By Karen Freifeld
(Portal) – Semiconductor equipment maker Applied Materials is under criminal investigation in the United States for possibly circumventing export restrictions on China’s top chipmaker SMIC, according to three people familiar with the matter.
The Justice Department is investigating the largest U.S. semiconductor equipment maker for sending equipment to SMIC through South Korea without export licenses, the sources said. It involves equipment worth hundreds of millions of dollars, said one of the respondents. Portal is the first to report details of the investigation.
Shares of Applied Materials fell 7.3% after the news broke and the company reported its quarterly results.
For national security reasons, the U.S. has restricted the supply of advanced chips and chip-making equipment to China, and the Justice and Commerce departments established a task force earlier this year to investigate and prosecute criminal violations of export controls. The rules are aimed at curbing the flow of American technology that could be used to bolster China’s military and intelligence capabilities.
Santa Clara, California-based Applied Materials said Thursday that it first disclosed in October 2022 that it had received a subpoena from the U.S. Attorney’s Office in Massachusetts for information regarding certain shipments to customers to China. “The company cooperates with the government and remains committed to complying with global laws, including export controls and trade regulations,” it said in a statement.
The US Attorney’s Office in Boston said: “We do not confirm or deny any investigation.”
Prosecutors from the office’s National Security Unit are in charge of the ongoing investigation, two sources said.
Portal could not determine whether Applied Materials violated the law, and it is not clear whether the investigation will result in charges.
The company manufactured semiconductor equipment in Massachusetts and then repeatedly shipped the equipment from its Gloucester plant to a subsidiary in South Korea, the people said. From there, the equipment went to China’s Semiconductor Manufacturing International Corporation (SMIC), people familiar with the probe said.
The shipments began after the U.S. Commerce Department added SMIC to its “entity list” in December 2020, restricting exports of goods and technology to the company, two of the sources said, and took place in 2021 and 2022.
SMIC was placed on the list because of its apparent ties to the Chinese military. SMIC did not immediately respond to a request for comment about Applied Materials’ shipments. In 2020, SMIC denied ties to the Chinese military, saying that the company manufactures chips and provides services “exclusively for civilian and commercial end users and end applications.”
A spokesman for the Commerce Ministry, which is responsible for export controls, declined to comment. A spokesman for the Chinese Embassy in Washington was not aware of the Applied Materials investigation. But Liu Pengyu, the spokesman, said that “imposed restrictions” were fundamentally “contrary to the principles of market economy and fair competition.”
Asked about the investigation, Mao Ning, a Chinese Foreign Ministry spokesman, said in a regular news conference on Friday that the U.S. should stop disrupting the global semiconductor industry’s production and supply chain.
“China will closely monitor relevant developments and resolutely safeguard its own rights and interests.”
Subject to ambiguities
When the Commerce Department added SMIC to its trade blacklist in 2020, it said licenses for equipment uniquely capable of producing chips at advanced technology hubs would likely be denied to “prevent such key technologies from supporting China’s military modernization efforts.” , according to a 2020 entry in the Federal Register.
Licenses for other items are subject to case-by-case review, it said.
In March 2021, Portal reported that the US government had been slow to approve licenses for SMIC sales to American companies such as Lam Research Corp and Applied Materials.
“This matter is subject to uncertainty, and we cannot predict the outcome or adequately estimate a range of losses or penalties, if any, related to this matter,” the company said in a filing with the U.S. Securities and Exchange Commission dated August 2023. regarding receipt of the subpoena in 2022 regarding certain shipments to customers in China.
(Reporting by Karen Freifeld; Additional reporting by Liz Lee in Beijing; Editing by Anna Driver)