Suit Accuses GE of Fraud Involving Israel Deals


General Electric Co. unlawfully diverted $30 million from U.S. military aid funds earmarked for Israel, according to a government-backed lawsuit made public Wednesday.

The suit, originally filed last November by longtime GE employee Chester Walsh, alleges that key GE employees based in Cincinnati, together with Israeli Air Force Brig. Gen. Rami Dotan, falsified documents to misdirect the funds.

The suit charges that some of the diverted money was given to the Israeli Air Force by a confederate of Dotan’s “to fund military projects that were not authorized” for U.S. military assistance.


Those projects are not described, however.

Under the Foreign Military Sales program, the United States gives Israel about $1.8 billion in military aid each year with the requirement that it be spent on American military equipment.

GE--the nation’s third-largest defense contractor--employed an elaborate series of schemes to defraud the U.S. government, according to the suit, in which Walsh is represented by Hall & Phillips, a Los Angeles law firm that specializes in defense fraud cases.

Among the charges are that GE, by falsifying paperwork, was paid for support equipment it never provided the Israeli Air Force. The phantom equipment included a $7-million testing device on a secret area of an Israeli Air Force base.

GE issued a statement Wednesday saying it has been cooperating with U.S. investigations into the affair since December. A spokesman said the firm is also conducting its own inquiry.

The unveiling of the lawsuit by U.S. District Judge Carl B. Rubin in Cincinnati marks the latest chapter in a case that has rocked the Israeli Air Force.

In March, Dotan admitted in an Israeli court to $12 million in illicit earnings over nearly 10 years. He pleaded guilty to bribery, accepting kickbacks, fraud and conspiring to kidnap a former Israeli Ministry of Defense official who assisted in the Israeli investigation. Dotan agreed to repay the money, was sentenced to 13 years in prison and dishonorably discharged.

At the time, Ezer Weizman, a former Israeli defense minister, said on Israeli television: “Stinking Dotan hurt the air force harder than any enemy has harmed the air force in the 42 years of Israel’s existence.”

On Wednesday, a spokesman for Defense Minister Moshe Arens said the Israeli government is cooperating with all U.S. investigations into the matter. The Israeli government is concerned that pressure could develop in Congress to cut back on military aid to the U.S.’ longtime ally on the grounds that it has failed to properly monitor the funds it receives.

The aid at issue in the case initially had been approved by the Israeli and U.S. governments for Israel’s purchase, maintenance and support of F110 aircraft engines.

The suit alleges that GE’s false billings initially were paid and approved by Israeli officials who were unaware that the claims were fraudulent. The money was withdrawn from the defense ministry’s New York bank account, which was then reimbursed by the United States, according to the suit.

After GE’s Aircraft Engines Business Group received the funds, the suit alleges, it retained a portion as “profit” and then diverted the remainder to a slush fund under Dotan’s control.

Walsh, who was manager of the GE group in Israel from 1984 to 1988, “asked repeatedly to be transferred out of Israel,” according to a statement issued by his lawyers, John R. Phillips and Mary Louise Cohen. After he obtained a transfer in 1989, he briefed GE officials about the problems but they failed to act, according to the statement.

GE spokesman George Jamison said the firm fired Herbert Steindler, manager of GE Aircraft Engines’ international military sales operation, in March. Israeli prosecutors have charged that Steindler conspired with Dotan to divert millions in U.S. aid money to personal bank accounts.

Two weeks ago, after an eight-month investigation by several U.S. agencies including the FBI, the Justice Department joined Walsh’s civil case and assumed primary responsibility for pressing it. Department officials declined comment Wednesday.

Under the treble-damage provisions of the federal False Claims Act, GE could be liable for up to $100 million in damages. The statute provides that persons who are aware that the government has been defrauded may file suit on behalf of the United States and are entitled to share in any funds recovered.

Times staff writer Daniel Williams in Jerusalem contributed to this story.