BusinessWeek.com March 27, 2007
ITT to Plead Guilty In Export Case
The defense contractor will forfeit $100 million for selling night-vision technology to China
By Keith Epstein
ITT (ITT) will plead guilty to two export violations and forfeit $100 million for selling night-vision technology to an optics company in China over two decades, which a federal Homeland Security Dept. official said had posed a "potentially deadly threat" to U.S. forces.
John Brownlee, the U.S. Attorney in Roanoke, Va., made the announcement Mar. 27, saying the company's actions "had threatened to turn on the lights on the modern battlefield for our enemies and expose American soldiers to great harm."
Authorities, worried that the illegal technology transfer could endanger U.S. pilots and ground troops, are urging the company to spend half of the $100 million penalty to develop a new generation of night-vision equipment. Otherwise, they worry, U.S. forces could be blinded by lasers, and adversaries might be able to gain tactical advantage by seeing through darkness and smoke.
Julie Meyers, an Assistant Secretary of Homeland Security, added in a statement issued in Washington: "Placing profits ahead of the security of our nation is simply not acceptable for any corporation." No other major defense contractor has pleaded guilty to a violation of laws restricting the export of arms and military technology.
The Singapore Connection
The guilty plea, which ITT is expected to enter in U.S. District Court in Roanoke on Mar. 28, caps a six-month investigation by customs enforcement personnel on several continents. The investigation was revealed by BusinessWeek on Feb. 1 (see BusinessWeek.com, 2/1/07, "ITT Nears Justice Settlement"). ITT's optics unit is based in Roanoke.
The company will plead guilty to exporting without a license and making false statements in connection with transferring details about its special lenses and technology to the Chinese through a contractor in Singapore, a person familiar with the plea said. The lenses contain a coating that can protect a pilot or soldier from an incoming laser. Some of the technology also enables soldiers to see through smoke.
ITT's chief executive, Steven Loranger, said in a statement that the company had "voluntarily disclosed all discrepancies that our internal reviews revealed," and turned that information over to investigators. "While this settlement relates to the actions of a few individuals in one of our 15 business units, we regret very much that these serious violations occurred."
Sales Restrictions
Meanwhile, the company faced other bad news, as the State Dept. placed further restrictions on ITT's ability to sell night-vision equipment and technical data overseas. ITT's night-vision division will not be allowed to ship devices "to specific parties" for at least one year, the company said, adding that it did not expect the restriction to impair any other business unit or the company's ability to meet its 2007 financial forecast. The restriction will apply to less than 5% of the company's night goggles sales, the company added.
ITT shares closed at $60.82, down 37 cents, on the New York Stock Exchange.
The company—the military's leading supplier of night-vision goggles—has already taken a $25 million charge to net income in anticipation of the settlement. The charge reduces ITT's fiscal 2006 earnings by 13 cents a share.
ITT has said that it has taken steps to prevent such sales in the future. The safeguards include more oversight, training programs, and personnel changes. In a Feb. 1 statement, ITT said it is "absolutely certain that the heart of this technology—the night-vision tube itself—is secure."
Major Revenue From Military Sales
The investigation was conducted by the Defense Criminal Investigative Service and the Immigration & Customs Enforcement Agency, part of Homeland Security.
ITT, which has seen its annual revenue jump nearly $1 billion to about $8 billion in revenue over the past two years, is a global leader in water treatment and transport. Military electronics and services, partly driven by night-vision sales to the U.S. military and countries such as Switzerland and Australia, generate around 43% of the company's revenue. ITT also sells electrical connectors and leisure marine products.
Since the 2001 terror attacks, sales of sensitive military and intelligence technology have grown into a major worry for U.S. authorities, who struggle to keep information from falling into unfriendly hands. An arms and strategic technology investigations unit at Immigration & Customs Enforcement has stepped up efforts to crack down on illegal exports of sensitive technology.
Netting a Big Fish
In 2006 the agency obtained 128 indictments and 98 convictions in such cases, according to a November, 2006, press release. Thousands of times each year, customs officers also contact U.S. manufacturers, aiming to educate them on export laws and teach them how to detect the purchasers who often act as middlemen for people in countries not authorized to receive the products. Since 2004 those crackdowns have involved several attempts to obtain night-vision equipment for China and Iran.
Cases involving such illegal exports usually ensnare lesser-known companies. ITT is both a major corporation and a federal contractor whose products have played critical roles in significant military actions, including operations Just Cause and Desert Storm during the Persian Gulf War.
Thanks to the technology, "One of the big takeaways from the first Gulf War was: We own the night," observes John Pike, director of GlobalSecurity.org, a Washington group that conducts military research. "American forces were able to operate 24 hours a day. It's a real big advantage over people who can't do that."
© Copyright 2007, The McGraw-Hill Companies Inc.
