Taiwan Semiconductor Manufacturing Co (TSMC) may face a penalty exceeding US$1 billion related to a United States export control investigation, according to sources familiar with the situation.

The investigation focuses on a chip produced by TSMC for China-based Sophgo, which reportedly ended up in Huawei’s Ascend 910B AI processor.

Huawei is on a US trade blacklist due to sanctions violations.

It is prohibited from receiving goods made with US technology.

TSMC’s chipmaking equipment includes US technology, making its production facilities in Taiwan subject to US export control laws.

🔗 Source: Reuters

🧠 Food for thought

1️⃣ Record-breaking fine signals intensified export control enforcement

A potential $1 billion penalty against TSMC would represent an unprecedented escalation in export control enforcement, far exceeding previous cases.

The most comparable recent action was a $300 million fine against Seagate in 2023 for shipping hard drives to Huawei, making the potential TSMC penalty more than three times larger 1.

This aligns with Commerce Secretary Lutnick’s explicit pledge to seek “dramatic increase in enforcement and fines for people who break the rules,” reflecting a broader policy shift toward stricter enforcement of technology transfer restrictions 1.

The Export Control Reform Act of 2018 significantly strengthened the government’s enforcement powers, allowing penalties up to double the transaction value, which appears to be applied in this case 2.

This case demonstrates how the U.S. is leveraging its legal reach over companies using American technology, even when manufacturing occurs entirely overseas, showcasing the global impact of the Foreign Direct Product Rule 3.

2️⃣ Sophisticated circumvention attempts challenge export controls

The TSMC case reveals how third-party intermediaries can be used to circumvent restrictions, with chips allegedly flowing through Sophgo to Huawei despite explicit controls.

Nearly three million TSMC-made chips potentially reached Huawei through this indirect route, highlighting the challenge of tracking end-users in complex supply chains 1.

Recent Taiwan Semiconductor Manufacturing developments