3D Systems must pay $27 million for export violations and announces restructuring

3D Systems reached an agreement with a number of US government institutions and agreed to pay a total of $27 million for export and tax violations. The amount of $4.54 million will be paid as part of allegations of violation of the False Claims Act and improper transmission of technical data subject to export control to China. This is a violation of US export control laws related to certain NASA activities and Department of Defense contracts. As part of an administrative settlement with the U.S. Department of State, 3D Systems will also pay $20 million for alleged export violations and another $2.77 million to the U.S. Department of Commerce.

Under the settlement with the Department of Justice, 3D Systems, through Quickparts, which was still a subsidiary of the company at the time of the alleged violations, was delivering on-demand projects involving technical or other data potentially subject to export control regulations. These laws include the International Emergency Powers Act, the Arms Export Control Act, the Export Administration Regulations and/or the International Trade in Arms Regulations.

According to the U.S. Attorney’s Office, export control laws generally prohibit the export of certain controlled items and/or intellectual property to certain foreign countries without a license or approval from the appropriate federal agencies. This list includes the People’s Republic of China.

In the Department of Justice settlement, the U.S. alleged that between January 1, 2012 and December 31, 2017, 3D Systems exported certain items and/or intellectual property to China without a proper license or permit in violation of export control laws related to certain contracts issued by DOD and NASA in violation of the False Claims Act. The alleged violations also included unauthorized export of technical data to Germany, unauthorized re-export of technical data to Taiwan.

In a press release announcing the settlement, the U.S. Attorney’s Office said: “The claims settled as a result of the settlement are pleas only. Responsibility has not been established.”

The State Department, to which 3D Systems will pay a $20 million settlement, said that under the terms of the 36-month contract, the Department agreed to suspend $10 million of the $20 million civil penalty, provided the funds would be used for Department-approved remedies in accordance with the Consent Agreement to strengthen 3D Systems’ compliance program. 3D Systems must also engage an external Special Compliance Officer for at least the first year of the Consent Agreement and will conduct two external audits of its ITAR compliance program and implement additional compliance measures.

The State Department said it was “inappropriate” to administratively disqualify 3D Systems Corporation because of the company’s corrective action. In a statement to Reuters, 3D Systems said: “The company is pleased to have reached an agreement with the agencies and remains committed to further improving its export control program.”

At the time of the settlement announcement, 3D Systems announced a “multi-stakeholder restructuring initiative” to “improve operational efficiency”. The restructuring includes “optimizing the operations of European 3D metal printer factories” and streamlining the organization of the software.

According to 3D Systems, the initiative is expected to reduce operating costs in 2023 by approximately $2.5 to $3.5 million and provide annual savings of approximately $5.5 to $7.0 million in 2024 and beyond. A key aspect of the restructuring initiative is the consolidation of engineering and manufacturing of metal 3D printers to reduce product launch cycle times and increase operational efficiency.

Another part of the restructuring initiative is streamlining the operational structure of software development to further reduce current operating costs. 3D Systems claims that the software is an important element of the company’s future development strategy.

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