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Understanding the Implications of Applied Materials' Criminal Probe for US Export Controls

Applied Materials Faces US Government Investigation Over SMIC Export Restrictions

As Reuters reports, Applied Materials (AMAT.O) is being investigated by the US government for potentially evading export restrictions on SMIC, the country's top semiconductor manufacturer. The full article is here:

The report claims that the Justice Department is investigating the largest semiconductor equipment maker in the United States for sending equipment to SMIC via South Korea without an export licence. A individual said that the equipment in question had a value in the hundreds of millions of dollars. Details of the probe are being made public by Reuters for the first time.

The United States has banned the export of state-of-the-art semiconductors and chip manufacturing equipment to China due to national security concerns. A task force was formed earlier this year by the Ministries of Justice and Commerce to investigate and punish export control breaches. The purpose of the laws is to halt the transfer of American technology that may be used to enhance China's military and intelligence capabilities.

Charges from the investigation are unknown, and Reuters was unable to find out whether Applied Materials violated any law

The people claimed that the company produced semiconductor equipment in Massachusetts and often moved it from its Gloucester location to an associate in South Korea. The equipment was then sent to Semiconductor Manufacturing International Corporation (SMIC) in China, according to persons with knowledge of the inquiry.

Two of the people who were involved in the shipments claim that they began in 2021 and 2022 as a result of SMIC being put on the U.S. Commerce Department's "Entity List" in December 2020, which limited the company's export of goods and technology.

SMIC was included on the list because of its ties to the Chinese military. SMIC did not respond to a request for comment about the shipments from Applied Materials right away. In 2020, SMIC said that its services and chip production are "solely for civilian and commercial end-users and end-uses," denying any connections to the Chinese military.

In an effort to "prevent such key enabling technology from supporting China’s military modernization efforts," licences for machinery that is specifically capable of producing chips at advanced technology nodes are likely to be denied, according to a 2020 Federal Register posting from the Commerce Department that also added SMIC to its trade blacklist.

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