Applied Materials Faces U.S. Criminal Probe Over Alleged Violation of Export Restrictions to China’s SMIC

Santa Clara-based semiconductor equipment giant Applied Materials is at the center of a U.S. criminal investigation for potential breaches of export regulations concerning China’s leading chipmaker, SMIC, Reuters news report said.
Applied Materials semiconductorSources reveal that the U.S. Justice Department is scrutinizing Applied Materials for allegedly sidestepping export controls by shipping equipment to SMIC via South Korea without necessary export licenses, involving hundreds of millions of dollars in equipment.

The U.S. government has imposed strict restrictions on the export of advanced chips and chipmaking equipment to China, citing national security concerns. The Departments of Justice and Commerce jointly established a task force earlier in the year to investigate and prosecute criminal violations of these export controls, aiming to curb the transfer of technology that could bolster China’s military and intelligence capabilities.

Applied Materials disclosed receiving a subpoena from the U.S. Attorney’s Office in Massachusetts in October 2022, acknowledging the investigation and asserting its cooperation while reaffirming its commitment to compliance with global laws, including export controls and trade regulations.

However, the U.S. Attorney’s office in Boston refrained from confirming or denying the ongoing investigations. Prosecutors from its National Security Unit are overseeing the probe, investigating Applied Materials’ alleged shipment patterns.

The company purportedly produced semiconductor equipment in Massachusetts, shipping it to a South Korean subsidiary before its transfer to SMIC in China. These shipments reportedly commenced after SMIC was added to the “Entity List” by the U.S. Commerce Department in December 2020, which restricted exports to the company due to suspected ties with the Chinese military.

SMIC denied these military connections, emphasizing its dedication to civilian and commercial applications. The Commerce Department declined to comment on the probe, while the Chinese embassy in Washington expressed concerns over imposed restrictions conflicting with fair market competition principles.

The 2020 addition of SMIC to the trade blacklist aimed to deny licenses for critical equipment capable of advancing chip technology to prevent support for China’s military modernization. However, licenses for other items were subject to individual reviews.

Applied Materials had previously faced challenges in obtaining licenses to sell to SMIC, as reported in March 2021. The company acknowledged uncertainties regarding potential outcomes and associated penalties related to the probe in its August 2023 filing with the U.S. Securities and Exchange Commission, acknowledging the 2022 subpoena concerning shipments to Chinese customers.