BIS Could Increase End-Use, End-User Checks Related to New Chip Controls, Lawyer Says

Companies should expect “robust enforcement” from the Bureau of Industry and Security surrounding its new China-related chip controls (see 2211010042 and 2210070049), which could include more end-use checks and additions to the Entity List, said Stephenie Gosnell Handler, a Gibson Dunn trade lawyer, speaking during a webinar hosted by the law firm this week. She said companies should “ensure their red flag indicators are up to date and are being vetted appropriately.”

She specifically said “it’s possible” BIS increases its end-user and end-use checks involving certain semiconductor manufacturing facilities or companies “transacting in advanced circuits in China.” She also said it’s “likely” BIS could “soon” publish additional sets of export controls that affect the quantum computing, artificial intelligence and biotechnology sectors. BIS Undersecretary Alan Estevez last month said the agency isn’t done tightening its chip restrictions and will look to impose export restrictions in all three technology categories (see 2210270047).

“BIS officials have also indicated that they plan to make greater use of the Entity List to target companies that pose national security risk in these sectors,” Handler said. “These new regulations increase the already significant compliance risks and make it important for companies to carefully monitor your full supply chain for affected products.”

She also said the law firm is closely monitoring the BIS rule’s new restrictions on certain U.S. persons activities. The agency last month offered guidance on certain U.S. persons requirements, saying they don’t apply to U.S. persons conducting certain “administrative or clerical activities,” such as arranging for a shipment, preparing financial documents or implementing a decision to approve a restricted shipment (see 2210310044).

Handler called the guidance helpful, but said she wishes BIS had provided a “bright-line test for which activities of a U.S. person -- which is broadly defined, of course -- are covered and which are not.” But “broadly speaking, the more attenuated a U.S. person's involvement is in the prohibited activities, the less likely prohibitions are to apply,” she said. “Overall, as we're starting to see, these rules have the potential to significantly cool U.S. company engagement with foreign business partners when it comes to these supply chains, given the heightened legal and compliance risks.”