Expansion of Validated End User Authorization: Data Center Validated End User Authorization

SUPPLEMENTARY INFORMATION:

Background

In this rule, the Department of Commerce, Bureau of Industry and Security (BIS), amends the Export Administration Regulations (EAR) (15 CFR 730-774) to expand the Validated End-User (VEU) program in 15 CFR 748.15 to enable VEU Authorization for data centers (“Data Center VEU” or “Data Center VEU Authorization”). Data Center VEU is intended to cultivate trusted ecosystems for the responsible use of advanced computing integrated circuits. Foreign adversaries seek to use advanced computing integrated circuits and supercomputing capacity in the development and deployment of AI models to further their military capabilities, contrary to U.S. national security and foreign policy interests. For this reason, BIS imposed controls on these items in October, 2022 (87 FR 62186, October 13, 2022) and October, 2023 (88 FR 73424, October 25, 2023 and 88 FR 73458, October 25, 2023). Although BIS strictly controls the export of advanced integrated circuits, BIS also recognizes that in certain destinations where a license is currently required, advanced computing integrated circuits can be deployed in highly trusted environments, enabling the use of AI for technological discoveries and the development of new tools that improve the world. Specifically, BIS has determined that there could be significant benefits from authorizing the export and reexport of advanced computing integrated circuits to end users who operate data centers that implement certain security measures and satisfy other criteria. Accordingly, BIS is amending the EAR to establish a new authorization `Data Center VEU' that is intended to facilitate export or reexport of all items on the Commerce Control List that require a license to the destination excluding “600 series” items and are necessary for a data center, including advanced computing integrated circuits and electronic assemblies, to trusted end users that meet certain prerequisites.

As a quintessential dual-use technology, AI comes with many benefits and risks. This cutting-edge technology holds the potential to increase access to healthcare, education, and food and assist with combatting complex problems such as climate change. For example, AI-enabled virtual learning systems can be tailored to a student's needs to bridge the education gap in regions that lack resources or qualified teachers. AI can also improve access to healthcare by facilitating remote-patient monitoring.

At the same time, AI is revolutionizing the military and intelligence capabilities of adversaries. Advanced AI models, trained on advanced computing integrated circuits, have the potential to diffuse dangerous capabilities by lowering the barrier to develop cyberweapons or chemical, biological, radiological, or nuclear weapons. Advanced AI capabilities can lead to improved speed and accuracy of military decision-making, planning, and logistics. They can also be used for cognitive electronic warfare, radar, signals intelligence, mass surveillance, and jamming. For example, the February, 2024, Annual Threat Assessment of the U.S. Intelligence Community states that the People's Republic of China (PRC) is pursuing AI for mass surveillance and intelligent weapons platforms. In response to the national security and foreign policy risks of AI, as noted above, in October, 2022, BIS published an interim final rule (87 FR 62186) which made critical changes to the EAR in two areas. First, the rule imposed additional export controls on certain advanced computing semiconductor chips (chips, advanced computing chips, integrated circuits (ICs)), transactions for supercomputer end uses, and transactions involving certain entities on the Entity List (supplement no. 4 to part 744). Second, the rule adopted additional controls on certain semiconductor manufacturing items and transactions for certain IC production end uses. In October, 2023, BIS broadened the scope of destinations for these controls to cover other destinations of concern (such as Country Groups D:1 and D:5 for newly added semiconductor manufacturing equipment controls, and D:1, D:4, and D:5 for the advanced computing controls). Similarly, BIS imposed worldwide license requirements for certain specified end-uses when conducted on behalf of entities headquartered in, or with an ultimate parent company headquartered in, Macau or a destination in Country Group D:5. Due to the rapid nature of technological change in AI, BIS has been closely studying these developments and updating its rules accordingly to ensure that they remain as targeted and effective as possible.

Data Centers play a vital role in global AI development, and the United States is committed to facilitating international AI development in a way that minimizes risk to national security. Accordingly, this rule expands the VEU program to facilitate the export or reexport of items necessary for a data center to preapproved trusted validated end users in destinations that require a license for items classified under Export Control Classification Numbers (ECCNs) 3A090.a and 4A090.a, and .z items in Categories 3, 4, and 5, excluding D:5 countries. Data Center VEU adopts much of the framework of the existing VEU program, with additional requirements appropriate for a data center environment. In addition, this action includes appropriate safeguards to address the implications of risks AI might impose on U.S. and allies' national security and foreign policy objectives. As under the original VEU Authorization Program, the U.S. government will rigorously review Data Center VEU candidates' applications subject to detailed and verifiable criteria consistent with facilitating U.S. exports.

Addition of Authorization Data Center VEU to the EAR

To implement Data Center VEU, BIS amends the EAR to refer to the existing VEU program that currently applies to India and China as `General VEU Authorization' and to refer to the new program as `Data Center VEU Authorization.' The framework for both programs is similar, although the requirements are different. All VEU authorizations allow exports and reexports to the VEUs. However, a separate authorization is needed if a VEU reexports to a third party. Although in country transfers are permitted under General VEU Authorization, in country transfers are not permitted under Data Center VEU Authorization unless the transfer (in-country) is to a VEU authorized location by the same VEU. Section 748.15 maintains the following subsections: (a) Eligible end-users; (b) Eligible destinations; (c) Item restrictions; (d) End-use restrictions; (e) Certification and recordkeeping; (f) Reporting and review requirements; (g) Notification requirement; (h) Termination of Conditions on VEU Authorizations; and (i) Records. Supplement no. 7 to part 748 includes a list of end users who have been approved through the VEU program and are eligible for exports or reexports under Data Center VEU Authorization or exports, reexports, or transfers (in-country) under General VEU Authorization. Supplement no. 8 to part 748 describes information required in requests for both types of VEU authorization.

Eligibility and Application Requirements

The introduction to section 748.15 (Authorization Validated End-User (VEU)) is amended to include references to both `General VEU Authorization' and `Data Center VEU Authorization.' Revised section 748.15(a)(1), includes the eligibility criteria for the current VEU program, now called `General VEU Authorization,' and the eligibility criteria for `Data Center VEU Authorization.' Some requirements are the same for both types of VEU authorizations, as described in sections 748.15(a)(2) through (5). Paragraphs (b) and (d) are each now bifurcated to distinguish between the two VEU Authorizations, each with a new paragraph (1) discussing General VEU Authorizations and a new paragraph (2) discussing Data Center VEU Authorizations. Paragraph (c) of section 748.15 now includes a new paragraph (1) indicating that neither VEU authorization is authorized for items controlled under the EAR for missile technology or crime control reasons, consistent with current restrictions, and a new paragraph (2) providing that all items on the Commerce Control List are eligible for Data Center VEU Authorizations if those items require a license to the destination (excluding “600 series” items) and are necessary for a data center.

Requests for authorization for General VEU Authorizations or Data Center VEU must be submitted in the form of an advisory opinion request, as described in sections 748.15(a)(2), 748.3(c)(2), and in accordance with revised Supplement No. 8 (Information Required in Requests for Validated End-User (VEU) Authorization) and existing Supplement No. 9 (End-User Review Committee Procedures) to part 748. In the request for authorization, as provided in revised Supplement No. 8 to part 748, in addition to the information required under the General VEU program, now in paragraph A of that supplement, particular information related to the data center is required, as described in new paragraph B of that supplement. The following information will assist BIS and its interagency partners in the Departments of Defense, Energy, and State in an evaluation of the data center's VEU eligibility:

• Absent a legal prohibition or other such exceptional circumstances, a list of current and potential customers of the data center;
• An overview of business activities or corporate relationships that the candidate has with any organization designated on the Entity List or Military End-User List, the Department of the Treasury's Specially Designated Nationals and Blocked Persons List, Foreign Sanctions Evaders List, or U.S. Sectoral Sanctions Identifications List, or the Department of State's Nonproliferation Sanctions determinations.
• A description of physical, and logical security requirements, including access restrictions for each location the controlled items will be housed (e.g., around the clock monitoring, cybersecurity requirements, third-party monitoring; and/or physical security);
• A description of the policies and procedures governing employees physical and logical access to the VEU data center;
• An overview of the data center's information security plan, which should include:

○ Cybersecurity plan, including compliance with relevant NIST standards;

○ Logging and monitoring plan;

○ Technology control plan that describes how much compute is required for the various end uses involved;

○ Baseline cloud configuration and identity and access management process for tenants, if a cloud provider;

○ Personnel security plan; and

○ An incident, identification, investigation, and reporting plan;

• An explanation of the network infrastructure and architecture and service providers;
• An overview of the applicant's supply chain risk management plan that will ensure no prohibited technology enters the environment and no prohibited vendors are in the supply chain; and
• An overview of the applicant's export control training program and compliance program procedures.

In conjunction with other relevant agencies on the End User Review Committee (ERC), consistent with the process identified in existing Supplement No. 9 to Part 748, the U.S. government will evaluate prospective Data Center VEU applicants based on a range of factors. Included in this evaluation will be whether the VEU host country has provided assurances to the U.S. government regarding the safe and secure use of the technology to be provided under Authorization VEU. Should an entity be interested in obtaining Data Center VEU status, its national government will need to engage the Commerce and State Departments to make such assurances.

In addition, as described in revised section 748.15(a)(3), the agencies will examine the entity's record of the party's compliance with U.S. export controls; the entity's capability to comply with the requirements for VEU; the entity's agreement to on-site compliance reviews by representatives of the United States Government, including to guard against both the misuse and diversion of computing resources; the entity's relationships with U.S and foreign companies; the party's technology roadmap, and technology control plan. When evaluating the eligibility of an end-user, agencies would consider the status of export controls in the eligible destination and adherence to multilateral export control regimes of the government of the eligible destination; this information, among other things, may also be the subject of government-to-government assurances.

Approval Process and VEU Conditions

Consistent with the procedures described in existing Supplement No. 9 to part 748, if the ERC approves the request, BIS will issue a response in the form of a letter granting VEU status. The letter will state the items that are permitted for export or reexport to the VEU, along with any conditions required of the VEU. Conditions will be tailored to the national security and foreign policy risks presented. Examples of conditions include a commitment to:

• Implement physical and logical security requirements;
• Prohibit access to individuals working for entities and/or countries of concern;
• Prohibit access to any national working for or on behalf of a party on BIS's Entity List;
• Ensure inspection/onsite reviews by U.S. government officials as necessary, to determine whether VEU authorization conditions are being met; and/or
• Not provide computing power above prohibited thresholds to entities or countries of concern.

Certification and Reporting Requirements

As provided in revised section 748.15(e), prior to an initial export or reexport under General or Data Center VEU authorizations, exporters or reexporters must obtain certifications from validated end-users regarding the end use and compliance with VEU requirements. Such certifications must include the information set forth in Supplement no. 8 to part 748. Certifications and all records related to VEU must be retained by the exporters or reexporters in accordance with recordkeeping requirements set forth in part 762 of the EAR.

In addition to the certification requirements, as provided in revised section 748.15(f)(1)(i), reexporters who make use of either VEU Authorization must file reports to BIS. Reexporters using the General VEU Authorization must file reports annually while reexporters using the Data Center VEU Authorizations must file reports semiannually. For reexporters, these reports must include, for each validated end user to whom the exporter or reexporter exported or reexported eligible items: (1) the name and address of each validated end-user to who eligible items were reexported; (2) a list of any intermediate consignees; (3) the eligible destination to which the items were reexported; (4) the quantity of such items; (5) the value of such items; and (6) the ECCNs of such items.;

In addition, as provided in revised paragraph 748.15(f)(1)(ii), Data Center Validated End Users must submit reports to BIS semiannually. For Data Center Validated End Users, Authorizations will specify that each report must include, as appropriate, information such as: (1) a record of current inventory of eligible items received; (2) dates of when eligible items were received and by whom; (3) a description of how current compute is being utilized; and (4) a list of current customers with a description of their utilization.

Deadlines for the various reports are set forth in revised section 748.15(f)(1)(iii).

In addition to reporting obligations, under revised section 748.15(f)(2), exporters, reexporters, and validated end users who make use of Data Center VEU must maintain and allow review of relevant records, including on-site reviews of information set forth in section 748.15(e) and (f)(1).

Conforming Amendments

This rule also makes conforming amendments to paragraphs (g) through (i) of section 748.15 to reference Data Center VEU Authorization. Similarly, supplement No. 7 to Part 748 is amended by adding a column indicating the type of VEU authorization.

Export Control Reform Act of 2018

On August 13, 2018, the President signed into law the John S. McCain National Defense Authorization Act for Fiscal Year 2019, which included the Export Control Reform Act of 2018 (ECRA) (codified, as amended, at 50 U.S.C. 4801-4852). ECRA provides the legal basis for BIS's principal authorities and serves as the authority under which BIS issues this rule. In particular, and as noted elsewhere, Section 1753 of ECRA (50 U.S.C. 4812) authorizes the regulation of exports, reexports, and transfers (in-country) of items subject to U.S. jurisdiction. Further, Section 1754(a)(1)-(16) of ECRA (50 U.S.C. 4813(a)(1)-(16)) authorizes, inter alia, the establishment of a list of controlled items; the prohibition of unauthorized exports, reexports, and transfers (in-country); the requirement of licenses or other authorizations for exports, reexports, and transfers (in-country) of controlled items; apprising the public of changes in policy, regulations, and procedures; and any other action necessary to carry out ECRA that is not otherwise prohibited by law. Pursuant to Section 1762(a) of ECRA (50 U.S.C. 4821(a)), these changes can be implemented through rulemaking without prior notice and comment.

Rulemaking Requirements

1. This rule is not a significant regulatory action for purposes of Executive Order 12866, as amended by Executive Order 14094.

2. Notwithstanding any other provision of law, no person is required to respond to nor be subject to a penalty for failure to comply with a collection of information, subject to the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA), unless that collection of information displays a currently valid Office of Management and Budget (OMB) Control Number. This regulation involves collections previously approved by OMB under control number 0694-0088, Simplified Network Application Processing System, which includes, among other things, license applications and commodity classifications, and carries a burden estimate of 29.4 minutes for a manual or electronic submission for a total burden estimate of 33,133 hours. Total license applications associated with the PRA and OMB control number 0694-0088 are expected to be ten as a result of this rule. Therefore, the change in burden hours associated with the information collection requirements of this rule is not expected to exceed that approved for OMB control number 0694-0088.

This rule does not contain policies with Federalism implications as that term is defined in Executive Order 13132.

4. Pursuant to section 1762 of the Export Control Reform Act of 2018 (50 U.S.C. 4801-4852), this action is exempt from the Administrative Procedure Act (5 U.S.C. 553) requirements for notice of proposed rulemaking, opportunity for public participation, and delay in effective date.

5. Because a notice of proposed rulemaking and an opportunity for public comment are not required to be given for this rule by 5 U.S.C. 553, or by any other law, the analytical requirements of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., are not applicable. Accordingly, no regulatory flexibility analysis is required, and none has been prepared.

Accordingly, part 748 of the EAR (15 CFR parts 730-774) is amended as follows:

1. The authority citation for part 748 continues to read as follows:

Authority: 50 U.S.C. 4801-4852; 50 U.S.C. 4601 et seq.; 50 U.S.C. 1701 et seq.;E.O. 13026, 61 FR 58767, 3 CFR, 1996 Comp., p. 228; E.O. 13222, 66 FR 44025, 3 CFR, 2001 Comp., p. 783.

2. Revise § 748.15 to read as follows:

3. Revise Supplement No. 7 to part 748 to read as follows: