Senate Permanent Subcommittee on Investigations Releases Majority Staff Report Revealing Semiconductor Manufacturers' Deficient Compliance with Export Controls

[WASHINGTON, DC] - U.S. Senator Richard Blumenthal (D-CT), Chair of the U.S. Senate Permanent Subcommittee on Investigations (PSI), released a majority staff report today detailing the Subcommittee's findings thus far in its inquiry into the U.S. technology fueling Russia's war in Ukraine. The report comes ahead of today's PSI hearing with U.S. semiconductor manufacturers, Analog Devices Incorporated (Analog Devices), Intel Corporation (Intel), Texas Instruments Incorporated, and Advanced Micro Devices Incorporated (AMD) (collectively, the "Four Companies"), which will scrutinize the companies' compliance with export controls and examine issues in the larger semiconductor manufacturing industry.

"The Subcommittee's findings paint a stark picture of the flow of technology to countries neighboring Russia. They also demonstrate that these companies-all of which have the resources, funding, and knowledge to do more-are simply not doing enough," said Blumenthal.

In September 2023, PSI initiated an inquiry to better understand the prevalence of American-manufactured microchips in Russian weapons systems in the face of export controls implemented to block Russia from accessing U.S. technology. Today's staff report represents PSI's findings thus far, which reveal the Four Companies' laissez-faire attitude toward export control compliance. A summary of key findings from PSI's investigation thus far is available below.

Exports of U.S.-Manufactured Semiconductors to Countries of Concern Have Increased Since Russia's Invasion of Ukraine

PSI's inquiry and review of data submitted by each of the Four Companies for Armenia, Belarus, China, Finland, Georgia, Hong Kong, Kazakhstan, Kyrgyzstan, Russia, Turkey, and Uzbekistan found that there have been substantial increases in aggregated exports of semiconductors to countries known to have entities engaged in transshipment. The rapid surge in the volume of transactions to certain countries has few ready explanations other than the war in Ukraine. Countries such as Kazakhstan, Armenia, and Turkey have been identified by numerous experts as a pathway for Russia's acquisition of battlefield goods despite export controls. Reports regarding Russia's ability to evade U.S. sanctions have repeatedly highlighted Hong Kong and China as the two largest continuing sources of semiconductors to Russia.

The Four Companies Were Slow to Detect Sales of Products to Entities of Concern

PSI's inquiry demonstrates that the Four Companies have failed to quickly identify entities of concern due to a lack of proactive efforts at identification. The failure to detect these entities earlier at AMD, Analog Devices, and Intel may stem from a failure to use the full functionality of risk management software. At Texas Instruments, the failure to detect these entities seems attributable to its decision to only use commercially available risk management databases significantly later in the customer screening process, and sometimes not at all. The failure to quickly detect sales to entities of concern at Texas Instruments may also be due in part to lax controls on online direct sales.

Significant Gaps Remain in the Export Control Compliance Procedures and Policies at the Four Companies

PSI's review of each of the Four Companies' export control compliance programs demonstrated that significant gaps remain that could allow their products to reach suspicious or flagged entities. While each company's export control compliance policies varied, the Subcommittee found that each of the Four Companies: (1) failed (other than AMD) to provide timely responses containing operational information to organizations focused on tracing the flow of U.S.-manufactured semiconductors to Russia; (2) failed to annually conduct comprehensive audits of their own internal export control processes; and (3) failed (prior to the Subcommittee's inquiry) to routinely audit the export control policies and procedures of all of their distributors yearly.

Semiconductor manufacturers have not sufficiently increased their export control compliance efforts since Russia's invasion of Ukraine

PSI's inquiry found that semiconductor manufacturers have not sufficiently increased their compliance efforts fast enough or substantively enough to combat increased diversion risks following Russia's invasion of Ukraine. According to PSI's findings, semiconductor companies remain less diligent at targeting illicit transactions than the financial sector, despite regulatory frameworks already in place for semiconductor companies to take similar steps as financial institutions to watch for potential attempts by Russia to evade export controls. Recent policy changes at certain companies also show that semiconductor manufacturers can do more.

The full staff report detailing PSI's findings is available here. A livestream link to today's hearing will be available here.

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