as Malaysia, and one chip industry source with supply-chain knowledge estimated the volume “was in the hundreds of thousands,” Reuters reported — an estimate that has not been confirmed by the government.
What We Don’t Know
There is disagreement over whether a loophole existed at all. Trump administration officials “spent the week in an internal dispute over whether their own China tech policy had inadvertently left the loophole open for nearly 18 months — and whether companies took advantage of it,” Tech Times reported. An anonymous BIS official denied the loophole had ever existed, while some officials privately believed that BIS policy decisions in May 2025 had made such shipments legal until the Sunday notice, according to Tech Times.
The exact volume of chips that moved through foreign subsidiaries, and which specific companies were involved, has not been officially established; the “hundreds of thousands” figure rests on an unnamed industry estimate (Reuters via Investing.com). Whether and how aggressively BIS will pursue past transactions, as opposed to prospective ones, is also not addressed by the guidance.
Analysis
The guidance turns on a question of corporate identity rather than geography: a license is owed when the customer’s ultimate parent is headquartered in a covered jurisdiction, regardless of where the buying entity sits, per the BIS document. That “ultimate parent company” test is the operative point of emphasis — it asks exporters to look through a foreign subsidiary to the entity that controls it. Because BIS presents this as enforcement of a requirement dating to November 2023 rather than a fresh rule (BIS guidance), the agency frames the move as a clarification while still putting exporters on notice that the non-enforcement window does not cover D:5-parented buyers.
The quiet weekend release contrasts with the unsettled politics around it. As Al Jazeera noted, Chris McGuire, a former State Department official who worked on technology policy in the Biden administration, said “Chinese companies have been buying these chips, very likely at scale.” Reuters reported that McGuire, whom it described as a former State Department official specializing in technology and national security, said the loophole “allowed the overseas subsidiaries of Chinese companies to buy Nvidia Blackwell chips without a license,” in coverage carried by Investing.com. With administration officials themselves divided on whether anything was ever wrong (Tech Times), the guidance closes a debated gap while leaving open how much already slipped through it.