Taiwan Semiconductor Manufacturing Co. (TSMC) could be hit with a fine exceeding $1 billion as part of a U.S. investigation into export violations involving a chip that allegedly ended up in a Huawei AI processor, according to two individuals familiar with the matter.

The probe, led by the U.S. Department of Commerce, focuses on TSMC's manufacturing of a chip designed by China-based firm Sophgo. Investigators believe this chip matches one discovered in Huawei’s Ascend 910B, a high-performance artificial intelligence processor. Due to Huawei’s placement on a U.S. trade blacklist, any tech made with American-origin equipment is forbidden from reaching the company.

Though TSMC stopped direct shipments to Huawei back in 2020, experts like Lennart Heim from RAND Corporation say nearly 3 million chips created for Sophgo by TSMC likely made their way to the Chinese tech giant. U.S. officials suspect the chips were funneled to Huawei in defiance of export control laws.

Under U.S. regulations, penalties for such infractions can amount to twice the value of the unauthorized transactions, pushing the potential fine well into the billion-dollar range. Given that TSMC’s fabrication plants rely on American technology, the company is subject to U.S. export laws—even when manufacturing in Taiwan.

Heim argued that, considering the chip’s AI-focused design and China-based customer, TSMC should have avoided the contract entirely due to the risk of eventual diversion to a restricted entity like Huawei.

This case surfaces at a sensitive time for U.S.-Taiwan ties. The two sides are currently reevaluating their trade relationship in the wake of former President Donald Trump’s newly imposed 32% tariff on Taiwanese imports. Although the tariff excludes semiconductors, Trump has hinted that chips may be included in future rounds.

Meanwhile, TSMC has pledged a $100 billion investment in the U.S., with plans to build five additional chip fabs in the coming years, signaling its deepening ties with Washington despite rising tensions.

While no formal action has been taken yet, the Commerce Department often issues a "proposed charging letter" outlining alleged infractions, the monetary value of violations, and a preliminary fine. The targeted company typically has 30 days to respond.

Commerce Secretary Howard Lutnick emphasized last month that his department intends to intensify enforcement of export controls. “We’ve seen enough companies chasing profits while putting national security at risk,” he said. Jeffrey Kessler, now overseeing export compliance, singled out the TSMC-Huawei issue during his confirmation, calling it a "serious concern" requiring "strong enforcement."

Fines of this magnitude are rare. The largest recent example was a $300 million penalty levied against Seagate Technology in 2023 for supplying Huawei with over $1 billion in hard drives.
TSMC first came under scrutiny in the fall of 2023, when Canadian firm TechInsights disassembled Huawei's 910B chip and discovered a component manufactured by TSMC. In response, the chipmaker halted shipments to Sophgo. The Commerce Department followed up in November by banning TSMC from sending any advanced chips—7nm or better—to Chinese clients for AI-related uses.

Sophgo, which denied ties to Huawei in October, was added to the U.S. trade blacklist in January. Huawei’s 910B is seen as the most sophisticated AI chip currently produced in China, positioning it as a domestic alternative to Nvidia's powerful GPUs.