Turbines to Crimea: Is Mentor Graphics German, or still American?

As national and international news crashes over the shore, wave after wave, it’s easy to lose track of any particular item amidst the churning foam. The story discussed here, however, floats more visibly atop the flotsam and jetsam because it’s relevant to the IP and EDA industries.

Several weeks ago, Siemens AG – a German company – was caught-up in a violation of a part of the current EU sanctions against Russia. Siemens’s power turbines, having been sold to Russia – which was not a violation – were then allegedly modified and shipped off to Crimea for installation there – which was a violation.

You remember Crimea. It was part of Ukraine until 2014, and then it was not.

Anyway when the turbine situation was uncovered, the EU was not happy with Siemens; Siemens was not happy with Russia; if Russia or Crimea were unhappy with anyone, they kept it to themselves.

As a result of these revelations, Siemens AG now faces a fine from the EU, and has canceled several high-profile, lucrative business deals with Russian firms. Siemens is mad – slightly less rich, and mad.

Which brings us to Mentor Graphics. Such experts we are, who have had the chance to learn about Export Controls from the likes of Cadence’s Larry Disenhof or SmartFlow’s Ted Miracco, and it’s that knowledge which seems relevant to Mentor.

[See article excerpts below]

If Mentor is a German company – post-acquisition in March – then whatever liability the parent company Siemens AG must absorb, will certainly have an impact on Mentor. At least that seems the proper conclusion, although perhaps it’s only the turbine-producing part of Siemens that’s on the hot seat.

If, however, Mentor is an American company – if Siemens USA, of which Mentor is now a part, has no reporting obligations to Siemens AG – then Mentor is off the hook?

That seems right, unless perhaps it can be proven that Mentor’s system design software was somehow used by Siemens AG to create a product that is now illegally poised to begin operation in Crimea.

Internet research interlude …

Well, there you go: A little online exploration seems to indicate that Siemens USA is not a separate business. It’s a ‘subsidiary’ of Siemens AG, per the company’s own website.

Which brings us back to this query: In the eyes of the EU or the United States, do export-compliance obligations only apply to the business unit associated with a particular product line, or does that obligation extend across the entire corporate entity?

Does Mentor Graphics of Wilsonville have any liability with respect to EU export restrictions given that its parent company, Siemens AG of Munich, is under review by the EU for having violated those restrictions?

And an even more fascinating query: Does Siemens AG have any obligation to adhere to American export-compliance regulations, or American sanctions?

The answers to these questions do not seem obvious. More importantly, it’s possible that no one really cares.

After all, the American government did not seem to put up any resistance whatsoever to the sale of Mentor to a foreign-based enterprise. Mentor’s design software and IP were not of enough significance to American national security or corporate well-being to have warranted putting a stop to the acquisition.

That lack of interest may extend to any problems Mentor’s new parent company is currently navigating.

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Larry Disenhof’s 2013 EDAC talk …

Then there are the Commerce Control List Categories, numbered 0 to 9, and A to E. For instance, Category 3D991 includes most EDA software, while various types of IP fall into categories such as 3E991 or EAR99. Meanwhile, no matter that most EDA and IP categories are not restricted, all categories on the Commerce Control List are controlled. Stated otherwise, “unrestricted does not mean uncontrolled.”

And what does controlled versus restricted mean? It means that you need to keep track of which non-US Person will have access to your products, even if that person is working in your offices within the U.S., and you need to keep track of the destination country for your exports.

Controlled products cannot be sold at any time to any of the Group E1 countries – Cuba, Iran, North Korea, Sudan, or Syria – while restricted products cannot be sold to any Group D1 countries, which include PRC and Russia, without special permissions.

You’re not only responsible for knowing who you’re selling your products to, and where they’re located, you’re also responsible for making sure that your customers don’t sell products that include your products to entities on the Group E1 list, or possibly the Group D1 list, or any other government-declared restricted/controlled export lists … ever.

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Ted Miracco’s 2017 EDACafe blog …

U.S. government sanctions are administered by two agencies, the Office of Foreign Assets Control (OFAC), which handles licensing and oversight of economic sanctions and the Bureau of Industry and Security (BIS), which handles licensing of certain exports and re-exports of technology and goods originating in the U.S., or foreign manufactured goods using U.S. technology.

The consequences for being found guilty of breaching sanctions are serious. Several major companies have been subject to multi-million dollar fines and settlements with U.S. regulators for sanctions breaches.

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Tags: Crimea, EU sanctions, Larry Disenhof, Mentor Graphics, Russia, Siemens AG, Siemens USA, Ted Miracco

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