GE Pleads Guilty to Fraud in Arms Deal : Defense: The company will pay a $69-million penalty in the sale of jet engines to Israel.


General Electric Co. pleaded guilty to criminal fraud charges and agreed to pay $69 million in criminal and civil penalties Wednesday in a massive fraud and bribery scandal involving the sale of military jet engines to Israel.

In a federal court in Cincinnati, GE agreed to reimburse the U.S. Treasury $59.5 million to resolve a civil fraud suit, making it the largest settlement of a whistle-blower-initiated government fraud lawsuit in U.S. history. The company also agreed to a $9.5-million criminal fine, according to Allen K. Tolen, special agent in charge of the FBI's Cincinnati office.

The announcement marked the latest chapter in a case that has rocked the Israeli air force--and is still not concluded. Tolen said the FBI investigation is ongoing. It is anticipated that individuals, including some GE employees involved in the scandal, will be indicted.

U.S. District Judge Carl B. Rubin approved the settlement, in which GE admitted diverting $40 million in U.S. military aid intended for Israel.

Federal prosecutors said it was the largest case of fraud yet under a U.S. government program that finances sales of American-manufactured military equipment to foreign governments.

The Justice Department said it had recovered $6 million of the diverted funds from secret foreign bank accounts, bringing the total recovery to $75 million.

Brian Rowe, senior vice president of GE's aircraft engines unit, appeared in Cincinnati federal court to enter the company's guilty plea on charges of conspiracy to defraud the U.S. government, money laundering, submitting false claims and failing to make and keep accurate records. It was the first time a defense contractor had been charged with money laundering, according to the Justice Department.

Wednesday's developments stemmed from a suit filed in November, 1990, by Chester Walsh, a longtime GE employee. He used the federal False Claims Act, which allows an individual with knowledge of wrongdoing against the government, to sue on behalf of the United States.

GE, the nation's third-largest defense contractor, employed an elaborate series of schemes to defraud the government, according to the suit filed by Los Angeles lawyers John R. Phillips and Mary Louise Cohen.

Specifically, the suit alleged that key GE aircraft engines division employees in Cincinnati, together with Israeli air force Brig. Gen. Rami Dotan, falsified documents to misdirect $40 million in U.S. military aid to Israel that had been intended for the purchase, maintenance and support of the F110 engine used in the F-16 fighter aircraft. The false documents allowed GE to garner considerable profit on work never performed, according to Phillips.

In March, 1991, 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 of the scandal.

In August, 1991, following an eight-month investigation precipitated by the filing of Walsh's suit under seal, the Justice Department joined the case and made it public.

Judge Rubin will conduct a separate hearing to determine how much of the money that GE is returning to the government will be awarded to Walsh. The False Claims Act states that whistle-blowers are entitled to between 15% and 25% of any money recovered. He could get up to $14.8 million.

The FBI's Tolen praised Walsh, who has been on administrative leave from GE since 1991 and is retiring from the company August 1, as "a former GE manager who blew the whistle on the scam which gave rise to the agreements announced today." But Assistant Atty. Gen. Stuart Gerson, who heads the Justice Department's civil division and is a critic of the False Claims law, said he opposes Walsh's receiving a full recovery.

He said government losses in the scandal mounted by $27 million between the time Walsh consulted his lawyers and the date that he sued.

"These comments reflect nothing more than Gerson's repeated opposition to the statute's provision of rewards for whistle-blowers," Phillips replied. "In two cases filed by our clients in the last two weeks, the government has recovered $130 million. Instead of applauding, they make disparaging comments about the whistle-blower. They ought to be encouraging whistle-blowers to step forward."

Copyright © 2019, Los Angeles Times
EDITION: California | U.S. & World