Defense firm pleas guilty to trafficking military arms to China
Pratt & Whitney Canada (PWC), a Canadian subsidiary of United Technologies Corporation (UTC) defense contractor, pleaded guilty to violating the Arms Export Control Act by crafting false statements, and illegally exported U.S.-origin military software used for the development of China‘s Z-10 military attack helicopter to the Peoples Republic.
In addition, United and its U.S.-based subsidiary Hamilton Sundstrand Corporation (HSC) agreed to pay more than $75 million collectively as part of a global settlement with the Justice Department and State Department. Roughly $20.7 million will be paid to the Justice Department and $55 million is payable to the State Department as part of a separate consent export agreement issues, including those related to the Z-10. The DOJ said up to $20 million could be suspended if applied by UTC to remedial compliance measures. The intensive investigation was led by Immigration and Customs Enforcement’s (ICE) and Homeland Security Investigations (HSI).
“This case is a clear example of how the illegal export of sensitive technology reduces the advantages our military currently possesses,” said ICE Director John Morton. “I am hopeful that the conviction of Pratt & Whitney Canada and the substantial penalty levied against United Technologies and its subsidiaries will deter other companies from considering similarly ill-conceived business practices in the future. American military prowess depends on lawful, controlled exports of sensitive technology by U.S. industries and their subsidiaries, which is why ICE will continue its present campaign to aggressively investigate and prosecute criminal violations of U.S. export laws relating to national security.”
The Export Scheme
During the development phases of China’s Z-10 program, PWC supplied the engines. PWC delivered 10 of the development engines to China in 2001 and 2002. Even though the Z-10 helicopter is identified as military equipment, PWC determined on its own that the Z-10 engines did not represent “defense articles,” requiring a U.S. export license.
According to court documents, “PWC knew from the start of the Z-10 project in 2000 that the Chinese were developing an attack helicopter and that supplying it with U.S.-origin components would be illegal. When the Chinese claimed that a civil version of the helicopter would be developed in parallel, PWC marketing personnel expressed skepticism internally about the ‘sudden appearance’ of the civil program, the timing of which they questioned as ‘real or imagined.’”
Nevertheless, PWC saw an opening and “insist(ed) on exclusivity in [the] civil version of this helicopter,” and stated that the Chinese would “no longer make reference to the military program.”
Court documents also show that PWC’s illegal action was driven by profit. The DOJ contends that PWC anticipated its work on the Z-10 military attack helicopter would open the door to highly lucrative civilian helicopter contracts with China, which PWC estimates could be worth $2 billion.
Today, the Z-10 helicopter is in production and initial batches were delivered to the People’s Liberation Army of China in 2009 and 2010. The Z-10 mission is to provide anti-armor and battlefield interdiction by using weapons like 30 mm cannons, anti-tank guided missiles, air-to-air missiles and unguided rockets.
“PWC exported controlled U.S. technology to China, knowing it would be used in the development of a military attack helicopter in violation of the U.S. arms embargo with China,” said U.S. Attorney Fein. “PWC took what it described internally as a ‘calculated risk,’ because it wanted to become the exclusive supplier for a civil helicopter market in China with projected revenues of up to two billion dollars. Several years after the violations were known, UTC, HSC and PWC disclosed the violations to the government and made false statements in doing so. The guilty pleas by PWC and the agreement reached with all three companies should send a clear message that any corporation that willfully sends export controlled material to an embargoed nation will be prosecuted and punished, as will those who know about it and fail to make a timely and truthful disclosure.”
The Chinese arms trafficking plea also highlights the increasing reach of ICE as an international investigative agency.
“Today’s charges and settlement demonstrate the continued commitment of the Defense Criminal Investigative Service and fellow agencies to protect sensitive U.S. defense technology from being illegally exported,” said DCIS Special Agent in Charge Bradley. “Safeguarding our military technology is vital to our nation’s defense and the protection of our war fighters both home and abroad. We know that foreign governments are actively seeking U.S. defense technology for their own development. Thwarting these efforts is a top priority for DCIS. I applaud the agents and prosecutors who worked tirelessly to bring about this result.”
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