UTC charged with arms control violations

   United Technologies Corp. (UTC) has agreed to pay more than $75 million to settle U.S. arms export violations and false and for belated disclosures to the U.S. government about the illegal transactions.
   The Justice Department said UTC’s Pratt & Whitney Canada (PWC) subsidiary 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 to develop China’s first modern military attack helicopter, the Z-10.
   The State Department said since 2006 Pratt & Whitney and other UTC subsidiaries, including Hamilton Sundstrand Corp. (HSC) and Sikorsky, disclosed hundreds of violations of the the International Traffic in Arms Regulations (ITAR) and “a number of the violations may have caused harm to U.S. national security and foreign policy interest.”
   The Pratt & Whitney plea arises out of the improper export to China of modifications to Hamilton Sundstrand engine control software incorporated into PWC helicopter engines from 2002-2005.
   The State Department said the company’s “numerous violations demonstrated a systemic, corporate-wide failure to maintain effective ITAR controls.”
   It said it reached administrative agreement with United Technologies to terminate and resolve violations of ITAR and the Arms Export Control Act.
   The Justice Department noted that after the 1989 Tiananmen Square massacre the United States has imposed a prohibition on the export to China of all U.S. defense articles and associated technical data.
   In February 1990, Congress imposed a prohibition on licenses or approvals for the export of defense articles to China. In codifying the embargo, Congress specifically named helicopters for inclusion in the ban.
   Dating back to the 1980s, China sought to develop a military attack helicopter. Beginning in the 1990s, after Congress imposed the prohibition on exports to China, the country sought to develop its attack helicopter under the guise of a civilian medium helicopter program to secure Western assistance. The Z-10 is China’s first modern military attack helicopter.
   During the development phases of China’s Z-10 program, each helicopter was powered by engines supplied by Pratt & Whtiney Canada, which delivered 10 development engines to China in 2001 and 2002, the Justice Department said.
   “Despite the military nature of the Z-10 helicopter, PWC determined on its own that these development engines for the Z-10 did not constitute ‘defense articles,’ requiring a U.S. export license, because they were identical to those engines PWC was already supplying China for a commercial helicopter,” the department said.
   The Justice Department said because the electronic engine control software, made by Hamilton Sunstrand in the United States to test and operate the PWC engines, was modified for a military helicopter application, it was a defense article and required a U.S. export license. Despite this, it said “PWC knowingly and willfully caused this software to be exported to China for the Z-10 without any U.S. export license. In 2002 and 2003, PWC caused six versions of the military software to be illegally exported from HSC in the United States to PWC in Canada, and then to China, where it was used in the PWC engines for the Z-10.”
   The department said “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.’ PWC nevertheless saw an opening for PWC ‘to insist on exclusivity in (the) civil version of this helicopter,’ and stated that the Chinese would ‘no longer make reference to the military program.’ PWC failed to notify UTC or HSC about the attack helicopter until years later and purposely turned a blind eye to the helicopter’s military application.
   “HSC in the United States had believed it was providing its software to PWC for a civilian helicopter in China, based on claims from PWC. By early 2004, HSC learned there might an export problem and stopped working on the Z-10 project. UTC also began to ask PWC about the exports to China for the Z-10. Regardless, PWC on its own modified the software and continued to export it to China through June 2005.”
   The Justice Department added “according to court documents, PWC’s illegal conduct was driven by profit. PWC anticipated that its work on the Z-10 military attack helicopter in China would open the door to a far more lucrative civilian helicopter market in China, which according to PWC estimates, was potentially worth as much as $2 billion to PWC.”
   The Consent Agreement and related documents will be available to the public on the Directorate of Defense Trade Controls Website. – Chris Dupin