NetNews Usenet Archive 1992 #16/NN_1992_16.iso/spool/misc/activism/progress/5331

Text File | 1992-07-25 | 8.9 KB | 157 lines

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Subject: General Electric Pleads Guilty In Defense Fraud Case
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Press release from U.S. Department of Justice

 General Electric Pleads Guilty In Defense Fraud Case
 To: National Desk
 Contact: U.S. Department of Justice, Press Office, 202-514-2007

   CINCINNATI, July 22 /U.S. Newswire/ -- The Department of Justice
today announced that the General Electric Co. has pleaded guilty to
charges of defrauding the federal government of $26.5 million in the
sale of military equipment to Israel.
   The department said that General Electric at the same time had
agreed to pay $69 million in fines, penalties, and damages for
committing the offenses.
   United States Attorney D. Michael Crites of the Southern District
of Ohio said General Electric's guilty plea involved funds diverted
from the U.S.-financed F-16 jet engine program with the Israeli Air
Force from 1984 to 1990.
   Crites said General Electric pleaded guilty to offenses that
included diversion of millions of dollars to former Israeli Air Force
(IAF) brigadier general Rami Dotan to influence Dotan to assist
General Electric in securing favorable treatment in connection with
the F-16 program contracts.  Funds were also diverted for other
projects and for the personal benefit of the then manager of
international government sales for General Electric Aircraft Engines.
Dotan and the sales manager were longstanding friends, and Dotan was
General Electric's principal contact with the IAF.  Tn 1984, when the
conspiracy began, Dotan was in charge of the IAF's Propulsion Branch,
and became IAF Quartermaster General.  He was arrested by the Israeli
police, court martialed, and sentenced in 1991 by an Israeli military
tribunal to 13 years imprisonment.
   General Electric pleaded guilty to a four-count information
charging: conspiracy to defraud the United States and to commit
offenses against the United States (Title 18, United States Code,
Section 371); violation of the Foreign Corrupt Practices Act of 1977,
by failure to make and keep accurate books and records (Title 15,
United States Code, Sections 78m(b)(2)(A) and 78ff(a)); false claims
against the United States (Title 18, United States Code, Section
287); and engaging in monetary transactions in criminally derived
property, in violation of the Money Laundering Control Act of 1986
(Title 18, United States Code, Section 1957).  It was the first time
a defense contractor had been charged with money laundering.
Pursuant to the plea agreement filed today, General Electric paid a
criminal fine of $9.5 million.
   The information said General Electric, Dotan, and others conspired
to create false billings for fictitious IAF projects in order to
divert funds to their own personal use and to unapproved IAF
projects.  The false billings were submitted under contracts financed
by a U.S. government program that provides financial aid to certain
foreign countries to purchase products and services for military
uses.
   The diversions were effected in part by covertly siphoning funds
from U.S. government-funded projects subcontracted to Ingbir
Engineering and Maintenance Co. of Tel Aviv, Israel, in which Dotan
had a secret financial interest, the information said.  At Dotan's
direction, Ingbir Engineering was selected for all subcontract work
in Israel on a jet engine support contract Israel had awarded to
General Electric.
   From 1984 through 1990, General Electric regularly made payments
to a New Jersey corporation purporting to act as Ingbir Engineering's
U.S. agent, the information said.  That corporation transmitted
approximately $23.8 million to Ingbir Engineering, and approximately
$3.7 million was withheld as a secret fee, the information said.
This fee was actually a device for diverting funds for the benefit of
Dotan and the GE sales manager, and most of these funds were
transferred to a network of European bank accounts controlled by
Dotan and the sales manager, the information said.
   Diversions were also effected through a scheme whereby, in 1989
and 1990, General Electric paid a total of approximately
$7.875 million to supposedly finance flight tests of a jet engine
model sold under a U.S. government-funded contract between General
Electric and Israel.  Approximately $7;425,000 was transmitted to the
network of European bank accounts controlled by Dotan and the GE
sales manager.
   General Electric employees created false documentation attesting
that the payments to the agent's corporation represented funding for
flight tests.  General Electric also implemented a plan to recover
the cost of these payments from sales of the engines.  This cost and
the plan to recover it through the engine sales were not disclosed to
Israel or the U.S. government, which provided funding for the engine
procurement.
   In addition, the information said, funding for unapproved uses was
generated through the following schemes involving fictitious
projects, sold under a U.S. government-funded contract:
   A. General Electric purportedly sold to Israel two jet engine data
collection devices called portable test units, but no such units were
designed or manufactured.  Instead, in 1984, 1985 and 1987, General
Electric remitted approximately $1,561,960 for uses by Dotan and
others not authorized for U.S. government funding, and retained the
balance of the approximately $4 million collected from Israel.
   B. General Electric purportedly sold to Israel a jet engine test
facility called an enclosed jet engine test cell and a collection of
equipment for this facility referred to as the test cell measurement
kit, but neither was ever built or delivered.  Israel paid General
Electric approximately $6.85 million for the non-existent enclosed
test cell, and, in 1988 and 1990, General Electric remitted to
Ingbir's purported agent approximately $2.35 million for undisclosed
and unapproved uses.  Israel also paid General Electric approximately
$614,450.55 for the non-existent test cell measurement kit.
   C. General Electric purportedly sold to Israel kits to retrofit
jet engine test cells so that they would be compatible with an
additional configuration of the F110-GE-100 jet engine, but no such
kits were ever built or delivered.  General Electric nevertheless
billed and collected from Israel approximately $3,996,500 for the
sale of the non-existent kits, in 1988 and 1989.  This scheme was
devised to generate funding for the development of the F110-GE-100A
jet engine.  At the time, General Electric planned to sell this
engine to Israel pursuant to a contract that had not yet been
awarded.  This use of funds was neither disclosed to nor approved by
Israel or the U.S. government which funded the contract under which
the kits were purchased.
   In the course of these diversion schemes, General Electric
violated part of the Money Laundering Control Act, which prohibits a
person from engaging in any monetary transaction over $10,000 if that
person knows the funds involved are derived from a criminal offense
and if the funds are derived from any of a number of crimes specified
in the statute.  The listed crimes include wire fraud.
   All of the fraudulent schemes charged in the pleadings involved
violations of the accounting provisions of the Foreign Corrupt
Practices Act of 1977 (FCPA).  The FCPA, among other things, requires
every company which issues stock to the public to make and keep
books, records, and accounts, which, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of
the company.
   The investigation was conducted by the Department of Justice
Criminal Division (the Money Laundering section and Fraud Section),
the United States Attorney for the Southern District of Ohio, the
Department of Justice Civil Division (the Commercial Litigation
Branch), the Federal Bureau of Investigation, the Defense Criminal
Investigative Service, the Internal Revenue Service Criminal
Investigation Division, and the Defense Contract Audit Agency.
   The guilty plea was entered into in conjunction with General
Electric's agreement to settle civil claims in United States ex.
rel. Taxpayers Against Fraud, a nonprofit-corporation, and Chester
L. Walsh vs. General Electric Co., a New York corporation, Civil
Action No: C-1-90-792 (U.S.D.C. S.D. OH).  To settle the civil
action, General Electric has agreed to pay $59.5 million in civil
penalties and damages.
   The statement of facts filed with the court said that General
Electric provided substantial cooperation in the investigation.
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