The Biden administration has imposed a $500,000 penalty on New York-based GlobalFoundries, the third-largest contract chipmaker globally, for unauthorized shipments of silicon wafers to SJ Semiconductor (SJS), a Chinese firm tied to Semiconductor Manufacturing International Corporation (SMIC). The shipments, valued at $17.1 million, were sent between February 2021 and October 2022 without the required U.S. export license, as SJS has been on the U.S. entity list since 2020 due to alleged links to China's military-industrial complex.

The U.S. entity list, overseen by the Bureau of Industry and Security (BIS), restricts exports to companies that are considered national security risks unless special licenses are obtained. SMIC, China's largest chipmaker and an affiliate of SJS, was blacklisted due to alleged connections with the Chinese military—a claim SMIC has denied.

According to BIS, GlobalFoundries' violation stemmed from a data oversight that failed to flag SJS in the company's screening process. Upon realizing the mistake, GlobalFoundries voluntarily reported the error and cooperated with BIS, which ultimately led to a significantly reduced fine. Without such cooperation, the penalty could have been far higher.

“This action underscores the importance of vigilance among U.S. firms dealing with restricted entities in China,” said Matthew Axelrod, Assistant Secretary for Export Enforcement at BIS. Axelrod emphasized that while BIS is prepared to penalize violations, it also considers leniency for companies that proactively disclose compliance issues and take corrective steps.

GlobalFoundries, a major recipient of U.S. government support under the CHIPS and Science Act, recently secured $1.5 billion in grants and $1.6 billion in loans to expand its New York production facilities as part of a broader effort to strengthen domestic chip production. However, this incident highlights the complexities of enforcing export controls, especially given the ongoing demand for semiconductor technology.

The U.S. has tightened export controls on advanced chip technology to prevent American innovation from advancing China's military capabilities. However, enforcement has proven challenging. Recent reports reveal that some chips from Taiwan Semiconductor Manufacturing Company (TSMC) ended up in products by Chinese telecom giant Huawei, indicating that monitoring and compliance in this sector remain difficult despite heightened restrictions.

This case signals the U.S. administration's commitment to stringent export control enforcement while aiming for balanced measures that allow industry cooperation in compliance.