Two Litton Industries subsidiaries pleaded guilty in federal court Wednesday to making hidden payments to secure nearly $200 million worth of defense business in Taiwan and Greece.
Litton Applied Technology Division and Litton Systems Canada Ltd. agreed to pay $18.5 million in fines, restitution and investigative costs under terms of a plea agreement negotiated with the U.S. attorney's office.
The two units of Woodland Hills-based Litton admitted altering their records to conceal more than $16 million paid to "consultants" who helped them win the defense contracts with Greece and Taiwan.
Under the federal Corrupt Practices Act, U.S. companies paying bribes to win foreign contracts can be barred from doing business with the federal government.
The Litton auxiliaries were not charged under that law, however. A government source said the evidence gathered in the eight-year probe did not justify so serious a charge.
Both subsidiaries pleaded guilty to conspiracy, and Litton Systems Canada entered guilty pleas to additional charges of mail fraud and filing a false statement with the government, all felonies.
U.S. Atty. Alejandro N. Mayorkas said the prosecution of Litton "demonstrates that no company is too big or too powerful to escape responsibility for defrauding the United States." He said he hoped it would send a message to any other corporate offenders.
Litton said in a statement that it had "meritorious defenses" to the government charges, but decided it was in the company's best interest to plead guilty and "put the matter behind us."
A criminal complaint said Litton Applied Technology and Litton Systems Canada paid a former Taiwanese air force major, Richard M. Hei, to use his influence to get them contracts.
Assistant U.S. Attys. Patricia A. Beaman and Patricia W. Davis said Hei helped Litton Systems Canada win two contracts worth about $40 million and enabled Litton Applied Technology to obtain a contract worth $7.2 million.
For his efforts, Hei was paid more than $4.3 million in commissions, the prosecutors said.
The two Litton units, assisted by Litton Systems International, an unindicted conspirator, concealed the money paid to Hei in Taiwan, according to the criminal complaint.
In doing so, they violated U.S. laws that require defense contractors to disclose commissions that are promised or paid in connection with military sales.
They also broke a Taiwanese law that requires U.S. defense companies to certify that no commissions were paid to win contracts in that nation.
According to the plea agreement, the Litton subsidiaries funneled the payments to Hei through a variety of subterfuges, including phony purchase orders and retainer agreements. They also admitted falsifying their own accounting ledgers.
In the case of Greece, Litton Applied Technology, based in San Jose, acknowledged paying more than $12 million to four Greek agents for their help in securing a $150-million contract to provide a radar system for Greek fighter planes.
Litton won the contract in 1993 against stiff competition from Marconi Defense Systems Ltd., a unit of General Electric P.L.C. of Britain, according to press reports at the time.
The commissions were paid through another Litton division, Litton Applied Technology International, which disguised them on its books as "other direct costs," according to prosecutors.
When a U.S. Defense Department contract audit team began an audit of Litton Applied Technology International in 1997, company accountants altered their books, placing the commissions under an account titled "outside computer services."
Litton Applied Technology International, also named as an unindicted conspirator, misrepresented the nature of the commissions in preparing its income tax returns, according to the government.
In Washington, a Greek Embassy spokesman said prosecutors in Greece have begun a preliminary investigation to see if any Greek laws were broken.
Criminal probes of the U.S. defense industry have grown less frequent than in the late 1980s and early 1990s, when virtually every major defense contractor pleaded guilty to civil or criminal fraud at least once. While the tempo of the prosecutions has subsided, defense fraud continues to receive scrutiny from federal prosectors.
At the same time, U.S. defense contractors are relying on foreign contracts more than ever, giving them greater exposure to risky foreign business practices that vary greatly from U.S. norms.
Under terms of the plea agreement, the Litton subsidiaries will pay $16.5 million in criminal fines, $1.3 million to cover part of the investigation costs and $737,000 as restitution to Taiwan.
The case was the product of an investigation by the Internal Revenue Service, the FBI, the Customs Service, the Defense Criminal Investigative Service and the Naval Criminal Investigative Service.