BIS Announces $252.5 Million Settlement with Applied Materials over Alleged Unauthorized Reexports to China

On February 11, 2026, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) announced a $252.5 million civil settlement with Applied Materials, Inc. (AMAT) and its Korean subsidiary, Applied Materials Korea (AMK). The settlement resolves allegations that the companies violated the Export Administration Regulations (EAR) by reexporting controlled semiconductor manufacturing equipment to a restricted Chinese entity without the required authorization.

This enforcement action is one of the largest BIS penalties to date. It underscores the BIS’s continued focus on semiconductor technology, supply-chain routing, and end-user controls, particularly with respect to China. BIS cited evidence of active evasion following a 2020 “is informed” letter, concluding that the company had attempted to bypass U.S. export controls through a purported third-country “substantial transformation” process — a legal theory that BIS soundly rejected. Notably, the U.S. government appears to have stopped short of pursuing criminal charges, despite the company’s disclosures regarding grand jury subpoenas.

According to BIS, between November 2020 and July 2022, AMAT and AMK allegedly engaged in 56 prohibited reexports or attempted reexports of U.S.-origin ion implanter equipment, classified under Export Control Classification Number (ECCN) 3B991, from South Korea to Semiconductor Manufacturing International Corporation (SMIC) and its subsidiaries. BIS placed SMIC and six of its subsidiaries on the Entity List in December 2020, triggering a license requirement for exports, reexports, or in-country transfers of all items subject to the EAR.

BIS determined that AMAT implemented a “dual-build” production and routing process in which partially manufactured equipment and associated components were shipped from the United States to South Korea for assembly and testing, and subsequently forwarded to SMIC in China without the required BIS licenses. According to BIS, AMAT would partially produce ion implanting equipment at its U.S. facilities before sending those items, along with additional U.S.-origin and foreign-origin components, to AMK in South Korea. AMK would then assemble the components into the ion implanting equipment, conduct testing, and ultimately ship the equipment to SMIC. In AMAT’s view, the overseas assembly (dual-build) in South Korea would effect a “substantial transformation,” such that the finished tools would be treated as foreign-made and thus potentially outside U.S. jurisdiction or eligible for de minimis status.

BIS, however, rejected this argument and concluded that the equipment remained U.S.-origin, and therefore subject to the EAR, regardless of the foreign assembly process. Specifically, BIS determined that AMAT began production of the equipment in the United States and shipped the equipment, along with the necessary components, to South Korea to complete production. As a result, all the items were subject to the EAR, and the additional testing and assembly abroad did not result in the assembled equipment’s being considered foreign-origin or otherwise removed from EAR jurisdiction.

“BIS deems that U.S.-origin items or items physically located in the United States on which production begins in the United States are not rendered ‘foreign-made’ when the items are exported and then undergo further assembly and testing in a foreign country when … those activities outside the United States involved little or no foreign-origin parts that were shipped to the foreign location from a non-U.S. location.”

Settlement Terms

The total value of the transactions at issue was approximately $126 million. Under the settlement, AMAT agreed to pay a civil penalty of approximately $252.5 million — the statutory maximum (twice the value of the underlying transaction) and the second-largest civil penalty imposed by BIS to date. The settlement also imposes significant compliance obligations, including: (i) completion of two internal audits of AMAT’s export compliance program covering China-related semiconductor equipment transactions; (ii) submission of audit findings and certifications to BIS; (iii) continuation of enhanced export compliance training; and (iv) maintenance of internal reporting mechanisms for export-related concerns. The settlement further includes a suspended denial of export privileges for a three-year period, which may be activated if AMAT fails to meet its payment or compliance obligations. The U.S. Department of Justice and Securities and Exchange Commission have closed their related investigations without action, providing AMAT with regulatory closure beyond the BIS component.

Key Takeaways

• BIS has formally rejected “substantial transformation” as relevant under the EAR. BIS’s enforcement action makes clear that applying a substantial transformation framework to reexport will not shield transactions from EAR obligations, and BIS views substantial transformation as a Customs-only doctrine, not for use in export-control jurisdiction. 
• BIS remains highly focused on semiconductor manufacturing equipment. This case follows BIS’s pattern of increasing scrutiny on high-precision semiconductor tools, particularly those that may enable advanced fabrication at China-based facilities. 
• Reexports and “modular assembly” pathways are under the microscope. In this settlement, BIS highlighted how U.S.-origin controlled modules, even when combined with non-U.S. components or assembled overseas, remain subject to the EAR. Dual-build or refurbished models may preserve U.S. status of the final tool; third-country assembly will not, by itself, remove EAR jurisdiction, especially when dealing with Entity List end-users.
• Entity List transactions continue to pose elevated risk. Because SMIC and affiliates have been on the Entity List since late 2020, any shipment, direct or indirect, may trigger heightened scrutiny and licensing requirements.

For questions about this settlement or other export control matters, contact the authors or any of their colleagues in Arnold & Porter’s Export Control & Sanctions group.

© Arnold & Porter Kaye Scholer LLP 2026 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.