Defense Contractors Agree to $75M Settlement for Helping to Develop Chinese Military Helicopter

(Since 1989, the U.S. has imposed a prohibition upon the export to China of all U.S. defense articles and associated technical data as a result of the conduct in June 1989 at Tiananmen Square by the military of China, ICE said. In February 1990, the U.S. Congress imposed a prohibition upon licenses or approvals for the export of defense articles to China, said ICE, and specifically named helicopters for inclusion in the ban. Beginning in the 1990s, after Congress had imposed the prohibition on exports to China, China sought to develop its attack helicopter under the guise of a civilian medium helicopter program in order to secure Western assistance, it said. According to ICE, The Z-10, developed with assistance from Western suppliers, is China's first modern military attack helicopter.)

Pratt & Whitney Canada Determined Engines for Z-10 “Not Military Articles”

During the development phases of China's Z-10 program, each Z-10 helicopter was powered by engines supplied by Pratt & Whitney Canada, ICE said. Pratt & Whitney delivered 10 of these development engines to China in 2001 and 2002. According to ICE, Pratt & Whitney Canada determined on its own that these development engines for the Z-10 did not constitute "defense articles" requiring a U.S. export license, despite the military nature of the Z-10 helicopter, because they were identical to those engines Pratt & Whitney Canada was already supplying China for a commercial helicopter.

But Development Software was for Military Application; ICE Said Pratt & Whitney Canada Knew

However, because the Electronic Engine Control software, made by Hamilton Sundstrand in the U.S. to test and operate the Pratt & Whitney Canada engines, was modified for a military helicopter application, it was a defense article and required a U.S. export license, ICE said. Still, Pratt & Whitney Canada knowingly and willfully caused this software to be exported to China for the Z-10 without any U.S. export license, according to ICE. In 2002 and 2003, Pratt & Whitney Canada caused six versions of the military software to be illegally exported from Hamilton Sundstrand in the U.S. to Pratt & Whitney Canada in Canada, and then to China, where it was used in the Pratt & Whitney engines for the Z-10, it said.

According to court documents, Pratt & Whitney 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. When the Chinese claimed that a civil version of the helicopter would be developed in parallel, Pratt & Whitney Canada marketing personnel expressed skepticism internally about the "sudden appearance" of the civil program, the timing of which they questioned as "real or imagined," ICE said. Pratt & Whitney Canada nevertheless saw an opening for it "to insist on exclusivity in [the] civil version of this helicopter," and stated that the Chinese would "no longer make reference to the military program," ICE said. Pratt & Whitney Canada failed to notify United Technologies or Hamilton Sundstrand about the attack helicopter until years later and purposely turned a blind eye to the helicopter's military application, ICE said.

U.S. Parent & Fellow Subsidiary Didn’t Know Until 2004

Hamilton Sundstrand had believed it was providing its software to Pratt & Whitney Canada for a civilian helicopter in China, ICE said. By early 2004, Hamilton Sundstrand learned there might an export problem and stopped working on the Z-10 project, it said. United Technologies also began to ask Pratt & Whitney Canada about the exports to China for the Z-10, ICE said. Regardless, Pratt & Whitney Canada on its own modified the software and continued to export it to China through June 2005, ICE said.

According to court documents, Pratt & Whitney Canada’s illegal conduct was driven by profit. It anticipated that its work on the Z-10 military attack helicopter in China would open the door to a far more lucrative civilian helicopter market in China, which according to Pratt & Whitney Canada estimates, was potentially worth as much as $2 billion, ICE said.

Once Parent & U.S. Subsidiary Knew, ICE said they Didn’t Disclose Violations

According to ICE, these companies failed to disclose to the U.S. government the illegal exports to China for several years and only did so after an investor group queried United Technologies in early 2006 about whether Pratt & Whitney Canada’s role in China's Z-10 attack helicopter might violate U.S. laws. The companies then made an initial disclosure to the State Department in July 2006, with follow-up submissions in August and September 2006, ICE said.

2006 Disclosures Contained False Statements

ICE said the 2006 disclosures contained numerous false statements. Among other things, the companies falsely asserted that they were unaware until 2003 or 2004 that the Z-10 program involved a military helicopter, it said. In fact, by the time of the disclosures, all three companies were aware that Pratt & Whitney Canada officials knew at the project's inception in 2000 that the Z-10 program involved an attack helicopter.

Today, the Z-10 helicopter is in production and initial batches were delivered to the People's Liberation Army of China in 2009 and 2010, ICE said. 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, it said.