The British, at the very least, certainly knew what was going on with IvS, but felt it was a low priority to tackle it.

In 1922, three German companies, backed by the German Navy, established a new company in Holland. This company, N V Ingenieurskantoor voor Scheesbouw (IvS), built on a number of 1921 deals where these companies had consulted on submarine design in Japan and Argentina (with negotiations ongoing on similar deals for Sweden and Italy). Initially, the Dutch government would not allow it to operate within the country, so it ran covertly in the German port of Kiel. In 1925, it was allowed to register in Holland, letting it move openly to Den Haag. It would operate there for the next twenty years. By 1935, it had worked with Japan, Finland, Spain, Sweden and Turkey, providing assistance with these countries' submarine programmes. This assistance included parts production, provision of designs and supervision of construction. This design experience gave the German Navy a continuity of design experience for submarines, reducing the loss of institutional knowledge. The IvS also researched a number of useful topics, such as electric torpedoes, which were highly useful for the nascent German submarine arm.

While IvS was theoretically covert, it was anything but when it came to the British. In November 1914, a German naval engineer called Karl Krueger had turned up in the British legation in Den Haag. He had been court-martialled and dismissed from the German Navy for striking another officer (a relative of the Kaiser), and sought to gain some revenge on the service that had sacked him. He offered to provide the British large amounts of information on German naval construction, which they gladly accepted. The British Secret Intelligence Service gave him the codename TR16, and established regular monthly meetings with him. They helped him establish a cover as a businessman in Holland, and paid him handsomely for the intelligence he provided. This covered all aspects of the German naval building programme, including the U-boat programme. His reports continued after the end of WWI, and through the interwar period until he was arrested in 1939 and executed.

TR16 provided deep, comprehensive reports on IvS, showing the British that the Germans were trying to establish a covert submarine-building programme. The Foreign Office confirmed this through its own investigations. As a result the British knew that IvS was a front company which had been illegally building submarines at Rotterdam's Ing Fijenhoord shipyard. They also knew that the Finnish were working with the Germans on it. While they knew these details, they did little to stop it. The Royal Navy didn't view it as a significant threat - it's quite possible that they were confident that TR16 would give enough warning if the Germans did try and turn the IvS experience into a real submarine force, but there was also a growing belief that, with sonar and improved anti-submarine warfare training and doctrine, the submarine was something of a solved problem. For the Foreign Office, there were more significant and direct German infringements of the Versailles Treaty to tackle, such as their refusal to pay reparations that led to the Occupation of the Rhineland. There was also a lack of political will to tackle German illegal actions. This was caused by a number of reasons - a desire to keep Germany onside when it came to trade and other disarmament treaties, a general feeling that Versailles had been too harsh and was pushing Germany towards extremism and a lack of an effective enforcement mechanism. Finally, neither the Admiralty nor the Foreign Office may have seen this as being clearly illegal. In 1933, a list of German breaches of the Versailles Treaty was provided to the Cabinet; this did not include the work of IvS in any way.

The Dutch government absolutely knew this, because they invited IvS over. In fact they didn't only invite IvS (which was a Krupp subsidiary), but also Siemens and Halske (Hazemeyer), Rheinmetall (H.I.H. Siderius) and Carl Zeiss (Nedinsco). This all had to do with Dutch naval strategy. The Dutch government was already afraid of the Japanese Empire before World War 1, and in order to protect the Dutch East-Indies (now Indonesia) they wanted to increase the strength of the Dutch fleet. Part of this plan was the construction of three cruisers, the later Java-class. They were to be designed by German engineers, among them Hans Techel, one of Germany's most prolific naval designers. Armament was to come from Krupp, and fire control and optics from Zeiss and Siemens.

Construction started during WW1, but of course everyone was building ships, so resources were limited and progress was slow. Then disaster struck in the form of the Treaty of Versailles. Germany was no longer allowed to export weapons, so the Dutch were screwed. They tried bargaining with the allies, but to no avail. Between 1922 and 1925, the aforementioned companies are set up and lo and behold, the cruisers are completed by 1925. In a Dutch intelligence report from 1935, it becomes clear that the different directors of the companies gave each others names as references at the Dutch immigration office, so they knew one another. One of them also gave the name of a certain Dutch Colonel Vos, working at the Naval Department of the Ministry of War, so the connection between the companies and the Dutch government is hard to deny. The Dutch army and navy actively tested weapons and systems for these German companies and were therefore directly involved in the German rearmament of the 1930s.

There really isn't any good literature on this, some works mention the collaboration in passing but not extensively. These titles would be a good start:

Dutch Military Thought, 1919-1939: A Small Neutral State’s Visions of Modern War by Wim Klinkert

Een vos in schaapskleren by S.J. de Groot

If you speak Dutch and really want to go down the rabbit hole, here's the archival reference for the intelligence report:

Nationaal Archief, Den Haag, Ministerie van Justitie, 2.09.22, inventarisnummer 16796, document 709.

Also the French absolutely knew, in 1932 there was a scandal in the French press when French journalist Edouard Helsey visited some of these factories and 'exposed' their true nature. This caused anger among the French people, and French officers wanted to check what really happened in these factories, but I'm not sure if the Dutch government allowed them or if they struck some deal with the French and let it blow over.