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United Technologies Fined $75 Million for Military Exports to China

Jun. 28, 2012 - 04:07PM   |  
By KATE BRANNEN   |   Comments
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Pratt & Whitney Canada Corp., a Canadian subsidiary of Connecticut-based defense contractor United Technologies, has pleaded guilty to violating the Arms Export Control Act and has settled with the U.S. government for $75 million.

The company admitted June 28 to making false statements in connection with its illegal export to China of U.S. software used in the development of China’s military attack helicopter, the Z-10.

“We accept responsibility for these past violations and we deeply regret they occurred,” United Technologies CEO Louis Chenevert said in a statement. “As a supplier of controlled products and technologies to the Department of Defense and other domestic and international customers, we are committed to conducting business in full compliance with all export laws and regulations.”

Of the settlement money, roughly $20 million will be paid to the Justice Department, with the remaining $55 million going to the State Department. According to the Justice Department, up to $20 million of the payment could be suspended if United Technologies uses it for remedial compliance measures.

“This global settlement will ensure immediate, comprehensive and effective remedial action across the company’s many operating units and subsidiaries,” said Andrew Shapiro, assistant secretary of state for political-military affairs. “It also sends a clear message: Those who willfully violate U.S. arms export control laws will be pursued and punished.”

The United States has prohibited export of all U.S. defense articles to China as a result of the Chinese military’s action to suppress public protests in Tiananmen Square in 1989.

In the meantime, China began building an attack helicopter under the guise of a civilian helicopter program so that it could gain assistance from Western suppliers, according the Justice Department.

Pratt & Whitney decided on its own that it could sell engines for the Chinese Z-10 program without an export license because they were identical to engines the company was already supplying China for a commercial helicopter.

However, engine software, built by another United Technologies subsidiary named Hamilton Sundstrand Corp., had been modified for a military application and therefore was considered a defense article, requiring an export license.

However, Pratt & Whitney decided to export the software to China without a license anyway.

According to court documents, the company knew in 2000 that the Z-10 program’s aim was to develop an attack helicopter and that supplying it with U.S. parts would be illegal. Pratt & Whitney failed to notify its parent company — United Technologies — about the attack helicopter program, according to the Justice Department.

The company’s hope was that work on the attack helicopter would “open the door to a far more lucrative civilian helicopter market in China,” the Justice Department said.

When an investigation was opened in 2006, the company admitted to knowing about the military helicopter program in 2003 or 2004, not in 2000 when it had first become aware.

The Z-10 is now in production and being fielded by the People’s Liberation Army of China.

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