Military Software Used For China’s First Modern Attack Helicopter

On July 14, 2014, in the District of Connecticut, the court signed an order dismissing the criminal information against United Technologies Corporation (UTC) and Hamilton Sundstrand Corporation (HSC) and dismissing counts three of the information against Pratt & Whitney Canada Corp. (PWC). Previously, on June 28, 2012, PWC, a Canadian subsidiary of Connecticut-based defense contractor UTC, pleaded guilty to violating the Arms Export Control Act and making false statements in connection with its illegal export to China of U.S.-origin military software that was used in the development of China’s first modern military attack helicopter, the Z-10. In addition, UTC, its U.S.-based subsidiary HSC, and PWC all agreed to pay more than $75 million as part of a global settlement with the Justice Department and the State Department in connection with various export violations, including those related to the Z-10, and for making false and belated disclosures to the U.S. government about the illegal exports for the Z-10. A three-count criminal information was filed against the companies. Count one charged PWC with violating the Arms Export Control Act for the illegal export of defense articles to China for the Z-10 helicopter. Specifically, in 2002 and 2003 PWC knowingly and willfully caused HSC military software used to test and operate PWC engines to be exported to China for the Z-10 without any U.S. export license. PWC knew from the start of the Z-10 project in 2000 that the Chinese were developing an attack helicopter and that supplying it with U.S.-origin components would be illegal. According to court documents, PWC’s illegal conduct was driven by profit. PWC anticipated that its work on the Z-10 attack helicopter in China would open the door to a far more lucrative civilian helicopter market in China potentially worth as much as $2 billion to PWC. Count two of the information charged PWC, UTC, and HSC with making false statements about these illegal exports to the State Department in their belated disclosures, which did not begin until 2006. Count three charged PWC and HSC for their failure to timely inform the State Department of the unlawful export of defense articles to China, an embargoed nation, as required by U.S. export regulations. This is the first case in which the provisions in count three have been enforced criminally. While PWC pleaded guilty to counts one and two, prosecution of PWC, UTC, and HSC on the other charges was deferred for two years, provided that the companies abided by the terms of a deferred prosecution agreement with the Justice Department. In addition to the resolution of the criminal charges, as part of a global settlement, UTC also resolved over 500 additional administrative charges with the State Department. Those charges involved more than 800 exports in violation of the Arms Export Control Act from the mid-1990s to 2011. In connection with the global settlement with the Justice and State Departments, PWC, UTC, and HSC agreed to pay more than $75 million in penalties, subject themselves to independent monitoring for several years, and be required to comply with an extensive training and remedial action program to strengthen their export compliance. This investigation was conducted by ICE, DCIS, FBI, Commerce and the State Department.