US Fines 3D Printing Company for Illegal Tech Exports, Including to China

In a $2.7 million settlement with Commerce’s Bureau of Industry and Security, South Carolina-based 3D Systems Corp. admitted to committing 19 violations of the Export Administration Regulations, including violations of the EAR’s recordkeeping requirements. The company also reached a $20 million settlement with the State Department’s Directorate of Defense Trade Controls -- the largest amount since the agency’s $30 million settlement with FLIR Systems in 2018 -- and a $4.54 million settlement with DOJ.

DDTC said it will waive $10 million of its penalty if 3D Systems agrees to apply the money to “remedial compliance costs,” and DOJ said it will waive $2.27 million of its fine if the company pays what it owes DDTC and BIS.

BIS said 3D systems provided “3D printing, cast urethane modeling, and injection molding services” to customers in the U.S. and abroad. Although the company had 3D manufacturing facilities in the U.S., it also “regularly e-mailed design documents, blueprints, and technical specifications” to its then-subsidiary’s office in China to generate price quotes for requested services, BIS said, adding that those emails constituted EAR-controlled technology exports.

3D Systems on “several occasions” emailed controlled design drawings to its China office in Guangzhou after receiving requests for price quotes from U.S. companies, BIS said. The drawings involved military electronics and items used to produce and repair spacecraft, BIS said. On two occasions in 2015, the company illegally exported to China design documents for technology controlled under Export Control Classification Number 9E515.

The company also illegally exported controlled technology classified under ECCN 3E611, including in November 2015. The government found out about the violation when a customer for Quickparts, which was a subsidiary of 3D Systems at the time, notified Quickparts that it had committed an export violation and submitted a voluntary disclosure to BIS. A BIS agent eventually “conducted an outreach” with 3D Systems and issued the company a warning letter. 3D Systems “therefore knew or had reason to know” that its activities were subject to export regulations, but the company “failed to seek or obtain a license for such technology before exporting it,” BIS said.

3D Systems also exported the design documents to Germany, where it maintained a “mirrored server to store employee e-mails containing controlled technology,” the agency said. BIS said Quickparts’ employee emails, which contained design documents such as blueprints, drawings, diagrams and computer-aided design files, were stored on the German server and needed a license for national security and regional stability reasons. 3D Systems ended this practice for its U.S. Quickparts employees in December 2017 and “fully decommissioned the German server” in October 2018, and now all of its employee email is “hosted exclusively” in the U.S.

The company also exported $182,107 worth of controlled metal alloy powder to China on eight occasions between 2016 and 2019. BIS said the powder was classified under ECCN 1C002 and controlled for national security and nuclear nonproliferation reasons.

3D Systems’ violations mark another case in a “troubling trend of U.S. companies offshoring 3D printing operations and ignoring the export controls on the technical data sent overseas to facilitate the 3D printing,” John Sonderman, director for the BIS Office of Export Enforcement, said in a statement. The agency last year issued a temporary denial order for three U.S. companies after they illegally exported materials used to 3D print satellite, rocket and defense-related prototypes (see 2206080068).

Under the BIS settlement, 3D Systems admitted to committing the violations and must pay a $2,777,570 fine to the agency within 30 days. The company also must complete two audits of its export compliance program, to be conducted by an “unaffiliated third-party consultant with expertise in U.S. export control laws.” The first audit is due within one year, and the second audit is due within 34 months. BIS said it also may issue a temporary denial order against the company if it doesn’t comply with the terms of the three-year probationary period outlined in the settlement.

In its charging letter, DDTC said 3D Systems committed 132 violations of the agency’s defense trade regulations when it illegally exported technical data to “various countries” and demonstrated “disregard” for its “export compliance responsibilities.” The agency also said the company continued to illegally export technical data even after it discovered its violations.

DDTC said it discovered the violations after 3D Systems responded to a subpoena from BIS and began an internal investigation that uncovered violations of the International Traffic in Arms Regulations by Quickparts. Those violations involved illegal exports of technical data to Germany, Taiwan, and China; illegal exports of technical data to foreign employees from India and the U.K.; and a “failure to maintain records” related to those violations.

Many of the ITAR violations overlapped with 3D Systems’ violations of the EAR, including the company’s illegal storage of technical data on an unencrypted email server in Germany. Those servers contained technical data controlled under multiple U.S. Munitions List categories, including Categories IV, VII, VIII, XII and XIII.

DDTC also said Quickparts sometimes used foreign third-party suppliers located in countries outside of China, including in Taiwan. The agency said Quickparts illegally reexported ITAR-controlled technical data from China to Taiwan between June 2017 and April 2018.

Other violations occurred when Quickparts employed foreign nationals from India and the U.K. who “repeatedly” received unauthorized exports of ITAR-controlled data. ”These two individuals had substantive interactions with ITAR-controlled technical data whenever a customer’s question or production issue was brought to their attention,” the agency said. “These activities likely resulted in unauthorized exports of technical data" listed under several USML categories to foreign-person employees, it said.

DDTC pointed to a range of compliance faults and missteps that led to 3D Systems’ violations, including the fact that it didn’t have a formal export compliance program until 2017 despite exporting items controlled under the ITAR since at least 2012. The company only began a compliance program and hired “dedicated” compliance personnel in July 2017 after the government informed it of its potential export violations, DDTC said.

The agency added that 3D Systems had a “limited awareness" of its ITAR obligations and didn’t “appreciate the risk involved” when acquiring new entities, including when in 2012 it acquired Quickparts, a company that provided 3D printing quotation and manufacturing services for third-party customers. Although 3D Systems knew it needed to maintain an ITAR registration after it acquired Quickparts, it didn’t “understand the various ITAR requirements throughout the business,” DDTC said, “including obtaining ITAR authorizations for ITAR-controlled activities.” The company also placed foreign employees in roles that were “likely to receive ITAR-controlled technical data” without first obtaining a license from DDTC.

DDTC also pointed to several mitigation factors, including 3D Systems’ cooperation with the agency’s investigation and its remedial compliance measures in an effort to prevent future similar violations. The company also entered into tolling agreements with DDTC.

3D Systems’ settlement with DOJ involves allegations that it violated the False Claims Act by illegally sending export-controlled technical data to China. The agency said 3D Systems -- through Quickparts -- completed “on-demand manufacturing projects” as part of contracts issued by the Defense Department and NASA. Those contracts involved export-controlled items. DOJ said the violations occurred between Jan. 1, 2012, and Dec. 31, 2017.

Reached for comment, 3D Systems said it is "pleased to have reached a settlement with the agencies and remains committed to continuing to enhance its export controls program.”