BERLIN Ten employees of United Technologies Corp's (UTX.N) Pratt & Whitney unit, including the head of its F135 engine programme, have left the company after an internal audit uncovered an ethics issue linked to a visit by a South Korean delegation, sources familiar with the matter told Reuters.
Three sources said the ethics problem occurred during a business trip by South Korean military officials to the United States several years ago but only came to light in an internal audit launched in 2016.
It involved a breach of Pratt's strict ethics guidelines, but no violation of U.S. export control or anti-bribery laws, according to two of the sources.
The issue centres on Pratt's rental of a van to transport the South Korean officials during a 2012 visit to the company's West Palm Beach facility in Florida, an expense deemed inappropriate under the company's ethics rules, which are more rigorous than U.S. law, said another source, who was not authorised to speak publicly.
Two sources said investigators asked whether Pratt employees had arranged, but not paid for, what one of the sources described as "inappropriate entertainment."
Reuters was unable to determine what conclusions were reached by the company's investigators.
A Pratt spokesman confirmed the company had recently made leadership changes in its military engines business, declining to comment on whether the changes resulted from ethics violations or involved any violation of U.S. law.
"We remain focused on delivering on our customer commitments. As a matter of policy, we do not comment on specific personnel matters, nor rumours or speculation," he said.
The December shake-up, which has not been disclosed publicly, adds to pressure on UTC and Pratt after President-elect Donald Trump called on the engine maker and F-35 manufacturer Lockheed Martin Corp (LMT.N) to slash the cost of the Pentagon's costliest arms programme. [1N1E70QM]
A spokesman for South Korea’s military procurement agency, the Defence Acquisition Program Administration, said he was not aware of the Pratt matter and could not comment.
Bennett Croswell, president of Pratt's military engines business, issued an internal memorandum last month announcing the departure of three executives, including Mark Buongiorno, who had run Pratt's F135 engine programme since February 2015.
Buongiorno did not respond to email and telephone requests for comment.
The memo made no mention of any ethics concerns and said only that the three men were leaving to pursue other opportunities.
Croswell and Pratt President Robert Leduc discussed the leadership changes with several hundred Pratt personnel at a meeting in mid-December, one of the sources said.
Seven other, lower-level staff members also left the company as a result of the ethics issue, but their names were not released, according to the sources.
At least one other executive had been investigated and cleared, according to one of the sources.
Several sources said UTC had sharply increased its enforcement of ethics guidelines, including rules about client entertainment, after a 2012 agreement with the U.S. Justice Department in which the company paid more than $75 million to settle criminal and administrative charges related to hundreds of export control violations.
It was unclear if the company had informed the Justice Department about the latest problem. A spokesman for the department declined to comment.
U.S. companies routinely report even suspected violations of the Foreign Corrupt Practices Act, along with any disciplinary action taken, to show authorities they are being proactive in enforcing ethics rules and U.S. laws, industry executives said.
Two sources said Pratt and UTC had "a zero tolerance policy" on ethics violations, especially with regard to international customers, and even the appearance of impropriety could trigger concerns and possible disciplinary action.
Reuters did not have access to the audit that triggered the ethics investigation, and was unable to confirm the specifics of the alleged wrongdoing described by the sources.
Jim Maser, vice president of operations programme management, replaced Buongiorno in December, Croswell said in an internal memorandum, a copy of which was viewed by Reuters.
Maser did not respond to a request for comment.
The Pentagon's F-35 spokesman said the programme had been informed about the management changes, but had no details.
The memo said O Sung Kwon, senior director of customer solutions, had replaced Cliff Stone as executive director of business development, and Mark Beierle, a former Air Force officer who joined Pratt last year, had replaced Jeff Zotti as senior director of the F100 engine programme.
Zotti and Stone also did not respond to queries from Reuters.
(Reporting by Andrea Shalal, additional reporting by Ju-min Park in Seoul; Editing by Adrian Croft)