The U.S. Bureau of Industry and Security (BIS) opened 2026 with an enforcement surge targeting chip exports to China, turning one long-term export-control investigation after another into high-price penalties.
Almost every case involved sending items to China’s premier semiconductor foundry, the Semiconductor Manufacturing International Corporation (SMIC), a company added to the BIS Entity List in 2020 and labelled a Chinese military company in 2021.
Fisher-Owens, whose practice focuses on export controls and economic sanctions, detailed to Kharon’s Ethan Woolley what the BIS cases tell us about U.S. enforcement and the compliance oversights that are costing exporters most.
Coastal caught unaware.
Rather than wait for a BIS license for its high volume of SMIC sales and worried delay could risk $1 billion a year in business, Applied reoriented its production process—to assemble its ion implanters partly in the U.S., then ship them to its South Korean unit for completion, according to the settlement agreement.
The thinking: Applied Materials had “incorrectly concluded,” BIS said, “that if an item is ‘substantially transformed’ in a foreign country, that was sufficient for the item to qualify as foreign-made for purposes of the EAR and the item therefore would not be subject to the EAR provided that the EAR’s de minimis and foreign direct product rules also did not apply.”
Big target: The scale of Applied’s shipments to SMIC called for a major penalty. And the size of Applied’s business, Fisher-Owens said, meant BIS probably wasn’t interested in letting it off any easier than it had to.
“I think in terms of the penalty amount, it’s saying, ‘For activities where there’s no real mitigation, we are going to pursue that high penalty,’ and I think it also reflects … a perception that big companies are not going to pay much attention to small penalties,” he said.
But Beijing’s recent instruction to Chinese businesses to ignore U.S. sanctions—in response to designations of independent “teapot” refineries—has made any such transparency “a real tough question,” he said.
“Some Chinese companies will cooperate because they feel like it's maybe more important to please their U.S. or European suppliers,” Fisher-Owens said, “but I think it's going to be tougher now that [the Chinese blocking] law has become much more front and center.”
News peg: President Trump’s two-day summit with China’s Xi Jinping ended Friday without new discussions of export controls on chips, U.S. Trade Representative Jamieson Greer told Bloomberg TV.
That appears to leave the issue, including the fate of the Affiliates Rule, to the leaders’ next bilateral meeting, potentially in the U.S. in September.
Almost every case involved sending items to China’s premier semiconductor foundry, the Semiconductor Manufacturing International Corporation (SMIC), a company added to the BIS Entity List in 2020 and labelled a Chinese military company in 2021.
- In January, BIS fined Germany’s Exyte Management $1.5 million for its Chinese subsidiary’s dealings with SMIC.
- In February, Silicon Valley-based Applied Materials and its South Korean subsidiary settled with BIS for $252 million, the agency’s second-largest penalty ever.
- Settlements with Minnesota-based health-care company Solventum Corp. and California’s Coastal PVA Technology followed in March and April, for north of $1.5 million apiece.
Fisher-Owens, whose practice focuses on export controls and economic sanctions, detailed to Kharon’s Ethan Woolley what the BIS cases tell us about U.S. enforcement and the compliance oversights that are costing exporters most.
Know your export laws ...
Some of these export violations were “the result of ignorance of the law,” Fisher-Owens said, “but in other cases there was clearly a misunderstanding of what the jurisdictional requirements were and how far the [Export Administration Regulations] can extend.”Coastal caught unaware.
- The California-based firm sold polyvinyl alcohol brushes, which can be used in semiconductor manufacturing, through third-party distributors to SMIC Beijing and SMIC North. In some cases, it shipped the items to those SMIC branches directly.
- BIS wrote that Coastal “had no formal export compliance policies or procedures in place at the time of the relevant sales. After receiving an inquiry from BIS, a senior executive at Coastal stated that Coastal was unaware that unlicensed sales of EAR99 items to SMIC Beijing or SMIC North were prohibited by the Regulations.”
- The German company’s subsidiary, Exyte China, “did not appreciate that a licensing requirement pursuant to the EAR applied to the in-country transfers of goods subject to the EAR by China-based distributors to a customer in China,” BIS said.
- “Germany doesn't have the same sense of broad extraterritorial reach of its export controls,” Fisher-Owens explained. “Particularly if you're coming from outside the U.S., you may not be thinking about re-exports and in-country transfers as even regulated activity.
… and beware of the gray areas.
The BIS sent a letter to Applied Materials in September, 2020 notifying it that a license was now required to sell to SMIC certain items subject to the EAR. Three months later, the BIS added SMIC to its Entity List for “evidence of activities between SMIC and entities of concern in the Chinese military industrial complex.”Rather than wait for a BIS license for its high volume of SMIC sales and worried delay could risk $1 billion a year in business, Applied reoriented its production process—to assemble its ion implanters partly in the U.S., then ship them to its South Korean unit for completion, according to the settlement agreement.
The thinking: Applied Materials had “incorrectly concluded,” BIS said, “that if an item is ‘substantially transformed’ in a foreign country, that was sufficient for the item to qualify as foreign-made for purposes of the EAR and the item therefore would not be subject to the EAR provided that the EAR’s de minimis and foreign direct product rules also did not apply.”
- But U.S. export controls don’t mention a “substantial transformation” provision like tariffs case law and regulations do. Queue the $252 million penalty.
Big target: The scale of Applied’s shipments to SMIC called for a major penalty. And the size of Applied’s business, Fisher-Owens said, meant BIS probably wasn’t interested in letting it off any easier than it had to.
“I think in terms of the penalty amount, it’s saying, ‘For activities where there’s no real mitigation, we are going to pursue that high penalty,’ and I think it also reflects … a perception that big companies are not going to pay much attention to small penalties,” he said.
- BIS, he added, “went to the trouble of mentioning” the company’s multi-billion dollar annual revenue in the settlement documents.
Don’t count on Chinese distributors’ help.
Until recently, Fisher-Owens said, a company exporting to a Chinese distributor could require it to disclose the full Chinese and (if they had one) English business names of their end users, to facilitate compliance screening.But Beijing’s recent instruction to Chinese businesses to ignore U.S. sanctions—in response to designations of independent “teapot” refineries—has made any such transparency “a real tough question,” he said.
“Some Chinese companies will cooperate because they feel like it's maybe more important to please their U.S. or European suppliers,” Fisher-Owens said, “but I think it's going to be tougher now that [the Chinese blocking] law has become much more front and center.”
News peg: President Trump’s two-day summit with China’s Xi Jinping ended Friday without new discussions of export controls on chips, U.S. Trade Representative Jamieson Greer told Bloomberg TV.
That appears to leave the issue, including the fate of the Affiliates Rule, to the leaders’ next bilateral meeting, potentially in the U.S. in September.
