Semiconductor Company Discloses Potential EAR, Entity List Violations
A multinational semiconductor company may have violated U.S. export controls when it transacted with two Chinese technology companies on the Entity List, according to its October Securities and Exchange Commission filing. Arteris, which is headquartered in California, said it maintained a business “relationship” with HiSilicon Technologies Co. and Chongxin Bada Technology Development Co., Ltd., which may have resulted in “inadvertent” violations of the Export Administration Regulations. The Bureau of Industry and Security added HiSilicon to the Entity List in 2019 as an affiliate of Huawei (see 1905160072) and added Bada in 2020 (see 2008260038).
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Arteris submitted a final voluntary self-disclosure to BIS in July, wherein it “identified discrete transactions” with both companies. Arteris said it provided “EAR-regulated know-how” to Bada after it was added to the Entity List despite not being authorized to do so by BIS. It also entered into a contract with and provided products to HiSilicon the same week that company was added to the Entity List, which may have violated the EAR “due to the timing of the Entity List restrictions,” Arteris said. The company said it no longer has a relationship” with Bada but maintains a “business relationship” with HiSilicon, although Arteris doesn’t provide it with products or ongoing support.
The company said that about 45% of its 2019 revenue and about 31% of its 2020 revenue came from business with parties on the Entity List, including HiSilicon, Bada and China-based SZ DJI Technology Co., Ltd., one of the world’s largest drone makers (see 2012180039). Obtaining licenses from BIS “can be difficult, costly and time-consuming,” the company said, adding that the U.S. has “increased its Entity List materially in recent years,” which has limited its Chinese customers. The company also said “the absence of comparable restrictions on competitors in other countries” may be hurting Arteris’ competitiveness and that it fears potential retaliation from the Chinese government.
“This raises an additional risk that China may enact retaliatory legislation or regulations that may raise similar adverse risks,” Arteris said. The company said it may be forced to limit its business activities in China “to comply with the EAR and as a result, our revenue could be adversely impacted.”
After it submitted an initial disclosure to BIS, Arteris said it took “several” remedial actions to improve its export compliance. These included updating its written export control policies and procedures, adopting a revised export compliance manual and mandating additional training for “relevant” employees. The company also hired a third-party vendor to help with customer screening.
BIS has “historically closed a significant majority of voluntary self-disclosures” with no penalties and just a warning letter because the agency “gives great weight” to voluntary disclosures, Arteris said. It also said BIS “rarely” revokes a company’s export privileges after a voluntary disclosure, but the company can’t rule out monetary penalties. “We believe it is premature and speculative to provide further guidance on the likelihood that a civil penalty or other penalty would or could be imposed.” BIS declined to comment. An Arteris spokesperson didn’t respond to a request for comment.