If you are using a local folder (e. g. workstation destination) to store the resulting VM, then whether or not the traffic is encrypted is entirely up to SMB. Converter does not do anything special in this case. Maybe you should check with Microsoft documentation whether or not encryption can be enabled on SMB shares and how. If you do so, it would be transparent for Converter and you would get encrypted traffic in this case as well. If it is not possible - well, no encrypted data.
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