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April 01, 2007 

Fallout from ITT Criminal Plea Agreement Continues

The fallout from ITT's $100 million penalty continues:

The Westchester County, New York-based Journal News recently reported that "the criminal punishment meted out to ITT Corp. this week over its flouting of federal export laws also recognizes the defense contractor's status as the leading manufacturer of an important piece of military hardware."

Sunday's Roanake Times contains an editorial entitled "ITT lost sight of its mission: A defense contractor that develops ways to see better in the dark was blinded by profits". The editorial states that:

The manner in which employees of ITT Corp. delivered secret military technology into foreign hands was not simply careless and reckless, it was criminal and could endanger the lives of U.S. soldiers.

On Wednesday, the Roanoke-based ITT Night Vision entered guilty pleas in federal court to two felonies and agreed to pay a $100 million fine. This was a plea entered into by the corporation. U.S. Attorney John Brownlee promised that this won't end the five-year investigation, nor should it.

Companies don't often wade into illegal waters without some managers and employees who knowingly and willfully break the law. If that's true here, they, too, should be held accountable.

The plea agreement details a pattern over many years in which managers knew they weren't permitted to share U.S. military secrets with foreign countries without State Department permission, but they continued to do so. When the State Department began to get wise, the company obstructed the investigation and continued to deliver advanced and secret technology to Singapore, China and Japan.

ITT's focus on enhancing profits endangered soldiers and Marines. The firm had a government contract to revolutionize the night vision goggle field. It married the best of night vision and thermal imaging and developed a light interference filter to withstand the damage of laser weapons. No other military has such advanced goggles, and the U.S. wanted to keep it that way.

The company's plea agreement requires $100 million in fines and restitution, half of which it will spend over the next five years developing new night vision technology. Some might wonder why the government would coddle a defense contractor that gave away state secrets. Most likely because it has little choice.

The product ITT developed is highly specialized. In requiring ITT to share new technology with its U.S. competitors, the government will be placed in a better bargaining position for future contracts.

Further, in requiring ITT to spend $50 million to develop a superior goggle, the company will make restitution to soldiers on the battlefield.

ITT's Form 8-K Report filed with the SEC late last week notes that "as a result of the guilty pleas, ITT Corporation became subject to automatic statutory 'debarment' from future export licenses. It is expected that the net effect of the debarment will be to restrict certain exports of Night Vision equipment (representing less than 5% of its total Night Vision sales) to specific parties for a period of not less than one year." The 8-K also indicates that a copy of the Consent Agreement with the United States Department of State regarding export restrictions will be filed when it is entered into." The Report also includes a copy of the Criminal Information, Plea Agreement, Deferred Prosecution Agreement and Order of Forfeiture filed in the case.

Separately, ITT's Engineered Valves Group recently entered into a Settlement Agreement with the Commerce Department's Bureau of Industry and Security (BIS) whereby ITT agreed to pay a $26,400 civil penalty for exporting controlled valves to China, Israel, Saudi Arabia and Taiwan without the required Commerce Department licenses.

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