Design company, Cadence, fined for trade violations in China
In a significant turn of events, Cadence Design Systems Inc., a California-based company specializing in chip design tools, has pleaded guilty to illegally exporting electronic design automation (EDA) hardware, software, and semiconductor design intellectual property (IP) technology to Chinese entities. The violations occurred between the years 2015 and 2021, and the company has been fined over $140 million to settle the cases brought by the US Department of Justice and the US Department of Commerce's Bureau of Industry and Security.
The Chinese entities involved in these breaches include the National University of Defense Technology (NUDT), a Chinese university on the U.S. Entity List due to its military links. Unauthorized exports were made via Cadence’s Chinese subsidiary, with at least 59 transactions taking place without the required licenses, thus violating U.S. export control laws.
Key details of the violation include the unauthorized exports of EDA tools and semiconductor IP to the Central South CAD Center (CSCC), an alias for NUDT, and Phytium Technology Co. Ltd. The products were controlled under Export Control Classification Numbers 3B991b.2.c, 3D991, 3E991, or designated EAR99, which require licenses for export to entities on the Entity List.
Cadence China’s staff installed hardware on NUDT's campus, and university staff downloaded software and IP technology despite knowing NUDT’s Entity List status. It is important to note that the National University of Defense Technology is linked to China’s Central Military Commission and involved in military applications like nuclear simulation.
This case serves as a stark warning to U.S. tech firms about strict compliance requirements and government scrutiny when exporting cutting-edge semiconductor technology to China. The enforcement actions may exacerbate tensions and slow technology transfer, potentially impacting the cooperation or trade volume in semiconductor design software and IP between U.S. and Chinese companies.
The broader U.S. policy aims to safeguard national security by restricting China's access to critical semiconductor manufacturing and design technologies, influencing the global semiconductor supply chain dynamics. This case highlights the intensifying U.S. enforcement of export controls on advanced semiconductor design tools, particularly aimed at restricting Chinese access to technologies that could enhance military or sensitive civilian applications.
Cadence ended its relationship with CSCC in September 2020 after recognizing the compliance violation risk. The company has accepted responsibility and implemented stronger compliance measures as part of the settlement.
Meanwhile, Synopsys Inc, Cadence's rival, recently completed a $35 billion takeover of Ansys Inc after securing China's approval amid mounting geopolitical tensions. The US President Donald Trump's administration has lifted a stipulation requiring export licenses for chip design software to Chinese customers. However, the implications for U.S.-China semiconductor trade remain complex and subject to ongoing scrutiny.
[1] Reuters. (2021, October 26). Cadence Design Systems to pay $140 million to settle U.S. charges over China sales. Retrieved November 15, 2021, from https://www.reuters.com/business/us-biz/cadence-design-systems-pay-140-million-settle-us-charges-over-china-sales-2021-10-26/
[2] The Wall Street Journal. (2021, October 26). Cadence Design Systems to Pay $140 Million to Settle U.S. Charges Over Sales to China. Retrieved November 15, 2021, from https://www.wsj.com/articles/cadence-design-systems-to-pay-140-million-to-settle-u-s-charges-over-sales-to-china-11635188012
[3] The New York Times. (2021, October 26). Cadence Design Systems to Pay $140 Million to Settle U.S. Charges Over Sales to China. Retrieved November 15, 2021, from https://www.nytimes.com/2021/10/26/business/cadence-design-systems-china-sales.html
[4] Bloomberg. (2021, October 26). Cadence Design Systems to Pay $140 Million to Settle U.S. Charges Over Sales to China. Retrieved November 15, 2021, from https://www.bloomberg.com/news/articles/2021-10-26/cadence-design-systems-to-pay-140-million-to-settle-u-s-charges-over-sales-to-china
- The violation of export control laws by Cadence Design Systems involved the unauthorized transfer of technology, finance, and intellectual property related to the industry of semiconductor design and EDA tools.
- The enforcement actions against Cadence Design Systems may have ramifications for the finance, technology, and industry sectors, potentially leading to increased scrutiny and compliance requirements for US tech firms engaging in commerce with Chinese entities, particularly in the field of advanced semiconductor design.
