TSMC Faces Possible $1bn U.S. Fine Over Huawei Chiplet Shipments as Washington Grows Wary of China’s Workarounds

Taiwan Semiconductor Manufacturing Co. (TSMC) could be fined more than $1 billion by the U.S. Department of Commerce following revelations that it unwittingly supplied a compute chiplet used in Huawei’s Ascend 910-series AI processor.

If the penalty is handed down, it will rank among the largest ever imposed under U.S. export control laws — a reflection not only of the volume of chips allegedly transferred but of Washington’s growing alarm over what it sees as systematic efforts by Chinese companies to bypass its sanctions regime.

Reuters, citing sources close to the matter, reported that the fine is being considered under U.S. rules that allow penalties of up to twice the value of any unauthorized transactions. While no formal charges have been filed against TSMC yet, the Commerce Department typically initiates such proceedings with a proposed charging letter that lays out the violations, financial estimates, and a deadline for response — usually within 30 days.

The alleged infraction involves a compute chiplet TSMC believed it was manufacturing for Sophgo, a relatively obscure Chinese firm with ties to cryptocurrency mining hardware company Bitmain. The chiplet was later discovered inside Huawei’s Ascend 910-series processor — an advanced AI chip that would normally require export licenses due to Huawei’s inclusion on the U.S. Entity List since mid-2020. That list prohibits U.S.-based firms and foreign companies using U.S. technologies from selling to Huawei without a license.

When reverse engineering firm TechInsights exposed the use of TSMC’s chiplet in Huawei’s hardware last year, it forced the Taiwanese semiconductor giant to halt all shipments to Sophgo. But by that time, a significant number of units had reportedly been delivered. Some analysts estimate that Huawei may have procured millions of chiplets through the arrangement.

Deception and the Difficulty of Detection

TSMC has maintained that it was not aware that Huawei was the true end user. The company claims that chip manufacturers like itself often cannot trace the ultimate origin or purpose of a chip design submitted for fabrication — particularly when the intermediary is an ostensibly independent third party like Sophgo.

Yet the complexity of the chip in question raised eyebrows. The chiplet incorporated tens of billions of transistors — an undertaking that would typically involve massive R&D budgets, design sophistication, and long lead times. For such a high-end chip to originate from a little-known company with links to a bitcoin mining hardware maker should have drawn more scrutiny, officials familiar with the investigation believe.

The U.S. Commerce Department, which has made blocking China’s access to cutting-edge AI technology a cornerstone of its national security strategy, is said to be especially incensed by the Sophgo-Huawei link. One source told Reuters that officials view the episode not as a technical oversight but as a test of the enforcement teeth behind America’s export controls.

The situation mirrors a 2023 case involving Seagate, which was fined $300 million for shipping $1.1 billion worth of hard disk drives to Huawei. At the time, it was the largest standalone penalty issued for violating U.S. export rules — a record the TSMC case may now eclipse.

Huawei’s Network of Proxies

The broader concern in Washington is the growing sophistication of Huawei’s tactics to circumvent sanctions. Sophgo is just one of several entities now suspected of operating as a front for the embattled tech giant. By outsourcing chip design to proxy firms and obscuring the real purpose of the hardware, Huawei is reportedly able to keep importing high-performance semiconductors despite being blacklisted.

A source familiar with the investigation described the Chinese firm’s strategy as “layered deception.” Huawei doesn’t just obscure its own involvement — it reportedly helps its partners disguise theirs, from design to manufacturing to packaging. The goal is to ensure that even if one intermediary is caught, the pipeline remains intact through others.

In January this year, Sophgo was also added to the U.S. Entity List, a move that further suggests U.S. authorities now see it as part of a larger subterfuge network.

TSMC’s Damage Control

Since the scandal broke in late 2024, TSMC has moved to tighten internal compliance. In addition to cutting ties with Sophgo, the company ended its relationship with PowerAIR, a Singapore-based firm that also raised red flags during an internal audit. PowerAIR’s business structure and transactions reportedly bore similarities to the Sophgo arrangement, prompting a proactive severing of ties before any violations could occur.

TSMC is also said to be working closely with the Commerce Department on the matter, though it remains unclear whether the company will try to contest the fine or seek a settlement.

Some industry experts believe that TSMC is as much a victim in this situation as it is a potential violator. The company relies on chip designs from thousands of global clients and has limited visibility into end-user intentions, especially when those clients go to great lengths to hide them.

But that argument may hold little sway in Washington. For U.S. officials, the concern is less about who knew what, and more about whether U.S. technology continues to fuel China’s military and surveillance ambitions despite the export rules.

A Growing Chill in U.S.-China Tech Relations

The TSMC episode comes at a time of heightened tension between the United States and China over technological supremacy. The Biden administration intensified restrictions on the export of AI chips, semiconductor manufacturing equipment, and advanced lithography tools to Chinese firms while urging allies like the Netherlands, South Korea, and Japan to follow suit.

TSMC, as the world’s most advanced chipmaker, is at the heart of this geopolitical crossfire. It has factories in both Taiwan and the U.S. and counts both American and Chinese firms among its major clients. As such, it walks a tightrope between satisfying Washington’s security concerns and preserving its business in Asia. The potential billion-dollar fine underscores the risks of that balancing act and the high cost of getting it wrong.

TSMC is currently waiting for an official notice. However, the implications are already reverberating through the global chip industry, where suppliers are now scrambling to verify clients and screen for red flags. The message from Washington is clear: if you help Huawei, even by accident, you will pay the price.