Complex Rules May Hamper Pentagon Probe : They Frequently Thwart Federal Prosecutions

Back in 1982, FBI agents in Florida began investigating allegations that Pratt & Whitney, one of the nation’s largest aircraft engine manufacturers, had tried to cheat the Air Force out of $22 million.

Evidence suggested that the defense contractor had attempted to charge off as legitimate the cost of parties, banquets, souvenir pen sets, an executive auto lease program and a company-sponsored employee rebate plan.

But when the investigation ended four years later, the U.S. attorney in Miami did not seek an indictment. The prosecutor concluded that the government’s accounting rules were vague, conflicting and overlapping and that, during contract negotiations, the Air Force may have allowed the engine builder to include questionable items in its overhead claims.

No Isolated Case

The Pratt & Whitney investigation is no isolated case. In the often murky legal environment of the multibillion-dollar defense industry, the government’s complex regulations and its own complicity in questionable activity frequently thwart criminal prosecutions of alleged wrongdoing.

And that may bode ill for Operation Ill Wind, the unprecedented federal probe of fraud and bribery in Pentagon procurement that surfaced last month. Although there are significant differences between the Pratt & Whitney case and the current procurement investigation, legal experts say prosecutors may have more trouble obtaining convictions than television and newspaper reports might suggest.

“In the defense procurement area, you have some of the most complex white-collar (crime) cases imaginable,” said Los Angeles lawyer Fred D. Heather, a former federal prosecutor who now defends military contractors.

“It is often (true) that the case seen in the newspaper or discussed (in Congress) is not the case that the prosecutors can prove to a jury,” said C. Stanley Dees, chairman of the American Bar Assn.’s public contract law section.

The FBI and the Naval Investigative Service, which are investigating Pentagon procurement fraud, have employed aggressive law enforcement techniques--including wiretaps, surprise searches and hidden listening devices--that are more often associated with investigations of narcotics rings.

These techniques, coupled with sophisticated computer technology used by agents to keep track of a staggering volume of documents and witnesses, may sometimes produce compelling evidence of guilt. Wiretap evidence can be especially effective when a suspect clearly offers or solicits a bribe, several attorneys said.

Not So Clear-Cut

But more often than not, the evidence uncovered in investigations of procurement fraud is not so clear-cut, many legal experts said. And the fact that Operation Ill Wind involves the Pentagon adds a number of further complications:

- Defense attorneys sometimes foil prosecutions by threatening to seek disclosure of classified material in open court. Last spring, for example, the Justice Department dropped criminal charges against a vice president of GTE Government Systems Corp. and others accused of illegal trafficking in classified Pentagon documents after a lengthy dispute over the amount of classified information the defense would be allowed to introduce at trial.

- Pentagon rules on who is entitled to review classified military procurement information are often vague and complicated, and they frequently confound jurors seeking to interpret them. “Any fraud case is difficult,” said Victoria Toensing, deputy assistant attorney general in the Justice Department’s criminal division. “There are so many documents in these cases you can put a jury to sleep.”

Quiet Release of Data

- Pentagon officials frequently permit the quiet release of classified documents to defense contractors or industry consultants when they believe the information would speed up or improve the procurement process. “These are not arm’s-length transactions,” one attorney said. This practice makes it difficult for prosecutors to argue that some releases of classified material are criminal.

In 1984, for example, a federal jury in Baltimore acquitted a defense industry consultant who admitted illegally passing classified information to a defense “think tank.” The defense relied on the testimony of a Pentagon employee who told jurors that the classified material in question was routinely given to contractors by officials who viewed the exchange of such information as helpful.

Henry E. Hudson, the U.S. attorney in Alexandria, Va., who is supervising Operation Ill Wind, has not signaled what kinds of criminal charges he might bring against present and former Pentagon officials and private contractors and consultants.

Most of the details remain sealed in federal courts around the nation where investigators obtained warrants to search homes and offices of figures involved in the scandal, and the government is not expected to seek any indictments for several months.

“They’re trying to persuade the public, to demonstrate that they’ve got a solid case, but they haven’t turned up their hole card yet so anybody can see it,” said Washington defense attorney Plato Cacheris, who has represented accused contractors in the past.

“It’s still very vague what the (government’s legal) theory is,” said Philip B. Heymann, a Harvard Law School professor and the attorney who ran the Justice Department’s criminal division from 1978 until 1981.

Clues Available

Some clues are available, however, from the few documents about the case that have been made public and from sources familiar with the investigation. They suggest that federal agents believe Pentagon officials, mainly in the Navy Department, either gave or sold classified documents to defense industry consultants, who in turn resold the documents at a significant profit to contractors seeking to learn what the government was willing to pay for weapons systems or what their competition was bidding.

That set of facts could give rise to a number of federal charges, the experts said, including bribery and the similar but less serious offense of acceptance of gratuities. Other possibilities are conspiracy to defraud the government, theft of government property and improper use of documents relating to the national defense, which is part of the law against espionage.

Old-fashioned bribery may be either the easiest or the most difficult to prove, depending on the evidence the government has gathered.

‘Some Bad Guys’

“I think sure, you’re going to have some bad guys out there who essentially said: ‘This is information for sale, I’ll sell it to the highest bidder,’ ” said a defense attorney involved in the case who asked not to be named.

“But I think you’ll find the vast majority of information goes out because people in government have a relationship with people outside the government,” he said. “They feel in their own minds there’s nothing inappropriate about giving this information.”

Proving bribery under those circumstances is difficult, the lawyer said, because the parties involved may have never reached a specific agreement to turn over a particular document in exchange for a particular sum of money or other item of value.

“It really all is going to boil down to intent, unless you’re in a strict bribery situation where you’ve got the guy on tape saying: ‘I’ve got the XYZ document and it’s yours for $200,’ ” another defense attorney involved in the case said.

Espionage Statute

Heymann said prosecution would not be difficult in cases where government officials traded information for money. But if their payment came in the form of a promise of a lucrative job after they left the government, Heymann said, “or if they received some kind of non-cash, general good treatment by contractors, that will make the case much harder.”

Another issue is likely to involve the extent to which documents that consultants were providing to contractors were available through other sources, perhaps even the government itself.

Dees and others said they expected Hudson to shy away from the espionage statute, which was the basis of much of the GTE case, because it would expose the prosecution to attack on the issue of whether military documents were properly classified. And, other lawyers said, the statute diverts a jury’s attention from moral to technical issues.

Former U.S. Atty. Gen. Benjamin R. Civiletti, now a Washington defense attorney, said the prosecution must carefully focus its efforts in the courtroom if it hopes to prevail.

“It’s doubly important that the government strike at the most serious frauds, the most serious cheating, the most flagrant cases . . . and do it in the simplest way possible,” Civiletti said.

“Otherwise, (prosecutors) get involved in the morass of the mores of this special (defense contracting) business, and they dissipate the limited resources they have on these difficult battles of interpretation.”

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