U.S. semiconductor design company fined $140 million over China dealings — sold software to a military institution thought to be conducting nuclear explosion simulations

Cadence Design Systems, one of the leading electronic design automation (EDA) firms in the U.S., has pleaded guilty to charges, saying that it sold its chip design software to the National University of Defense Technology, located in Hunan Province in South-Central China. According to Reuters, this institution is believed to be working on nuclear explosion simulations, linking it to China’s nuclear weapons research and development efforts.

The university has been on the U.S. Department of Commerce’s Entity List — a list of companies, institutions, and individuals that the White House deems to be operating contrary to its national security and foreign policy interests — since 2015. Furthermore, its affiliates and aliases, including Hunan Guofang Keji University, Central South CAD Center, and CSCC, were also added to the restricted list in 2019 and 2022, respectively.

Despite this, court records reveal that the chip design company and its China subsidiary, Cadence China, delivered EDA tools to CSCC at least 56 times between 2015 and 2020. This continued even though several Cadence China employees knew that CSCC is simply an alias that NUDT used to circumvent American sanctions. Furthermore, Cadence also sold its products to Phytium Technology Co., a Chinese semiconductor company that’s known to be closely working with NUDT, without applying for the proper export licenses.

The company pleaded guilty to one count of conspiracy to commit export control violations, requiring it to pay $140 million in forfeitures, civil, and criminal penalties. Aside from that, the court is also expected to put it under probation for three years, preventing it from doing business with sanctioned institutions at the risk of even harsher penalties.

The U.S. has lifted a ban on the general export of EDA tools, including those from Cadence, earlier this month. However, this lifting only makes it readily available to institutions that aren’t included in the Entity List. So, any company that wants to do business with NUDT and its affiliates must still acquire a proper export license from the Federal government.

Cadence, so far, is the biggest company to have pleaded guilty to breaking American sanctions on Chinese companies. However, it’s not the only one facing scrutiny. Nvidia, the current world leader in AI semiconductors, has seen billions of dollars’ worth of its AI chips smuggled into China. While its CEO, Jensen Huang, continues to deny that its chips are being diverted, there is a thriving black market in China for banned GPUs like the B200 and RTX 5090.

The U.S. is tightening its grip on export controls, even pressuring its allies like Singapore and Malaysia to clamp down on smuggling rings. However, the massive demand in China makes smuggling AI technologies quite lucrative, making it nearly impossible to stop completely.

Follow Tom's Hardware on Google News to get our up-to-date news, analysis, and reviews in your feeds. Make sure to click the Follow button.