BUSINESS

Pratt & Whitney Canada Pleads Guilty To Exporting Military Software To China

06/28/2012 03:29 EDT | Updated 08/28/2012 05:12 EDT
MONTREAL - Pratt & Whitney Canada Corp. is among the United Technologies companies that will pay up to about US$75 million in penalties after pleading guilty Thursday to violating U.S. law for illegally exporting military software to China.

The Quebec-based subsidiary pleaded guilty to three counts of violating the Arms Export Control Act and making false statements in connection with the export of software used in the development of China's first modern military attack helicopter.

Pratt, Connecticut-based defence contractor UTC (NYSE:UTX) and U.S.-based subsidiary Hamilton Sundstrand Corp. agreed to pay US$55 million to the State Department, including US$35 million in cash over four years.

However, UTC can apply to have up to US$20 million of the penalty suspended as a result of "remedial compliance measures."

An additional US$20.7 million penalty will be paid to the U.S. Justice Department.

The guilty pleas and settlement in relation to the Z-10 Chinese aircraft were announced by the U.S. Attorney for the District of Connecticut among others.

In addition to paying the fine, UTC companies must retain an independent monitor to assess their compliance with export laws for the next two years.

"We accept responsibility for these past violations and we deeply regret they occurred," United Technologies chairman and CEO Louis Chenevert in a news release.

He said export controls are an integral part of safeguarding U.S. national security and foreign policy interests.

"As a supplier of controlled products and technologies to the Department of Defence and other domestic and international customers, we are committed to conducting business in full compliance with all export laws and regulations."

He said the violations had uncovered opportunities to strengthen the company's export compliance program.

UTC said it has invested more than US$30 million since 2006 to strengthen its compliance infrastructure, including IT system enhancements and process improvements as well as increased employee training and communications efforts.

The company said the plea arises out of the improper export to China of modifications to Hamilton Sundstrand engine control software incorporated into Pratt & Whitney helicopter engines between 2002 and 2005.

But the U.S. attorney for Connecticut, David Fein said Pratt's action were guided by its desire to become the exclusive supplier for a helicopter market in China with projected revenues of up to US$2 billion.

"PWC exported controlled U.S. technology to China, knowing it would be used in the development of a military attack helicopter in violation of the U.S. arms embargo with China," Fein said.

A lawyer for the company, Paul Beach, said in U.S. District Court in Bridgeport, Conn., that the company deeply regrets the violations and has taken substantial action to ensure it will not happen again.

Pratt will lose partial licence provisions for a year under the State Department's Office of Defence Trade Controls Compliance. The move won't affect existing export authorizations nor its ability to continue to perform existing programs for the U.S. government, NATO members and certain other U.S. allies.

Pratt can seek authorizations on a case-by-case basis and can apply for full reinstatement after one year.

Since 1989, the United States has prohibited the export to China of all U.S. defence material and associated technical data as a result the military crackdown in Tiananmen Square.

In 1990, Congress specifically included helicopters in its export ban.

The Chinese had sought during the 1980s to develop a military attack helicopter. It tried to bypass congressional export prohibitions under the guise of a civilian medium helicopter program to secure western assistance.

Pratt & Whitney originally delivered 10 development engines in 2001 and 2002 to power the Z-10 aircraft. It then sent modified Hamilton Sundstrand software to China driven by profit, said court documents provided by the U.S. government.

— With files from The Associated Press