San Jose-based Cadence Design Systems Inc. has agreed to plead guilty to criminal violations of U.S. export controls, according to announcements by the Justice Department’s National Security Division and the U.S. Attorney’s Office for the Northern District of California. The company, specializing in electronic design automation (EDA) technology, has been charged with illegally exporting semiconductor design tools to the National University of Defense Technology (NUDT) in the People’s Republic of China, a listed entity known for its ties to the Chinese military and for its role in advancing China's supercomputing capabilities for uses that include military applications.
The company is set to pay nearly $118 million in criminal penalties as part of a plea agreement. Additionally, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has resolved a civil enforcement action, with Cadence agreeing to pay over $95 million in civil penalties. After accounting for coordinated credits between the Department of Justice and BIS on the fines, Cadence is expected to pay a net amount exceeding $140 million. Assistant Attorney General John A. Eisenberg underscored the importance of protecting American technological ingenuity, stating, "American ingenuity is one of our Nation’s most precious assets, and the National Security Division will vigorously enforce U.S. export control laws to protect the technological advantage we enjoy because of that ingenuity," as obtained by the Justice Department.
Following a thorough investigation, authorities discovered that from February 2015 to April 2021, Cadence and its PRC subsidiary engaged in activities to export, reexport, and transfer in-country U.S.-origin EDA tools to NUDT through aliases without the required licenses. The FBI's Assistant Director Roman Rozhavsky highlighted the criticality of the semiconductor industry to national defense and expressed unwavering commitment to defending against threats posed by the Chinese Communist Party.
According to court documents, Cadence admitted that its China-based employees installed EDA hardware on NUDT's campus and enabled the download of related software and IP technology. The export control officer within Cadence had notified employees on the same day NUDT was added to the Entity List about the licensing requirements. However, these warnings were ignored as company employees continued to work with CSCC, NUDT's alias. They had internal communications instructing them to use CSCC in English and NUDT only in Chinese characters to skirt the sensitive nature of their operations, according to information from the Justice Department.
The coordination between various federal departments and the ultimate plea agreement considers Cadence's failure to voluntarily disclose the misconduct and its partial cooperation with the investigation. While the company did assist with evidence collection and provided employee interviews, it did not proactively unearth and share all relevant communications nor facilitate interviews with certain key China-based personnel. Consequently, the criminal monetary penalty reflects a 20 percent reduction from the maximum fine that could have been imposed. The plea agreement still requires the approval of a federal district judge in the Northern District of California.
