United Technologies and two of its subsidiaries sold China software enabling Chinese authorities to develop and produce their first modern military attack helicopter, U.S. authorities said on Thursday.
At a federal court hearing in Bridgeport, Connecticut, United Technologies and its two subsidiaries, Pratt & Whitney Canada and Hamilton Sundstrand Corp, agreed to pay more than $75 million to the U.S. government to settle criminal and administrative charges related to the sales.
As part of the settlement, Pratt & Whitney Canada agreed to plead guilty to two federal criminal charges — violating a U.S. export control law and making false statements. The charges were in connection with the export to China of U.S.-origin military software used in Pratt & Whitney Canada engines, which was used to test and develop the new Z-10 helicopter.
Also as part of the deal, United Technologies and Hamilton Sundstrand admitted to making false statements to the U.S. government about the illegal exports.
Hamilton Sundstrand and Pratt & Whitney Canada also admitted that they had failed to make timely disclosures, required by regulations, to the U.S. State Department about the exports.
The government said that the $75 million settlement breaks down into roughly $20.7 million in criminal fines, forfeitures and other penalties to be paid to the Justice Department and roughly $55 million in payments to the State Department as part of a consent agreement resolving more than 500 administrative export control violations.
About $20 million of the fines will be suspended, to be used by the company for continuing to improve its export control procedures, and for hiring an independent monitor, United Technologies said.
As part of the agreement, the U.S. State Department also will impose a partial debarment of Pratt & Whitney Canada for new export licenses, although the company can request licenses on a case-by-case basis. The debarment does not affect United Technologies or Hamilton Sundstrand, and the Canadian unit can request full reinstatement in one year.
A law enforcement source familiar with the case said investigators believe United Technologies and its subsidiaries deliberately set out to provide the embargoed military technology to China in order to ingratiate themselves with Chinese authorities, hoping to win them entree into China's lucrative civilian helicopter market, worth an estimated $2 billion.
However, the source said, the companies ultimately were cut out of China's civilian helicopter market when the Chinese chose to buy from other manufacturers.
United Technologies said it accepted responsibility for the past violations and regretted them. The company said it had spent $30 million to investigate and fix export control procedures throughout the company, and hired more than 1,000 full and part-time employees to address the issue. Officials said they were determined to have "best-in-class compliance" going forward.
Jay DeFrank, a spokesman for Pratt & Whitney Canada, said the company continued to do business in China.
Western experts said the Z-10 is developing into one of the world's most modern and capable combat helicopters. Full production of the Z-10 powered by Pratt & Whitney Canada engines would give Chinese military forces unprecedented levels of "aerial artillery" to support any amphibious invasion and subsequent operations against Taiwan, which Beijing claims as its own, according to Richard Fisher, an expert on China's military application of so-called dual-use technologies.
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