September 9, 2011 / 10:26 PM / 8 years ago

FBI eyes possible corruption in aerospace

WASHINGTON (Reuters) - U.S. law enforcement officials are tracking possible bribery and corruption issues involving the global aerospace industry and foreign state-owned airlines, according to legal and government sources.

According to a document obtained by Reuters, the FBI briefed other government agencies in June about a project focused on possible corruption associated with sales and maintenance contracts between aerospace companies and state-owned airlines.

While the aerospace industry has long been subject to such scrutiny, the new initiative focuses on sales and maintenance contracts on the commercial side, not in defense.

Aerospace companies have been seeking guidance on anti-corruption issues in recent months, according to a consultant.

The FBI briefing was part of a broader overview by the Federal Bureau of Investigation of its stepped-up enforcement of U.S. anti-corruption laws — a move that has dramatically fueled corporate demand for compliance programs and attorneys specializing in anti-bribery practice.

It was not immediately clear what triggered the FBI’s fresh focus on aerospace, but legal experts said sectorwide investigations may stem from self-disclosure of problems at one specific company or reports from whistleblowers. A new U.S. law that took effect July 1 makes whistleblowers eligible for big cash rewards for tips about bribery or corruption.

Recent cases involving defense companies may have also spurred investigators to look at similar issues involving commercial aerospace deals, particularly given increased efforts by U.S. companies to offset declining domestic work with more deals in the Middle East and Asia, where corruption has been rampant.

Officials at the Justice Department, FBI and Securities and Exchange Commission declined to comment on ongoing investigations, but one former senior Justice Department official and one current law enforcement official confirmed that the aerospace industry was an area of perennial interest.

“The aerospace industry has always been something that’s been on the radar screen,” said the former senior official, who was not authorized to speak on the record.

In early 2010, Britain’s giant defense contractor BAE Systems (BAES.L) agreed to plead guilty to two criminal charges and pay more than $400 million in penalties to settle a long-running Justice Department investigation into big payments made to win huge contracts in Saudi Arabia and eastern Europe.

One management consultant who advises U.S. companies on compliance issues said big firms like BAE, Boeing Co (BA.N) and Lockheed Martin Corp (LMT.N) had extensive compliance and anti-corruption programs, but many second-tier companies could run into trouble when bidding for deals overseas.

FBI, SEC TAKING MORE PROACTIVE APPROACH

Fresh attention to the aerospace industry comes amid sharp increases in enforcement of the Foreign Corrupt Practices Act (FCPA) by the FBI and the SEC.

Both agencies have adopted a more proactive approach that examines whole industries including the pharmaceutical sector, medical devices and even financial services, according to lawyers working on such issues.

The FBI’s decision to tell other agencies about its interest in aerospace means it may soon ask a range of companies to provide documents about their compliance programs for any possible violations, experts said.

Industry executives told the Reuters Aerospace and Defense Summit in Washington this week that compliance with U.S. and international anti-bribery laws remains a big priority for an industry that has seen its share of violations over the years.

Robert Stevens, chief executive of Lockheed Martin Corp (LMT.N), said each of the company’s 126,000 employees, and every member of the company’s board of directors, received in-depth ethics training once a year.

“We can afford to lose a program ... we can’t afford to lose our reputation,” Stevens said, underscoring the long-lasting impact or “half-life of an ethical violation.”

“We make it clear ... (that) one employee can destroy for years the reputations of 100,000-plus employees,” he said.

The FCPA was enacted in 1977 partly because a Senate investigation showed that Lockheed had paid $22 million in bribes to members of friendly governments to guarantee contracts for military aircraft, including the F-104 Starfighter.

David Hess, chief executive of Pratt & Whitney, a unit of United Technologies Corp (UTX.N), said increased enforcement had reenergized his company’s long-standing ethics program.

Harry Clark, a partner with Dewey & LeBoeuf LLP, said the U.S. government was clearly bringing more cases, and investigators were using aggressive techniques such undercover agents, wiretapping and long-term surveillance.

Complex computer models and forensic investigations of accounting records have also proven useful in finding evidence of corruption, often involving unusual payments to third parties, according to legal experts.

One federal investigator, who was not authorized to speak publicly, said companies like Boeing were trying to stay ahead of the curve. “Boeing recently sent a bunch of security managers overseas to make sure that things are being done properly,” he said.

Reporting by Andrea Shalal-Esa; additional reporting by Sarah N. Lynch

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