US Department of Commerce Issues Interim Final Rule Designed to Protect American AI

On January 13, 2025, the US Department of Commerce’s Bureau of Industry and Security (BIS) published an Interim Final Rule (IFR) titled “Framework for Artificial Intelligence Diffusion.” The IFR builds on a long series of recent export control restrictions on advanced computing hardware, technology, and components critical for artificial intelligence (AI)¹ and seeks to establish an ambitious framework for managing export and security terms for the spread of AI going forward. It does so through a number of measures, including (i) tightening existing controls on advanced computing integrated circuits (IC), computing equipment, and related technology; (ii) introducing new export controls on closed AI model weights; (iii) requiring export licensing for most countries; and (iv) establishing a tiered security framework for securing authorization to receive the most advanced US AI technology.

From both a regulatory and business planning perspective, the IFR offers both compliance challenges and significant business opportunities. It has broad implications for companies across the AI landscape, including AI cloud providers, hyperscale data center developers, owners and operators, advanced chip and computing manufacturers, and their suppliers. Affected companies should review the IFR carefully to assess the potential impact on their operations.

The IFR requires compliance starting May 15, 2025.² It sets a deadline of May 15, 2025, to submit comments, although it is possible that a further comment period could be adopted to allow for consideration of industry comments before implementation.

Expansion of Advanced AI Chip Controls

Most significantly, the IFR imposes a global license requirement for exports of the most advanced computing ICs, computing equipment and commodities containing those ICs, and certain production equipment necessary for their production, as well as related software and technology (“Advanced AI Chip Items”).

Tiered Control Regime

The framework establishes a three-tiered country structure for these items:

• Group 1 - Whitelisted Country Group. The IFR reflects a determination that IC exports, reexports, and in-country transfers to or within certain countries represent a low national security risk based on the existence of diversion prevention measures and common national security and foreign policy interests. In addition to the United States, this group comprises 18 qualifying allied countries listed in paragraph (a) of Supplement No. 5 to Part 740 (“Whitelisted Countries”).³ Exports, reexports, and transfers (in-country) of Advanced AI Chip Items are permitted in unlimited quantities to end users in these countries, unless the end user is headquartered in (or has an ultimate parent headquartered in) a country in Group 2.
• Group 2 - Prohibited Country Group. Exports, reexports, or transfers (in-country) of these Controlled AI Items to or within a group of 23 arms-embargoed countries (including China),⁴ as well as Macau, are subject to licensing requirements, and will be reviewed under a presumption of denial. Moreover, exports, reexports, or transfers (regardless of the country of destination) of Advanced AI Chip Items to an entity headquartered in, or whose ultimate parent company is headquartered in, any of these countries will also be reviewed under a presumption of denial.
• Group 3 - All Other Countries. For all other destinations—i.e., those that are neither in the Prohibited or Whitelisted Country groups—exports and reexports of the Advanced AI Chip Items require a license but will be eligible for one of several conditional license exceptions based on certain factors, including computing power and destination. Advanced AI Chip Items destined for these countries will be subject to a per country “default” allocation of 790 million total processing performance (TPP).⁵ Countries that provide satisfactory government to government national security commitments can receive a further increase of up to 100% for their default allocation.⁶ License applications for Controlled AI Items destined to these countries must include a TPP calculation and will be reviewed with a presumption of approval up to the country allocation limit, following which a policy of denial will apply to applications for TPP beyond the applicable allocation cap. The IFR states that BIS will track fulfillment of allocations and publish updates on the BIS website.

Conditional License Exceptions

The IFR defines several new conditional license exceptions authorizing license-free exports of Advanced AI Chip Items in Group 3 destinations:

• Shipments Below Certain Performance Thresholds. License Exception TPP authorizes certain exports and reexports of Advanced AI Chip Items below a certain TPP threshold on a per calendar year basis to an individual ultimate consignee who is outside of, is not headquartered in, and does not have an ultimate parent company headquartered in any country in the Prohibited Country Group.
• Manufacturing/Supply Chain Shipments. License Exception ACM authorizes the export, reexport, and transfer (in-country) of Advanced AI Chip Items to a "private sector end user" who is located outside of, is not headquartered in and does not have an ultimate parent company headquartered in the Prohibited Country Group for certain development, production, or storage activities. The License Exception is intended to minimize supply chain disruptions and is not intended to cover any ultimate end use involving AI model training.  

License exceptions are highly conditional and in certain cases subject to limitations and should therefore be reviewed carefully in order to ensure compliance.

Data Center Validated End-User Authorizations

The IFR also includes two categories of the Data Center Validated End-User (DC VEU) Authorization intended to enable eligible and vetted data center owners and operators to procure and establish large quantities of Advanced AI Chip Items for the establishment and operation of data centers around the world:

• Whitelisted Country Group Entities (Universal VEUS). Whitelisted Country Group entities (including US companies and other companies headquartered in, or whose ultimate parent is headquartered in, any other Whitelisted Country Group country) can apply for status under the Universal Validated End User (UVEU) program. Approved UVEU status authorizes the UVEU to obtain large quantities of Advanced AI Chip Items as necessary to build data centers in any location worldwide other than the Prohibited Country Group without seeking separate authorization, subject to certain limitations and requirements. Applicants are subject to stringent vetting and security obligations in order to obtain the benefits of the UVEU program. TPP exported under this program does not count toward the allocation cap for the country of destination. The program requires the retention of at least 75% of a UVEU’s controlled Advanced AI Chips within Whitelisted Countries, and US-headquartered UVEUs must retain at least 50% in the United States.
• Group 3 (All Other Countries) (National VEUs). Group 3 entities can apply for status under the National Validated End User (NVEU) program. Approved NVEU status authorizes the NVEU to obtain a single authorization to obtain large quantities of Advanced AI Chip Items as necessary to build data centers in specified locations (subject to certain limitations and requirements). As with UVEUs, applicants are subject to stringent vetting and security obligations to obtain the benefits of the program, and TPP exported under this program does not count towards the allocation cap for the country of destination.

New Controls on AI Model Weights

The IFR also adds new controls on exports, reexports, or transfers (in-country) of advanced closed-weight AI models trained with 10²⁶ or more computational operations (“Controlled Model Weights”). ⁷ Published model weights are excluded from the scope of the control. The IFR imposes export control licensing requirements on these advanced model weights for all destinations. End users who are, or whose ultimate parent is, headquartered in the United States or another Whitelisted Country will be able to receive Controlled Model Weights in any destination outside the Prohibited Country Group, subject to important limitations and requirements.

Notably, BIS issued new “red flag” guidance involving scenarios where US subsidiaries of entities headquartered outside a Whitelist Country Group country use a US Infrastructure as a Service (IaaS) provider to assist in training an advanced AI model and seeks to obtain the resulting model weights. BIS cautions US IaaS services providers that, under those circumstances, the domestic transfer of a Controlled Model weight to the US subsidiary of the foreign-headquartered entity could expose the provider to liability under the Export Administration Regulations depending on the facts and, at a minimum, raises an obligation to inquire with respect to the intended destination prior to the domestic transfer.

Conclusion

The framework set out under the IFR impacts a broad range of companies across the AI supply chain, including chip designers and chip manufacturers, as well as developers, owners, and operators of AI data centers. While the IFR will introduce additional complexity and compliance requirements, it is also intended to establish clear pathways for:

(i) License-free procurement and deployment of unlimited AI computing power in the US and other Whitelisted Countries.
(ii) Companies headquartered in those Whitelisted Countries to aggressively expand and deploy anywhere else (other than the small handful of arms-embargoed countries) upon applying for and receiving “validated” status and to receive the most advanced model weights, subject to security obligations.
(iii) For the vast majority of destinations outside Whitelisted Countries, continued substantial, though more limited, deployment of AI computing power subject to quantity limitations and the ability for companies headquartered in those countries to access significantly higher computing power upon applying for and receiving “validated” status.

Potentially impacted companies should carefully consider the potential application of these rules to their operations, including whether there may be potential opportunities to leverage the pathways above for strategic advantage.

 

 

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¹ See Mayer Brown Legal Updates discussing requirement related to AI models and advanced computing items here and here.  

² Paragraphs 14, 15, and 18 of Supplement No. 10 to Part 748 have a delayed compliance date of January 15, 2026 and cover security for chips and data, AI cybersecurity, and personnel security respectively.

³ Supplement No. 5 to Part 740 lists Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Republic of Korea, Spain, Sweden, Taiwan, the United Kingdom, and the United States.

⁴ Country Group D:5 countries include Afghanistan, Belarus, Burma, Cambodia, Central African Republic, China, DRC, Cuba, Cyprus, Eritrea, Haiti, Iran, Iraq, North Korea, Lebanon, Libya, Nicaragua, Russia, Somalia, South Sudan, Sudan, Syria, Venezuela, and Zimbabwe.

⁵ The Technical Notes to ECCN 3A090 state that TPP is defined as “2 x ‘MacTOPS’ x ‘bit length of the operation’, aggregated over all processing units on the integrated circuit.” Further, attrition of ICs due to loss, damage, failure, relocation, and resale will not count toward the country allocation.

⁶ Qualifying countries will be listed in paragraph (b) to Supplement No. 5 to Part 740.

⁷ The IFR defines “parameters” for these purposes as “any value learned during training (e.g., network weights, biases, etc.).”