A congressional panel investigating whether $7.75 million that was paid to South Koreans by Northrop in the mid-1980s was intended or used for political payoffs has subpoenaed company Chairman Thomas V. Jones, along with two former executives and five other company directors.
The subpoenas require the officers and directors to appear for a hearing March 16 before the House Energy and Commerce Committee’s subcommittee on oversight and investigations. The subcommittee authorized the subpoenas during a secret session last month, sources on the panel’s staff said.
Northrop is under investigation for payments it made to at least three organizations controlled by the late Korean political operator Park Chong Kyu as part of its effort to sell its F-20 jet fighter to the South Korean air force.
The biggest part of the payments, $6.25 million, was ostensibly paid by Northrop to build a hotel in Seoul, but a former Northrop consultant has alleged that the payments were part of a lobbying and sales promotion fund.
Northrop has claimed that the payments were legitimate and that the firm was defrauded. It has filed civil suits in the United States and South Korea, including one against the consultant, in an attempt to recover the money. The hotel was never built, and the money is unaccounted for.
Northrop’s payment in the Seoul hotel deal ostensibly was intended by the company as a way to help South Korea finance the purchase of the F-20 jet fighters. Ultimately, Northrop invested $1.2 billion into developing the F-20 but failed to sell any planes. It discontinued the program in late 1986.
As part of a criminal investigation into Northrop’s South Korean payments, a federal grand jury in Los Angeles has also issued subpoenas to Jones and other Northrop executives demanding documents relating to the investments.
The Justice Department is investigating whether the payments by Northrop violated the U.S. Foreign Corrupt Practices Act. The Internal Revenue Service is also looking into whether some of the money might have been kicked back to Northrop officials and, if so, whether the officials failed to report the income.
In addition to Jones, the House subcommittee, chaired by Rep. John D. Dingell (D-Mich.), subpoenaed former Executive Vice President Welko E. Gasich and Frank W. Lynch, who retired last year as a corporate officer but remains vice chairman of Northrop’s board.
Subpoenas were also served on the entire executive committee of Northrop’s board: O. Meredith Wilson, William F. Ballhaus, Ivan A. Getting, Tom Killefer and Robert L. J. Long. The committee was set up to monitor compliance with a Securities and Exchange Commission consent decree signed by Northrop after the company was found to have made controversial foreign payments in the mid-1970s.
The subpoenas to the directors also demand that they show the congressional subcommittee a report on an internal investigation conducted for the executive committee of the board by the Cleveland-based law firm of Jones, Day, Reavis & Pogue.
A Northrop spokesman said he was unaware of the subpoenas and did not have any comment.
Wouldn’t Assure Panel
At a hearing last September, Wilson refused to produce the investigative report, claiming that it was protected by attorney-client privilege.
At the hearing, Wilson declined to assure the subcommittee that the payments to South Koreans were never intended or used for lobbying or political payoffs. He said it would be “imprudent to assure that under oath” and that the board was still investigating the matter.
If Wilson and the other board members again refuse to produce the investigative report, the subcommittee is expected to seek a contempt of Congress citation, members of the panel’s staff said.
“We think we have a solid case for contempt, and we will move forward with it,” subcommittee chief counsel Michael F. Barrett said.
The subcommittee has also voted to authorize a subpoena for documents held by Touche Ross & Co., Northrop’s external auditing firm. The subpoena has not yet been issued.