Pratt & Whitney Canada Corp. admitted today that it helped the Chinese military develop its Z-10 attack helicopter. The engine maker, its U.S. parent company and another subsidiary agreed to settle export charges by paying a $75 million to the U.S. Justice and State Departments.
According to court documents, Pratt & Whitney knew that China was developing an attack helicopter as early as 2000 and has pleaded guilty to illegally exporting defense software and lying to the U.S. government.
The U.S. government said the company was motivated by profit.
“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 the State Department’s Bureau of Political-Military Affairs.
The Justice Department filed a three-count criminal information today in the District of Connecticut against all three companies.
Only Pratt & Whitney pleaded guilty, and the Justice Department has recommended that prosecution of Connecticut-based parent company United Technologies Corporation and U.S. subsidiary Hamilton Sundstrand Corporation for lying to the U.S. government for export disclosures be deferred for two years.
The department also recommends a two year deferment for charges against Pratt & Whitney and Hamilton Sundstrand for failing to tell the U.S. government about defense exports to China in a timely manner.
The deferred prosecution agreement requires the companies to retain an independent monitor to assess compliance with export laws for two years. If the companies do not comply with the terms of the deferred prosecution agreement, the U.S. can file charges.
UTC has separately settled 576 civil charges with the State Department, which Shapiro said are related to more than 800 export violations from mid-1990s to 2011.
According to the Justice Department, Pratt & Whitney shipped 10 engines to China in 2001 and 2002 to help the military develop the Z-10, an attack helicopter developed for anti-armor and battlefield interdiction.
The company decided – without U.S. government approval – that the engines weren’t defense articles because they were identical to engines the company had applied to commercial helicopters, according to the Justice Department.
Neither UTC nor Hamilton Sundstrand knew about the military program, according to court documents, until years after Pratt & Whitney knew the Z-10 was a military craft.
Software made by Hamilton Sundstrand was used to test the engines and had been modified for military use, the Justice Department said. Pratt & Whitney knowingly caused six versions of this software to be exported in 2002 and 2003.
Hamilton Sundstrand thought it was providing software for civilian aircraft, according to Pratt & Whitney, and learned in 2004 that it might have an export problem.
Pratt & Whitney continued to modify the software in 2005, and, according to court documents, thought that it’s work on the Z-10 program would give it a lead into China’s civilian helicopter market, which the company said could be worth as much as $2 billion.
“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 Lisa Monaco, assistant attorney general for national security. “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.”
The companies didn’t disclose export violations to U.S. authorities until 2006 – and when they did, did so fraudulently, according to court documents. Disclosure came when investors asked UTC if Pratt & Whitney’s connection to the Z-10 program could lead to legal trouble.
But when telling the government of the violations, the companies dishonestly moved the timeline and said they didn’t know until 2003 or 2004 about the military nature of the program. The Justice Department said all three companies were aware that leadership at Pratt & Whitney knew the Z-10 was a military aircraft from the outset.
The $75 million settlement includes $20.7 million in fines, forfeitures and other penalties to be paid to the Justice Department with the remaining $55 million in fines to be paid to the State Department as part of a separate four-year Consent Agreement. Up to $20 million of the State Department settlement can be suspended and applied to UTC’s compliance programs.
The Z-10 first entered service in 2009. UTC said in a statement that it accepted responsibility for the violations and has expressed regret.
“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,” UTC Chairman & CEO Louis Chênevert said.
Export of defense articles and related technology to China has been prohibited since 1990, following the Chinese government’s crackdown on protesters in Tiananmen Square in June 1989. Shipping unlicensed defense articles, including technical data, to restricted destinations is a violation of the Arms Export Control Act.
The case has been handled by Assistant U.S. Attorneys Stephen B. Reynolds and Michael J. Gustafson from the U.S. Attorney’s Office for the District of Connecticut. Steven Pelak and Ryan Fayhee of the Justice Department’s Counterespionage Section provided assistance.