Former BIS Official: New Malaysian Controls Could Convince US to Loosen AI Chip Curbs

Malaysia announced last month that it would be requiring traders to obtain strategic trade permits from the government before they move high-performance U.S. chips through the country (see 2507140022). The announcement came about two months after BIS said it planned to rescind the Biden-era AI diffusion rule (see 2505130018), which placed caps and other restrictions on Malaysia's ability to buy advanced U.S. chips.

Collmann Griffin, a former BIS senior adviser and now a lawyer with Miller & Chevalier, said Malaysia’s export control announcement could be “part of a deal that we'll see in the replacement to the AI diffusion rule,” in which the U.S. removes certain restrictions on Malaysia “in exchange for Malaysia implementing their own controls.”

Griffin, speaking on Miller & Chevalier’s Embargoed podcast, stressed that he was speculating. But he also noted that BIS Undersecretary Jeffrey Kessler vowed earlier this year to aggressively push U.S. allies to adopt similar export controls (see 2503280039).

“We're still waiting to see what will come out of” U.S. efforts to replace the AI diffusion rule, Griffin said. BIS last month completed its interagency review of its rule to formally rescind the AI diffusion regulations (see 2507140029), and that rule is expected to be released soon, a BIS official said.

Griffin said the debate around chip controls is “one of those kinds of classic export control dilemmas,” where the U.S. government wants to allow exporters to sell abroad, “but at the same time, it doesn't want to see the stuff end up in an adversary's weapon system or used to build an adversary's weapon system. That's always a tough call to make for a policymaker. Where do you draw that line?”

If the U.S. is considering lifting certain restrictions against Malaysia in its replacement rule, it will likely need to assess whether it believes Malaysia has enough guardrails in place to protect against China-related diversion. Malaysian officials in May said the Trump administration was pushing the country to strengthen its controls (see 2505220040), and in June, the country said it was looking into reports that a Chinese company was using servers with Nvidia chips for large language models training in Malaysia (see 2506200054).

“How that plays out for Chinese data centers who are setting up shop in Malaysia will be very interesting to watch,” Griffin said.

Along with new chip controls, the Trump administration has also been working on regulations that could create a 50%-ownership threshold rule for parties on the Entity List, a BIS official said in June (see 2506100047). Griffin said it's clear why, “from the U.S. government perspective,” a 50% Entity List rule would be appealing, especially if it helps with “cutting down diversion, cutting down loopholes.”

But he also said the agency is likely thinking through the challenges of implementing that change, including any unintended consequences of targeting large firms with numerous subsidiaries. Griffin specifically pointed to Chinese cloud computing company Inspur, which was added to the Entity List in 2023 and has “hundreds” of subsidiaries (see 2303020083).

“That's a huge export control action,” he said. “I think they're trying to think through exactly how that's going to play out.”

Miller & Chevalier trade lawyer Tim O’Toole, also speaking on the podcast, noted that the Office of Foreign Assets Control ran into an issue in 2018 when it sanctioned Russian oligarch Oleg Deripaska, founder of major aluminum producer Rusal. “All of a sudden, the aluminum market started to crash,” O’Toole said, adding that OFAC eventually issued general licenses to suspend the application of the agency’s 50% rule against Rusal.

“And so just with one company, the effect of the 50% rule was chaos in a pretty big sector and pretty important sector worldwide,” he said. With the Entity List, “you’d basically be doing it blind,” he noted. “This is an issue that wasn't considered at the time" that companies on the Entity List were added.

"Some of these listings could be five, six, seven, eight years old, and so you have to go back and figure out, for all of these listings, OK, now that we adopt a 50% rule, what does this mean?” he said. “Who are we adding to the list without even knowing it?”

Instead of applying the rule to all entities on the list, Griffin speculated that BIS could create a new 50% rule “footnote” that would apply only to certain parties.

“There could be dozens of Rusals on the Entity List if you automatically applied this rule,” he said.