United Technologies acknowledges coverup of sale of military software to China

By Sari Horwitz, Published: June 28
The Washington Post

United Technologies, a major defense contractor, and two of its subsidiaries on Thursday acknowledged covering up the illicit sale of sensitive military software to China — technology that the country later used to develop its first attack helicopter.

Federal prosecutors announced criminal charges against the firms and a fine of more than $75 million for what they called a violation of U.S. export laws. Justice officials said the software sold to China posed a risk to American troops overseas and U.S. allies.

“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,” Lisa Monaco, the assistant attorney general for national security, said in a statement.

Connecticut-based United Technologies, which reported net sales of $58 billion in 2011, will pay the fine, along with Pratt & Whitney Canada and Hamilton Sundstrand Corp., as part of a settlement for lying to the government and delaying their disclosures about the illegal exports, officials said.

The charges come at a time of rising concern over the modernization of China’s military and its increasingly aggressive posture in the Asia-Pacific region.

U.S. officials have long accused China of actively spying on the American defense contractors to steal intellectual property. Officials suspect, for instance, that stolen U.S. technology helped the Chinese build a stealth fighter jet, the J-20, and modify its cruise missiles to make them harder to detect.

China’s acquisition of military technology from U.S. suppliers is prohibited under an arms embargo imposed in 1990, after the Tiananmen Square massacre.

In the case disclosed Thursday, prosecutors said Pratt & Whitney Canada sold engine-control software, made by Hamilton, to China in 2002 and 2003. Officials said Pratt & Whitney knew that China intended to use the software to develop the Z-10 attack helicopter, its first such aircraft.
The company pleaded guilty to two criminal charges, violating the Arms Export Control Act and making false statements.

“We must be very careful that the helicopter programs we are doing with the Chinese are not presented or viewed as military programs,” said one Pratt & Whitney Canada internal e-mail, according to court documents. “As a result of these sanctions, we need to be very careful with the Z10 program. If the first flight will be a gun ship then we could have problems with the U.S. government.”

Federal prosecutors said that Pratt & Whitney did not tell United Technologies and Hamilton about the sale for years but that, once it did, the three companies tried to cover up their role.

Under the deferred prosecution agreement, an independent monitor will monitor the three companies for two years. They face criminal prosecution or additional fines if they further violate export laws.

In a statement, the head of United Technologies said the firm was “committed to conducting business in full compliance with all export laws and regulations.”

“We accept responsibility for these past violations and we deeply regret they occurred,” said Louis Chênevert, the company’s chairman and chief executive.

A federal law enforcement official, speaking on condition of anonymity, said that China gained immeasurably from the sale.

“By obtaining these materials illegally from the United States, China can save itself considerable time and expense needed to develop advanced military technology on its own,” the official said.

Connecticut U.S. Attorney David B. Fein said that Pratt & Whitney Canada was hoping to parlay its military sale into huge profits from China’s civilian helicopter market.

“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,” Fein said.

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United Technologies acknowledges coverup of sale of military software to China - The Washington Post