Former BIS Official: Chip Guidance Signals 'Significant Increase' in Compliance Expectations
The Bureau of Industry and Security's recently issued advanced chip guidance appears to raise compliance expectations for industry, especially for banks and forwarders that may be indirectly or inadvertently violating export controls on China, lawyers said.
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Thea Kendler, the most recent BIS assistant secretary of export administration and now an international trade lawyer with Mayer Brown, said the new guidance is “critical” for banks or other parties that aren’t the exporter, including those negotiating deals or structuring joint ventures.
“The U.S. government, what they're doing here is emphasizing that everyone in the ecosystem -- even if you're not selling, buying or providing or using the AI technology -- everyone in the ecosystem needs to pay attention,” Kendler said during a Mayer Brown webinar last week. “You don't want to end up where you've accidentally, inadvertently facilitated a violation which can lead to those severe penalties.”
The guidance documents, released by BIS last month, warn companies about using certain advanced Huawei and other Chinese-made chips, urge them to protect their supply chains against “diversion tactics,” and outline the types of activities involving AI chips and AI models that may trigger a license requirement (see 2505130018 and 2505210056). They also warned companies about violating General Prohibition 10 of the Export Administration Regulations, which places restrictions on exporters and others if they have knowledge that a violation of the EAR has occurred, is about to occur or is intended to occur.
Tamer Soliman, also a Mayer Brown trade lawyer, noted that sophisticated financial firms have “long incorporated” sanctions risk management and anti-money laundering procedures as part of their compliance programs. But he said they have a “real need to get up to speed on export controls” as BIS focuses its enforcement on the facilitators of export violations.
“It's important to recognize that BIS is turning its attention more to financial institutions,” Soliman said. He added that BIS has repeatedly warned banks about facilitating illegal transactions involving Russia (see 2410090027) and has partnered with the Treasury Department to issue alerts about this topic (see 2311060055, 2212160027, 2207130014 and 2309110049).
“BIS is starting to look at the financial sector as eyes and ears, just as [the Office of Foreign Assets Control] has for many years, to support its mission,” Soliman said. “There's an increasing recognition that financial sector entities have a role to play.”
Speaking more generally about the BIS chip guidance, Kendler said the government is looking for industry to play a bigger role in stopping the diversion of controlled items to China. She noted that BIS has “strict liability penalties,” meaning companies don’t necessarily need to know that they’re committing a violation in order to be penalized.
“The bottom line up front is there's a significant increase in the expectations of industry compliance,” Kendler said. “The onus is now on companies to be much more vigilant about who's using your technology and for what purpose.”
Aiysha Hussain, also with Mayer Brown and a former BIS senior policy adviser, said rising government expectations may mean companies will need to “retool their existing programs” to better align with the BIS guidance. She said BIS is using General Prohibition 10 to push companies away from using Chinese-origin advanced chips and toward U.S. chips.
“They really are telling the world: you need to make a choice," Hussain said. "You're either with the United States, or you're with China."
She added: “From an enforcement perspective, we expect BIS to hold the industry's feet to the fire on all of these issues.”
The BIS guidance specifically warned companies about using Chinese-made chips that meet the parameters of chips controlled under Export Control Classification Number 3A090. Kendler said it can “be really challenging for companies to know” if they have in their system any 3A090 equivalents, and BIS is likely expecting them to “enhance their due diligence to know what is in their systems.”
Hussain also said some companies are “struggling” to determine if they’re using one of those chips. “What we know is the government has resources to determine this,” she said, “and companies should be aware of that.”