UNITED TECHNOLOGIES CORPORATION SETTLES VIOLATIONS REGARDING ILLEGAL EXPORTS TO CHINA

FROM:  U.S. STATE DEPARTMENT
U.S. State Department Announces Resolution of United Technologies Corporation Arms Export Control Enforcement Case
Media Note Office of the Spokesperson Washington, DC
June 28, 2012

United Technologies Corporation (UTC) has agreed to pay more than $75 million as part of a “global settlement” with the State Department and Justice Department to address arms export violations to China, false and belated disclosures to the U.S. Government about these illegal exports, and many other compliance failures.

An extensive enforcement review by the Department of State’s Office of Defense Trade Controls Compliance has addressed several hundred civil violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR). The State Department has reached administrative agreement with United Technologies Corporation to terminate and resolve these violations. This settlement highlights the role of the Department in protecting sensitive American technologies from being illegally transferred to, or received by, unapproved foreign actors.

The Department determined that UTC’s numerous violations demonstrated a systemic, corporate-wide failure to maintain effective ITAR controls. Since 2006, UTC operating units and subsidiaries (including Pratt & Whitney, Hamilton Sundstrand Corporation and Sikorsky Aircraft Corporation) have disclosed to the Department hundreds of ITAR violations. A number of the violations may have caused harm to U.S. national security and foreign policy interests.

Accordingly, the Department proposed to UTC a consolidated resolution via an administrative settlement which would ensure immediate, comprehensive and effective remedial action across the company’s many operating units and subsidiaries. Among the civil violations settled by UTC are several arising from the unauthorized provision in 2002 and 2003 of U.S. origin, ITAR-controlled engine software for military attack helicopters in the People’s Republic of China. Concurrently with the administrative settlement, UTC has also agreed with the U.S. Department of Justice to resolve criminal charges related to these transactions. UTC subsidiary Pratt & Whitney Canada Corporation (P&W Canada) has pleaded guilty in the U.S. District Court in Connecticut to a criminal violation of the AECA and ITAR, while UTC, Hamilton Sundstrand and P&W Canada have also entered into a deferred prosecution agreement regarding this and other related charges. UTC and the Departments of State and Justice coordinated the resolution of the civil and criminal matters.

Of the $75 million “global settlement” with the Justice Department and State Department, approximately $20.7 million of this sum represents fines, forfeiture and other penalties to be paid to the Justice Department. Under the terms of a four year Consent Agreement with the State Department, UTC will pay a civil penalty of $55,000,000. The State Department agreed to suspend $20,000,000 of this amount on the condition that the funds have or will be used for Department-approved pre- and post-Consent Agreement remedial compliance measures.

UTC disclosed nearly all of the ITAR violations resolved in this settlement voluntarily to the Department, acknowledged their serious nature, cooperated with Department reviews, and implemented or has planned extensive remedial measures. For these reasons, the Department has determined that an administrative debarment of UTC is not appropriate at this time.

In response to the criminal conviction, the Department of State is imposing a statutory debarment on P&W Canada. In accordance with the AECA, after a thorough review of the circumstances surrounding the conviction and a finding that appropriate steps had been taken to mitigate law enforcement concerns, the Department determined to exclude certain activities involving P&W Canada from the statutory debarment, as specified in an upcoming Federal Register notice announcing the debarment. Authorization requests for all other ITAR-regulated activities involving P&W Canada will be denied unless accompanied by a “transaction exception” request which will be reviewed and adjudicated by the Department.

MASSACHUSETTS MAN PLEADS GUILTY TO VIOLATING ARMS EXPORT CONTROL ACT

The following is an excerpt from the Department of Justice website:

“WASHINGTON – Rudolf L. Cheung, 57, a resident of Massachusetts, pleaded guilty today in federal court in the District of Columbia to conspiracy to violate the Arms Export Control Act in connection with the unlawful export of 55 military antennae from the United States to Singapore and Hong Kong.

The plea was announced by Lisa Monaco, Assistant Attorney General for National Security; Ronald C. Machen Jr., U.S. Attorney for the District of Columbia; John Morton, Director of the Department of Homeland Security’s U.S. Immigration and Customs Enforcement (ICE); Mark Giuliano, Executive Assistant Director of the FBI’s National Security Branch; and Eric L. Hirschhorn, Under Secretary for Industry and Security at the Commerce Department.

Cheung serves as the head of the Research & Development Department at a private company that manufactures antennae. Over the past 17 years, he has designed or supervised the development of a full library of antennae made by the firm, many of which have military applications and are used by defense contractors.   Some of Cheung’s inventions are used in the U.S. space program.

According to court documents filed in the case, in June 2006, a company in Singapore sent an inquiry to the firm that employs Cheung seeking a quotation for two types of antennae that are classified by the U.S. government as defense articles and may not be exported without a license or approval from the State Department. After receiving the query, the export compliance officer at Cheung’s firm advised the firm in Singapore that neither antenna could be exported unless they filled out a U.S. government form attesting that the goods would not be transferred.   The firm in Singapore refused, and the order was stopped.  

After learning that the export compliance officer at his company had blocked the export, Cheung admitted that he discussed with an individual outside his company (co-conspirator C) a plan to bypass the export controls at his company and arrange for the antennae to be exported to Singapore through co-conspirator C. Under the plan, co-conspirator C, who operated his own company in Massachusetts, would purchase these goods from Cheung’s company and then export them on his own to the firm in Singapore, with Cheung’s knowledge.

Subsequently, co-conspirator C contacted the firm in Singapore and offered to broker the deal with Cheung’s company. Co-conspirator C then negotiated the purchase of the antennae with employees of the firm in Singapore and, later, with another company called Corezing International in Singapore. Between July and September 2007, co-conspirator C purchased 55 military antennae from Cheung’s company, which he then exported to Corezing addresses in both Singapore and Hong Kong.

According to court documents, Cheung was aware that the purchases by Co-conspirator C were intended for export from the United States and that these exports had previously been blocked by his export compliance manager. Yet Cheung took no action to stop the sale of these antennae from his company or their subsequent export from the United States, even though he knew a license was required for such exports. Cheung neither sought nor obtained any license from the State Department to export these items outside the United States.

At sentencing, Cheung faces a maximum potential sentence of five years in prison, a fine of $250,000 and a 3-year term of supervised release.

Corezing, based in Singapore, has been charged in a separate indictment in the District of Columbia in connection with the export of these particular military antennae to Singapore and Hong Kong. Corezing and its principals have also been charged, and the United States is seeking their extradition, in connection with the export of 6,000 radio frequency modules from the United States to Iran via Singapore, some of which were later found in improvised explosive devices in Iraq.

This investigation was jointly conducted by ICE agents in Boston and Los Angeles; FBI agents in Minneapolis; and Department of Commerce, Bureau of Industry and Security agents in Chicago and Boston. Substantial assistance was provided by the U.S. Department of Defense, U.S. Customs and Border Protection and the State Department’s Directorate of Defense Trade Controls.

The prosecution is being handled by Assistant U.S. Attorneys Anthony Asuncion and John W. Borchert of the U.S. Attorney’s Office for the District of Columbia; and Trial Attorneys Jonathan C. Poling and Richard S. Scott of the Counterespionage Section of the Justice Department’s National Security Division.”