The US Department of Commerce has reached a $252 million settlement with Applied Materials for illegally exporting chip manufacturing tools to China’s partly state-owned Semiconductor Manufacturing International Corp. (SMIC).

The equipment was produced by Applied Materials in Massachusetts and shipped to SMIC via its South Korean subsidiary. According to the Department of Commerce, Applied made illegal shipments on 56 occasions between 2021 and 2022, with the value of the equipment shipped to SMIC totaling $126m.

As part of the settlement, Applied Materials also agreed to conduct multiple audits of its export compliance program and has terminated the employment of those responsible for the illegal shipments. The $252 million penalty, which is twice the transaction value, is the maximum allowed under the law, the department said.

“The Bureau of Industry and Security is strongly committed to safeguarding sensitive American technologies and deterring wrongdoers. When companies export their products around the world, they must follow the law or face stiff penalties,” said Under Secretary of Commerce for Industry and Security, Jeffrey Kessler.

The government opened an investigation in September 2023, after it was first discovered that the Huawei Mate Pro 60 contained 7nm, 5G-enabled chips produced by SMIC. When the Department of Commerce started its investigation, at that time, the most advanced chip SMIC had been known to manufacture was a larger-scale 14nm semiconductor.

The US Commerce Department added SMIC to its sanctions list in 2020, requiring companies to seek individual export licenses to sell equipment to the company. A few months later, the company was added to the government’s Entity List, making it even harder for SMIC to obtain US products and services.