Taiwan Semiconductor Manufacturing Co (TSMC) could face a penalty of US$1 billion or more to settle a US export control investigation over a chip it made that ended up inside a Huawei artificial intelligence (AI) processor, two people familiar with the matter said.
The US Department of Commerce has been investigating the world's biggest contract chipmaker's work for China-based Sophgo, the sources said.
Photo: I-Hwa Cheng, AFP
The design company's TSMC-made chip matched one found in Huawei's high-end Ascend 910B AI processor, according to the people, who requested anonymity because they were not authorized to speak publicly about the matter.
Huawei — a company at the center of China's AI chip ambitions that has been accused of sanctions busting and trade secret theft — is on a US trade list that restricts it from receiving goods made with US technology.
TSMC made nearly 3 million chips in recent years that matched the design ordered by Sophgo and likely ended up with Huawei, according to Lennart Heim, a researcher at RAND's Technology and Security and Policy Center in Arlington, Virginia, who is tracking Chinese developments in AI.
The US$1 billion-plus potential penalty comes from export control regulations allowing for a fine of up to twice the value of transactions that contravene the rules, the sources said.
Because TSMC's chipmaking equipment includes US technology, the company's Taiwan factories are within reach of US export controls that prevent it from making chips for Huawei, or producing certain advanced chips for any customer in China without a US license.
Heim said that based on the design, which is for AI applications, TSMC should not have made the chip for a company headquartered in China, especially given the risk that it could be diverted to a restricted entity like Huawei.
Reuters could not determine how the White House is to proceed with TSMC or when the matter would be resolved.
Top officials have said they plan to seek higher penalties for export violations.
A spokesperson for the commerce department declined comment.
TSMC spokesperson Nina Kao (高孟華) said in a statement that the company is committed to complying with the law.
She added that TSMC has not supplied to Huawei since mid-September 2020 and that they are cooperating with the department.
Speaking to reporters in Taipei today, Minister of Economic Affairs J.W. Kuo (郭智輝) said that TSMC is a company that respects laws and regulations, but his ministry has not received any notification about a possible fine and he could not comment further.
No public action has been taken against TSMC.
The department typically issues a "proposed charging letter" to a company it believes has engaged in prohibited conduct.
The letter usually cites the dates alleged contraventions took place, the value and the formula for a civil penalty, and it gives the company 30 days to respond.
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