BIS Clarifies Advanced Computing Export Controls: China-Linked Entities Remain Subject to Licensing Requirements

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has issued new guidance reaffirming an important principle that many exporters, distributors, and technology companies may have misunderstood following the government’s decision not to enforce certain provisions of the AI Diffusion Rule. Despite the enforcement pause announced in 2025, BIS has clarified that longstanding export license requirements for advanced computing items destined for China-linked entities remain fully in effect.

Background

On November 17, 2023, BIS published an Interim Final Rule (IFR) that significantly expanded controls on advanced computing items and related semiconductor technologies. The rule introduced licensing requirements for certain high-performance computing items classified under Export Control Classification Numbers (ECCNs) 3A090, 4A090, and related controls, reflecting growing U.S. concerns regarding advanced artificial intelligence, supercomputing capabilities, and national security risks associated with technology transfers.

A key aspect of the 2023 rule was its broad application to entities headquartered in Country Group D:5 countries—including China—or Macau. Importantly, the rule also extended licensing requirements to entities whose ultimate parent company is headquartered in one of those jurisdictions, regardless of where the subsidiary itself is physically located.

The Source of Confusion

In May 2025, BIS announced that it would not enforce certain compliance requirements introduced by the January 2025 AI Diffusion Rule. This announcement created uncertainty across the technology and export compliance communities regarding whether preexisting licensing requirements for advanced computing items remained enforceable.

Some industry participants interpreted the non-enforcement policy as effectively suspending restrictions on transactions involving subsidiaries of Chinese companies operating outside China. Questions arose regarding whether exports to entities located in jurisdictions such as Singapore, Malaysia, or the United Arab Emirates would still require licenses when those entities were ultimately controlled by Chinese parent companies.

BIS Clarifies: The License Requirement Never Went Away

On May 31, 2026, BIS issued formal guidance addressing these questions directly. The agency stated that the licensing requirements established under the November 2023 rule continue to apply and remain fully enforceable. BIS specifically emphasized that exporters, reexporters, and transferors must obtain a license when providing covered advanced computing items to:

• Entities headquartered in Country Group D:5 countries, including China;
• Entities headquartered in Macau;
• or Entities whose ultimate parent company is headquartered in Country Group D:5 or Macau.

Critically, this requirement applies even when the immediate recipient is located outside those jurisdictions.

In practical terms, a Chinese-owned subsidiary operating in a third country cannot avoid U.S. export controls simply because it is incorporated or physically located outside China. BIS made clear that corporate ownership and headquarters location remain key compliance considerations when evaluating advanced computing transactions.

Compliance Implications for Industry

The guidance serves as a reminder that export compliance programs must look beyond the location of the immediate customer. Companies involved in the sale, transfer, or distribution of advanced computing hardware should conduct enhanced due diligence to identify:

• Ultimate parent ownership structures;
• Corporate headquarters locations;
• Beneficial ownership relationships;
• and Potential ties to Country Group D:5 jurisdictions or Macau.

Organizations that rely solely on a customer’s physical location when assessing export control obligations may face significant compliance risks.

The guidance is particularly relevant for manufacturers, cloud infrastructure providers, semiconductor distributors, AI hardware suppliers, and data center operators that routinely engage in cross-border transactions involving advanced computing technologies.

Why This Matters

The clarification reflects the U.S. government’s continuing focus on preventing advanced computing capabilities from reaching entities that could support strategic technology development in China and other restricted jurisdictions. BIS’s position underscores that the agency views ownership and control relationships as equally important as geographic location when evaluating national security risks.

While the AI Diffusion Rule’s enforcement status may continue to evolve, BIS has now removed any ambiguity regarding the November 2023 licensing framework. Companies should not view the 2025 enforcement pause as a safe harbor for transactions involving China-linked entities. Instead, they should continue to apply rigorous screening and licensing reviews whenever advanced computing items are involved.

Looking Ahead

The May 2026 guidance reinforces a broader trend in U.S. export controls: increasing scrutiny of corporate ownership structures and indirect pathways through which sensitive technologies may be acquired. As advanced computing and artificial intelligence remain central national security priorities, exporters should expect BIS to continue refining and enforcing these controls.

For compliance teams, the message is clear: determining where a customer is located is no longer enough. Understanding who ultimately owns and controls that customer is now a critical component of export control compliance.

Companies involved in the export, reexport, or transfer of advanced computing items should carefully evaluate how BIS’s latest guidance may affect their compliance obligations, particularly when dealing with subsidiaries or affiliates of China-based organizations. Liang + Mooney PLLC assists businesses with export control compliance, licensing determinations, due diligence reviews, and risk assessments involving complex international transactions. If you have questions about these requirements or would like to assess your organization’s exposure, contact our team to schedule a consultation.

Disclaimer: This article is provided for informational purposes only and does not constitute legal advice; readers should consult qualified counsel regarding their specific circumstances.