Washington: The US Department of Commerce has moved to close a potential loophole that may have allowed companies to export some of the world’s most advanced AI chips, including Nvidia’s Blackwell processors, to subsidiaries of Chinese companies operating outside China.
The guidance, posted on the Commerce Department’s website on Sunday, suggests that advanced AI chips may have been reaching subsidiaries of Chinese AI firms located in countries such as Malaysia, despite broader US efforts to restrict China’s access to semiconductors needed for developing advanced AI capabilities.
According to people familiar with the matter, the guidance was issued after a paper highlighting the loophole circulated in Washington. The paper, reviewed, stated that “the floodgates have quietly opened.”
It remains unclear how many chips were exported during the period in which the loophole existed. However, one chip industry source with extensive supply-chain knowledge estimated the figure could be in the hundreds of thousands.
In the weekend guidance, the Commerce Department’s Bureau of Industry and Security (BIS) said it would enforce license requirements for advanced chips to entities headquartered in China, even when those entities operate outside China.
“BIS issued guidance clarifying export license requirements that have been in place since 2023,” a bureau spokesperson said. “BIS will continue to enforce export controls rigorously to safeguard critical American technology.”
An Nvidia official said the new guidance does not change anything for the company, adding that it could not ship the chips because the Commerce Department had already imposed a license requirement on Nvidia through a letter.
The loophole emerged after the Commerce Department announced in May 2025 that it would not enforce the AI Diffusion rule introduced during the final days of the Biden administration.
Former State Department official Chris McGuire said the loophole allowed overseas subsidiaries of Chinese companies to buy Nvidia Blackwell chips without a license. “This is a HUGE problem,” he said. “Chinese companies have been buying these chips, very likely at scale.”
McGuire said the new guidance closes that loophole but leaves another involving foundry due diligence requirements unresolved.
