GlobalFoundries Fined $500,000 After Disclosing Illegal Exports to Entity Listed Chinese Firm

U.S.-headquartered GlobalFoundries, one of the world's leading contract chip manufacturing and design companies, admitted to shipping $17.1 million worth of wafers to China-based SJ Semiconductor without a license, according to a settlement agreement released Nov. 1. BIS said it could have imposed a much larger penalty but settled on a lesser amount because GlobalFoundries voluntarily disclosed the violations, cooperated with the agency’s investigation and took "remedial measures."

BIS also noted that SJ Semiconductor wasn't a direct customer of GlobalFoundries, saying the U.S. firm sold its wafers to a Chinese customer that used SJ Semiconductor to outsource assembly and testing of the wafers. Still, GlobalFoundries’ screening system should have blocked the wafers from being shipped to SJ Semiconductor without a license, BIS said, but it didn’t because of a “data entry error.”

GlobalFoundries’ disclosure resulted in a “significant reduction in the monetary penalty,” said John Sonderman, director of the BIS Office of Export Enforcement. The company committed 74 violations of the Export Administration Regulations, BIS said, and could have faced a maximum penalty of either $364,992 per violation or twice the value of its $17,101,679 worth of wafer exports.

Matthew Axelrod, the BIS assistant secretary for export enforcement, said U.S. companies should be “hypervigilant when sending semiconductor materials” to Chinese companies. “And when, as here, that vigilance falls short and semiconductor materials have gone where they shouldn’t, we want companies to make voluntary disclosures, remediate, and cooperate with us,” he said.

BIS said the violations took place from around February 2021 to October 2022, when GlobalFoundries illegally shipped 5,697 silicon wafers that were either covered by Export Control Classification Number 5A991.g and controlled for anti-terrorism reasons, or designated EAR99, which are mostly low-level items that often don’t require specific licenses. But a license was required for SJ Semiconductor because it was added to the Entity List for its ties to China’s SMIC in December 2020 and became subject to a license requirement for all items subject to the EAR, including EAR99 items.

BIS said GlobalFoundries began making semiconductor wafers and dies for an unnamed China-based company in April 2019. The Chinese customer notified GlobalFoundries in February 2020 that it wanted the wafers shipped to SJ Semiconductor, a third-party service provider that tests, assembles and packages the wafers and dies into “finished integrated circuits.” BIS said these shipments to third-party chip servicing providers is a “common industry practice.”

At the time of the shipment, SJ Semiconductor hadn’t yet been added to the BIS Entity List, the agency said, and GlobalFoundries “identified no ‘red flags’ concerning shipments to” the firm.

But after SJ Semiconductor was added to the Entity List later that year, BIS said GlobalFoundries’ trade management system, which automatically screens against U.S. government restricted party lists, should have flagged the transaction. The system didn’t catch that SJ Semiconductor was added to the Entity List because of a data entry error in which GlobalFoundries’ mistakenly listed the unnamed Chinese customer as the “ship to” party instead of SJ Semiconductor.

“As a result of that data entry error, [SJ Semiconductor] was not identified in the transaction screening of any transaction involving the shipment of semiconductor wafers and dies to” the actual Chinese customer, BIS said.

The agency added that even though GlobalFoundries’ trade management system listed the wrong company name for the sale, it listed SJ Semiconductor’s correct address.

BIS also noted that GlobalFoundries received another request from a different customer to also ship wafers and dies for assembly at SJ Semiconductor, but this time GlobalFoundries correctly entered SJ Semiconductor’s name in its system, which flagged the shipment. GlobalFoundries submitted a license application to BIS for the export in June 2021, which was approved.

This showed that GlobalFoundries was shipping its wafers and dies to SJ Semiconductor without a license even as it applied for and obtained a BIS license to ship similar items to SJ Semiconductor for a different customer, BIS said.

A GlobalFoundries spokesperson noted that the company voluntarily disclosed the violations, has a "strong relationship" with the U.S. government and a "history of exemplary compliance, and those were some of the factors taken into consideration, as this error was assessed."

"We regret the inadvertent action due to a data-entry error made prior to the entity listing that caused [GlobalFoundries] to accidentally ship legacy, mature node, products without a license," the spokesperson said in a Nov. 1 emailed statement. GlobalFoundries "continues to be a leader in trusted solutions for the U.S. Department of Defense, and it's why we strive to, and believe we have a world-class trade compliance program that sets the standard for the foundry industry," the person said.

If the company doesn’t pay its $500,000 fine within 30 days, BIS may revoke its export privileges for one year, according to the settlement agreement.

The Commerce Department announced plans in February to award GlobalFoundries about $1.5 billion in Chips Act funding to build a new semiconductor manufacturing facility in New York.