Microsoft’s UAE deal may involve transferring important U.S. chips and AI technology overseas

Microsoft President Brad Smith stated that the company's deal with UAE-backed AI firm G42 may include the transfer of advanced chips and tools, raising concerns about potential national security implications, as highlighted by a senior Republican congressman.

In a recent interview with Reuters, Smith revealed that the sales agreement, with undisclosed details, may advance to a second phase involving the export of essential components of AI technology, including model weights. These components are crucial for determining the strength of AI systems. Smith mentioned that there is no set timeline for this second phase.

U.S. officials have expressed concerns about the potential national security risks posed by AI systems, citing the possibility of facilitating the engineering of chemical, biological, and nuclear weapons. In October, the Biden administration mandated that manufacturers of the largest AI systems disclose details about their technology to the U.S. government.For the deal to proceed, it would need approval from the U.S. Department of Commerce. Microsoft executives have assured that the agreement includes safeguards to safeguard Microsoft's technology and prevent its utilization by Chinese entities for training AI systems.

The undisclosed nature of the measures and safeguards, as well as the closed-door negotiations between the two private companies regarding the transfer of U.S. technology, have raised concerns among some U.S. lawmakers.

Michael McCaul, the Republican chairman of the foreign affairs committee in the U.S. House of Representatives, expressed his concerns about the lack of a comprehensive briefing from the executive branch to Congress regarding the agreement. He highlighted the potential risks of inadequate guardrails to protect sensitive U.S.-origin technology from Chinese espionage, particularly in light of the Chinese Communist Party's interests in the UAE.

The Commerce Department currently mandates notifications and, in certain regions, export licenses for sending AI chips overseas. However, the Microsoft-G42 deal underscores deficiencies in U.S. laws as regulators strive to keep pace with rapidly evolving technology.Currently, there are no regulations limiting the export of AI models. Nonetheless, McCaul and a bipartisan group of lawmakers have recently proposed legislation that would grant U.S. officials more explicit authority to regulate such exports.

Microsoft executives have expressed their openness to engaging in discussions regarding a new legal framework that governs the transfer of AI technology. They have stated that the agreement with G42 mandates the UAE firm to adhere to evolving U.S. regulations."We are primarily focused on ensuring that American technology can be transferred globally in a safe and secure manner," stated Smith.

The announcement of the deal between Microsoft and G42 last month was positioned as a means to strengthen G42's ties with the U.S. and expand U.S. technology influence in the midst of strategic competition with China. Microsoft's investment of $1.5 billion in G42 includes Microsoft's president, Smith, securing a seat on its board.

The companies did not disclose the specific technologies that may be transferred to the UAE or other countries, nor did they provide details on the security measures that would be implemented. Some of these details are being revealed for the first time here.The overarching goal of the agreement is for Microsoft and G42 to collaboratively expand the reach of AI technology into regions where neither company could achieve the same level of effectiveness independently. An initial instance of this collaboration is a recent deal in Kenya that was announced by the two companies.

The Microsoft-G42 deal entails both companies providing security assurances to their respective home governments. However, there is no specific agreement between the U.S. and UAE that directly regulates the transfer of sensitive technologies. Microsoft executives have indicated that the two companies may potentially seek to transfer these technologies to other markets beyond the UAE, such as Turkey and Egypt.

According to Smith, model weights are currently unable to be encrypted while in use, and he approximated that the viable technical methods for achieving this are still at least a year away.Microsoft has explored various alternative strategies to safeguard its technology, one of which involves implementing a "vault within a vault" concept. This approach would entail physically segregating sections of data centers where AI chips and model weights are stored, while also imposing restrictions on physical access.

"I suspect that ultimately we will establish a regulatory framework or trade export control mechanism that will have broad applicability, extending beyond just Microsoft and G42," stated Smith.As part of the agreement with Microsoft, G42 will adhere to a "know your customer" policy to verify the identity of individuals utilizing Microsoft's technology. Additionally, Chinese companies will be prohibited from using the technology to train AI models, as confirmed by Microsoft executives. While U.S. regulators have put forth a comparable rule, it has not yet been implemented.

"We have made a deliberate strategic choice to collaborate with U.S. companies for advanced technologies. It is evident that in order to proceed with this partnership, we must comply with the stipulations outlined by our partners, as well as the regulatory and export control guidelines set forth by the government," stated Talal Al Kaissi, an executive responsible for managing partnerships related to G42's AI initiatives, in an interview with Reuters.

As per the agreement, Microsoft would possess the authority to levy financial penalties on G42 and enforce them through arbitration courts located in London, as stated by Microsoft. This arrangement implies that Microsoft would not be obligated to navigate the legal system in the UAE to ensure G42's adherence to its commitments. Furthermore, Microsoft would have the capability to seize assets in various countries if G42 is determined to be in breach of the agreement.

The specific manner in which U.S. Commerce Secretary Gina Raimondo will permit the deal to progress is not definitively outlined. Smith mentioned that the provisions are "informal" and that "certainly with this Secretary of Commerce, one knows pretty clearly whether she approves or rejects something."

A spokesperson from the Commerce Department stated in a release that any technology transfers would be regulated by export controls, encompassing existing licensing prerequisites for AI chips and potential forthcoming controls.