United Tech Tied to Aid Diversions : Defense: The contractor allegedly helped siphon $70 million to Israeli general. The firm responds to charges today.
United Technologies was deeply involved in an Israeli general’s scheme to divert millions of dollars of U.S. military aid through the use of bogus subcontracts between 1986 and 1991, according to a General Accounting Office report released Tuesday.
But United Technologies Chairman Robert F. Daniell was expected to tell a congressional hearing today that the firm did not realize it was being duped by Israeli Air Force Gen. Rami Dotan and Ben Sonnenschein, an American businessman.
The GAO report was made public by the House Energy and Commerce Committee, which is conducting the hearing.
General Electric Co. and United Technologies were among the U.S. companies named as having helped Dotan and Sonnenschein misuse $70 million in military aid provided to Israel under the Camp David peace accord, according to committee officials. Each year, Israel receives $1.8 billion in military assistance.
GE pleaded guilty to civil and criminal charges in the case last year and agreed to pay a record $69-million penalty. United Technologies’ Pratt & Whitney subsidiary is under Justice Department investigation and has been served with federal grand jury subpoenas, according to committee staff members.
National Airmotive Corp., an Oakland-based contractor, in July pleaded guilty to 31 felony counts and paid $3 million in fines for its involvement in diverting the security assistance funds.
National Airmotive shipped scrap helicopter engine parts to Israel, then diverted some of the money it received to Dotan’s organization.
It also allowed the Israeli Air Force to buy parts not authorized by higher-level Israeli defense officials, the committee’s investigation found.
National Airmotive Chairman Gerry Roberts was scheduled to testify at today’s hearing.
In the wake of the scandal, the Pentagon’s Defense Security Assistance Agency has delayed the signing of this year’s $1.8-billion grant agreement with Israel, according to congressional investigators.
The delay resulted from Israel’s refusal to allow the Justice Department to interview Dotan, who is serving a prison term in connection with the contracting fraud.
The Defense Security agency has wanted to eliminate direct sales between U.S. companies and Israel--the area in which most of the abuses have occurred--but has been stopped in Congress.
In a prepared statement, Daniell said, “Our inquiry found that no Pratt & Whitney employee deliberately or knowingly violated company policies or government regulations.”
But Daniell went on to say that neither the company’s nor the Defense Department’s procedures were adequate to deal with the problems raised by the Israeli contracts.
A United Technologies spokesman Tuesday said the company would not comment on the matter beyond Daniell’s statement.
Daniell said his company’s internal investigation found that Dotan had directed Pratt & Whitney to award $5.5 million in subcontracts to two firms he controlled and that the money subsequently was channeled into European bank accounts.
Dotan, who was chief procurement official for the Israeli Air Force, ordered Pratt officials to award subcontracts for jet engine software to Yrretco and Air Tech, two small firms owned by Sonnenschein, the GAO found.
Pratt then shipped the software to Israel without inspecting it, the GAO found, and in return received a 45% markup fee. Yrretco and Air Tech took their profits from the padded subcontracts and transferred them to Yoram Ingbir, Sonnenschein’s relative and a close associate of Dotan, the GAO said.
The GAO investigation found that $12 million of U.S. funds flowing through Pratt were diverted and that the firm’s practices seemed to be highly questionable. The GAO said Pratt paid Sonnenschein’s companies $6.5 million, though the two companies performed work worth only $600,000.
Sonnenschein pleaded guilty in federal court last year to currency and income tax violations related to his part in the diversion. In a plea agreement, he admitted making diversions to Ingbir. He also returned $2.8 million in excess profit to the U.S. government.
What became of the rest of the money is not clear, the GAO said, but the committee has previously raised the possibility that Dotan siphoned off some of it for his personal use.
