Lockheed to Pay Record Fine for Assisting China

Lockheed Martin Corp. will pay a record $13-million fine for illegally helping the Chinese government correct critical defects in the rocket motor for its Long March 2E satellite launch vehicle, Clinton administration officials said Tuesday.

Lockheed, the world’s largest defense contractor, consented to the penalty to settle charges brought by the State Department in April. The fine was the largest ever imposed under the Arms Export Control Act, eclipsing a $10-million penalty imposed on Boeing Corp. in 1998.

“The settlement is in recognition of the government’s concerns about protecting national security through strict regulatory controls and Lockheed Martin’s commitment to compliance with these regulations,” said company spokesman James Fetig.

Although the firm was not required to admit guilt to settle the case, it agreed to pay a fine that was only slightly short of the $15-million maximum that could have been imposed if the government had prevailed on all 30 counts of the charges in a proceeding before an administrative law judge.

The State Department said the Bethesda, Md.-based contractor agreed in 1994 to assess the troubled Chinese rocket motor, which had repeatedly failed in test firings. Lockheed acted on behalf of Asia Satellite Telecommunications Co., a Hong Kong firm of which a Chinese government-owned company was majority stockholder.

In August 1994, the department said, Lockheed technicians conducted a detailed study of the Chinese rocket motor. A month later, Lockheed completed a 50-page report that was sent uncensored to Asia Satellite even though the Pentagon cleared only five of the pages for export.

The department said Lockheed did not disclose the violation, as required by federal contracting rules, until it was caught by the U.S. Customs Service.

The charges said that in 1992, General Electric Co.’s Astro-Space Division--now merged into Lockheed Martin--obtained permission to provide technical data and drawings to the Chinese government-owned rocket company concerning the use of the Long March 2E to launch satellites for Asia Satellite. However, the State Department said the 1992 contract did not call for the sort of technical evaluation conducted by Lockheed Martin in 1994.

In statements issued after the formal charges were filed, Lockheed officials said the alleged violations were technical, not criminal, and that there was no direct technology transfer to the Chinese.

Although the State Department did not charge that Lockheed’s actions advanced China’s military missile program, the formal charges said the company violated multiple sections of the Arms Export Control Act and the International Traffic in Arms Regulations.

The company agreed to pay $8 million in fines through 2004, including $1.5 million this month, $1.5 million in each of the next three years and $2 million in 2004, according to administration officials.

The State Department authorized Lockheed to use the remaining $5 million to install a computerized monitoring system at its major plants .

News of the fine was released after the close of trading. Lockheed Martin shares fell 31 cents to close at $25.25 on the New York Stock Exchange.