Military Contractors Return to Their Old Ways

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.