STATE DEPARTMENT, RAYTHEON REACH AGREEMENT REGARDING VIOLATIONS OF ARMS EXPORT CONTROL ACT

FROM: U.S. STATE DEPARTMENT

State Department Announces Resolution of Raytheon Company Arms Export Control Enforcement Case

Media Note
Office of the Spokesperson
Washington, DC
April 30, 2013

The State Department has reached administrative agreement with Raytheon Company (Raytheon) following an extensive enforcement review to address hundreds of civil violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR). Raytheon will pay $8 million in civil penalties and remedial expenditures to resolve these alleged violations. This settlement highlights the role of the Department in protecting sensitive American technologies from unauthorized use by ensuring compliance with substantive and administrative arms export restrictions.

The Department’s Office of Defense Trade Controls Compliance in the Bureau of Political-Military Affairs determined that Raytheon’s numerous violations demonstrated a recurring, corporate-wide weakness in maintaining effective ITAR controls. Over the course of many years, Raytheon business units have disclosed to the Department hundreds of ITAR violations, largely consisting of failures to properly manage Department-authorized agreements and temporary import and export authorizations. The violations included inaccurate tracking, valuation and documentation of temporary exports and imports of controlled hardware, manufacture of such hardware by Raytheon’s foreign partners in excess of the approved amounts, and failures to timely obtain and submit required documents. Raytheon repeatedly discovered and disclosed such violations to the Department, in some cases finding that previously reported remedial measures failed to prevent or detect additional similar violations subsequently disclosed.

Under the terms of a four year Consent Agreement with the Department, Raytheon will pay a civil penalty of $8 million. The State Department agreed to suspend $4 million 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. In addition, an external Special Compliance Official will be engaged by Raytheon to oversee the Consent Agreement, which will also require the company to conduct two external audits of its compliance program during the Agreement term as well as implement additional compliance measures.

Raytheon 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 Raytheon is not appropriate at this time.

UITED TECHNOLOGIES SUBSIDIARY PLEADS GUILTY TO HELPING CHINA DEVELOP MODERN ATTACK HELICOPTER

FROM:  U.S. DEPARTMENT OF JUSTICE 
Thursday, June 28, 2012
United Technologies Subsidiary Pleads Guilty to Criminal Charges for Helping China Develop New Attack Helicopter United Technologies, Pratt & Whitney Canada and Hamilton Sundstrand Corporations Also Agree to Pay More Than $75 Million to U.S. Government

BRIDGEPORT, Conn. – Pratt & Whitney Canada Corp. (PWC), a Canadian subsidiary of the Connecticut-based defense contractor United Technologies Corporation (UTC), today 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 used in the development of China’s first modern military attack helicopter, the Z-10.

In addition, UTC, its U.S.-based subsidiary Hamilton Sundstrand Corporation (HSC) and PWC have all agreed to pay more than $75 million as part of a global settlement with the Justice Department and State Department in connection with the China arms export violations and for making false and belated disclosures to the U.S. government about these illegal exports.  Roughly $20.7 million of this sum is to be paid to the Justice Department.  The remaining $55 million is payable to the State Department as part of a separate consent agreement to resolve outstanding export issues, including those related to the Z-10.  Up to $20 million of this penalty can be suspended if applied by UTC to remedial compliance measures.  As part of the settlement, the companies admitted conduct set forth in a stipulated and publicly filed statement of facts.
 
Today’s actions were announced by David B. Fein, U.S. Attorney for the District of Connecticut; Lisa Monaco, Assistant Attorney General for National Security; John Morton, Director of U.S. Immigration and Customs Enforcement (ICE); Ed Bradley, Special Agent in Charge of the Northeast Field Office of the Defense Criminal Investigative Service (DCIS); Kimberly K. Mertz, Special Agent in Charge of the FBI New Haven Division; David Mills, Department of Commerce Assistant Secretary for Export Enforcement; and Andrew J. Shapiro, Assistant Secretary of State for Political-Military Affairs.

The Charges
Today in the District of Connecticut, the Justice Department filed a three-count criminal information charging UTC, PWC and HSC.  Count One charges PWC with violating the Arms Export Control Act in connection with the illegal export of defense articles to China for the Z-10 helicopter.  Count Two charges PWC, UTC and HSC with making false statements to the U.S. government in their belated disclosures relating to the illegal exports.  Count Three charges PWC and HSC with failure to timely inform the U.S. government of exports of defense articles to China.

While PWC has pleaded guilty to Counts One and Two, the Justice Department has recommended that prosecution of UTC and HSC on Count Two, and PWC and HSC on Count Three be deferred for two years, provided the companies abide by the terms of a deferred prosecution agreement with the Justice Department.  As part of the agreement, the companies must pay $75 million and retain an Independent Monitor to monitor and assess their compliance with export laws for the next two years.
The Export Scheme

Since 1989, the United States 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 the People’s Republic of China.  In February 1990, the U.S. Congress imposed a prohibition upon licenses or approvals for the export of defense articles to the People’s Republic of China.  In codifying the embargo, Congress specifically named helicopters for inclusion in the ban.

Dating back to the 1980s, China sought to develop a military attack helicopter.  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.  The Z-10, developed with assistance from Western suppliers, is China’s first modern military attack helicopter.

During the development phases of China’s Z-10 program, each Z-10 helicopter was powered by engines supplied by PWC.  PWC delivered 10 of these development engines to China in 2001 and 2002.  Despite the military nature of the Z-10 helicopter, PWC determined on its own that these development engines for the Z-10 did not constitute “defense articles,” requiring a U.S. export license, because they were identical to those engines PWC was already supplying China for a commercial helicopter.

Because the Electronic Engine Control software, made by HSC in the United States to test and operate the PWC engines, was modified for a military helicopter application, it was a defense article and required a U.S. export license.  Still, PWC knowingly and willfully caused this software to be exported to China for the Z-10 without any U.S. export license.  In 2002 and 2003, PWC caused six versions of the military software to be illegally exported from HSC in the United States to PWC in Canada, and then to China, where it was used in the PWC engines for the Z-10.

According to court documents, 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.  When the Chinese claimed that a civil version of the helicopter would be developed in parallel, PWC marketing personnel expressed skepticism internally about the “sudden appearance” of the civil program, the timing of which they questioned as “real or imagined.”  PWC nevertheless saw an opening for PWC “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.” PWC failed to notify UTC or HSC about the attack helicopter until years later and purposely turned a blind eye to the helicopter’s military application.

HSC in the United States had believed it was providing its software to PWC for a civilian helicopter in China, based on claims from PWC.  By early 2004, HSC learned there might an export problem and stopped working on the Z-10 project.  UTC also began to ask PWC about the exports to China for the Z-10.  Regardless, PWC on its own modified the software and continued to export it to China through June 2005.

According to court documents, PWC’s illegal conduct was driven by profit.  PWC 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 PWC estimates, was potentially worth as much as $2 billion to PWC.
Belated and False Disclosures to U.S. Government

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 UTC in early 2006 about whether PWC’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.

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.  In fact, by the time of the disclosures, all three companies were aware that PWC 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.  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.

“PWC exported controlled U.S. technology to China, knowing it would be used in the development of a military attack helicopter in violation of the U.S. arms embargo with China,” said U.S. Attorney Fein.  “PWC took what it described internally as a ‘calculated risk,’ because it wanted to become the exclusive supplier for a civil helicopter market in China with projected revenues of up to two billion dollars.  Several years after the violations were known, UTC, HSC and PWC disclosed the violations to the government and made false statements in doing so.  The guilty pleas by PWC and the agreement reached with all three companies should send a clear message that any corporation that willfully sends export controlled material to an embargoed nation will be prosecuted and punished, as will those who know about it and fail to make a timely and truthful disclosure.”

“Due in part to the efforts of these companies, China was able to develop its first modern military attack helicopter with restricted U.S. defense technology.  As today’s case demonstrates, the Justice Department will spare no effort to hold accountable those who compromise U.S. national security for the sake of profits and then lie about it to the government,” said Assistant Attorney General Monaco.  “I thank the agents, analysts and prosecutors who helped bring about this important case.”

“This case is a clear example of how the illegal export of sensitive technology reduces the advantages our military currently possesses,” said ICE Director Morton.  “I am hopeful that the conviction of Pratt & Whitney Canada and the substantial penalty levied against United Technologies and its subsidiaries will deter other companies from considering similarly ill-conceived business practices in the future.  American military prowess depends on lawful, controlled exports of sensitive technology by U.S. industries and their subsidiaries, which is why ICE will continue its present campaign to aggressively investigate and prosecute criminal violations of U.S. export laws relating to national security.”

“Today’s charges and settlement demonstrate the continued commitment of the Defense Criminal Investigative Service (DCIS) and fellow agencies to protect sensitive U.S. defense technology from being illegally exported,” said DCIS Special Agent in Charge Bradley.  “Safeguarding our military technology is vital to our nation’s defense and the protection of our war fighters both home and abroad.  We know that foreign governments are actively seeking U.S. defense technology for their own development.  Thwarting these efforts is a top priority for DCIS.  I applaud the agents and prosecutors who worked tirelessly to bring about this result.”

“Preventing the loss of critical U.S. information and technologies is one of the most important investigative priorities of the FBI,” said FBI Special Agent in Charge Mertz.  “Our adversaries routinely target sensitive research and development data and intellectual property from universities, government agencies, manufacturers, and defense contractors.  While the thefts associated with economic espionage and illegal technology transfers may not capture the same level of attention as a terrorist incident, the costs to the U.S. economy and our national security are substantial.  Violations of the Arms Export Control Act put our nation at risk and the FBI, along with all of our federal agency partners, are committed to ensuring that embargoed technologies do not fall into the wrong hands.  Those who violate these laws should expect to be held accountable.  An important part of the FBI’s strategy in this area involves the development of strategic partnerships.  In that regard, the FBI looks forward to future coordination with UTC and its subsidiaries to strengthen information sharing and counterintelligence awareness.”

“Protecting national security is our top priority,” said Assistant Secretary of Commerce for Export Enforcement Mills.  “Today’s action sends a clear signal that federal law enforcement agencies will work together diligently to prevent U.S. technology from falling into the wrong hands.”

Assistant Secretary Shapiro, of the State Department’s Bureau of Political and Military Affairs, said, “Today’s $75 million settlement with United Technologies Corporation sends a clear message:  willful violators of U.S. arms export control regulations will be pursued and punished.  The successful resolution of this case is the byproduct of the tireless work of our compliance officers and highlights the relentless commitment of the State Department to protect sensitive American technologies from being illegally transferred.”

U.S. Attorney Fein commended the many agencies involved in this investigation, including ICE’s Homeland Security Investigations (HSI) in New Haven; the DCIS in New Haven; the New Haven Division of the FBI; the Department of Commerce’s Boston Office of Export Enforcement.  He also praised the Office of the HSI Attaché in Toronto, which was essential to the initiation and investigation of this matter, and the State Department’s Office of Defense Trade Controls Compliance in the Bureau of Political-Military Affairs, for its critical role in the global resolution of this matter.

The prosecution is being handled by Assistant U.S. Attorneys Stephen B. Reynolds and Michael J. Gustafson from the U.S. Attorney’s Office for the District of Connecticut, with assistance from Steven Pelak and Ryan Fayhee of the Counterespionage Section of the Justice Department’s National Security Division.

DEPARTMENT OF STATE AND ALPINE AEROSPACE CO. REACH AGREEMENT ON ARMS EXPORT VIOLATIONS

FROM U.S. STATE DEPARTMENT

The Department of State has reached administrative agreement with Alpine Aerospace Corporation and TS Trade Tech Incorporated of New Jersey to resolve violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR) related to the export of significant military equipment.

The two companies, which share common ownership, procure and sell replacement parts to the aerospace industry. Many of the parts procured and sold by the Companies are designated as defense articles pursuant to § 38 of the AECA and the United States Munitions List (USML), § 121.1 of the ITAR and require authorization from the Department prior to export. Following an October 2010 filing of criminal information in the District Court for the District of New Jersey, the companies approached the Department to propose an administrative settlement and disclose additional violations.

From July 2005 through January 2007, the two companies arranged several foreign sales without obtaining the proper approvals prior to exporting, and in some instances, cited licenses that did not cover the companies' exports. In addition, the companies failed to obtain the appropriate non-transfer and use certifications for export of significant military equipment.

The Department proposed the following charges, which are resolved by the concluded agreements along with additional violations disclosed to the Department. Alpine engaged in six exports of parts for use on a Hawk missile system, and in a separate violation, failed to obtain a DSP-83 Non-Transfer and Use Certificate for these exports. Alpine cited an existing export license on export control documents for the exports which did not, in fact, authorize the export of parts for the Hawk missile system. TS Trade engaged in one export of aircraft parts and associated equipment without authorization.

Under the terms of the agreements, Alpine agrees to a civil penalty of $30,000 and TS Trade Tech agrees to a civil penalty of $20,000. The civil penalties are to be suspended on the condition that they are to be used for pre- and post-Consent Agreement expenditures for remedial compliance measures. Any portion of the penalty that is not so used will be forfeited at the conclusion of the thirty-month term of the agreements. The companies will implement additional remedial compliance measures, provide additional training to staff and principals, and will undergo two external audits of their compliance programs.

The companies have acknowledged the seriousness of the ITAR violations and have cooperated with the Department, expressed regret for their actions and taken steps to improve their compliance with law and regulations. For these reasons, the Department has determined that an administrative debarment of the companies is not appropriate at this time.

U.S. COMPANIES AND OTHERS INDICTED FOR SUPPLYING MILITARY ARICRAFT TO IRAN

The following excerpt is from the Department of Justice website:

"Department of Justice

Office of Public Affairs

FOR IMMEDIATE RELEASE

Thursday, June 23, 2011

Members of International Procurement Network Indicted for Supplying Iran with U.S. Military Aircraft Components

Total of 12 Defendants in U.S., France, U.A.E. and Iran Charged

MACON, Ga. – Seven individuals and five corporate entities based in the United States, France, the United Arab Emirates (U.A.E.) and Iran have been indicted in the Middle District of Georgia for their alleged roles in a conspiracy to illegally export military components for fighter jets and attack helicopters from the United States to Iran.   One of the defendants and his company were sentenced yesterday, with the individual receiving nearly five years in prison. Another defendant and his company have admitted their illegal conduct and also pleaded guilty in the investigation.

Federal prosecutors today unsealed a superseding indictment in Macon, Ga., charging eight of the defendants with conspiring to violate and violating the Arms Export Control Act (AECA), the International Emergency Economic Powers Act (IEEPA) and the Iranian Transactions Regulations, as well as conspiracy to defraud the United States, money laundering and false statement violations.   Charges against the four other defendants, who have pleaded guilty in the case, are contained in the original indictment in the investigation that was filed previously.

The indictment and other enforcement actions were announced by Todd Hinnen, Acting Assistant Attorney General for National Security; Michael J. Moore, U.S. Attorney for the Middle District of Georgia; Brock Nicholson, Special Agent-in-Charge of the U.S. Immigration and Customs Enforcement, Homeland Security Investigations (ICE-HSI) office in Atlanta; Brian D. Lamkin, Special Agent-in-Charge of the FBI’s Atlanta Field Division; and Robert Luzzi, Special Agent-in-Charge of the Commerce Department, Office of Export Enforcement (OEE) Miami Field Office.

The Defendants

Thus far, four defendants based in the United States have been charged as part of the investigation.   They are The Parts Guys LLC, a company in Port Orange, Fla., that maintains a warehouse at the Middle Georgia Municipal Airport in Macon, as well as the president of The Parts Guys, Michael Edward Todd, who is a U.S. national.  In addition, Galaxy Aviation Services, a company in St. Charles, Ill., and its president, Hamid Seifi, also known as Hank Seifi, an Iranian-born U.S. national, have been charged.  

Todd was arrested last year in Atlanta based on the original indictment in the case.  Todd and his company, The Parts Guys, pleaded guilty to conspiracy to violate the AECA on May 9, 2011, and have yet to be sentenced.   Federal agents arrested Seifi in Atlanta earlier this year, also based on the original indictment.   Seifi and his company, Galaxy Aviation, pleaded guilty on Feb. 24, 2011, to conspiracy to violate the AECA and violating the IEEPA.   Yesterday, Seifi was sentenced to 56 months in prison followed by three years of supervised release, a fine of $12,500 and forfeiture of $153,950, while Galaxy Aviation, which is now defunct, received a $400 special assessment.   

Three defendants based in France have also been indicted as part of the investigation.   They are Aerotechnic, a company in Pinsaguel, France, and its president, Philippe Sanchez, a French national, as well as Luc Teuly, a French national and the sales manager of Aerotechnic.   Each of these defendants remains a fugitive.

Two defendants based in the U.A.E. have also been indicted in the case.  They are Aletra General Trading, a company in Dubai doing business as “Erman & Sultan Trading Co,” and Syed Amir Ahmed Najfi, an Iranian national and purchaser for Aletra.   Najfi remains a fugitive.  

Three defendants based in Iran have also been charged in the case. They are Sabanican Company, a company in Tehran, and its president, Hassan Seifi, an Iranian national, as well as Reza Seifi, an Iranian national and the managing director of Sabanican Company.   Each of these defendants remains at large.

As part of the U.S. government’s coordinated action against this procurement network, the Commerce Department announced today that it will add the eight defendants in France, Iran and the U.A.E. to its “Entity List.”   The Entity List provides notice to the public that certain exports, re-exports and transfers (in-country) to parties identified on the Entity List require a license from the Commerce Department, and that availability of license exceptions in such transactions is limited.   All eight parties will be added to the Entity List with a licensing requirement for all items subject to the Commerce Department export regulations and with a presumption of denial.

The Charges

According to the charges, the defendants conspired to export components for attack helicopters and fighter jets to Iran without obtaining the required U.S. export licenses.   These components included military parts for the Bell AH-1 attack helicopter, the UH-1 Huey attack helicopter, as well as the F-5 and F-4 fighter jets.

           

Defendant Najfi and his firm in the U.A.E. are alleged to have placed orders and purchased military aircraft parts, including those for the Bell AH-1 attack helicopter, from Todd and his company, The Parts Guys, in the United States.   Todd and other conspirators then attempted to and did cause the export of the aircraft parts to the U.A.E.   

Defendant Hank Seifi and his firm in Illinois also allegedly placed orders and purchased U.S. aircraft parts from Todd and his company in Georgia -- on behalf of Hassan Seifi, Reza Seifi and their company in Iran.   According to the charges, Todd and other conspirators then caused these aircraft parts to be exported to Iran via the defendants in France: Sanchez, Teuly and their company, Aerotechnic.

The charge of conspiracy carries a maximum penalty of five years in prison, while violating the AECA carries a maximum penalty of 20 years in prison, and violating IEEPA carries a maximum penalty of 20 years in prison.   Money laundering carries a maximum 20 years in prison, while making false statements carries a maximum of five years in prison.

“The defendants in this case are alleged to have conspired to defraud the United States by illegally acquiring and exporting fighter jet and attack helicopter components.   Keeping such advanced weaponry, which is designed to protect the men and women of our Armed Forces and to defend our national interests, from falling into the hands of state sponsors of terror has never been more important,” said Todd Hinnen, Acting Assistant Attorney General for National Security.

“Through coordinated law enforcement efforts, we have cut off more than a branch of this illegal supply tree; we have cut off the tree at its trunk.  These parts have a military purpose, and I am determined to see that they are not used to harm the United States, its soldiers, citizens or friends.  This type of criminal activity should remind each of us that we must be ever vigilant in our efforts to protect our national security.  The threat is very real, and comes from even the least suspected places, including middle Georgia,” said U.S. Attorney Michael Moore.

“The illegal export of U.S. weapons and military technology presents a direct threat to our national security,” said Brock Nicholson, Special Agent-in-Charge of ICE-HSI in Atlanta. “This investigation demonstrates the importance of preventing our military equipment from falling into the wrong hands, where it could potentially be used against our military members, our homeland and our allies.  Enforcing U.S. export laws is one of our top priorities, and we will continue working with our law enforcement partners to ensure that those who put our country at risk are discovered and brought forward for prosecution.”

Brian D. Lamkin, Special Agent-in-Charge, FBI Atlanta, stated: “The cooperative efforts among the FBI, ICE and U.S. Commerce was critical in bringing this case forward for prosecution by the U.S. Department of Justice.   The enforcement of U.S. laws that prohibit the acquisition of specified defense related items is paramount to national security and is a daunting task when back dropped against the vast movement of legitimate international trade that occurs every day in the U.S.   The FBI is pleased with the role that it has played in this multi-agency enforcement effort.”

“ The Commerce Department's Office of Export Enforcement (OEE) dedicates one hundred percent of its resources to enforcing export laws, and today's case is the result of ongoing cooperation with Immigration and Customs Enforcement and the FBI to protect our national security,” said Robert Luzzi, Special Agent-in-Charge of OEE's Miami Field Office.   “Parties who export to embargoed destinations such as Iran will be pursued and prosecuted to the fullest extent of the law.”

           

This case was investigated by ICE Homeland Security Investigations in Atlanta, FBI Atlanta Field Division and the Department of Commerce’s OEE.  

The prosecution is being handled by Assistant U.S. Attorneys Jennifer Kolman and Danial E. Bennett from the U.S. Attorney’s Office for the Middle District of Georgia and Trial Attorneys Ryan P. Fayhee and Brandon L. Van Grack from the Counterespionage Section of the Justice Department’s National Security Division.

The public is reminded that an indictment contains mere allegations and that defendants are presumed innocent unless and until proven guilty.

11-826

National Security Division"