Common use of THE VIOLATIONS Clause in Contracts

THE VIOLATIONS. This case involves the unlicensed and unlawful export to China of multiple versions of HSC software to test and operate an Electronic Engine Control (“EEC”) system for certain PWC helicopter engines, which were ultimately used in Chinese Z10 military attack helicopter prototypes. The conduct involved three violations of law. The first were export violations by PWC in connection with exports of a defense article, specifically, the software to test and operate the EEC system for 10 PWC helicopter engines that were used in a Chinese Medium Helicopter (“CMH”) development program. The exports were made in violation of the Arms Export Control Act (“AECA”), 22 U.S.C. § 2778(b)(2) and (c); the International Traffic in Arms Regulations (“ITAR”), 22 C.F.R. §§ 127.1 and 127.3; and the causing provisions of 18 U.S.C. §2(b). Three Z10 prototypes were built using PWC engines that contained HSC EEC software that had been specifically modified in the United States for use in the military helicopter application. Even though the engines themselves and the accompanying EEC hardware were dual-use items that could be lawfully exported to China, the EEC software was modified for the Z10 aircraft application and thereby became subject to the ITAR. As a result, the exports required a license from the Department of State, which was never sought and, if sought, would have been denied. The second violation was the making of false statements by UTC, PWC and HSC in two disclosure letters to the Department of State, in violation of 18 U.S.C. § 1001(a)(2). In the letters, UTC, PWC and HSC falsely stated that PWC understood from the inception of the program that civil and military variants of the CMH would be developed concurrently and in parallel from a common “platform” engine, transmission and rotor, when in fact employees in PWC’s marketing and export departments were aware from the start of the program that the Chinese were first developing a military version of CMH, with the civil version to follow at some future time. By the time the disclosures were submitted to the State Department, employees of HSC and a UTC division who were working on the disclosures had become aware that the statements concerning PWC’s understanding at the inception of the program were not accurate. The third violation was the failure of PWC and HSC to timely report to the United States Department of State’s Directorate of Defense Trade Controls (“DDTC”), as required by the ITAR, that a defense article (the modified HSC EEC software) had been transferred to China, a country with which the United States maintains an arms embargo, in violation of 22 U.S.C. § 2778(c) and 22 C.F.R. § 126.1(a) and (e).