Canadian defence contractor slapped for software military exports to China

OTTAWA - Two high-profile American senators are urging the U.S. to take tougher action against a Canadian aerospace company that has admitted to exporting military software to China in violation of U.S. law.

Pratt and Whitney Canada, which is owned by American defence giant United Technologies Corporation, acknowledged in a settlement a few weeks ago with the U.S. Justice Department that it and another UTC subsidiary, Hamilton Sundstrand, sold the computer programs that could allow China to complete the development of its first attack helicopter.

Senators John McCain and Carl Levin, who sit on the Senate Committee on Armed Services, have called on the Obama administration to further punish Pratt and Whitney beyond the US $75 million fine already assessed the two companies.

In a letter to both Defence Secretary Leon Panetta and Secretary of State Hillary Clinton, the two senators demanded the Pentagon consider suspending or blocking the subsidiary, based in Longueuil, Que., from participating in U.S. defence contracts.

They say they're concerned that the violations "may have caused significant harm to our national security."

Both senators are also calling for further action against officials from all three companies.

"While the (U.S.) Justice Department obtained a guilty plea from P&WC for illegally exporting software to China, no individual manager or employee has been held personally accountable for criminal misconduct," said the Aug. 6 letter, obtained by The Canadian Press.

The U.S. division of Pratt and Whitney also happens to be the maker of engines for the oft-maligned F-35 jet fighter.

Washington imposed an arms embargo against China following the 1989 Tiananmen Square massacre. The restriction includes "dual-use" technology and that is at the heart of the recent case.

Pratt and Whitney Canada was angling to become the exclusive supplier for the nearly $2-billion-a-year civil helicopter market in China and took a "calculated risk," according to a U.S. Justice Department report.

A spokeswoman for the aircraft engine-maker refused to comment on the letter.

What further angered both senators was that a series of administrative violations by Pratt and Whitney Canada and its parent company, involving two U.S. arms exports laws and dating back years, have been set aside.

The companies were accused of making "false statements or belatedly reporting" the violations to U.S. regulators.

The U.S. State Department has partially suspended Pratt and Whitney Canada's privileges under the International Traffic in Arms Regulation agreement (ITAR).

Trade experts say the case comes at an awkward time for the Canadian defence industry, which has been somewhat jumpy because Washington is redefining certain parts of the arms agreement and tightening the rules involving almost all non-U.S.-based military suppliers.

It also comes just weeks after the Armed Services committee slammed the trafficking of Chinese counterfeit parts in military electronics.

Canada, according to the committee report released in June, is the third largest reseller of those parts, which have found their way into U.S. weapons systems.

"Whenever there are stories like this, Canadian industry will clearly sit up and take notice," said Tim Page, president of the Canadian Association of Defence and Security Industries.

"Canadians take their responsibilities under ITAR very seriously because the U.S. market is such an important market for our industry and because the North American defence industrial base is as integrated as it is."

Just how important an open U.S. border is to the defence sector was underscored in a yet-to-be released study by the association, which estimates Canada exports $4.9 billion in weapons systems to the U.S. per year out of total international sales of $6.4 billion.

Page wouldn't comment specifically on the Pratt and Whitney Canada case, but suggested that the drum-beating in Washington is being influenced by the presidential race.

"It is an election year, for sure, and I don't know I'd go further than that," he said. "All parties doing business with the States need to be conscious of their domestic laws. Canada's security and defence industry is conscious of U.S. domestic law."

University of Ottawa defence expert Phillipe Legasse said there would be more concern had the company not been a U.S. subsidiary.

"Had a uniquely Canadian firm done this, it would have fuelled doubts about the wisdom of involving Canadian (companies) in the development of sensitive technologies," Legasse said.

Even still, the revelation also comes on the heels of scandal where a Canadian naval officer is accused of selling a virtual treasure trove of secrets to Russia.

Legasse acknowledged some in the U.S. might want to paint Canada as a security risk, but said he doesn't believe it'll succeed.