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U.S. firm, subsidiaries admit role in sending military software to China

By David Ariosto and Dan Verello, CNN
July 1, 2012 -- Updated 0241 GMT (1041 HKT)
STORY HIGHLIGHTS
  • Military technology was illegally sold to China by an American multinational firm
  • It helped China develop and produce its first advanced attack helicopter, U.S. officials say
  • United Technologies Corporation agrees to pay more than $75 million as part of a settlement
  • Pratt & Whitney Canada pleads guilty on Thursday to violating the Arms Export Control Act

(CNN) -- A Canadian subsidiary of a U.S.-based multinational firm pleaded guilty in federal court Thursday to illegally sending software to China, which it used in the development of its first advanced attack helicopter, according to the U.S. attorney in Connecticut.

Pratt & Whitney Canada -- a subsidiary of Hartford, Connecticut-based United Technologies Corporation -- pleaded guilty to violating the Arms Export Control Act. In a case going back more than a decade, the firm admitted it sold software that was used in the development and testing of the new Z-10 helicopter for China's army.

UTC, Pratt & Whitney Canada and another UTC subsidiary -- Hamilton Sundstrand Corporation -- agreed to pay more than $75 million as part of a settlement with the U.S. government because of the arms export violations and for making false statements, according to a statement from U.S. Attorney David B. Fein and other federal officials.

The firms are expected to pay $20.7 million to the Justice Department and another $55 million to the State Department "to resolve outstanding export issues, including those related to the Z-10," court documents said.

"This prosecution is one of the largest resolutions of export violations with a major defense contractor in the Justice Department's history," Fein said.

Federal officials blasted the firm, saying the case "is a clear example of how the illegal export of sensitive technology reduces the advantages our military currently possesses."

"American military prowess depends on lawful, controlled exports of sensitive technology by U.S. industries and their subsidiaries," added John Morton, director of U.S. Immigration and Customs Enforcement (ICE).

According to court documents, an internal e-mail from a senior manager in September 2001 suggested that officials at Pratt & Whitney Canada knew the sales could violate U.S. sanctions.

"We must be very careful that the helicopter programs we are doing with the Chinese are not presented or viewed as military programs," the manager's e-mail read, according to the documents. "As a result of these sanctions, we need to be very careful with the Z10C program. If the first flight will be with a gun ship then we could have problems with the US government."

The contractor was allegedly trying to outflank its European rivals and develop a foothold in the lucrative Chinese civil helicopter market, thought to be worth up to $2 billion in the coming years, the documents added.

An internal briefing from September 2002 noted that "China's civil helicopter market potential is large (estimated at close to 20,000 aircraft by some)."

Chinese officials allegedly "made it clear that if (Pratt & Whitney Canada) wanted to have its engines considered for the yet-to-be-developed civil version, it would have to provide its engines ... with the understanding that the initial application ... would be military," the documents added.

But the firm allegedly "turned a blind eye to the attack helicopter application and went along with the 'sudden appearance' of a parallel civil program."

United Technologies says it accepted responsibility "for these past violations and we deeply regret they occurred," noting that it has "invested more than $30 million since 2006 to strengthen its compliance infrastructure."

"Export controls are an integral part of safeguarding U.S. national security and foreign policy interests," said CEO Louis Chenevert. "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."

The United States has imposed sanctions on the sale of military technology to China since 1989, after pro-democracy protests in Beijing's Tiananmen Square were crushed in a bloody Chinese crackdown. Congress strengthened sanctions less than a year later, specifically naming helicopters and helicopter parts in the ban.

The Z-10 helicopter is in production and started being used by China's armed forces in 2009, according to the Justice Department.

It is capable of being equipped with 30 mm cannons, anti-tank and air-to-air missiles, and is primarily intended as an anti-armor attack craft, according to federal officials.

Christopher K. Johnson, a senior adviser at the Center for International and Strategic Studies, said the case "highlights our issues with defense cooperation and competition with China."

"This is just another signal that those issues and tensions are unlikely to go anywhere," he said.

CNN's Leigh Remizowski contributed to this report.

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