Loral arms technology exports lead to $20 million government fine

By Wilson P. Dizard III

WASHINGTON — Leaders of Loral Space and Communications Ltd. in New York have agreed to pay a $20 million fine for allegedly violating the Arms Export Control Act. The settlement stems from the company's release to Beijing of sensitive technical information about a 1996 Chinese rocket launch failure, according to the U.S. Customs Service and Loral.

Loral officials agreed to pay the fine without admitting or denying the government's charges. The fine is the largest that a company has ever paid under the Arms Export Control Act, say officials of the U.S. Customs Service.

Customs officials say they started the investigation in May 1996 through their Special-Agent-in-Charge Office in Baltimore, after reports surfaced that Loral had improperly transferred technology that Beijing could use to improve missile guidance systems. Transferring such sensitive technology requires an export control act license.

Under the terms of the settlement agreement, Loral will pay a civil fine of $14 million to the U.S. State Department, Customs officials say.

Loral leaders say they will pay the $14 million cash fine over seven years, without interest. The cash impact of the fine would be about $2 million annually, Loral says, while the fine will reflect in Loral's equity position only once: as a four-cent reduction of the company's 2001 fourth quarter earnings per share.

Bernard Schwartz, Loral's chairman and chief executive officer, says in a statement, "Loral and its employees are patriotic, law-abiding citizens and we take this matter very seriously." He cites Loral's "excellent security record" and says the company is "committed to vigorous compliance with export control laws."

Loral will launch new training and oversight programs to improve export control compliance, Schwartz says.

The fine stems from Loral's involvement with five other satellite and satellite-launch companies in an independent review committee (IRC) set up to inform the insurance industry about the causes of launch failure, which destroyed an Intelsat satellite. A Loral employee mistakenly sent the Chinese a preliminary IRC analysis of the launch failure, Schwartz claims.

Schwartz says Loral had attempted to delete all sensitive material from the report before sending it to the Chinese. Subsequently, Schwartz says, Loral had immediately and voluntarily disclosed the incident to the State Department.

"Nonetheless, Loral accepts full responsibility for the matter and expresses regret for its failure to obtain appropriate State Department approval," Schwartz says.


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