New Charges Made Against Defense Firm : General Dynamics Accused of Paying Bribes Overseas

Members of a House subcommittee raised new charges Monday against beleaguered General Dynamics Corp., saying that the nation’s largest defense contractor may have billed the government for the costs of its overseas sales consultants and used some of those agents to pay bribes to sell airplanes abroad.

Citing internal company memos, members of the oversight subcommittee of the House Energy and Commerce Committee also charged that the firm violated federal conflict-of-interest statutes by hiring a former assistant secretary of the Navy two years ago.

David S. Lewis, General Dynamics chairman, making his second appearance before the subcommittee in less than a month, vehemently denied any wrongdoing.

Lewis said General Dynamics, in an effort “to bend over backwards” to be fair to the government, was abandoning $23 million in overhead charges on government contract that the firm originally had submitted to the Pentagon.

$1.3 Billion in 1981

Rep. John D. Dingell (D-Mich.), the subcommittee chairman, and Rep. Ron Wyden (D-Ore.), a member of the panel, said Defense Department records show that General Dynamics has sought to pass on to taxpayers the costs of maintaining overseas salesmen to handle sales of weapons systems, particularly F-16 fighter aircraft, to U.S. allies. These costs amounted to $1.3 million in 1981 and may have run into many millions of dollars during the last 10 years, Dingell said.

Lewis said he could not confirm that this had happened but agreed that it would be irregular. He said he would look into the situation.

Wyden also read Lewis part of an internal General Dynamics memo, written in 1975, that described how a company can make payments to foreign officials through “front organizations” and “expense accounts,” concluding that “no one would be the wiser.”

Lewis replied that he was unfamiliar with the memo but that General Dynamics had always opposed such payments, which were outlawed in 1977 by congressional passage of the Foreign Corrupt Practices Act.

“I have no idea why this was written,” Lewis said of the memo. He said it appeared to be “a philosophical discussion of how something could happen.”

Wyden told Lewis that P. Takis Veliotis, a former General Dynamics executive who remains a fugitive in Greece from his 1982 federal indictment on kickback charges, has claimed that the company paid bribes to sell F-16s to South Korea and Egypt.

“I absolutely deny that,” Lewis said. “We have checked very carefully every expenditure. We have a company in Korea and an agent with some employees in Egypt. But there are no available funds to bribe anyone.”

Target of Investigations

With Veliotis seeking immunity from U.S. prosecution in return for information that he claims he has about wrongdoing at General Dynamics, the St. Louis-based defense contractor has been the target of spreading investigations by the Justice Department, the Internal Revenue Service, the Pentagon and Congress.

Defense Secretary Caspar W. Weinberger, announcing a tough new policy earlier this month on alleged overcharging by defense contractors, suspended about $35 million in government payments to General Dynamics pending a review of the company’s overhead charges. Last year, General Dynamics, the nation’s largest defense contractor, derived about 85% of its $7.84 billion in revenue from the government.

Lewis said Monday that the company itself has turned up “inappropriate vouchers” for the years 1979 through 1984 totaling $23 million. He said the company is voluntarily waiving these payments by the Pentagon.

Rep. Gerry Sikorski (D-Minn.), a subcommittee member, said the Justice Department is secretly investigating what he termed an apparent violation of federal conflict-of-interest laws in the hiring by General Dynamics two years ago of George A. Sawyer as soon as Sawyer resigned as assistant secretary of the Navy for shipbuilding and logistics.

Lewis said neither the company nor Sawyer violated any rules because General Dynamics created a vice president’s post for Sawyer that did not involve working on any of the firm’s Navy contracts.

Sikorski said company documents obtained by the subcommittee show that General Dynamics negotiated with Sawyer for the job before he left the Navy, which Sikorski said is prohibited by the conflict-of-interest statutes.

Lewis replied that Sawyer met with company officials before he left government service but that no negotiations occurred. He said Sawyer gave a statement to federal prosecutors last month that he believes will resolve the issue.