The Biden administration (via Reuters) has announced a $500,000 fine for U.S.-based chipmaker GlobalFoundries following shipments of silicon wafers, valued at over $17 million, to China's SJ Semiconductor (SJS), a company listed on the U.S. entity list. This list, managed by the Bureau of Industry and Security (BIS), includes firms deemed security threats, requiring special U.S. licenses for technology exports.

Notably, SJ Semiconductor was added in 2020 for connections with Semiconductor Manufacturing International Corporation (SMIC), China's top chipmaker, which the U.S. alleges has links to the Chinese military. Between February 2021 and October 2022, GlobalFoundries sent 74 shipments of silicon wafers—critical materials in semiconductor manufacturing—to SJS.

This violation was reportedly due to a data error that failed to flag SJS in GlobalFoundries' screening process. Despite the breach, GlobalFoundries voluntarily disclosed the shipments and fully coope rated with BIS, leading to a significantly reduced fine compared to potential maximum penalties.

The penalty marks one of the few instances where a prominent U.S. semiconductor firm has faced financial repercussions under the U.S. export control policies. GlobalFoundries is a significant beneficiary of the CHIPS and Science Act, aimed at bolstering U.S. chip production. Earlier this year, the company received a $1.5 billion award and $1.6 billion in federal loans to expand its New York manufacturing operations to triple its output over the next decade.

Matthew Axelrod, Assistant Secretary for Export Enforcement at BIS, underscored the importance of vigilance in the semiconductor sector, especially when dealing with restricted parties in China. Axelrod emphasized that the administration expects strict compliance with export controls while noting the agency's more lenient treatment of companies that proactively disclose compliance issues and take corrective action.

The Biden administration has implemented stringent controls on chip technology sales to China, aiming to prevent U.S. advancements from fueling China's military developments. However, enforcement has proven complex, as some companies and allied governments voice concerns over the economic impact. Taiwan Semiconductor Manufacturing Company (TSMC) recently revealed that some of its chips have ended up in products by Huawei, a Chinese telecommunications firm under U.S. sanctions, indicating the ongoing challenges in enforcing these restrictions effectively.