DOJ’s initiation of its aggressive trade enforcement strategy is quickly unfolding — and the new strategy is a real and significant threat to all companies engaged in international trade. We are no longer in the era of FCPA enforcement; we are entering the new world of aggressive trade enforcement which is pinned to national security issues.
Few companies have recognized this fundamental shift in DOJ’s tack, and even fewer have modified their compliance focus to mitigate these new and significant risks. It is only a matter of time until we will see “alarming” announcements, and headlines seeking to “scare” companies to invest in compliance.
Proactive companies with well-established risk management processes are already addressing this fundamental shift, recognizing the rising risk of trade enforcement. At the same time, these companies are adjusting proactive anti-bribery compliance tasks and monitoring functions to accommodate this new reality. This shift is minimal but important.
So, back to the latest DOJ-led trade enforcement case. Last week, the Justice Department announced that Cadence Design Systems Inc. (Cadence), a global electronic design automation (EDA) technology company based in San Jose, California, agreed to plead guilty to a conspiracy to violate export control laws by selling EDA hardware, software, and semiconductor design intellectual property (IP) technology to the National University of Defense Technology (NUDT).
NUDT, which is a university in the People’s Republic of China (PRC) is controlled and run by the PRC’s Central Military Commission, was added to the U.S. Department of Commerce’s Entity List in February 2015, due to its use of U.S.-origin components to produce supercomputers believed to support nuclear explosive simulation and military simulation activities in the PRC.
Under the plea agreement with DOJ, Cadence agreed to pay a criminal fine of nearly $118 million.
As part of the settlement, Cadence resolved civil charges with the U.S. Department of Commerce, Bureau of Industry and Security (BIS) and agreed to pay over $95 million in civil penalties. DOJ and BIS agreed with each other to credit a portion of the fines and penalties paid. In sum, Cadence agreed to pay aggregate net criminal and civil penalties and forfeiture totaling more than $140 million.
DOJ and BIS cited the fact that Cadence exported important semiconductor design technology to a restricted PRC military university using a front company. Reflecting the important national security concerns, DOJ and BIS are committed to aggressive enforcement to protect the U.S. semiconductor industry and the national defense.
Applying the Corporate Enforcement Policies, the Department of Justice cited several factors, including Cadence’s failure to voluntarily disclose the misconduct; the nature and seriousness of the offense, Cadence’s willingness to accept responsibility for the actions of its employees and agents, including its subsidiary Cadence China; and Cadence’s efforts to remediate the root cause of the offense conduct by enhancing its export control compliance program.
Cadence received partial credit for its cooperation with the Department’s investigation, which involved collecting and disclosing relevant evidence, facilitating interviews with certain employees, making detailed factual presentations, and agreeing to toll the statute of limitations, but 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.
