The entire purchasing department of one large Orange County subcontractor spends every Friday afternoon on a country club golf course, according to one supplier who did business with the firm. The golf outings are paid for by vendors. Tickets to major sporting events also are a popular way to reward purchasing agents.
"A meal or a bottle of liquor becomes the common ground that opens a relationship for larger offers that can be made informally," said Fred Heather, an assistant U.S. attorney in Los Angeles. "The inexpensive lunch may lead to dinner at the country club, maybe after a round of golf. Eventually, it grows to a weekend in Las Vegas. These things have a way of elevating. Relationships build up. In order to keep up appearances of fairness, the safest route is saying no to everything."
Such a puritanical approach puts a heavier onus on the defense industry than on most other businesses, where a free lunch is viewed as an acceptable and useful way to build business ties. But some law enforcement officials contend that the defense industry must live up to a higher standard.
"When you are doing business with the government, there is a public trust involved," Bonner said. "In that sense, the public has a right to expect a higher level of conduct from the defense industry."
In at least some cases, criminal activity appears to persist because corporate management prefers to deal with corruption quietly.
When management at a large prime contractor becomes aware that a purchasing agent is taking bribes, the agent is usually fired--"walked out" in industry parlance. Often enough, the buyer ends up with a job at another defense firm and sets up a new graft scheme, Bonner said.
"Management, with very little vigilance, could determine whether kickbacks are being paid," Bonner said. "If there is acquiescence of kickbacks . . . there could be criminal responsibility on the part of not only the officers of a corporation but of the company itself."
Mortgage Payments
But corporations say that they seldom have the hard evidence to prove that an employee has taken a bribe. Often, a corrupt employee quickly leaves a job once he is suspected of wrongdoing, ensuring that his employment record will be clean.
A story widely circulated in the defense subcontracting industry involves one buyer who was known to be taking bribes while working for a major prime contractor in Los Angeles. He was fired from the job, but quickly set himself up in a new graft scheme at TRW Inc. in Redondo Beach.
While at TRW, he received monthly mortgage payments on his home in exchange for awarding a lucrative subcontract to the owner of a San Gabriel Valley firm.
According to an informed source, when the subcontractor fell behind schedule on the contract and was threatened with cancellation by other TRW officials, he reportedly protested that he was paying the buyer's mortgage to assure him of TRW's business.
Today, the buyer works at another defense electronics company in suburban Los Angeles. A TRW spokeswoman said she could not discuss the incident, but added that as a general policy TRW turns over any evidence of crimes committed by its employees to appropriate law enforcement agencies.
The size of the defense business complicates the task of weeding out corruption. Hughes, for example, does about $2.2 billion in business with as many as 7,000 subcontractors, according to Carvey, the vice president, with about 80% of all that buying done at the division level. Policing such far-flung operations is not easy.
Carvey observed that many aerospace products are technically sophisticated and unique. It may be impossible to say what a product should cost if it has never been made before. In addition, manufacturers' bids on products frequently vary widely and can easily conceal a small margin for a kickback.
Not a New Problem
While recent cases have drawn more attention to the problem of kickbacks in the defense industry, evidence of such a problem in the defense industry dates back years.
In 1974, nine Grumman employees pleaded guilty to accepting $500,000 in kickbacks on Navy work. Federal officials said at the time that they had found "indications of similar payoff schemes elsewhere in the defense industry."
General Dynamics is currently the target of half a dozen federal investigations, many growing out of allegations that bribes were taken from the now-defunct Frigitemp Corp. in connection with the award of subcontracts for work on nuclear submarines. The General Dynamics executive who made the allegations, P. Takis Veliotis, is now a fugitive in Greece from a federal indictment alleging that he also took kickbacks.
Similarly, the FBI is currently investigating whether former Lockheed and Litton Industries employees may have taken bribes from Frigitemp in awarding contracts at their shipyards.
