Exclusive: Application materials subject to US criminal investigation for shipments to Chinese SMIC sources

Nov 16 (Reuters) – Semiconductor equipment maker Applied Materials (AMAT.O) is under U.S. criminal investigation for possibly evading export restrictions on SMIC, China’s largest chipmaker, according to three people familiar with the matter.

The Justice Department is investigating the largest U.S. semiconductor equipment manufacturer for sending equipment to SMIC via South Korea without export licenses, the sources said. One person said it involved equipment worth hundreds of millions of dollars. Reuters is publishing details of the investigation for the first time.

Applied Materials shares fell 7.3% following the news and the company announcing quarterly results.

The United States has restricted shipments of advanced chips and chipmaking equipment to China for the sake of national security, and the Departments of Justice and Commerce launched a task force earlier this year to… Investigation and trial Criminal violations of export controls. The bases are intended to stem the flow of US technology that could be used to enhance China’s military and intelligence capabilities.

Santa Clara, California-based Applied Materials said on Thursday that it first disclosed in October 2022 that it had received a subpoena from the US Attorney’s Office in Massachusetts seeking information about certain shipments to Chinese customers. “The company is cooperating with the government and remains committed to compliance and global laws, including export controls and trade regulations,” it said in a statement.

The US Attorney’s Office in Boston said: “We neither confirm nor deny the investigations.”

Two sources said prosecutors in the office’s National Security Unit were handling the ongoing investigation.

Reuters was unable to determine whether the applied materials violated the law, and it is not clear whether the investigation will lead to charges.

The company produced semiconductor equipment in Massachusetts, then repeatedly shipped the equipment from its factory in Gloucester to a subsidiary in South Korea, the people said. From there, the equipment went to Semiconductor Manufacturing Corporation of China (SMIC), people familiar with the investigation said.

The shipments began after the US Commerce Department added SMIC to its Entity List in December 2020, restricting exports of goods and technology to the company, two of the people said, in 2021 and 2022.

SMIC was included on the list because of its apparent ties to the Chinese military. SMIC did not immediately respond to a request for comment on the shipments from Applied Materials. In 2020, SMIC denied its ties to the Chinese military, saying it manufactures chips and provides services to “civilian and commercial end-users and end-users only.”

A spokesman for the Commerce Department, which oversees export controls, declined to comment. A spokesman for the Chinese Embassy in Washington did not immediately respond to a request for comment.

Subject to doubts

When adding SMIC to its trade blacklist in 2020, the Commerce Department said licenses for equipment uniquely capable of producing chips at high-tech nodes would likely be denied “to prevent such a key enabling technology from supporting China’s military modernization efforts,” according to a report. . Published in the Federal Register 2020

She added that licenses for other elements are subject to review on a case-by-case basis.

In March 2021, Reuters reported that the US government was slow in approving licenses for US companies such as Lam Research Corp and Applied Materials to sell to SMIC.

“This matter is questionable, we cannot predict the outcome, and there is no reasonable estimate of the range of losses or penalties, if any, in connection with this matter,” the company said in an August 2023 filing with the U.S. Securities and Exchange Commission. In reference to its receipt in 2022 of the recall order related to some Chinese customer shipments.

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