TSMC employees arrested, could face up to 12 years in jail, $3 million fine over alleged attempt to leak 2nm chip details — first case under Taiwan's amended National Security Act cites 'serious suspicions of violating national security laws'

Two employees of major semiconductor manufacturer and design company TSMC, as well as one former employee, have been arrested over claims they stole proprietary technology, according to the Financial Times. This is the first trade secrets case to be filed under Taiwan's new national security law, which is designed to clamp down on the sale and theft of trade secrets of "national core technologies," from the country's hugely important chip design sector.

Taiwan is home to much of the world's chip design and fabrication infrastructure, headed by TSMC's cutting-edge facilities and intellectual property. In recent years, it has leapt ahead of traditional rivals Samsung and Intel and now produces most of the world's most advanced silicon. That makes it a key target for IP theft, however, and over the years, TSMC has struggled with engineers defecting to competitors and taking trade secrets with them.

To that end, Taiwan amended the National Security Act in 2022 to include specific charges for economic espionage related to national defence, aerospace, agriculture, semiconductors, and information security. It's this law that the pair of engineers and a third suspect have been caught by. While FT reports that two of the trio are former employees, Reuters reports that of the three who have been detained, two are current staff members, while one is a former employee. Confusion could stem from the fact that TSMC has fired the workers involved. According to Bloomberg, the number of people arrested could be as high as six. The Taiwan High Prosecutors Office website is currently offline, lending to the confusion.

TSMC allegedly discovered the leaks as part of its own internal auditing, before it forwarded the complaint to the authorities. THIP has since conducted a robust investigation, questioning a number of suspects and witnesses, and searching their residences and places of work. That includes a seemingly unaffiliated Japanese chip tool maker, Tokyo Electron.

The suspects were arrested on “serious suspicions of violating national security laws." It's alleged that they were attempting to leak details on TSMC's cutting-edge 2nm chip development, which puts them well within the sights of the National Security Act, which has specific restrictions on the leaking of semiconductor technology at the sub-14nm scale.

Smaller process nodes offer greater efficiency and performance, as they allow the packing of more transistors into the same physical footprint. However, the smaller you go, the harder manufacturing becomes, which is why there's such an economic arms race to produce the most compact silicon wafers possible. TSMC is at the forefront, with Chinese firms Huawei Technologies Co. and Semiconductor Manufacturing International now beginning to fabricate silicon at around 7nm. Samsung and Intel are much closer, but they don't have anywhere near the reputation or customer bases of TSMC, which produces some 90% of the world's most advanced silicon.

TSMC couldn't be drawn to discuss the case further, but stated that: “We will continue to strengthen our internal management and monitoring systems and will work closely with relevant regulatory authorities as necessary to protect our competitive advantage and operational stability.”

Punishments for transgressions under the amended National Security Act can include up to 12 years in jail, as well as a fine of up to NT$100 million (over $3.3 million U.S.).

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