Companies Fined for China Tech Transfer

U.S., Canadian companies fined $75 million for illegal military helicopter tech transfer to China

June 28, 2012

Three companies were fined $75 million for illicit technology transfers used in China’s new Z-10 attack helicopter, federal authorities said on Thursday.

The illegal export of U.S.-origin military software was perpetrated by Pratt & Whitney Canada, a subsidiary of the U.S. United Technologies Corp., and another subsidiary Hamilton Sundstrand Corp.

The companies pleaded guilty Thursday to violating the Arms Export Control Act and making false statements to investigators, according to a statement by the U.S. Immigration and Customs Enforcement (ICE).

The case was settled with the Justice and State Departments. As part of the agreement, $20.7 million will be paid to the Justice Department, and the State Department will receive $55 million.

The transfer was discovered as part of an ICE investigation.

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

"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."

According to ICE, the helicopter technology violated 1989 sanctions imposed on China for its military crackdown on unarmed protesters in Beijing’s Tiananmen Square, which killed an estimated 700 people.

China’s development of new attack helicopters began in the 1990s; while in development, the helicopter was powered with Pratt & Whitney engines, according to the ICE statement.

"[Pratt & Whitney] delivered 10 of these development engines to China in 2001 and 2002," the statement 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 electronic engine control software was modified for the Z-10 military version and was exported illegally without first obtaining a U.S. export license.

Court documents in the case indicated that Pratt & Whitney knew in 2000 that the Z-10 helicopter was an attack helicopter and that supplying U.S.-origin components was illegal.

Pratt and Whitney’s "illegal conduct was driven by profit," ICE said. "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 companies failed to reveal the illegal exports to China to the U.S. government for several years, the statement said. Also, disclosures in 2006 contained numerous false statements, claiming the companies were unaware the Z-10 is a military aircraft.

"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," ICE said. "The primary mission of the Z-10 is anti-armor and battlefield interdiction. Weapons of the Z-10 have included 30 mm cannons, anti-tank guided missiles, air-to-air missiles and unguided rockets."

"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," said Assistant Attorney General Lisa Monaco.

"Preventing the loss of critical U.S. information and technologies is one of the most important investigative priorities of the FBI," said FBI Special Agent in Charge Kimberly Mertz. "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."

Assistant Secretary Andrew Shapiro, of the State Department's Bureau of Political-Military Affairs, said, "Today's $75 million settlement with United Technologies Corporation sends a clear message: willful violators of U.S. arms export control regulations will be pursued and punished. The successful resolution of this case is the byproduct of the tireless work of our compliance officers and highlights the relentless commitment of the State Department to protect sensitive American technologies from being illegally transferred."

The State Department also announced it is blocking Pratt & Whitney Canada from obtaining military-related export licenses because of the conviction. United Technologies was not debarred.