BIS Needs New AI Chip Notification Requirement, Whistleblower Program, Researchers Say
The Bureau of Industry and Security should consider working with companies to help them carry out extra due diligence for certain chip exports and should introduce a notification requirement for exports of advanced AI chips, researchers said in a new report last week. Those and other recommendations could help BIS better prevent illegal chip smuggling, they said.
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The report, published by the Center for a New American Security, said BIS should work with semiconductor companies to put in place “extra steps” when carrying out due diligence on sensitive chip exports. These “compliance-plus” measures could include using software to automatically scan for smuggling, verifying customer addresses, contractually blocking customers from reselling chips, asking for more information about how and where customers plan to use chips, regularly auditing distributors’ sales data and practices, and creating “mechanisms for employees to anonymously report smuggling,” the report said.
The report, by Erich Grunewald of the Institute for AI Policy and Strategy and Tim Fist of CNAS, said these “voluntary due diligence measures will only be effective if they are well implemented and have industry buy-in.” They said Nvidia and other chip exporters should create “detailed plans” for this increased due diligence and share them confidentially with BIS and congressional committees. BIS would "periodically verify implementation and, if necessary, check records of past Know Your Customer (KYC) evaluations,” they said.
The authors acknowledged that those measures will likely be expensive, but they also noted that chip companies can afford it. Many have seen “staggering revenue growth in recent years,” the report said.
BIS also should consider collecting “much more detailed information” about the location and ownership of export-controlled chips, including by creating a new notification requirement, the researchers said. Companies would be required to report to BIS about any ownership and location changes for a restricted AI chip involving a foreign entity or location. BIS would store that information in a database and use it to “improve its enforcement activities,” the report said.
The authors especially recommend a notification requirement “for location or ownership changes involving a foreign location or entity of more than 100 items controlled by” Export Control Classification Number 4A090. Exporters would be required to report to BIS within a month of beginning a transaction involving those “affected items,” the report said.
“This data would significantly enhance the BIS’s visibility into advanced AI chip distribution networks, making it easier to detect diversion.”
The report also recommends that AI chip designers implement location verification features on controlled AI chips so they can “prove” their chips are not in China or other restricted destinations, a suggestion that has been floated by other researchers and lawmakers (see 2503100017, 2401080060 and 2505090015).
Congress also should authorize a new whistleblower incentive program along with qui tam lawsuits for export controls, which would allow individuals to file lawsuits on behalf of the government against violators. This would encourage more company employees to report export violations, the report said.
The researchers added that the qui tam provision in the False Claims Act “has been successful at uncovering fraud against the government,” noting that about 70% of cases brought under the False Claims Act in 2022 were qui tam, and about 90% of the $2.2 billion recovered came through qui tam cases.
“Penalties imposed in this way serve as a strong deterrent against violators and are revenue for the federal government,” the report said.
A BIS whistleblower program could be modeled after the SEC program, which offers awards between 10% and 30% of the penalty, the researchers said. Any program should also give “robust protections against employer retaliation,” and BIS should be allowed to carry out “rapid review and action on whistleblower reports,” the report said, adding that “long turnaround times have reduced the effectiveness of other whistleblower programs.”
The researchers also said Congress should approve the administration's most recent request for more BIS funding. They noted that the money from the agency’s export fines return to the federal government, which increases government revenue.
“Investment to better enforce AI chip controls could likely pay for itself,” the report said.