Cadence Settles Export Violations for $140M

Cadence Design Systems, Inc., a San Jose–based leader in electronic design automation (EDA) technology, has agreed to plead guilty to a criminal charge and pay more than $140 million in combined criminal and civil penalties for unlawfully exporting semiconductor design tools to a restricted Chinese military university.

The coordinated enforcement action by the U.S. Department of Justice (DOJ) and the Department of Commerce’s Bureau of Industry and Security (BIS) resolves a years-long investigation into Cadence’s sale and transfer of U.S.-origin EDA software, hardware, and intellectual property to the National University of Defense Technology (NUDT) through Central South CAD Center (CSCC) and later Phytium Technology Co. Ltd. All three entities have been listed on the BIS Entity List for their roles in advancing the People’s Republic of China’s (PRC) military and nuclear capabilities

Criminal Charges and Penalties

In a plea agreement filed in the U.S. District Court for the Northern District of California, Cadence admitted to conspiring to violate the Export Administration Regulations (EAR) by facilitating dozens of unlicensed exports to NUDT via CSCC between 2015 and 2020.

Key facts admitted by Cadence include:

• Knowingly exporting EDA tools to NUDT through CSCC at least 59 times;
• Installing hardware on NUDT’s campus in Changsha, while employees knew of NUDT’s Entity List status;
• Allowing NUDT personnel to access software and IP via download portals;
• Engaging in concealment tactics, including referring to NUDT only in Chinese characters in communications and removing references to the People’s Liberation Army from internal reports.

In October 2020, Cadence consented to CSCC’s reassignment of its contracts to Phytium, despite internal communications acknowledging Phytium’s ties to NUDT and the PRC military. Cadence then exported controlled EDA software and IP to Phytium until early 2021. BIS later added Phytium to the Entity List in April 2021.

Cadence will pay a criminal penalty of nearly $118 million, subject to court approval.

Civil Penalty and Compliance Measures

Separately, BIS imposed a $95.3 million civil penalty, half of which will be satisfied through the DOJ payment. The BIS settlement requires:

• Two independent audits of Cadence’s export compliance program;
• Admission of all conduct described in the charging letter;
• Ongoing cooperation and disclosure obligations.

Cadence has acknowledged full responsibility and agreed to remedial measures. It has already implemented an upgraded export compliance program, according to DOJ officials.

BIS Order, settlement agreement, and Proposed Charging Letter [Link]

DOJ Plea Agreement: [Link]

SEC Form 8K [Link]

Wilmer Hale Review [link]