Cadence Design Systems Inc., a multinational electronic design automation (EDA)technology company headquartered in San Jose, has agreed to plead guilty to charges that it committed criminal violations of export controls by selling EDA hardware, software, and semiconductor design intellectual property (IP) technology to the China’s National University of Defense Technology.

The guilty plea was announced Monday by the U.S. Attorney’s Office for the Northern District of California and the Counterintelligence and Export Control Section of the Justice Department’s National Security Division.

The university in the People’s Republic of China is under the leadership of the Chinese government’s Central Military Commission and was added to the U.S. Department of Commerce’s “Entity List” in February 2015 because of its use of U.S.-origin components to produce supercomputers believed to support nuclear explosive simulation and military simulation activities in China.

“Today’s guilty plea is a clear reminder that U.S. companies must take export control laws seriously and closely monitor where their most advanced technologies are headed,” the FBI said in a statement. “This case should serve as a wake-up call to the broader emerging tech and innovation ecosystem: safeguarding our technological edge is not optional – it is essential to national security.”

Documents filed Monday by federal prosecutors charged Cadence with conspiracy to commit export control violations and detailed the agreement by Cadence to plead guilty and pay criminal penalties of nearly $118 million to resolve the charges.

In addition to the criminal charges, the U.S. Department of Commerce Bureau of Industry and Security also on Monday announced the resolution of a parallel civil enforcement action against Cadence in which Cadence has agreed to pay over $95 million in civil penalties.

The U.S. Commerce and Justice departments have coordinated the resolution of the parallel criminal and civil actions, with each agreeing to credit against their respective fines a portion of the payments made by Cadence to satisfy the other agency’s fine. This action reduces the Cadence penalties from $213 million to approximately $140 million.

“Export controls safeguard America’s advanced technological know-how from falling into the wrong hands, which is particularly important in the Silicon Valley as the epicenter of groundbreaking innovation,” said U.S. Attorney Craig H. Missakian for the Northern District of California. “With this plea, Cadence has admitted to unlawfully exporting its semiconductor design technology to a restricted Chinese military university using a front company, and accepted responsibility for its wrongdoing.”

“Cadence has agreed to accept responsibility for unlawfully exporting sensitive semiconductor design tools to a restricted Chinese military university and has implemented a strong export compliance program to help prevent any further illegal transmission of American technology,” said Assistant Attorney General for National Security John A. Eisenberg. “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.”

“The United States leads the world in semiconductor innovation, with Silicon Valley at the forefront of that global leadership,” said FBI Special Agent in Charge Sanjay Virmani. “The FBI, working alongside our partners at the Department of Commerce, is committed to protecting sensitive U.S. technology from falling into the hands of the Peoples Republic of China.”

According to Cadence’s admissions and court documents, from February 2015 to April 2021, Cadence and its indirectly owned and wholly controlled subsidiary in Shangai,  engaged in a conspiracy to commit export control violations in connection with the provision of EDA tools that were subject to the Export Administration Regulations.

Cadence, Cadence China, and their employees exported, reexported, and transferred in-country U.S.-origin EDA tools to China at least 59 times through September 2020.

In court documents, Cadence admitted that Cadence China employees installed EDA hardware on Chinese military university campus in Changsha, China, campus. According to Cadence’s admissions and court documents, employees of Cadence China did not disclose to and/or concealed from other Cadence personnel, including Cadence’s export compliance personnel, that exports were intended for delivery to the Chinese military.

The U.S. government agreed to the  plea agreement with Cadence based on a number of factors, including Cadence’s failure to voluntarily disclose the misconduct, the nature and the seriousness of the offense, which included exports of sensitive semiconductor design tools and technology to a restricted Chinese military university involved in the development of supercomputers with applications for military and nuclear explosive simulations.

Cadence’s willingness to accept responsibility for the actions of its employees and agents, and its efforts to remediate the root cause of the resulted in Cadence receiving partial credit for its cooperation with the federal investigation

Prosecutors said Cadence collected and disclosed relevant evidence, facilitated interviews with certain employees, made detailed factual presentations and agreed to waive the statute of limitations.

The U.S. also said Cadence did not receive full credit for cooperation because it failed proactively to obtain and disclose to the government relevant communications, and it failed proactively to facilitate interviews of certain China-based employees with information relevant to the offense conduct. Accordingly, the amount of the criminal monetary penalty attributable to the criminal fine reflects a 20 percent reduction off the statutory maximum fine.

The plea agreement is subject to the approval of a federal district judge in the Northern District of California.

Three decades of journalism experience, as a writer and editor with Gannett, Knight-Ridder and Lee newspapers, as a business journal editor and publisher and as a weekly newspaper editor in Scotts Valley and Gilroy; with the Weeklys group since 2017. Recipient of several first-place writing and editing awards, California News Publishers Association.