U.S. Targets 4 Defense Firms for Prosecution

Four major defense contractors have been targeted for federal prosecution, suspected of illegally acquiring secret documents from a Pentagon black market to aid them in seeking military business, congressional investigators said Wednesday.

A report by the staff of Congress’ Joint Economic Committee listed the companies as Boeing, General Dynamics, Martin Marietta and Sanders Associates. The report said that cases involving them had been referred to the U.S. attorney in Alexandria, Va., for prosecution.

The far-reaching Pentagon inquiry stemmed from a 1983 investigation which showed that GTE Corp. was receiving secret military planning documents without authorization from a private consultant, according to the staff report.

A Pentagon spokesman said that the investigation into the bootlegging of documents has no connection to the FBI’s inquiry into major procurement fraud--code-named “Ill Wind”--that was disclosed last summer.

The existence of an extensive network for illicitly obtaining classified material and funneling it to corporations was described by Defense Department officials and congressional aides at a hearing of the Joint Economic subcommittee on national security economics.

The hearing’s testimony bolstered Senate investigators’ suspicions of a substantial black market for bootlegged Defense Department documents describing the department’s secret plans for buying weapons and other equipment. The possession of those documents can give military contractors a leg up on their competition to gain lucrative Pentagon business.

‘Rot in the System’

“The practice of bootlegging is widespread and is probably still going on,” said Sen. Charles E. Grassley (R-Iowa). “We must face up to the fact that there’s rot in the (procurement) system.”

Sen. William Proxmire (D-Wis.), presiding over his last hearing before retiring from the Senate, concluded that the Defense Department is not allocating enough resources to fight the black market in documents. And the Justice Department, he said, is doing very little to stop it.

“We’ve seen only the tip of the iceberg,” he charged, “and the Justice Department thinks the iceberg is a mirage or will melt away.”

Donald Mancuso, the Defense Department’s assistant inspector general, acknowledged that trafficking in secret documents by consultants and contractors is widespread.

“Our investigation is both far-reaching and complex,” he told the subcommittee, “and, clearly, it will be some time before enough information is on hand for us to assess the full impact of these abuses on the defense procurement process and what actions will be necessary to correct these abuses.”

John Donnelly, director of the Defense Investigative Service, said that his agency has targeted eight firms for criminal investigation in the belief that they systematically obtained classified material illicitly from senior military officers and Pentagon consultants. Mancuso, however, said that four cases referred by Donnelly’s agency are not currently being pursued by the Justice Department. Under questioning, he said that these cases involve McDonnell Douglas, Northrop, TRW and the Amecom division of Litton Systems.

Defense Department officials said after the hearing, however, that Donnelly was mistaken. Moreover, the subcommittee staff counsel, Richard Kaufman, said that it was the first time he had heard of eight corporations, rather than four, targeted for criminal investigation.

Defense contractors named by Donnelly asserted that he was incorrectly dredging up old allegations that have already been investigated and dropped.

“The information is incorrect,” Litton spokesman Robert Knapp said.

Knapp said that Donnelly was referring to accusations made in a federal case in U.S. District Court in Virginia several years ago, in which a witness alleged that the eight companies named Wednesday possessed secret, illegally obtained documents. Knapp identified the case as United States vs. Zettl.

“There were allegations made in that case that a Litton division had improper possession of a document,” he said. Knapp identified the Litton unit as the Amecom division, the same division as Donnelly identified in the hearing.

Knapp said that the Defense Investigative Service looked into the matter, cleared a Litton employee involved in the case and ultimately never found any evidence of complicity by Litton officials.

“We know of no ongoing investigation involving us of such a nature,” Knapp added.

Firm Unaware of Probe

A General Dynamics spokesman said that “General Dynamics is not aware of any investigation or imminent prosecution as reported. These allegations appear to relate to an investigation dating as far back as 1984. To the best of our knowledge, outstanding indictments in that matter not involving General Dynamics have largely been dismissed.”

Boeing was the only company of the eight that even acknowledged an awareness of the investigation. “We have been cooperating with the government,” company spokesman Paul Bender said.

“Obviously, we do not condone anything like that,” he added.

TRW spokesman Michael Johnson said: “We are absolutely unaware that TRW is or may be under any criminal investigation of this issue.”

Northrop spokesman Tony Cantafio said: “I don’t know anything about it.”

Spokesmen at Martin Marietta, McDonnell Douglas and the Sanders unit of Lockheed did not respond to Times inquiries.

Donnelly said at the hearing that his investigations had found that documents were peddled or provided to defense contractors by senior military officers, nearing retirement, who wanted to ingratiate themselves to potential employers. Consultants who worked for both the Pentagon and private corporations, he said, are also deeply involved in the document trafficking.

‘Risk to National Security’

Mancuso testified that the existence of a black market for secret Pentagon documents not only corrupts the procurement process but also “presents a significant risk to national security” through the unauthorized sale of information about advanced military technology.

“While industry consultants are usually the conduit, Defense employees who provide such material for personal gain represent the most culpable parties,” he said. “There is not a one of them who does not clearly understand that when they pass classified material to unauthorized parties that their actions are strictly forbidden.”

In a staff document submitted to the panel, subcommittee investigators said that the Pentagon black market case began in 1983 when employees at GTE’s facility in Mountain View, Calif., were discovered to be illicitly obtaining secret documents from the Pentagon through a private consultant, Bernie Zettl.

GTE pleaded guilty in 1985 to unauthorized possession of a classified Defense Department planning document and was fined $500,000. But charges were dropped against two GTE employees, and all but one count was dropped in the case against Zettl, the account showed.

Seen as Common Practice

In his defense, Zettl’s attorneys argued in 1986 that the practice of obtaining unauthorized classified documents was so common that their client should not be prosecuted. Zettl’s lawyers charged in a federal court hearing that six large defense firms--Northrop, McDonnell Douglas, TRW, Boeing, Sanders and Litton--had been “bootlegging” documents.

Another 1983 investigation centered in Cleveland disclosed evidence of widespread trafficking in classified documents, involving at least 10 contractors and 30 Pentagon officials, the subcommittee said.

Pentagon investigators, however, were unable to persuade Justice Department officials in charge of the defense procurement fraud unit to broaden the inquiry, and a recommendation to the same effect was rejected by the Pentagon general counsel, Chapman Cox, in 1985.

After another investigation was sparked by Zettl’s allegations, the Defense Investigative Service found 23 firms in possession of unauthorized secret documents, the subcommittee said. “Allegations have been received that the DIS investigation was closed prematurely and that the DIS investigators were unable to develop fully evidence of possible wrongdoing by contractors,” the subcommittee said.

Robert L. Segal, a former Pentagon investigator, testified at the hearing that little was done by the Justice Department to pursue leads he and his colleagues developed into the Pentagon black market.

“There has been a clear lack of any apparent serious desire by any high-level government official outside the Congress to pursue investigation and prosecution of what evidence clearly indicated could be pervasive activity which both defrauds the U.S. government, financially, and presents a serious threat to its security,” Segal said.

“Where government officials might have to take an unpopular or controversial position against large U.S. companies with financial and political clout, little serious effort is made to diligently pursue such cases,” Segal added.

Staff writer Ralph Vartabedian in Los Angeles contributed to this story.