Although there are many legal hazards that tech companies must navigate, sanctions have become especially critical in the modern era. Any country may impose a sanction, but it is the United States that has adopted a go-to policy of using sanctions as a form of economic warfare. The actual efficacy of this strategy is debatable, especially in light of Russia’s surprising economic resilience against some of the heaviest sanctions the world has ever seen. Regardless, the real question is what kind of legal consequences your tech company may encounter if it attempts to circumvent these sanctions. Is it possible? China’s Huawei chip breakthrough may provide some answers.

What is the Significance of China’s 5G Chip Breakthrough?

The tech world seemed stunned in September when it was announced that China’s new flagship phone contained something that should not have been there: A 5G chip that seemed far too advanced to be possible. Immediately, questions were raised about how exactly China had managed to accomplish this feat, with many voices in the USA seemingly convinced that China had violated their sanctions.

Why was this surprising? It took many US officials off-guard because they were convinced that China lacked the capability to produce 7-nanometer chips at scale. These were the direct comments of US Commerce Secretary Chair Gina Raimondo after Huawei released its Mate 60 smartphone. A closer look at the chip seems to indicate that it was in fact produced in China, as it shows designs and adaptations unique to Huawei. This means that Huawei is now part of an elite club of major tech companies that can design and mass-produce their own superconductors.

That being said, 50% of the phone’s CPUs are still based on designs provided by a British company called Arm. The other 50% are also based on Arm-architecture, but they have been modified and adapted by Huawei. Some have suggested that these adaptations allow Huawei to get as much power and sophistication out of a relatively basic design, much like “souping up” a classic car to dramatically increase its horsepower. So, at the end of the day, this “technology breakthrough” might not be as major as many assume, and it may be more a case of making do with whatever’s available. It is also worth pointing out that technically speaking, these chips are still two generations behind Huawei’s major western competitors.

Did Huawei Circumvent US Sanctions Legally?

Judging by the above report, it seems relatively clear that China did not really break any sanctions – and that it simply used an innovative method to work with materials on hand. However, some US critics are not so convinced. They point out that there is virtually no way the chip was not designed with US EDA tools, and they cannot even imagine how the feat could have been achieved without these tools. This represents a potential breach of sanction law.

The real question is obvious: Who provided Huawei with the western resources they needed to produce this chip, and what kinds of legal consequences might they face? All eyes are on Superconducter Manufacturing International Corp (SMIC). However, US authorities seem to have stopped short at actually accusing SMIC of wrongdoing. When Representative Michael McCaul was asked whether the sanctions were violated, he replied by saying “It sure looks like they did.” This guarded language is also common across western media articles, which state that it appears as though SMIC has violated sanctions. They do not explicitly accuse them of doing so. Huawei is SMIC’s largest customer, and it seems unthinkable that they would stop providing chips to the smartphone manufacturer. Faced with ongoing sanctions, however, SMIC may have simply stopped caring about abiding by US laws.

Are US Sanctions Still Powerful?

Companies that blatantly violate US sanctions can still expect serious legal consequences. On the other hand, there is growing talk about the ineffectiveness of these sanctions in the modern era. Huawei has shown that with the right strategy, it is possible to circumvent US sanctions and remain successful. As of this writing, it does not seem like Huawei, SMIC, or any other company involved in the Mate 60 will face any consequences for alleged violation of sanctions. The general consensus in China seems to be that the chip breakthrough represents a major victory. On the other hand, there are those who are more dismissive. Some point out that Apple continues to dominate the Chinese market, and that Huawei’s flagship phone was outdated from the moment of its release, despite being quite expensive.

Washington is not in denial about the ineffectiveness of its own sanctions. An investigation is currently underway, although its focus may be on the failure of American sanctions rather than any potential wrongdoing by Chinese companies. The Department of Commerce has stated that “export controls are just one tool in the US government’s toolbox to address national security threats presented by the PRC.” This may suggest that the United States is reconsidering its sanction-heavy strategies in favor of others.

Consequences of Sanction Violations Can Be Incredibly Severe

While the United States may be biding its time when it comes to Huawei’s chip breakthrough, it is far more decisive in other situations. Businesses caught supplying non-friendly foreign states with critical US technology face some of the worst criminal charges imaginable, such as treason. We have certainly seen such consequences in the past few years and months, especially when it comes to US microelectronics technology being shipped into Russian hands.

Where Can I Find a Tech Lawyer?

If you have been searching for a qualified tech lawyer, look no further than John P. O’Brien. We know that there are many potential legal challenges that the average tech company must navigate, and sanctions represent just one example. Whether your company is based in the United States or another country, it makes sense to address the issue of sanctions very carefully. When approaching this legal process, consider getting in touch with a lawyer who thoroughly understands US tech law. Book your consultation today and determine the most appropriate course of action.