TSMC Faces Potential $1 Billion Fine Over Export Control Inquiry

Taiwan Semiconductor Manufacturing Co (TSMC) may face penalties exceeding $1 billion to resolve a US export control investigation, according to a Reuters report citing two sources familiar with the matter.

Export Control Investigation Overview

The US Department of Commerce is said to be investigating TSMC’s collaboration with Sophgo, a chip design firm based in China. The report indicates that a chip produced by TSMC for Sophgo was identical to one used in Huawei’s high-end Ascend 910B artificial intelligence processor. The sources who shared this information chose to remain anonymous due to the sensitivity of the situation.

Impact of US Export Control Laws

Given that TSMC’s manufacturing employs US-origin technology, its facilities in Taiwan are subject to US export control regulations. These laws restrict the company from manufacturing chips for Huawei or advanced chips for any Chinese clients without obtaining a US licence.

Citing expert opinions, the Reuters report emphasises that, considering the AI-centric design of the chip, TSMC should not have produced it for a China-based firm, especially considering its potential diversion to a restricted entity like Huawei.

Current Climate of US-Taiwan Relations

As this situation develops, US-Taiwan relations are under increased scrutiny, particularly with ongoing trade negotiations. Recently, Trump enacted a 32% tariff on imports from Taiwan, although chips are exempt from these tariffs. Nonetheless, Trump has indicated that tariffs on semiconductors might also be considered.

In March, TSMC made a significant announcement at the White House regarding a $100 billion investment in the United States, which includes the construction of five new chip fabrication facilities over the next few years.

Awaiting Further Developments

Reuters notes that it is uncertain how the Trump administration will tackle the TSMC issue or when it will be resolved. Senior officials have indicated their intent to pursue stricter penalties for export violations.

The US Commerce Department’s spokesperson refrained from commenting on the investigation. Nina Kao, a spokesperson for TSMC, informed Reuters that the company is devoted to legal compliance. She added that TSMC has refrained from supplying chips to Huawei since mid-September 2020 and is collaborating with the Commerce Department.

Statement from Taiwanese Officials

In comments to the media in Taipei on Wednesday, Taiwan’s Economy Minister Kuo Jyh-huei stated that TSMC is a company that adheres to laws and regulations. However, he mentioned that his ministry had not received any notification regarding a potential fine and could not provide further information.

At this point, no official action has been taken against TSMC. Typically, during such investigations, the Commerce Department would issue a proposed charging letter detailing the alleged violations, the estimated financial impact, and a formula for calculating civil penalties. The company would then be allotted 30 days for its response.