Raytheon ordered to pay approximately $300M to resolve HSI New York, Eastern District of New York Investigation
NEW YORK — Raytheon Company, a subsidiary of Arlington, Virginia-based defense contractor RTX (formerly known as Raytheon Technologies Corporation), entered into a three-year deferred prosecution agreement with the Department of Justice in connection with a criminal information unsealed today in the Eastern District of New York charging Raytheon with two counts: conspiracy to violate the anti-bribery provision of the Foreign Corrupt Practices Act for engaging in a scheme to bribe a government official in Qatar and conspiracy to violate the Arms Export Control Act by willfully failing to disclose the bribes in export licensing applications with the Department of State.
The criminal information was unsealed following an investigation by Homeland Security Investigations (HSI) New York in coordination with the Department of Justice and the FBI.
Separately, Raytheon will enter into a three-year deferred prosecution agreement in connection with a criminal information filed today in the District of Massachusetts charging Raytheon with two counts of major fraud against the United States. As part of that resolution, Raytheon admitted to engaging in two separate schemes to defraud the Department of Defense in connection with the provision of defense articles and services, including Patriot missile systems and a radar system.
HSI New York Special Agent in Charge William S. Walker, Deputy Assistant Attorney General of the Justice Department’s Criminal Division Kevin Driscoll, Assistant Attorney General for the Justice Department’s National Security Division Matthew G. Olsen, U.S. Attorney for the Eastern District of New York Breon Peace, and FBI Criminal Investigative Division Assistant Director Chad Yarbrough announced the resolution.
“Raytheon Corporation engaged in a systematic and deliberate conspiracy that knowingly and willfully violated U.S. fraud and export laws,” said Walker. “Raytheon’s bribery of government officials, specifically those involved in the procurement of U.S. military technology, posed a national security threat to both the U.S. and its allies. As this investigation reflects, national security continues to be a top priority for HSI New York. The global threats facing the U.S. have never been greater, and HSI New York is committed to working with our federal and international partners to assure sensitive U.S. technologies are not unlawfully and fraudulently acquired.”
Walker also expressed his appreciation to the Securities and Exchange Commission, the FBI’s Washington field office and the U.S. Department of State.
Both agreements require that Raytheon retain an independent compliance monitor for three years, enhance its internal compliance program, report evidence of additional misconduct to the Justice Department, and cooperate in any ongoing or future criminal investigations.
Raytheon also reached a separate False Claims Act settlement with the DOJ relating to the defective pricing schemes. The Justice Department’s FCPA and ITAR resolution is coordinated with the Securities and Exchange Commission.
In addition, the Justice Department’s resolutions ensure that the appropriate federal agencies can proceed with determining whether Raytheon or any other individuals or entities associated with the company should be suspended or debarred as federal contractors. Pursuant to the Federal Acquisition Regulations, when more than one agency has an interest in an entity’s potential suspension or debarment, the FAR requires that the Interagency Suspension and Debarment Committee identify the lead agency for conducting governmentwide suspension or debarment proceedings. In connection with this resolution, the Justice Department has referred Raytheon’s factual admissions to the appropriate officials within the Department of Defense to initiate the process with the ISDC to identify which federal agency will take the lead in such administrative proceedings, which occur independently of the Justice Department’s criminal and civil resolutions.
“Raytheon engaged in criminal schemes to defraud the U.S. government in connection with contracts for critical military systems and to win business through bribery in Qatar,” said Driscoll. “Such corrupt and fraudulent conduct, especially by a publicly traded U.S. defense contractor, erodes public trust and harms the Department of Defense, businesses that play by the rules, and American taxpayers. Today’s resolutions, with criminal and civil penalties totaling nearly $1 billion, reflect the Criminal Division’s ability to tackle the most significant and complex white-collar cases across multiple subject matters.”
“International corruption in military and defense sales is a violation of our national security laws as well as an anti-bribery offense,” said Olsen. “Raytheon willfully failed to disclose bribes made in connection with contracts that required export licenses. Today’s resolution should serve as a stark warning to companies that violate the law when selling sensitive military technology overseas.”
“Over the course of several years, Raytheon employees bribed a high-level Qatari military official to obtain lucrative defense contracts and concealed the bribe payments by falsifying documents to the government, in violation of laws including those designed to protect our national security,” said Peace. “We will continue to pursue justice against corruption, and as this agreement establishes, enforce meaningful consequences, reforms and monitorship to ensure this misconduct is not repeated.”
“The Raytheon Company set out to intentionally defraud the U.S. government,” said Yarbrough. “This agreement highlights the importance of integrity when it comes to government contracting. The FBI, with its law enforcement partners, will continue to investigate these types of crimes that waste taxpayer dollars and prosecute all those who are intent on cooking up these major fraud schemes.”
The FCPA Case
According to admissions and court documents filed in the Eastern District of New York, between approximately 2012 and 2016, Raytheon, through certain of its employees and agents, engaged in a scheme to bribe a high-level official at the Qatar Emiri Air Force, a branch of Qatar’s Armed Forces that was primarily responsible for the conduct of air warfare, to assist Raytheon in obtaining and retaining business from the QEAF and QAF. Raytheon entered into and made payments on sham contracts for air defense operations-related studies to corruptly obtain the Qatari official’s assistance in securing certain air defense contracts. Raytheon also entered into a teaming agreement with a Qatari entity to corruptly obtain the Qatari official’s assistance in directly awarding a contract to Raytheon, without a competitive bid, to build a joint operations center that would interface with Qatar’s several military branches.
Under the terms of the DPA, Raytheon will pay a criminal monetary penalty of over $252.3 million, criminal forfeiture of over $36.6 million and retain an independent compliance monitor for three years. In addition, as part of the resolution of the SEC’s parallel investigation, Raytheon will pay approximately $49.1 million in disgorgement and prejudgment interest and a civil penalty of $75 million, $22.5 million of which will be credited against the criminal monetary penalty. The department has agreed to credit approximately $7.4 million of the disgorgement Raytheon pays to the SEC against the criminal forfeiture.
As part of the DPA, Raytheon and RTX have agreed to continue to cooperate with the U.S. Attorney’s Office for the Eastern District of New York, the Criminal Division’s Fraud Section and the National Security Division’s Counterintelligence and Export Control Section in any ongoing or future criminal investigations relating to this and other conduct. In addition, Raytheon and RTX have agreed to continue to enhance Raytheon’s compliance program.
The Department reached this resolution with Raytheon based on a number of factors, including the nature and seriousness of the offense. Raytheon received credit for its cooperation with the Department’s investigation, which included:
- Providing information obtained through its internal investigation, which allowed the government to preserve and obtain evidence as part of its own independent investigation.
- Facilitating interviews with current and former employees.
- Making detailed factual presentations to the government.
- Proactively disclosing certain evidence of which the government was previously unaware and identifying key documents in materials it produced.
- Engaging experts to conduct financial analyses.
Raytheon also engaged in timely remedial measures, including:
- Recalibrating third party review and approval processes to lower company risk tolerance.
- Implementing enhanced controls over sales intermediary payments.
- Hiring empowered subject matter experts to oversee its anti-corruption compliance program and third party management.
- Implementing data analytics to improve third party monitoring.
- Developing a multipronged communications strategy to enhance ethics and compliance training and communications.
However, in determining the appropriate cooperation credit, the government also took into account the fact that, in the initial phases of the investigation, prior to in or around 2022, Raytheon was at times slow to respond to the government’s requests and failed to provide relevant information in its possession; for example, Raytheon withheld relevant, material information from the government and gave incomplete and misleading presentations regarding the nature and scope of a relevant third-party intermediary relationship.
In light of these considerations, as well as Raytheon’s prior history, which includes three prior civil or regulatory enforcement actions: A 2013 consent agreement with the U.S. State Department concerning civil ITAR and Arms Export Control Act violations, in connection with which Raytheon agreed to hire an independent special compliance officer to oversee the four-year consent decree while at the same time engaging in the conduct described in the DPA; a civil settlement with the Environmental Protection Agency in 2007 concerning payments to clean up contamination sites; and a resolution with the SEC in 2006 concerning false and misleading disclosures and improper accounting practices, the criminal penalty calculated under the U.S. sentencing guidelines reflects a 20% reduction off the 20th percentile above the low end of the otherwise applicable Guidelines fine range.
The ITAR Case
According to admissions and court documents filed in the Eastern District of New York, between approximately 2012 and 2016, Raytheon, through certain of its employees and agents, engaged in a scheme to willfully violate the AECA and ITAR Part 130 by failing to disclose to the United States Department of State, Directorate of Defense Trade Controls, fees and commissions paid in connection with two Qatar-related contracts — specifically, the bribes Raytheon paid to the high-level QEAF official through sham subcontracts.
The Department reached this resolution with Raytheon based on a number of factors, including, among others, the nature and seriousness of the offense. Raytheon received credit for its cooperation with the Department’s investigation, which included:
- Gathering evidence of interest to the government and proactively identifying key documents related to willful ITAR-related misconduct.
- Making factual presentations concerning the ITAR-related misconduct.
- Facilitating witness interviews and expediting the government’s ability to meet with witnesses.
Raytheon also received credit for remediation, which included, in addition to the remediation described above in connection with the FCPA case:
- Hiring additional empowered subject matter experts in legal and compliance.
- Developing a multipronged communications strategy to enhance ethics and compliance training and communications.
- Making enhancements to its ITAR-related compliance program.
Raytheon did not receive full credit for its cooperation because in the initial phase of the investigation, it failed to provide information relevant to the ITAR violations beyond what was requested in the FCPA investigation.
In light of these considerations, the ITAR-related financial penalty of $21,904,850 includes a cooperation and remediation credit of 20 percent off the otherwise applicable penalty.
The Defective Pricing Case
According to admissions and court documents filed in the District of Massachusetts, from 2012 through 2013 and again from 2017 through 2018, Raytheon employees provided false and fraudulent information to the DOD during contract negotiations concerning two contracts with the United States for the benefit of a foreign partner — one to purchase Patriot missile systems and the other to operate and maintain a radar system. In both instances, Raytheon employees provided false and fraudulent information to DOD in order to mislead DOD into awarding the two contracts at inflated prices. These schemes to defraud caused the DOD to pay Raytheon over $111 million more than Raytheon should have been paid on the contracts.
Under the terms of the DPA, Raytheon will pay a criminal monetary penalty of $146,787,972 and pay $111,203,009 in victim compensation. It will also retain an independent compliance monitor for three years. The Justice Department has agreed to credit the victim compensation amount against restitution Raytheon pays to the Civil Division in its related, parallel False Claims Act proceeding.
Pursuant to the DPA, in addition to the independent compliance monitor, Raytheon and RTX have agreed to continue to implement a compliance and ethics program at Raytheon designed to prevent and detect fraudulent conduct throughout its operations. Raytheon and RTX have also agreed to continue to cooperate with the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the District of Massachusetts in any ongoing or future criminal investigations.
The Justice Department reached this resolution with Raytheon based on a number of factors, including the nature and seriousness of the offense conduct, which involved two separate schemes to defraud the U.S. government. Raytheon received credit for its affirmative acceptance of responsibility and cooperation with the department’s investigation, which included facilitating interviews with current and former employees; providing information obtained through its internal investigation, which allowed the department to preserve and obtain evidence as part of its own independent investigation; making detailed presentations to the department; proactively identifying key documents in the voluminous materials collected and produced; engaging experts to conduct financial analyses; and demonstrating its willingness to disclose all relevant facts by analyzing whether the crime-fraud exception applied to certain potentially privileged documents and releasing the documents that it deemed fell within the exception. However, in the initial phases of the investigation prior to March 2022, Raytheon’s cooperation was limited by unreasonably slow document productions.
Raytheon also engaged in timely remedial measures, including terminating certain employees who were responsible for the misconduct; establishing a broad defective pricing awareness campaign; developing and implementing policies, procedures and controls relating to defective pricing compliance; and engaging additional resources with appropriate expertise to evaluate and test the new policies, procedures and controls relating to defective pricing compliance.
In light of these considerations, as well as Raytheon’s prior history, the criminal penalty calculated under the U.S. sentencing guidelines reflects a 25% reduction off the 10th percentile above the low end of the otherwise applicable guidelines fine range.
The False Claims Act Settlement
Raytheon also entered a civil False Claims Act settlement to resolve allegations that it provided untruthful certified cost or pricing data when negotiating prices with the DOD for numerous government contracts and double billed on a weapons maintenance contract.
Under the False Claims Act settlement, which is the second largest government procurement fraud recovery under the Act, Raytheon will pay $428 million for knowingly failing to provide truthful certified cost and pricing data during negotiations on numerous government contracts between 2009 and 2020, in violation of the Truth in Negotiations Act (TINA). Congress enacted TINA in 1962 to help level the playing field in sole source contracts — where there is no price competition — by making sure that government negotiators have access to the cost or pricing data that the offeror used when developing its proposal. As part of the settlement, Raytheon admitted that it failed to disclose cost or pricing data, as required by TINA, regarding its labor and material costs to supply weapon systems to DOD.
Raytheon also admitted that by misrepresenting its costs during contract negotiations it overcharged the United States on these contracts and received profits in excess of the negotiated profit rates. Further, Raytheon admitted that it failed to disclose truthful cost or pricing data on a contract to staff a radar station. Raytheon also admitted that it billed the same costs twice on a DOD contract.
As part of the civil resolution, Raytheon received credit under the Justice Department’s guidelines for taking disclosure, cooperation, and remediation into account in False Claims Act cases for cooperation provided by RTX. That cooperation included conducting and disclosing the results of an internal investigation, disclosing relevant facts and material not known to the government but relevant to its investigation, providing the department with inculpatory evidence, conducting a damages analysis, identifying and separating individuals responsible for or involved in the misconduct, admitting liability and accepting responsibility for the misconduct, and improving its compliance programs.
The civil settlement includes the resolution of a lawsuit filed under the qui tam or whistleblower provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and share in a portion of the government’s recovery. The qui tam lawsuit was filed by Karen Atesoglu, a former Raytheon employee, and is captioned United States ex rel. Atesoglu v. Raytheon Technologies Corporation, 21-CV-10690-PBS. Atesoglu will receive $4.2 million as her share of the settlement.