Raytheon Settles Federal Investigations with Over $950 Million Payment
Resolution of Fraud, Bribery, and Export Violations
Raytheon, a subsidiary of defense contractor RTX, has agreed to a settlement of more than $950 million. This resolution is in response to federal investigations into allegations of government contract fraud, violations of anti-corruption laws, and breaches of export control laws.
The Department of Justice (DOJ) announced the settlement on October 16. The agreement addresses allegations of defective pricing on military contracts with the U.S. government and illegal bribes to a Qatari official. The resolution includes both civil and criminal penalties.
Company's Response and Admission
An RTX spokesperson confirmed the settlement, stating that the company acknowledges its responsibility for the misconduct and has cooperated with investigators. The company also stressed its commitment to strengthening its compliance and ethics programs.
Raytheon has admitted to two significant fraud schemes affecting Department of Defense (DoD) contracts. These include the provision of PATRIOT missile systems and radar systems.
In the first case, Raytheon employees provided defective pricing information, leading the DoD to overpay on two contracts by roughly $111 million between 2012 and 2018.
In a separate scheme, Raytheon failed to provide accurate cost or pricing data for numerous DoD contracts. This failure led to further inflated payments.
Settlement Terms and Remedial Actions
Under the terms of a three-year deferred prosecution agreement, Raytheon will pay a criminal monetary penalty of $146.8 million and $111.2 million in victim compensation. The company will also retain an independent compliance monitor for three years.
The company received a 25 percent reduction in penalties for taking remedial actions. These actions included firing employees responsible for the misconduct and implementing new controls to prevent future fraud.
Additionally, Raytheon agreed to pay $428 million to settle False Claims Act allegations related to providing false data during contract negotiations with the DoD. Raytheon admitted it misrepresented labor and material costs for weapon systems and double-billed on a radar station contract.
Bribery Scheme in Qatar
Raytheon also faced charges under the Foreign Corrupt Practices Act (FCPA) and the Arms Export Control Act (AECA) for a bribery scheme in Qatar.
The company was accused of paying nearly $2 million in bribes to Qatari military officials between 2011 and 2017 to secure lucrative defense contracts through sham subcontracts.
From the early 2000s to 2020, Raytheon also paid more than $30 million to a Qatari agent, a royal family member with no military contracting experience, despite numerous internal warnings about corruption risks.
In this case, Raytheon agreed to pay $124 million in penalties as part of a settlement with the Securities and Exchange Commission (SEC). $22.5 million of that amount will be offset by a parallel DOJ fine.
Additionally, Raytheon entered into a separate deferred prosecution agreement with the DOJ for the bribery violations. This agreement includes a $230.4 million criminal fine and a $37 million forfeiture. The company will also retain an independent compliance monitor for three years.
Company's Commitment to Reforms
RTX has expressed its commitment to taking responsibility for the violations and implementing reforms.
The company stated that it has worked diligently during the investigations to remediate the misconduct and will continue to do so. The company also committed to working closely with the incoming independent monitor to improve and further enhance its ethics and compliance program.
The company reaffirmed its commitment to maintaining a robust compliance program that adheres to global laws and regulations while upholding integrity and serving its customers ethically.
Bottom Line
The case of Raytheon serves as a stark reminder of the importance of adherence to legal obligations, especially in the sensitive field of defense contracts. The hefty settlement underscores the severe consequences of misconduct. It also highlights the necessity for companies to maintain robust compliance and ethics programs. What are your thoughts on this matter? Feel free to share this article with your friends and discuss. You can also sign up for the Daily Briefing, which is available every day at 6 pm.
