This week, the Bureau of Industry and Security (BIS) imposed a $2,777,750 administrative penalty on 3D Systems Corp. (3D Systems). Under the settlement agreement, the company must also retain a third-party consultant and to complete two audits of its export controls compliance program. The settlement resolves allegations regarding 19 violations of the Export Administration Regulations (EAR) involving exporting controlled aerospace technology and metal alloy powder to China without the required license, and exporting controlled technology to Germany without the required license. The Proposed Charging Letter (PCL) included other allegations regarding 3D Systems’ failure to comply with EAR recordkeeping requirements.
The penalties did not stop there—3D Systems also settled with the Department of State and the Department of Justice.
A cautionary tale
3D Systems offers 3D printing, cast urethane modeling, and injection molding services to clients in the US and abroad. Although 3D Systems maintains manufacturing facilities in the United States, it also regularly emailed design documents, blueprints, and technical specifications, including those for military electronics as well as those used in the development, production, operation, or repair of spacecraft, to a subsidiary in China to generate a price quote for the services requested. Because these emails included details regarding controlled US technology, the emails constitute an export of technology subject to the EAR.
The company also exported controlled design documents via email to Germany, where 3D Systems maintained a server that stored employee emails containing controlled technology. 3D Systems also exported metal alloy powder to China without the required BIS license.
A customer of a 3D Systems subsidiary noticed a price quote indicating that the quoted parts were to be manufactured in Asia using controlled technology. The customer notified the subsidiary and reported the alleged violations to the federal government.
The allegations in BIS’s PCL outline 19 violations, including two counts of engaging in prohibited conduct by exporting EAR-controlled technology to China without the required license, four counts of acting with knowledge of a violation by exporting EAR-controlled technology to China without the required license, four counts of engaging in prohibited conduct by exporting EAR-controlled technology to Germany without the required license, one count of failure to comply with recordkeeping requirements, and eight counts of engaging in prohibited conduct by exporting metal alloy powder subject to the EAR to China without the required license.
A “troubling trend”
Office of Export Enforcement Director John Sonderman describes the enforcement action against 3D Systems “part of a troubling trend,” noting that many US businesses that outsource 3D printing operations abroad are ignoring export controls regulations on the technical data they are sending overseas to facilitate their 3D printing needs.
Because violations—and subsequent enforcement actions—are on the rise, US companies can learn lessons from the 3D Systems saga and protect their operations.
What companies can do to maintain compliance
Companies must be cautious and ensure their actions are not detrimental to national security when sending export-controlled documents to overseas recipients.
- Maintain a culture of compliance and make sure your employees, contractors, and subsidiaries understand and abide by your company’s export compliance policy and export control plan. A robust policy and export control plan are invaluable tools to ensure your company, your personnel, and your business partners abide by all export control regulations, including both licensing and record-keeping requirements.
- Before hitting send or uploading potentially controlled data to a server, double-check that information and materials you are including are not subject to export controls. Even internal emails and data uploaded to internal servers can constitute unlawful releases of technology if the emails or servers are accessed by foreign-national employees or foreign subsidiaries or business affiliates. If you are unsure about any of the items you are preparing to include, consult with experienced export counsel to minimize your risk of inadvertently violating US export and sanctions restrictions.
- What if I accidentally emailed a prohibited document? Self-reporting violations and cooperating with the government can reduce your risk of severe penalties. However, determining whether and when to voluntarily disclose suspected violations can be among the most difficult and complex decisions a company can face. Companies contemplating disclosures must work closely with experienced counsel to avoid the many unsuspected pitfalls that can arise.