Recent Enforcement Action by the Department of Justice Emphasizes Potential Threats Posed by China
U.S. Government Cracks Down on Export Control Violations with $140 Million Settlement
The Department of Justice (DOJ) and the Department of Commerce have announced a significant resolution of criminal and civil charges against Cadence Design Systems. The resolution, worth $140 million, stems from export control violations relating to transfers of semiconductor design hardware and software tools to a restricted Chinese university.
The agreement underscores the government's resolve to investigate and prosecute companies that pose risks to US national security by violating export control laws and regulations, particularly in sectors such as semiconductors, advanced computing technologies, and artificial intelligence.
The key elements of Cadence's export compliance program, as outlined in the settlement, include high-level commitment from company directors and senior management, clear and visible policies and procedures, periodic risk-based reviews, senior executive oversight, regular training programs, internal reporting mechanisms, enforcement mechanisms, risk-based due diligence reviews for mergers and acquisitions, and benchmarking and testing of compliance practices.
The case highlights the sensitive nature of the items and technologies at issue and knowledge of the violative conduct by Cadence through its subsidiaries. It also underscores the importance of robust controls over non-U.S. subsidiaries, especially in regions of national security concern.
Cadence admitted to engaging in transactions with China's National University of Defense Technology (NUDT), directly and through affiliates, between 2015 and 2020 involving items valued at more than $45 million. NUDT has been restricted under the BIS's Entity List since February 2015 due to the US government's findings that NUDT used US components to produce semiconductors that support China's nuclear weapons program and other military uses.
The settlement is the first corporate criminal plea following the DOJ's March 2024 revised NSD Enforcement Policy for Business Organizations. The agreement also identifies mitigating factors such as Cadence's implementation of remedial measures.
Companies in sensitive technology sectors are encouraged to consider implementing strong risk-based compliance programs, enhanced screening measures, voluntary self-disclosure and cooperation, and contract provisions that address export control risks. They should also establish internal reporting (whistleblowing) and investigation procedures, implement periodic training and certification of completion of training requirements, and conduct risk-based due diligence reviews for mergers and acquisitions.
This comprehensive framework reflects heightened U.S. government expectations for export control compliance programs, emphasizing proactive risk management, top-down commitment, continuous training, and thorough oversight of export activities, especially related to sensitive technologies like electronic design automation (EDA) software and semiconductor design IP.
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