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Exclusive: U.S. investigating Honeywell over export, import controls

A view of the corporate sign outside the Honeywell International Automation and Control Solutions manufacturing plant in Golden Valley, Minn
A view of the corporate sign outside the Honeywell International Automation and Control Solutions manufacturing plant in Golden Valley, Minn

By Andrea Shalal-Esa

WASHINGTON (Reuters) - The U.S. Justice Department is investigating export and import procedures at Honeywell International Inc after the firm included Chinese parts in equipment it built for the F-35 fighter jet, three sources familiar with the matter said.

Reuters last week reported that the Pentagon twice waived laws banning Chinese-built components in U.S. weapons in 2012 and 2013 for parts supplied by Honeywell for the $392 billion Lockheed Martin Corp F-35 program.

New details have now emerged about one of those waivers, which involved simple thermal sensors that Honeywell initially produced in Scotland before moving that production line to China in 2009 and 2010. The other waivers involved high-performance magnets built in China and elsewhere.

Federal agents from the Defense Criminal Investigative Service, a law enforcement arm of the Pentagon, are working with prosecutors on the case, a person briefed on the matter said. The DCIS and the Pentagon declined to comment.

The precise nature of the investigation could not be confirmed. Typically, however, DCIS export investigations focus on whether a company violated the Arms Control Export Act by sending overseas products or technical specifications for items on the U.S. Munitions List without first obtaining a U.S. government license. The sensors and F-35 specifications in this case may be subject to the U.S. Munitions List. In terms of import violations, DCIS often investigates whether companies have engaged in fraud by misleading the Pentagon as to the origin of foreign parts.

The case throws a spotlight on the reliance of American companies, even in sensitive areas, on China as a manufacturing base for basic components. In the past 20 years, much production has been shifted out of the United States to lower cost areas, particularly China.

The sensors are part of the power thermal management system that Honeywell builds to cool the F-35, start its engines and pressurize the cabin, said Joe DellaVedova, spokesman for the Pentagon's F-35 program office.

Honeywell spokesman Scott Sayres said the company decided in late 2012 - after consulting with Lockheed and the Pentagon - to move production of the sensors used on the F-35 from China to a plant in Boyne City, Michigan. It funded the move at its own cost, he said.

Honeywell made the move after the origin of the sensors was discovered during a comprehensive review of the supply chain for the F-35, the newest U.S. warplane.

That was carried out by Lockheed after another key supplier, Northrop Grumman Corp, discovered it had used non-compliant magnets made in Japan in building the jet's advanced radar system.

Pentagon acquisition chief Frank Kendall also issued a waiver for those parts.

Sayres said the sensors were part of a basic circuit card used in products sold commercially around the world.

"We firmly believe Honeywell has complied with all applicable U.S. laws and regulations relating to the manufacture of the component in China," Sayres said.

LOW RISK

Officials at the Justice Department and Pentagon declined to comment on the reported Honeywell investigation.

One of the three sources familiar with the probe, who were not authorized to speak publicly, said it was focused on Honeywell's processes and procedures, rather than the components involved.

They were seen as low risk items that did not pose any security risk for the F-35 program.

The sources also cautioned such investigations can take months or years to complete, and said no determinations had yet been made about Honeywell's actions.

Honeywell's Sayres declined to comment on the Justice Department probe, telling Reuters: "As a general practice, we do not comment on the existence or nature of any active government investigations."

Honeywell decided to move the sensor production to China to save money, and simplify its supply line, he said.

The Government Accountability Office (GAO), the investigative arm of Congress, is also looking into the sensor issue and two others involving the F-35, as part of a report due March 1.

U.S. lawmakers ordered the GAO report because they are concerned American firms are being shut out of the specialty metals market, and that U.S. weapons could become dependent on parts made by a potential future adversary.

Pentagon spokeswoman Maureen Schumann said the Pentagon's Kendall had granted national security waivers to allow foreign-built parts on other aircraft in the past, but had no immediate details about those cases.

DellaVedova, the spokesman for the F-35 program office, said the thermal sensors were simple parts that did not include any software and were not programmable. He said there was no security risk associated with use of the sensors.

He said all the Chinese-built sensors would eventually be replaced on the F-35s, but the process had not yet been completed. He had no immediate information on how many Chinese-built sensors were installed on the planes.

"This will all be taken care of," DellaVedova said.

(Additional reporting by John Shiffman; Editing by Martin Howell, Sophie Hares and Grant McCool)

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