United Tech export case highlights risks in global trade

FARNBOROUGH, England Thu Jul 12, 2012 5:20pm EDT

FARNBOROUGH, England (Reuters) - William Swanson, head of U.S. missile maker Raytheon, gathered 100 colleagues on the eve of Britain's Farnborough Airshow this week to review the company's strict rules for interacting with international arms buyers.

"I'm trying to make sure my tone's loud and clear," Swanson told Reuters afterward in an interview. "I kind of treat the brand the way I treat my family name."

Weeks after United Technologies agreed to pay $75 million in fines for export violations, Raytheon's chief executive was not alone in taking firm precautions ahead of the world's largest air show, which draws up to 300,000 people, including buyers from around the world.

U.S. federal law sets strict rules for what U.S. companies can sell overseas and how they may interact with foreign buyers. Big exporters like Raytheon, Lockheed Martin Corp, Boeing Co and others impose their own additional regulations to ensure strict compliance with U.S. laws.

At an event like an air show, where thousands of people are milling around and top executives with security clearances are more accessible than usual, security minders are on high alert.

Some companies provide their globe-trotting executives with specially encrypted computers; others prohibit the use of laptops on overseas travel; all require meticulous documentation of every conversation with any foreign citizen.

Lost or stolen laptops can be a huge liability, as the U.S. government's case against United Technologies demonstrates.

One violation in that case involved an employee who left a laptop containing sensitive technical data at a Shanghai airport during a trip to China in December 2009. The company failed to retrieve it until six months later, but weaknesses in the company's subsequent forensic investigation made it impossible to determine whether the laptop was accessed during that time, according to the State Department's charging letter.

Even company identification cards pose a risk. One executive had to leave his card at home when visiting some countries because its embedded smart chip could not be exported there.

The U.S. government decides which warplanes or other weapons systems can be exhibited at every air show. Every display is carefully scrubbed for any potentially damaging trade secrets.

Guests and journalists are pre-screened by compliance officers before they can enter the companies' swanky hospitality chalets, where champagne and canap├ęs are served. At corporate offices back home, photographs or video recordings are often strictly prohibited.

"If you do international business, you always ought to be aware. You can never relax," said Swanson, who says he's taken to heart some advice that Charlie Adams, a former Raytheon chief executive, gave him long ago: "If it's gray, walk away."

Swanson said he'd probably been through over 100 compliance training sessions during his 41 years with the company -- in part to show Raytheon employees how seriously he takes it.

UNITED TECH DETERMINED TO IMPROVE

There was more buzz about export controls at this year's air show after United Technologies last month admitted selling China software later used by Beijing to develop its first modern military attack helicopter.

News of the case came amid increasing candor by top U.S. officials about extensive electronic espionage by China, Russia and other countries on U.S. private, military and government computer networks, with a particular focus on weapons makers.

David Hess, president of Pratt & Whitney, parent of one of the subsidiaries, said the case was "a big disappointment" and the company was committed to improving the way it does business.

"We've been very clear with both the outside world and with our employees that we're going to use this as a call to arms," he said. "We're not making excuses. We've made some mistakes. We've learned from them and we're going to go forward."

Marillyn Hewson, who will become president and chief operating officer of Lockheed in January and has been with the company for 29 years, said the largest U.S. weapons maker provided ongoing training for employees and had a large infrastructure around export controls.

"It's not just a one-time inoculation to get ready for an air show; it's an ongoing institutionalized part of the business," Hewson told Reuters at the air show.

THIS ROOM LOOKS FAMILIAR ...

One senior executive, who asked not to be named, said he knew that his e-mail account was regularly targeted by would-be hackers, and he fully expected his hotel room to be wiretapped when he traveled overseas. "I always end up in exactly the same room when I check into certain hotels," he said.

He also knew the stakes involved, noting that any misstep that resulted in data losses could put his former colleagues in the military at risk, jeopardize national security or lead to the loss of proprietary information worth billions of dollars.

John Garrison, president and chief executive of Bell Helicopter, a unit of Textron Inc, said his company has a large group of people whose sole job is to review every business deal for possible export control issues.

"Compliance is an absolutely foundational element for us. We will not take short cuts on anything," he said.

Garrison said Bell had met with officials from Pratt after the export violations were reported since Pratt supplies the engines for two of its commercial helicopters, and they assured Bell there were "no impacts" on those programs.

(Reporting By Andrea Shalal-Esa; Editing by Dan Grebler)