Major Overhaul of Kickback Law Passes Congress : Reporting Requirements Made Much Tougher; Penalties Are Stiffened

In response to recent kickback scandals in the defense industry, Congress gave final approval Thursday to legislation that significantly toughens criminal laws against such corrupt practices in government contracting.

The Anti-Kickback Enforcement Act, passed by the House and sent to President Reagan on Thursday, is the first overhaul of the federal kickback law since it was enacted in 1946 amid disclosures of defense industry corruption during World War II.

The act moved through Congress in less than seven months after evidence surfaced in several House and Senate committee hearings that kickbacks had become commonplace in some segments of the defense procurement system.

Two Dozen Indictments

In Southern California alone, about two dozen defense industry executives and purchasing agents have been indicted since early 1985 on federal charges of taking kickbacks to issue contracts. The indictments resulted in a large number of guilty pleas. Defense industry employees admitted to accepting paid European vacations, laundering kickback money through bogus companies and siphoning funds from the top-secret Stealth bomber program.

In an August, 1985, report in The Times, subcontractors complained that a growing number of purchasing agents at major aerospace firms expected bribes in exchange for issuing subcontracts. The story found cases where small firms were forced to pay $25,000 liquor bills for their customers, host lavish golf outings at country clubs and, in one case, pay off a purchasing agent’s home mortgage.

Sen. Carl Levin (D-Mich.), who co-sponsored the bill with Sen. William Cohen (R-Me.), said Congress had acted with “unusual speed” to address the problem. Cohen added that the new law would provide “much stronger deterrence” against kickbacks.

The bill was strongly supported by the Reagan Administration, which has sought to portray itself as tough on waste, fraud and abuse in the defense industry.

The measure also was generally supported by defense industry trade groups, despite tough provisions that will require defense contractors to make “reasonable” efforts to monitor and prevent kickbacks by their employees and suppliers.

“We don’t require foolproof procedures . . . but we do require reasonable procedures to stop kickbacks in their operations,” said Elise Bean, staff counsel of the Levin subcommittee that held hearings on the issue. “They don’t have to police the whole community, just their own operations.”

Disclosure Required

Under the new law, future defense contracts will contain clauses requiring contractors to disclose to federal investigative agencies any suspicion of kickback activity in their operation or in the operations of their subcontractors. Contractors are also compelled to cooperate in subsequent investigations.

Bean said the new law would effectively require companies to disclose evidence to other defense contractors that a former employee applying for a job had accepted kickbacks, said Elise Bean, staff counsel of Levin’s subcommittee that held hearings on the issue.

Until now, companies have argued that they would open themselves to slander or invasion of privacy actions by their employees if they disclose such information. Some contractors have also said that they are victims of such corruption as much as the government.

The law will also allow the government, for the first time, to sue defense companies to recover kickbacks paid by their employees and presumably passed along to the government. The companies would then have to recover those damages from the employees.

The bill also increases the maximum prison sentence for those convicted of paying or accepting kickbacks to 10 years from the current two years. Monetary penalties are increased to $250,000 for an individual and $500,000 for a corporation from the current $10,000 apiece. The bill also makes it a specific crime to offer or solicit a kickback, even if no kickback ultimately takes place.