US aerospace firm pays to settle fake electronics probe

US aerospace supplier United Technologies Corp is forking out $1.06m to settle claims a subsidiary company sold counterfeit helicopter engine parts to the US Army.

The case centres on an electronics business that United Technologies Corp (UTC) came to indirectly own after its purchase of aircraft components maker Goodrich Corp in July 2012. It has since sold the electronics unit.

The case considered whether the business had violated the federal False Claims Act.

According to a report by Reuters, Goodrich Pump and Engine Controls Systems (GPECS) had acted as a sub-contractor to Rolls-Royce, which was a contractor for the US Army.

During its time as a subcontractor between 2005 and 2012, it was alleged that the business had “bought, shipped and caused counterfeit microprocessors to be integrated into an engine control unit that was installed in the M-250 engines” of Army helicopters, Reuters reported.

The dodgy microprocessors had been purchased from a distributor in the US state of Rhode Island but had originated from China, the Hartford Courant reported.

They were integrated in the engine’s digital control system and were mainly installed in OH-58 Kiowa Warrior aircraft and A/MH-6M Mission Enhanced Little Bird.

The authenticity of the counterfeit parts had been falsely certified in documents that had been provided to the US government. According to the Department of Justice, there were 172 false certifications between 2011 and 2012.

“Federal contractors must abide by the certification requirements set forth in government contracts so that taxpayer dollars are not wasted, and our national security is not threatened,” US Attorney John Durham said in a statement. “Vulnerabilities caused by counterfeit parts will not be tolerated.”

The operation came to light when the Pentagon investigated a military helicopter crash in 2011, which killed two servicemen. The investigation revealed that the computer chips in the engine were fake, although they had not contributed to the crash. 

United Technologies, which co-operated with the government investigation, did not admit wrongdoing as part of the settlement.

In a statement, the company said: “We are pleased that the matter is resolved without any admission of liability. As the government acknowledged in settling this matter, no UTC employees were involved in the conduct at issue and UTC never exercised control or management over the operations of Goodrich Pump and Engine Controls Systems (GPECS).”

Two men – Jeffrey Krantz and Jeffrey Warga – have already been charged and sentenced in connection with the case for their part as distributors in supplying the computer chips to GPECS.

Krantz obtained the microprocessors from China, supplying more than 1,000 chips to Warga’s company Bay Components, which then sold them onto GPECS. The court found that Krantz was aware that the parts he was supplying were suspicious.

Both men pleaded guilty to wire fraud, with Krantz sentenced in 2015 to three years’ probation and a $100,000 fine, while Warga was sentenced in 2016 to three years’ probation and a $10,000 fine.

This case is not an isolated incident of counterfeit electronics making their way into the US military. In 2010/2011 the US Department of Defense (DoD) said it had identified upwards of a million counterfeit components in the military supply chain, while a report from market research firm IHS published in 2013 indicated there had been more than 12m reports of counterfeit electronics parts in the prior five years.

Such parts present both safety and national security risks, while a single incident of a counterfeit part is estimated to cause up to 64 weeks of production line downtime and cost up to $2.1m to resolve.

Last year the DoD published new rules – the Defense Federal Acquisition Regulation Supplement (DFARS) – to strengthen the process for acquiring electronic parts and to help prevent counterfeits ending up in military systems.

Meanwhile, earlier this month, Battelle won two R&D contracts with the US Department of Defense to help keep fake electronics out of the military supply chain.