The U.S. Department of Commerce on Sunday moved to close a potential loophole that may have led companies to export the world's most advanced chips - like Nvidia's most sophisticated Blackwell processors - to subsidiaries of Chinese companies located outside China. The unexpected guidance suggests that the United States' best AI chips may have been making their way to the subsidiaries of Chinese AI firms based in places such as Malaysia despite broader U.S. efforts to starve Chinese firms of semiconductors needed to develop critical AI capabilities. The new guidance was posted on the Commerce Department's website on Sunday after a paper about the loophole circulated in Washington, according to people familiar with the matter. The paper, a copy of which was seen by Reuters, says "the floodgates have quietly opened." Dated Friday, the paper does not list any author.