Where Industry and Security Intersect
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Washington, D.C. - United States Attorney Wilma A. Lewis, U.S. Department of Commerce Assistant Secretary for Export Enforcement Amanda DeBusk and U.S. Customs Service Assistant Commissioner for Investigations Bonni Tischler announced that a federal grand jury in the District of Columbia today returned a 16-count indictment setting forth criminal charges against the China National Aero Technology Import and Export Corporation (CATIC), a People's Republic of China (PRC) government-formed corporation in Beijing, China and the McDonnell Douglas Corporation, for making false and misleading statements and material omissions in connection with the exportation by McDonnell Douglas to CATIC in 1994 and 1995 of thirteen (13) pieces of sophisticated machining equipment used to build aircraft parts. Also charged in the indictment were three of CATIC's affiliates, CATIC/Supply, located in Beijing, and CATIC (USA), Inc., and TAL Industries, Inc., both located in El Monte, California; two Chinese nationals employed by CATIC, Hu Boru, and Yan Liren; Douglas Aircraft Company, a subsidiary of McDonnell Douglas Corporation, and Robert J. Hitt, who was the Director of the China Program Office at Douglas Aircraft Company.
The indictment charges the corporate defendants with making false and misleading statements and material omissions to the Department of Commerce in connection with applications for export licenses in 1994 for the shipment to the People's Republic of China of thirteen (13) pieces of sophisticated machining equipment used in McDonnell Douglas' Columbus, Ohio plant. Specifically, the false and misleading statements and material omissions were made in connection with the end use and end user for the equipment. The equipment in question was used to bend and shape steel for aerospace products.
As outlined in the indictment, the Columbus plant, from which McDonnell Douglas sold the machining equipment, had been used to build military aircraft parts, including the B-1 bomber and the MX and Titan missiles for the United States. After McDonnell Douglas decided to close the plant in the early 1990's, it initiated efforts to obtain a buyer for its equipment stored at the plant. CATIC expressed an interest in buying some of the equipment for use in the manufacture of a military project in China - - specifically, to produce C-17 Aircraft parts. The indictment alleges, however, that CATIC was advised by McDonnell Douglas that much of the desired equipment was restricted from export to China. Additionally, it is alleged that McDonnell Douglas advised CATIC that export licenses required for the sale of the McDonnell assets at the Columbus plant would not be obtainable from the United States Department of Commerce.
As described in the indictment, in an application for an export license, the exporter - - here McDonnell Douglas - - is required to describe the equipment to be exported, and to state the end user of the equipment, the country of ultimate destination, and the end use for which the equipment is being exported. Additionally, the purchaser of the equipment - - here CATIC - - is required to file an end user certificate which is a statement identifying the end user of the item. These factors, together with other information are material in determining whether the export of the items would conflict with national security, foreign policy and/or nuclear non-proliferation interests of the United States.
According to the indictment, on May 26, 1994, McDonnell Douglas and Douglas Aircraft applied for 10 export licenses to ship 13 large pieces of machining equipment from its Columbus plant to the People's Republic of China. The applications included end user certificates from CATIC which identified CATIC Machining Company, LTD in Beijing as the end user. On September 14, 1994, the Department of Commerce granted the requested 10 export licenses to McDonnell Douglas and Douglas Aircraft. Based on the information contained in the applications, these licenses permitted McDonnell Douglas to export the 13 pieces of machinery to the People's Republic of China for use by CATIC in a joint venture with McDonnell Douglas for the production of commercial aircraft.
The corporate defendants are charged with making false, fraudulent and misleading statements and material omissions on the applications, the end user certificates and in additional oral and written submissions upon which the Department of Commerce based its decision to issue the 10 export licenses. Specifically, the indictment charges that the license applications falsely represented that the equipment would be shipped to a factory - - that was purportedly to be built in Beijing for use in the production of 40 commercial aircraft in the People's Republic of China under a preexisting $1 billion contract between CATIC and McDonnell Douglas. McDonnell Douglas concealed from licensing officials that the contract was in jeopardy and under negotiation. Moreover, even prior to filing the export license application, CATIC had sold a portion of the licensable equipment to Nanchang, a factory that was not associated with the contract and known to be used for military production.
In the indictment, CATIC and its affiliates are alleged to have caused 6 of the 13 pieces of machinery to be diverted to the unauthorized factory in Nanchang, People's Republic of China.
The grand jury also charges that McDonnell Douglas failed to inform the United States Department of Commerce of, among other things, the military nature of CATIC's initial inquiry and that the equipment at the Columbus plant had been inspected by officials from the Nanchang Aircraft Manufacturing Company.
In March 1995, in response to a Department of Commerce inquiry, McDonnell Douglas reported that the equipment had not been delivered to the destinations designated in the export licenses. United States Attorney Lewis, Assistant Secretary DeBusk and Assistant Commissioner Tischler noted although none of the equipment was used by the Chinese Military aerospace industry, "this criminal conspiracy was a serious attempt to circumvent the export control laws designed to protect the national security of the United States and further our nonproliferation goals."
If convicted of the charges, the corporate defendants face an aggregate maximum criminal fine of approximately $10 million. The individual defendants face a maximum of five years imprisonment and a $250,000 fine.
U.S. Attorney Lewis, Assistant Secretary DeBusk and Assistant Commissioner Tischler commended the cooperative effort of the U.S. Attorney's Office, the Department of Commerce, Office of Export Enforcement and the United States Customs Service, Office of Investigations, in handling this very complicated investigation of international scope. They also commended former Assistant United States Attorney Eric Dubelier, and Assistant United States Attorney Lisa Prager, who conducted the grand jury investigation.
In April of 2002 the Bureau of Export Administration (BXA) changed its name to the Bureau of Industry and Security(BIS). For historical purposes we have not changed the references to BXA in the legacy documents found in the Archived Press and Public Information.