Compliance Failures Helped China Develop Attack Helicopter

It’s not a bribery case. But it showed how the profit motive can overwhelm a compliance program.

A Canadian subsidiary of United Technologies pleaded guilty today to violating the Arms Export Control Act and making false statements in connection with illegal exports to China. The contraband included U.S.-origin military software used in the development of China’s first modern military attack helicopter, the Z-10.

As part of the guilty plea, United Technologies and two subsidiaries will pay more than $75 million in a global settlement with the Justice Department and the State Department. Nearly $21 million will be paid to the DOJ, and $55 million to State.
 
The DOJ charged United Technologies’ subsidiaries with violating the Arms Export Control Act and making false statements to the U.S. government in their belated disclosures relating to the illegal exports.

The companies must retain an independent compliance monitor for export matters for the next two years.

Exports to China of all U.S. defense articles and associated technical data have been banned since the June 1989 Tiananmen Square crackdown. In 1990, Congress specifically named helicopters for inclusion in the ban.

United Technologies hoped to make up to $2 billion for its work on the Z-10. ‘According to court documents,’ the DOJ said, ‘[the] illegal conduct was driven by profit.’

In 2006, an investor group asked United Technologies if its role in developing the Z-10 might violate U.S. laws. The company then made an initial disclosure to the State Department. But it ‘contained numerous false statements,’ the DOJ said.

Among other things, United Technologies’ subsidiaries falsely asserted that they were unaware until 2003 or 2004 that the Z-10 program involved a military helicopter. But the DOJ said company officials knew at the project’s inception in 2000 that the Z-10 program involved an attack helicopter.

‘Today,’ the DOJ said, ‘the Z-10 helicopter is in production and initial batches were delivered to the People’s Liberation Army of China in 2009 and 2010. The primary mission of the Z-10 is anti-armor and battlefield interdiction. Weapons of the Z-10 have included 30 mm cannons, anti-tank guided missiles, air-to-air missiles and unguided rockets.’

The DOJ’s June 28, 2012 release is here.