The US suspects that TSMC helped Huawei circumvent export controls

Yesterday it became known that the US Department of Commerce is conducting an investigation into Taiwan Semiconductor Manufacturing Co. (TSMC) over suspicions that the chipmaker may have circumvented 5G export controls to produce “artificial intelligence or smartphone chips for Chinese tech giant Huawei Technologies,” sources with direct access to the matter told The Information.< /p>

The Commerce Department has not yet officially announced the review and declined Ars' request for comment. But TSMC quickly issued a statement yesterday, defending itself as a “law-abiding company” that is “committed to complying with laws and regulations, including export controls.”

For the past four years, the U.S. has considered Huawei a national security threat after the company allegedly provided financial services to Iran, in violation of another U.S. export control law. During this time, tensions between the US and China have increased, with the US increasingly imposing tariffs to limit China's access to US technology, most recently raising tariffs on semiconductors. As competition for AI dominance heats up, Congress also recently introduced legislation to prevent China and other foreign adversaries from gaining access to American-made AI and AI-enabling technologies.

Because U.S. officials have long considered Huawei a state-controlled company and have blocked Huawei from access to U.S.-made 5G chips considered essential for AI applications, it raised concerns when Huawei released the Mate 60 smartphone with 5G chips. As 9to5Mac points out, "no one could understand how this was possible, given that Chinese companies did not have the technology needed to produce the chips".

Aside from potentially making chips for smartphones, the US suspects that TSMC could help Huawei develop its own artificial intelligence chips, sources told The Information.

According to US export controls, any company using US technology to produce competing chips is prohibited from selling those chips to Huawei. The companies are expected to monitor to ensure that their customers are not helping Huawei to circumvent export controls.

TSMC said in a statement that there is no indication yet that the company has violated export controls, but , according to The Information's sources, the US has "contacted’ TSMC to ask if it was involved in the production of smartphone chips or AI chips for Huawei.

American officials suspect that TSMC could directly sell chips to Huawei or “indirectly” supply the technology by selling the chips to “middleman companies with a different name to place orders on [Huawei's] behalf,” sources told The Information. “know your customer” requirements must ensure that TSMC never accidentally supplies Huawei with US-made chips, so the US is currently investigating how TSMC vets its customers before placing orders, the sources said.

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TSMC told The Information that the company “maintains an export monitoring and compliance system.” The chipmaker has made it clear that it will cooperate with the investigation, which, according to The Information, is “still in its early stages.” "If we have reason to believe there are potential issues, we will take proactive steps to ensure compliance, including conducting investigations and proactively communicating with relevant parties, including customers and regulatory authorities as appropriate,&rdash; TSMC said in a statement.

TSMC faces potentially significant fines if the investigation finds the company helped Huawei gain access to US-made chips. Last year, Seagate was fined $300 million for supplying 7 million disk drives to Huawei. The chip maker could also face “harder penalties,” The Information reported, such as restrictions blocking TSMC's access to American technology.

Could TSMC Sanctions Affect CHIPS Act Funding?

According to 9to5Mac, any sanctions TSMC may face could affect the company's ability to produce chips for Apple, which is why Apple fans should hope that the sanctions will be limited to a fine.

Foreclosing TSMC by imposing restrictions on American technology appears to be at odds with the current administration's significant investment in partnering with TSMC through funding under the CHIPS Act.

In April, TSMC received $6.6 billion in direct funding under the CHIPS Act to "support TSMC's investment of more than $65 billion in three new state-of-the-art facilities in Phoenix, Arizona that will produce the world's most advanced semiconductors,&rdash; the Ministry of Trade reported.

The investment is key to the Biden-Harris administration's mission to strengthen “economic and national security” by ensuring a reliable domestic supply of the chips that will underpin the future economy, fueling a boom in artificial intelligence and other fast-growing industries such as consumer electronics, automotive, the Internet of Things and high-performance computing», – noted in the ministry. In particular, the funding will help America “maintain our competitive advantage” in the field of artificial intelligence, the department noted.

It probably wouldn't make sense to support TSMC to help the US “develop critical hardware capabilities that underlie deep language learning algorithms and inference techniques” only to then limit access to American-made technology. TSMC's plants in Arizona should support companies such as Apple, Nvidia and Qualcomm and allow them to “compete effectively,'' the Commerce Department said. conclusion to potentially affect TSMC's funding under the CHIPS program.

Last fall, the Commerce Department issued a final rule designed to “prevent the use of CHIPS funds to directly or indirectly benefit foreign countries of concern,'' such as China.

If the U.S. suspected TSMC of helping Huawei manufacture artificial intelligence chips, the company could be perceived as evading the CHIPS restrictions, which prohibit TSMC from “knowingly engaging in any joint research or technology licensing with a foreign entity of concern that relates to a technology or product that raises concerns from a national security perspective.

Violation of this provision of the final rule on "return of technology" may result in the Department of Commerce "charging" with TSMC "full amount" funding provided by the CHIPS Act. However, such an outcome seems unlikely given that TSMC received more funding than any other recipient except Intel.