Company Guilty of Illegal Export of U.S. Military Software to China

Wednesday, July 04, 2012

Headlines

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Pratt & Whitney Canada Corp. (PWC), a Canadian subsidiary of the Connecticut-based defense contractor United Technologies Corporation (UTC), pleaded guilty to violating the Arms Export Control Act and making false statements in connection with its illegal export to China of U.S.-origin military software used in the development of China’s first modern military attack helicopter, the Z-10.

In addition, UTC, its U.S.-based subsidiary Hamilton Sundstrand Corporation (HSC), and PWC have all agreed to pay more than $75 million as part of a global settlement with the Justice Department and State Department in connection with the China arms export violations and for making false and belated disclosures to the U.S. government about these illegal exports.

Roughly $20.7 million of this sum is to be paid to the Justice Department. The remaining $55 million is payable to the State Department as part of a separate consent agreement to resolve outstanding export issues, including those related to the Z-10.

Up to $20 million of this penalty can be suspended if applied by UTC to remedial compliance measures. As part of the settlement, the companies admitted conduct set forth in a stipulated and publicly filed statement of facts.

The actions were announced by David B. Fein, U.S. Attorney for the District of Connecticut; Lisa Monaco, Assistant Attorney General for National Security; John Morton, Director of U.S. Immigration and Customs Enforcement (ICE); Ed Bradley, Special Agent in Charge of the Northeast Field Office of the Defense Criminal Investigative Service (DCIS); Kimberly K. Mertz, Special Agent in Charge of the FBI New Haven Division; David Mills, Department of Commerce Assistant Secretary for Export Enforcement; and Andrew J. Shapiro, Assistant Secretary of State for Political-Military Affairs.

The Charges

In the District of Connecticut, the Justice Department filed a three-count criminal information charging UTC, PWC, and HSC. Count one charges PWC with violating the Arms Export Control Act in connection with the illegal export of defense articles to China for the Z-10 helicopter.

Count two charges PWC, UTC, and HSC with making false statements to the U.S. government in their belated disclosures relating to the illegal exports. Count three charges PWC and HSC with failure to timely inform the U.S. government of exports of defense articles to China.

While PWC has pleaded guilty to counts one and two, the Justice Department has recommended that prosecution of UTC and HSC on count two and of PWC and HSC on count three be deferred for two years, provided the companies abide by the terms of a deferred prosecution agreement with the Justice Department.

As part of the agreement, the companies must pay $75 million and retain an Independent Monitor to monitor and assess their compliance with export laws for the next two years.

“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.”

“Due in part to the efforts of these companies, China was able to develop its first modern military attack helicopter with restricted U.S. defense technology. As today’s case demonstrates, the Justice Department will spare no effort to hold accountable those who compromise U.S. national security for the sake of profits and then lie about it to the government. I thank the agents, analysts, and prosecutors who helped bring about this important case," said Assistant Attorney General Monaco

“This case is a clear example of how the illegal export of sensitive technology reduces the advantages our military currently possesses. 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," said ICE Director Morton.

“Today’s charges and settlement demonstrate the continued commitment of the Defense Criminal Investigative Service (DCIS) and fellow agencies to protect sensitive U.S. defense technology from being illegally exported. 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," said DCIS Special Agent in Charge Bradley.

“Preventing the loss of critical U.S. information and technologies is one of the most important investigative priorities of the FBI. Our adversaries routinely target sensitive research and development data and intellectual property from universities, government agencies, manufacturers, and defense contractors. While the thefts associated with economic espionage and illegal technology transfers may not capture the same level of attention as a terrorist incident, the costs to the U.S. economy and our national security are substantial. Violations of the Arms Export Control Act put our nation at risk and the FBI, along with all of our federal agency partners, are committed to ensuring that embargoed technologies do not fall into the wrong hands. Those who violate these laws should expect to be held accountable. An important part of the FBI’s strategy in this area involves the development of strategic partnerships. In that regard, the FBI looks forward to future coordination with UTC and its subsidiaries to strengthen information sharing and counterintelligence awareness," said FBI Special Agent in Charge Mertz.

“Protecting national security is our top priority. Today’s action sends a clear signal that federal law enforcement agencies will work together diligently to prevent U.S. technology from falling into the wrong hands," said Assistant Secretary of Commerce for Export Enforcement Mills.

Source:  http://www.fbi.gov/newhaven/press-releases/2012/united-technologies-subsidiary-pleads-guilty-to-criminal-charges-for-helping-china-develop-new-attack-helicopter

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