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March 27, 2007
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ITT fined $100 million for illegal night-vision exports

The Associated Press

ROANOKE, Va. — ITT Corp. has agreed to pay a $100 million penalty for illegally sending classified night-vision technology used in military operations to China and other countries, U.S. Attorney John Brownlee announced Tuesday.

ITT, the leading manufacturer of night-vision equipment for U.S. armed forces, will plead guilty in U.S. District Court on Wednesday to two felony charges, Brownlee said at a news conference. One count is export of defense articles without a license and the other is omission of statements of material facts in arms exports reports.

"The criminal actions of this corporation had threatened to turn on the lights on the modern battlefield for our enemies and expose American soldiers to great harm," Brownlee said.

ITT defense-related technical data was given to contractors in China, Singapore and the United Kingdom in order to cut costs, government investigators said.

"Placing profits ahead of the security of our nation is simply not acceptable for any corporation," Homeland Security Assistant Secretary Julie Myers said in a statement.

ITT, which Brownlee said is the U.S. military’s 12th largest systems supplier, is the first major defense contractor convicted of a criminal violation under the Arms Export Control Act that a Brownlee spokesman said was passed in 1976.

ITT chief executive Steven Loranger noted that the case related to the actions of a few individuals in one of 15 business units, but said the company "regrets very much that these serious violations occurred."

"I want to reinforce, however, that the heart of our night vision goggles — the tube — is secure," he said. "No information regarding the tube was ever compromised."

According to the prosecutor, ITT agreed to pay a $2 million criminal fine, forfeit $28 million in illegal proceeds to the U.S. government and pay $20 million to the State Department.

"ITT will pay $50 million in restitution to the victims of their crimes — the American soldier," Brownlee said.

The fine will be suspended for five years and the White Plains, N.Y.-based company can reduce it dollar-for-dollar by investing in the development and production of more advanced night-vision technology so the U.S. military maintains battlefield advantage.

The government will maintain the rights to any technologies ITT develops and can share them with rival defense firms bidding on future contracts, Brownlee said.

No individuals have been charged, but Brownlee said the investigation was continuing.

"The size of the penalty shows how severely the government regards any sale of sensitive military technology to a potential adversary," said Loren Thompson, a defense analyst at the Lexington Institute in Arlington, Va. "Night-vision goggles greatly enhance the capability of military forces to operate around the clock, which differentiates our force from that of most adversaries."

A criminal investigation began in August 2001 when special agents from the Defense Department’s Criminal Investigative Service found that ITT had illegally sent a classified U.S. military document about night-vision technology to foreign nationals in the United Kingdom.

Officials from DCIS, the Bureau of Immigration and Customs Enforcement and Department of Justice later uncovered numerous export law violations, such as ITT allowing a Singapore engineer to work with its engineers at the company’s Night Vision manufacturing operation in Roanoke County, and two Chinese optical engineers working on the design of the enhanced night-vision goggle system in Singapore.

Government agents said managers viewed U.S. export laws "as obstacles to getting business done," Brownlee said.

Prosecutors also said that between April 2000 and October 2004, ITT omitted material facts in required arms exports reports that made them misleading.

As part of the agreement, the company is subject to independent monitoring and an extensive remedial action program, Brownlee said.

In a related action, ITT said the State Department had placed restrictions on certain exports of night vision equipment and technical data, and ITT Night Vision will face shipping restrictions for at least a year.

ITT and its corporate attorneys fought the government’s investigation for three years, attempting to "run out the clock on the statute of limitations" after law enforcement officials executed a search warrant in October 2002 at the Roanoke operation, Brownlee said.

But when the government informed ITT it would seek an indictment in the fall of 2005, Loranger, then new in his post, hired new attorneys and fully cooperated with the investigation.

The global economy has made compliance with U.S. export laws more difficult for companies, said Jim Wilson, a JPMorgan Chase Vastera vice president.

"They have to understand their entire supply chain," he said. "That’s a lot of training and ongoing education because the rules aren’t stable."

Shares of ITT, which makes products ranging from wastewater handling systems to electronic warfare technologies for military aircraft, ended Tuesday down 31 cents to $60.89 on the New York Stock Exchange.

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