February 26, 2024

By Karen Freifeld

(Portal) – Semiconductor gear maker Utilized Supplies is below prison investigation in the US for probably circumventing export restrictions on China’s high chipmaker SMIC, in accordance with three individuals accustomed to the matter.

The Justice Division is investigating the biggest U.S. semiconductor gear maker for sending gear to SMIC via South Korea with out export licenses, the sources mentioned. It entails gear price a whole lot of tens of millions of {dollars}, mentioned one of many respondents. Portal is the primary to report particulars of the investigation.

Shares of Utilized Supplies fell 7.3% after the information broke and the corporate reported its quarterly outcomes.

For nationwide safety causes, the U.S. has restricted the provision of superior chips and chip-making gear to China, and the Justice and Commerce departments established a job power earlier this 12 months to analyze and prosecute prison violations of export controls. The principles are aimed toward curbing the circulation of American know-how that may very well be used to bolster China’s navy and intelligence capabilities.

Santa Clara, California-based Utilized Supplies mentioned Thursday that it first disclosed in October 2022 that it had acquired a subpoena from the U.S. Lawyer’s Workplace in Massachusetts for data relating to sure shipments to prospects to China. “The corporate cooperates with the federal government and stays dedicated to complying with international legal guidelines, together with export controls and commerce rules,” it mentioned in an announcement.

The US Lawyer’s Workplace in Boston mentioned: “We don’t affirm or deny any investigation.”

Prosecutors from the workplace’s Nationwide Safety Unit are answerable for the continuing investigation, two sources mentioned.

Portal couldn’t decide whether or not Utilized Supplies violated the regulation, and it isn’t clear whether or not the investigation will lead to fees.

The corporate manufactured semiconductor gear in Massachusetts after which repeatedly shipped the gear from its Gloucester plant to a subsidiary in South Korea, the individuals mentioned. From there, the gear went to China’s Semiconductor Manufacturing Worldwide Company (SMIC), individuals accustomed to the probe mentioned.

The shipments started after the U.S. Commerce Division added SMIC to its “entity listing” in December 2020, proscribing exports of products and know-how to the corporate, two of the sources mentioned, and befell in 2021 and 2022.

SMIC was positioned on the listing due to its obvious ties to the Chinese language navy. SMIC didn’t instantly reply to a request for remark about Utilized Supplies’ shipments. In 2020, SMIC denied ties to the Chinese language navy, saying that the corporate manufactures chips and offers providers “completely for civilian and business finish customers and finish functions.”

A spokesman for the Commerce Ministry, which is accountable for export controls, declined to remark. A spokesman for the Chinese language Embassy in Washington was not conscious of the Utilized Supplies investigation. However Liu Pengyu, the spokesman, mentioned that “imposed restrictions” have been basically “opposite to the ideas of market economic system and truthful competitors.”

Requested concerning the investigation, Mao Ning, a Chinese language International Ministry spokesman, mentioned in an everyday information convention on Friday that the U.S. ought to cease disrupting the worldwide semiconductor business’s manufacturing and provide chain.

“China will carefully monitor related developments and resolutely safeguard its personal rights and pursuits.”

Topic to ambiguities

When the Commerce Division added SMIC to its commerce blacklist in 2020, it mentioned licenses for gear uniquely able to producing chips at superior know-how hubs would possible be denied to “stop such key applied sciences from supporting China’s navy modernization efforts.” , in accordance with a 2020 entry within the Federal Register.

Licenses for different gadgets are topic to case-by-case assessment, it mentioned.

In March 2021, Portal reported that the US authorities had been sluggish to approve licenses for SMIC gross sales to American corporations equivalent to Lam Analysis Corp and Utilized Supplies.

“This matter is topic to uncertainty, and we can’t predict the result or adequately estimate a spread of losses or penalties, if any, associated to this matter,” the corporate mentioned in a submitting with the U.S. Securities and Trade Fee dated August 2023. relating to receipt of the subpoena in 2022 relating to sure shipments to prospects in China.

(Reporting by Karen Freifeld; Further reporting by Liz Lee in Beijing; Modifying by Anna Driver)