Military Contractors Return to Their Old Ways
By Philip Mattera, director of the Corporate
Research Project for the Dirt
Diggers Digest
In the 1980s and 1990s the big military contractors developed a reputation as some of the most corrupt major corporations in the United States. They were at the center of numerous scandals involving brazen overcharging in their dealings with the Pentagon, and they were often accused of providing defective equipment.
Because the Defense Department was so
dependent on them, these companies continued to be awarded lucrative contracts.
By the 2000s, the weapons makers were no longer in the
spotlight as other industries such as the giant banks, Big Pharma, and the oil
majors came to be viewed as the main corporate villains. After the arms
companies got involved in arming the Ukrainian government to resist the 2022
Russian invasion, some ESG investors began to argue that the likes of Raytheon
and Northrop Grumman should no longer be excluded from ethical portfolios.
A recent announcement by the Justice Department suggests
that the military contractors have not changed their old ways. DOJ reported that Raytheon Company, now a
subsidiary of a parent company known as RTX, is paying $950 million to resolve
allegations in several categories.
First, it was accused of cheating the federal government by providing “false and fraudulent information to the DOD during contract negotiations concerning two contracts with the United States for the benefit of a foreign partner — one to purchase PATRIOT missile systems and the other to operate and maintain a radar system.”
The deception caused the government to
pay Raytheon $111 million more than it should have received. To settle this
case, which is one of very few contract matters handled as a criminal offense,
Raytheon paid a penalty of $147 million.
The second allegation involved additional instances in which
the company provided “untruthful certified cost or pricing data when
negotiating prices with the DOD for numerous government contracts and double
billed on a weapons maintenance contract.” Raytheon paid a whopping $428
million to settle this civil action.
The third allegation involved bribes paid to a high-level
official of the Qatari Air Force to obtain contracts. To resolve charges under
the Foreign Corrupt Practices Act, paid a criminal fine of $230 million and
other penalties. This and the other criminal charge were resolved through two
deferred prosecution agreements, meaning that the company did not have to enter
a guilty plea.
DOJ’s actions came less than two months after RTX paid $200 million to the State Department’s
Directorate of Defense Trade Controls to resolve allegations of violating the
International Traffic in Arms Regulations (ITAR) in connection with
unauthorized defense exports.
Raytheon is not the only military contractor that has been slipping back into corrupt practices. Earlier this year, Sikorsky Services, a subsidiary of Lockheed Martin, agreed to pay $70 million to resolve allegations it was involved in a scheme to overcharge the Navy for spare parts and materials needed to repair and maintain the primary aircraft used to train naval aviators. Also this year, Boeing was fined $51 million for violating export control laws in its dealings with countries such as China. Last year, a subsidiary of L3Harris Technologies agreed to pay $21.8 million to resolve allegations that it violated the False Claims Act by knowingly submitting contract proposals in which the cost of certain parts was included twice.
Perhaps it is time to return the weapons companies to a
prominent place in the corporate hall of shame.