Applied Materials Faces Criminal Investigation over Shipments to China’s SMIC

The U.S. Justice Department is reportedly examining Applied Materials' actions in sending equipment to SMIC via South Korea without the necessary export licenses, raising concerns about national security implications.

Introduction:

In a significant development, semiconductor equipment giant Applied Materials (AMAT.O) is currently under a U.S. criminal investigation for potential violations of export restrictions related to China’s leading chipmaker, Semiconductor Manufacturing International Corporation (SMIC).

The U.S. Justice Department is reportedly examining Applied Materials’ actions in sending equipment to SMIC via South Korea. This happened without the necessary export licenses, raising concerns about national security implications.

The investigation sheds light on the challenges posed by export controls and the complex web of international trade relationships.

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Details of the Applied Materials- SMIC Saga:

According to sources familiar with the matter, the Justice Department is scrutinizing Applied Materials for shipping equipment worth hundreds of millions of dollars to SMIC through South Korea, circumventing the export restrictions imposed by the U.S. government.

The company is alleged to have transported semiconductor equipment produced in Massachusetts to a subsidiary in South Korea. It was subsequently sent to SMIC in China.

The shipments occurred after SMIC was added to the U.S. Commerce Department’s “Entity List” in December 2020, restricting the export of goods and technology to the Chinese chipmaker.

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Background on Export Controls and National Security Concerns:

The U.S. government has implemented strict controls on the export of advanced chips and chipmaking equipment to China. This is to curb china from making advanced chip citing national security interests.

The Justice and Commerce departments launched a task force earlier to investigate and prosecute criminal violations of these export controls.

The regulations are designed to prevent the transfer of technology that could enhance China’s military and intelligence capabilities, posing a potential threat to U.S. national security.

The Commerce Department, upon blacklisting SMIC in 2020, stated that licenses for equipment with unique capabilities in producing chips at advanced technology nodes would likely be denied to prevent the support of China’s military modernization.

Other item licenses were specified to undergo a case-by-case review. In March 2021, Reuters reported delays in the U.S. government’s approval of licenses for American companies, such as Lam Research Corp and Applied Materials, to sell to SMIC. In an August 2023 filing with the U.S. Securities and Exchange Commission, Applied Materials acknowledged the uncertainties surrounding the matter, stating an inability to predict the outcome or reasonably estimate potential losses or penalties related to the investigation.

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Applied Materials Response on SMIC Delivery:

Applied Materials acknowledged the investigation, stating that it had received a subpoena from the U.S. Attorney’s Office in Massachusetts in October 2022.

The company affirmed its commitment to compliance with global laws, including export controls and trade regulations, and emphasized its cooperation with the government’s inquiries.

The U.S. Attorney’s office in Boston neither confirmed nor denied the investigation, maintaining its standard practice.

“The company is cooperating with the government and remains committed to compliance and global laws, including export controls and trade regulations,”

~AMAT statement.

Uncertainties and Potential Impact:

The ongoing investigation raises uncertainties for Applied Materials, and it remains unclear whether the company violated the law. The probe has not yet determined the outcome or the possibility of charges against the semiconductor equipment maker.

The company, in an August 2023 filing with the U.S. Securities and Exchange Commission, expressed the uncertainty surrounding the matter and the inability to predict the outcome or estimate potential losses or penalties.

Read More: Taiwan to Investigate Companies Accused of Helping Huawei Build Chip Plants

International Ramifications of Applied Materials SMIC news:

The investigation highlights the complexities of international trade in the semiconductor industry, where major players operate across borders.

The allegations against Applied Materials underscore the challenges faced by U.S. companies in navigating export controls and compliance with regulations, especially concerning sensitive technologies with potential dual-use applications.

Reuters was unable to ascertain whether Applied Materials had violated the law, and the potential for charges resulting from the investigation remains uncertain.

Conclusion:

The Applied Materials investigation brings attention to the delicate balance between fostering technological innovation and safeguarding national security.

The outcome of this investigation will likely have repercussions for both Applied Materials and the broader semiconductor supply chain, influencing future industry practices and international trade dynamics.

Reference: Reuters

Editorial Team
Editorial Team
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