Taiwan Semiconductor Manufacturing (NYSE:TSM) could face a fine of $1 billion or more as part of a U.S. export control investigation, according to a report from Reuters citing people familiar with the matter.

The probe by the U.S. Department of Commerce centers on a chip designed by the Chinese firm Sophgo, which was manufactured by TSM and later found in Huawei's high-end Ascend 910B AI processor. That chip is used in China to power large language models and AI chatbots, competing with products from Nvidia (NASDAQ:NVDA).

Back in October, TSM stopped shipping to Sophgo after learning the chip had ended up in Huawei's processor a company restricted under U.S. export laws. The situation escalated in December when the Biden administration added Sophgo to the U.S. blacklist. Sophgo responded by saying it had no business relationship with Huawei and that the Commerce investigation wasn't related to them.

The reported fine stems from export control rules, which allow the U.S. to levy penalties up to twice the value of unauthorized transactions.

TSM told Reuters it's committed to legal compliance and hasn't supplied Huawei since mid-September 2020. A company spokesperson also said TSM is cooperating with the Commerce Department.

Previously, TSM had informed U.S. officials after TechInsights tore down a Huawei device and found a chip made at a TSM facility. At that time, TSM said it wasn't aware of any investigation and had proactively reached out to the government.

According to RAND researcher Lennart Heim, TSM manufactured nearly three million chips based on Sophgo's designs in recent years, and many of those are believed to have made their way to Huawei.