John Power, who runs a small Southern California defense factory, has seen the military spending boom create new business opportunities in his industry--but not all of the type that the Pentagon has in mind.
Crooked purchasing agents at major aerospace firms have established their own growth industry, Power said, one based on taking cash kickbacks and expensive gratuities in exchange for awarding Pentagon subcontracts.
"There is a lot of corruption, both at the buyers' and management level," he said. "There are a lot of honest buyers. But there are those who ask for money and those who quietly hint they'll not be offended by your offer."
Such outspoken remarks are unusual for someone in Power's position, but they confirm a growing perception in defense and law enforcement circles that kickbacks have become entrenched in the purchasing end of the defense industry and threaten the integrity of the military procurement system.
"Corrupt schemes in this area are a significant problem," U.S. Atty. Gen. Edwin Meese III said in a statement to The Times. "The problem is one of our principal areas of focus in . . . protecting taxpayers against predatory economic crimes."
Subcontractors have footed $25,000 liquor bills to keep buyers supplied. They have paid for buyers' European vacations and workday golf outings at posh Orange County country clubs. One buyer's home mortgage was paid in exchange for an important contract award, according to industry officials.
In the most dramatic recent action against such illicit payments, 10 purchasing agents and executives at the Southern California defense firms of Hughes Aircraft, Northrop and Teledyne were charged in federal court with taking $100,000 worth of cash kickbacks over a period of several months. Within the last several months, nine of the 10 have pleaded guilty.
Fraction of Employees
The 10 represent only a fraction of the more than 500,000 employees in California's huge defense industry and only a small number of those involved in purchasing activities. Although many buyers are unswervingly ethical, U.S. Atty. Robert C. Bonner of Los Angeles said that those charged represent only the "tip of the iceberg." The practice of paying outright cash bribes and kickbacks is "widespread" throughout the industry, he said.
Some industry executives believe that the problem needs to be faced head-on. "We fear that it is widespread," said Tom B. Carvey, Hughes vice president for corporate materiel. "We have had eight employees indicted. . . . We are very concerned."
The Department of Defense is investigating alleged bribery schemes at seven other major defense firms, which are among 45 contractors under criminal investigation for various reasons, according to a list recently released by congressional sources. In addition, the FBI has under way an unspecified number of other bribery probes.
Many industry officials said that the recent investigative activity in this area makes the problem appear more pervasive than it actually is. The recent indictments in Southern California and other allegations are exceptions in a business that is honest and committed to the public interest, they say.
"I resent the hell out of the allegation that corruption is widespread in this industry," said H. David Crowther, vice president of Lockheed Corp. "I maintain that absolutely is not the case. . . . Everybody thinks this industry is fair game for their shots."
Industry officials noted that their own firms, in many cases, are the victims of bribery and kickback schemes. "When a buyer accepts a kickback, it is Lockheed they are hurting," Crowther said. "The first and primary damage is to the corporation."
At the same time, corporations have a duty to protect the reputation of honest employees until proof of a crime is in hand, Hughes' Carvey said, noting that disgruntled vendors who lose contracts sometimes make false allegations that a buyer took a bribe.
"This is a very competitive business," he said. "A salesman who has lost a sale may tell his boss, 'Well, we lost that sale because that guy over at Hughes is taking kickbacks from the other guy.' It is very important to us to protect our people from false and spurious accusations."
Hughes has begun a major effort to ensure the integrity of its purchasing activities and was among the first contractors to cooperate closely with law enforcement authorities.
"To some degree, we are glad to get it out in the open. We are anxious to clean up anything that is going on," Carvey said.
'Prostitutes the System'
The evidence of corruption now drawing increased attention represents an especially disturbing aspect of the Pentagon's problems, defense officials said. While defense contractors have been widely attacked for high prices, poor quality and unreliable products, many of these problems fall into the category of honest disputes.