A microchip fabrication plant in Taichung, Taiwan, owned by the world’s most advanced chipmaker, Taiwan Semiconductor Manufacturing Company, or TSMC. (An Rong Xu/The Washington Post)
TAIPEI, Taiwan — A few weeks ago, analysts at a specialized technological lab put a microchip from China under a powerful microscope. Something didn’t look right.
Figuring out where a tiny electronic chip was made is a bit like trying to authenticate a painting. A trained art appraiser can tell its provenance by brushstrokes, the signature, the chemical composition of pigments. For chips, details like the microscopic layout and material makeup of the transistors are telltale signs of which foundry produced it.
The microscopic proof was there that a chunk of the electronic components from Chinese high-tech champion Huawei Technologies had been produced by the world’s most advanced chipmaker, Taiwan Semiconductor Manufacturing Company. That was a problem because two U.S. administrations in succession had taken actions to assure that didn’t happen.
The news of the breach of U.S. export controls, first reported in October by the tech news site the Information, has sent a wave of concern through Washington, expressed among others by Sen. Mark R. Warner (D-Virginia), chairman of the Select Committee on Intelligence, in a letter to President Joe Biden on Wednesday.
Warner castigated the Commerce Department for what he called “leadership failures” in keeping the technologies underpinning next-generation artificial intelligence from filtering their way to China. “TSMC’s production of chips for Huawei has serious implications for U.S. national security,” he wrote.
The chips were routed to Huawei through Sophgo Technologies, the AI venture of a Chinese cryptocurrency billionaire, according to two people familiar with the matter, speaking on the condition of anonymity to discuss a sensitive topic.
The Commerce Department defended itself in a statement, saying that more than 400 Chinese entities had been added to its controlled list under the Biden administration and that it was constantly updating controls to address diversion tactics. It said it could not confirm whether any investigation was underway.
“No Commerce Department in history has been tougher on China,” the agency said.
The technology’s presence in a Chinese champion’s products underscores the challenges for the U.S. government as it attempts to slow China’s AI development by reaching beyond U.S. borders to police the activities of companies using American technology like TSMC.
“It raises some fundamental questions about how well we can actually enforce these rules,” said Emily Kilcrease, a senior fellow at the Center for a New American Security in Washington.
Huawei’s semiconductor operations have been in the U.S. government’s crosshairs since 2020, when the Trump administration implemented a first round of export controls against its chip division. These controls blocked foundries like TSMC from doing business with Huawei if they wanted continued access to critical U.S. technology.
In a rare area of bipartisan agreement, the Biden administration doubled down on that approach. It blocked upstream purveyors of tools used to make chips from selling to Huawei and warned that China’s attainment of advanced AI capabilities would be a military threat to the United States and its allies.
After TSMC was alerted to the presence of its chips in Huawei technology by TechInsights, the Canada-based semiconductor research firm which operates the specialized lab that identified them, the Taiwan company voluntarily disclosed the finding to the U.S. Commerce Department, which is now investigating it, according to one of the people familiar with the matter.
TSMC was able to trace that the chips at issue were originally ordered by Sophgo through a serial number on one of them, according to the other person. Taiwan’s Ministry of Economic Affairs confirmed that TSMC recently halted shipments to a “certain customer” and notified the United States after suspecting that customer might have directed its products to Huawei.
TSMC said in a statement that it had not supplied Huawei since 2020, adding that it conducts robust due diligence and is “committed to complying with all applicable rules and regulations, including applicable export controls.” Under U.S. export controls, TSMC is allowed to sell less advanced chips to some Chinese companies that are not on sanctions lists.
Sophgo denied it was under investigation and said in a statement on its website it “has never been engaged in any direct or indirect business relationship with Huawei.” It also said it provided a detailed investigation report to TSMC to prove that the firm is not related to the Huawei investigation.
TechInsights declined to comment this week. Details in this article of how TechInsights conducts forensic chips analysis is drawn from an earlier interview with one of the company’s executives, and well as from an interview this week with one of the people familiar with the alleged Sophgo diversion.
Huawei told The Washington Post in a statement that it had not “produced any chips via TSMC” since 2020 and “doesn’t have any business deal with Sophgo.” The company added that it had not been contacted by the U.S. government or TSMC about this matter.
Crypto tycoon
Micree Zhan was China’s richest cryptocurrency billionaire in 2018, according to the Hurun China Rich List, with a personal fortune of $4 billion. An engineer by training, he broke onto the Chinese business scene in 2013 when he co-founded Bitmain, a firm that designs crypto-mining chips. Zhan was identified as Sophgo’s chairman in 2021 by his alma mater, Shandong University.
Starting around 2017, the Chinese government turned against the crypto industry, eventually banning trading and mining of the digital currencies. The crackdown coincided with Zhan’s shift in focus to chips for artificial-intelligence applications.
Sophgo was sent up in 2020, according to its website. It designs chips and runs research centers in 10 cities across China as well as a presence in the United States and Singapore. Zhan named one of his AI chips after the supercomputer in “The Three Body Problem,” the Chinese science fiction hit.
There’s been much intrigue in recent days in the industry over how the crypto billionaire’s TSMC-made chips reportedly ended up at Huawei. Critics accuse Sophgo of working to help Huawei evade the export controls, but it is also possible that they were sold through an intermediary, which would align with Sophgo’s denial of having any business relationship with Huawei.
Zhan’s companies and Huawei have crossed paths in China’s chip sector, which has received tens of billions of dollars of government funding and been elevated to a national priority in recent years.
Huawei, one of China’s largest tech employers, announced in 2018 that Bitmain’s BTC.com bitcoin wallet was being made available on its phones. The app was removed from Huawei’s app store in 2021, Huawei said. The two companies worked together on a city computing project organized by Fuzhou’s municipal government, according to Chinese state media.
Bitmain released a statement this week saying it was “not involved” in the supply chain investigation.
This is not the first time that companies related to Zhan have landed in hot water for skirting the rules to access Taiwanese chip technology. In 2021, Taiwanese prosecutors accused two Bitmain affiliates of illegally recruiting Taiwanese semiconductor engineers, according to the New Taipei City prosecutors office. Four Taiwanese individuals pleaded guilty.
Arms race
Semiconductors are at the center of the U.S.-China technology race. The minuscule components are required for everything from missiles to electric vehicles and toaster ovens, while the chip supply chain is a web of international companies in places like the Netherlands, South Korea and Taiwan.
TSMC chips ended up in Huawei’s latest advanced AI processor, the Ascend 910B chip set, according to one person familiar with the matter, a product the company has been developing despite the U.S. government’s attempts to hamstring its innovation in that realm. AI development has triggered a global chips arms race, with hundreds of thousands of chips used at a time by companies like OpenAI to train large language models, at a cost of millions of dollars.
TSMC’s involvement in this case poses issues for Washington, partly because the United States is so reliant on the semiconductor giant, which makes a huge proportion of the world’s advanced chips.
“We need TSMC to be a trusted partner that’s fully compliant with our export control laws because we are putting a lot of our economic security eggs in that basket right now,” Kilcrease said. The Commerce Department’s role is further complicated by the fact that it is providing grants to TSMC to build a factory in Arizona through the CHIPS Act, legislation passed in 2022 aimed at bolstering the U.S. semiconductor supply chain, she said.
“There’s a big messy web of relationships here that need to be sorted through and managed pretty carefully at this point,” she added. “I don’t think that there is any U.S. government interest, either from a security perspective or from an economic perspective, in hammering TSMC.”
While export controls are often hard to enforce, semiconductors are especially hard to manage due to the large and open nature of the global chip trade.
Since the Biden administration implemented sweeping controls in 2022, there have been reports of widespread chip smuggling and semiconductor black markets allowing Chinese companies to access necessary chips.
“It’s always been really difficult to keep your hands on chips,” said James Lewis, a senior vice president at the Center for Strategic and International Studies in Washington. “It’s a very open market. It’s very hard to get control of it.”
For the new administration, regardless of who is elected president next week, questions about the efficacy of the chip export controls will be front and center as they evaluate the future of China policy, particularly on private-sector compliance and public-sector enforcement.
Paul Triolo, technology policy lead at Albright Stonebridge Group, said companies were trying to figure out what lengths they had to go to for due diligence: “The guidelines are murky.”
Dou reported from Washington. Vic Chiang in Taipei, Taiwan, and Ellen Nakashima in Waimea, Hawaii, contributed to this report.
