McDonnell Tied to Defense Probe : Warrant Alleges Ex-Navy Official Gave Weapons Systems Data to Firm

In a scheme that government sources describe as a blueprint for the type of widespread defense contract fraud and bribery now being investigated by the FBI, former Assistant Navy Secretary Melvyn Paisley allegedly provided McDonnell Douglas Corp. with crucial information for its F-18 fighter plane program and other weapons systems, according to documents released Thursday.

The Times learned also that the rapidly accelerating investigation now has broadened to Capitol Hill, where two members of Congress are suspected of providing inside information to defense contractors and consultants.

Rep. Bill Chappell Jr. (D-Fla.), who oversees the Pentagon budget as chairman of the House Appropriations subcommittee on defense, was identified by sources familiar with the case as one of those under scrutiny.

In an interview, however, Chappell contended that he and other committee members receive no information that would be of value to military contractors.

Figures Are Public

“These are public (budget) figures we’re dealing with anyway, except in the field of intelligence. Information on the fact that bids are going out does not come to Congress, as far as I know.”

The name of the other member of Congress under scrutiny could not be verified.

The allegation against Paisley was included in a warrant to search the office of Thomas M. Gunn, a McDonnell Douglas marketing vice president. The document was made public in St. Louis and outlined in unusual detail the government’s theory of how the scheme worked.

“The scheme involves the illegal disclosure of information and the exertion of influence with respect to Department of Defense contracts,” the warrant said. “The information disclosed is often provided by government employees receiving bribes or gratuities.”

Immediately after resigning as assistant secretary of the Navy for research, engineering and systems in April, 1987, Paisley became a private consultant to McDonnell Douglas and other defense contractors. The allegations contained in the warrant cover the period after he left government service.

In its detailed description of the overall investigation, the warrant to search the McDonnell Douglas office said: “The disclosed information has been of the type that can provide a company with an unfair advantage over its competitors and/or the government. A substantial portion of the disclosed information is classified or confidential.”

The document, which was issued Monday and is the only one of the warrants served across the country to become public, said Paisley relied on government officials to provide Defense Department contract information that is not available to the “contracting public.”

Paisley then turned this information over to McDonnell Douglas for a fee or as part of his consulting contract, the warrant said.

Data Termed Classified

“Paisley has provided McDonnell Douglas and Thomas Gunn substantial information obtained from government officials which has been classified and/or confidential or not available to the contracting public,” the document said.

The warrant was one of dozens issued across the country as part of the FBI’s expanding investigation, which sources say is expected to result in more than 100 indictments. The probe, which is believed to be the largest defense contracting investigation ever conducted, has spread to at least 38 defense contracting and consultant sites in 12 states.

On Capitol Hill, an aide to Chappell, the House Appropriations subcommittee chairman, said: “We have not been served (with a search warrant) or searched and have no reason to expect that we will be.”

Government officials familiar with the investigation said contractors are very interested in preliminary and confidential Pentagon budget figures that the Appropriations Committee routinely receives. At the same time, investigative sources emphasized that the Capitol Hill case has not been fully developed.

Indictments Expected

Atty. Gen. Edwin Meese III, who, along with FBI Director William S. Sessions and other Justice Department and bureau officials, briefed President Reagan on the inquiry, said he expected indictments to be returned within 30 to 90 days.

The attorney general, talking to reporters on the steps of the Justice Department, rejected the suggestion that the disclosure of alleged widespread fraud in defense contracting would embarrass the Administration, contending that the blame did not lie in the procurement process. Instead, he said, “dishonest individuals tried to circumvent” the system.

At the White House, spokesman Marlin Fitzwater said: “The President is very concerned and, I suppose it’s fair to say, upset by the revelations of this investigation. It certainly poses an internal security problem and an abuse problem of dimensions that has to be dealt with forthrightly.”

In the McDonnell Douglas case, according to the search warrant, the programs that were affected included the proposed sale of its F-18 fighter to the Swiss and internal Navy data on special configuration of the jet; the proposed sale of F-18s to Korea with the names of individuals able to influence the U.S. government to approve the sale; letters, telexes and other documents on the sale of the F-18 to European allies and on the APG 65 radar; 1987 Navy studies on the Killer Egg helicopter and the future helicopter needs of the Marine Corps; and on the advanced tactical aircraft program.

Closely Held Data

The warrant explained why information used to develop and implement the Pentagon’s “acquisition strategies” is closely held and of keen interest to companies competing for military contracts.

“A company with such advance information can prepare more advantageously for procurements which are likely to be upcoming,” the warrant said. “Moreover, if a company learns of the government’s plans, the company can evaluate the plans and try to influence the decision-makers to make modifications which would favor the particular company.”

In addition to the federal crimes of bribery of public officials and illegal gratuities and mail and wire fraud, the warrant cited as possible violations false statements and conspiracy to defraud the United States.

While at the Defense Department, Paisley aided former Navy Secretary John F. Lehman Jr. in an overhaul of the service’s procurement process.

Navy Unit Dismantled

Larry Korb, a former assistant secretary of defense who fought bitterly with Lehman and Paisley during his tenure, said Thursday that the potential for procurement corruption was enhanced when Lehman dismantled the Navy’s materiel command, a group of career uniformed officers that oversaw weapons purchases.

The process was centralized by Lehman, who delegated most purchasing authority to Paisley and Everett Pyatt, assistant Navy secretary for shipbuilding and logistics. This took place as purchasing rules were becoming much more complex because of procurement reform efforts in Congress and inside the Pentagon.

As a result, contractors turned to consultants, many of them recently retired from the military or from top civilian defense jobs, for expert assistance, Korb said.

“All of this created an atmosphere (in which) these (abuses) can happen,” he said. “In the long run, it confirms the fears of people who think the military-industrial complex is running the country.”

AF Figure in Probe

In addition to Paisley, Victor D. Cohen, a deputy assistant Air Force secretary for tactical systems acquisition, has emerged as a central figure in the investigation, sources familiar with the case said Thursday.

Cohen’s alleged role was described by one source as “even more direct” than Paisley’s. In his position at the Pentagon, Cohen had independent authority to approve acquisitions up to certain dollar amounts.

Neither Cohen nor his attorney could not be reached for comment Thursday.

Staff writers Melissa Healy and William C. Rempel in Washington, Robert W. Stewart in Los Angeles and Greg Johnson in San Diego contributed to this story.