Two powerful U.S. senators want the Pentagon to consider suspending or blocking one of the nation’s largest defense contractors from government work because a subsidiary has admitted selling software to China that it knew would be used for military purposes.
In a letter to the secretaries of defense and state, Sens. Carl Levin, D-Mich., and John McCain, R-Ariz., said the sale by Pratt & Whitney Canada, a division of United Technologies, raised concerns that the deal "may have caused significant harm to our national security."
The contract involved selling software designed for civilian helicopters that the company knew “would be used by China to develop its first modern attack helicopter,” they wrote to Pentagon chief Leon Panetta and Secretary of State Hillary Clinton.
The deal also could have meant access to a $2 billion civilian helicopter market in China, according to Justice Department documents.
The letter came after Pratt & Whitney Canada pleaded guilty to federal criminal charges from the Department of Justice stemming from the development of the Chinese Z-10 attack helicopter. In addition to that guilty plea, United Technologies and another subsidiary agreed to pay a $75 million fine for breaking export laws related to defense materials and for failing to report the matter quickly and honestly.
Justice delayed charges against United Technologies and the other subsidiary for two years, providing that they pay the fine and hire an independent monitor to make sure they’re following exports law.
McCain and Levin called the crime “enormously troubling.”
Lt. Col. James Gregory, a Pentagon spokesman, said the letter had been received and a response to Levin and McCain would be forthcoming.
In a statement, United Technologies said it had “greatly improved our compliance infrastructure, and have revitalized our ethics programs.” The company said it understood “the important role export controls play in safeguarding U.S. national security . . . we take these obligations very seriously.”
United Technologies, based in Hartford, Conn., is a top 25 defense contractor. It earned $58 billion last year. Losing the opportunity to bid on federal contracts could cost it billions in lost revenue.
The company recently closed on its $18.4 billion purchase of the Goodrich Corp., an aerospace company based in Charlotte, N.C. City and state officials provided $5 million in aid to set up what will be a new United Technologies aerospace division headquartered in Charlotte. The move is expected to bring 325 jobs to the city, with annual salaries topping more than $200,000.
The charges against United Technologies appear to raise questions for the defense industry during a time of declining spending.
Micah Zenko, a foreign policy and national security expert at the New York-based nonprofit Council on Foreign Relations, said contractors increasingly were concerned that as the United States spent less on the military, they’d need to seek out more foreign clients.
“The need for exports is increasing, and China is a primary market for that,” he said.
In a recent speech to employees, Pratt & Whitney President David Hess spoke of the uncertain terrain that defense contractors face as Congress grapples with unpleasant fiscal choices this year. If no budget agreement is reached, a process called sequestration will follow, which involves steep, automatic spending reductions across the government, including defense.
“Make no mistake: Sequestration budget cuts are a threat to American jobs, the economy and U.S. national security,” Hess said. “Sequestration is the wrong way to address the country’s fiscal challenges, and instead risks damaging a vital industrial sector as a consequence of an historic political gamble.”
A Justice Department summary of the United Technologies case contended that Pratt & Whitney Canada first began supplying China with engines, and then the software that allowed for military use. Justice said the company knew its actions were illegal and would lead to the development of an attack helicopter.
The Justice Department went on to note that Pratt & Whitney Canada failed to notify United Technologies “about the attack helicopter until years later and purposely turned a blind eye to the helicopter’s military application.”
United Technologies wasn’t accused of having known about the illegalities from the beginning of the project in 2000, but it’s accused of having failed to fully disclose what it knew in the years to come.
While not addressing this particular case, Loren Thompson, the chief operating officer of the Lexington Institute research center, which studies government contractors, said in an interview that in general United Technologies’ ability to develop products that work for civilian and military purposes had long been considered a strength.