A federal grand jury yesterday issued a far-reaching indictment accusing McDonnell Douglas Corp. and a Chinese-run company of conspiring to violate U.S. export laws in the sale of aerospace equipment that ultimately wound up at a Chinese military plant.
The 16-count indictment marks the most significant case the U.S. government has brought against an American company for skirting export laws in its dealings with China, and represents the first time a company run by the Chinese government has also been charged.
The charges come at a time when numerous American companies are coming under scrutiny for high-tech sales to China and amid increased congressional concern over allegations of Chinese espionage and the transfer of sensitive U.S. defense technology to China. McDonnell Douglas is a subsidiary of Boeing Co., one of the nation's largest high-tech exporters.
Yesterday's developments were the culmination of a 3 1/2-year investigation by the Commerce Department, the U.S. Customs Service and the Justice Department into a $5.4 million deal between McDonnell Douglas and the China National Aero-Technology Import and Export Corp. (CATIC) for machine tools that were diverted to a Chinese military installation. Authorities said yesterday that it was clear before the equipment left the United States that it was intended for Chinese military use.
Boeing officials said that McDonnell Douglas had committed no crimes and had no reason to believe that the Chinese company would attempt to use the equipment for military purposes. A lawyer for CATIC said it also will contest the charges in court.
At issue is McDonnell Douglas's 1994 sale to CATIC of 13 pieces of sophisticated machining equipment used to build aircraft parts. CATIC is a Chinese government-run defense firm that is the Chinese military's main purchasing arm.
In export licensing applications submitted to the Commerce Department, McDonnell Douglas stated that the equipment would be used in a joint venture with CATIC to produce commercial aircraft. But yesterday's indictment alleges that CATIC intended from the start to divert the equipment to the military plant and that McDonnell Douglas acted with "willful blindness" in arranging the sale.
The export licenses called for all 13 of the machine tools to be stored at one location pending construction of a civilian manufacturing center in Beijing. But six of the pieces were instead sent to a military facility in Nanchang that makes Silkworm missiles.
McDonnell Douglas officials said they learned where the equipment had actually gone in early 1995 and promptly notified the Commerce Department. The equipment was not in use, and was subsequently moved to a civilian location in China.
But the indictment said that McDonnell Douglas's eventual notification came after a history of false statements and omissions. U.S. Attorney Wilma A. Lewis said the company failed to notify authorities, for example, that officials from the Nanchang plant had visited Columbus to inspect the equipment before shipping.
Larry McCracken, a spokesman for Boeing, which bought McDonnell Douglas in 1997, said the fact that the company brought the matter to the Commerce Department's attention shows it followed the laws. He added that McDonnell Douglas fully cooperated with the investigation, providing authorities with more than 100,000 pages of documents. "We're adamant that this is an example of the export control system working, not an indictable offense," he said.
Barbara Van Gelder, a Washington attorney representing CATIC, said the indictment misrepresented an innocent commercial transaction: "The government's position that this is a criminal or national security case is absurd . . . CATIC has never intentionally violated U.S. laws, as will be proven at trial."
Three of CATIC's affiliates and a McDonnell Douglas subsidiary, Douglas Aircraft Co., were also charged in the indictment, along with two Chinese nationals employed by CATIC and a Douglas Aircraft official, Robert J. Hitt. If convicted of the charges, the corporations could be fined millions of dollars and the individuals could face up to five years in prison.
The McDonnell Douglas-CATIC deal was one of two export cases highlighted in May by a House select committee. The panel, chaired by Rep. Christopher Cox (R-Calif.), concluded that China "has attempted to obtain U.S. machine tools . . . through fraud and diversions from commercial end uses" to prohibited military uses.
Yesterday Cox lauded prosecutors for indicting CATIC, but he said winning a conviction could be "a daunting task" because "the defendants, much of the evidence and the witnesses" are in China. He declined comment on the decision to indict McDonnell Douglas, saying his committee had reached no conclusion on the firm's conduct.
The Justice Department has been investigating two other major U.S. corporations, Hughes Space & Communications Co. and Loral Space & Communications, for possibly passing prohibited rocket technology to the Chinese. Both companies have denied wrongdoing.
Bonni Tischler, the Customs Service's assistant commissioner for investigations, said authorities are conducting "many customs probes into the diversion of technology to China" and vowed to hold violators accountable.