From: Nigel.Allen@lambada.oit.unc.edu
Subject: General Electric Pleads Guilty In Defense Fraud Case
Organization: NCR Corporation - Law Department
Date: Sun, 26 Jul 1992 17:57:45 GMT


From Nigel.Allen@lambada.oit.unc.edu

Press release from U.S. Department of Justice

 General Electric Pleads Guilty In Defense Fraud Case 
 To: National Desk 
 Contact: U.S. Department of Justice, Press Office, 202-514-2007 
 
   CINCINNATI, July 22 /U.S. Newswire/ -- The Department of Justice 
today announced that the General Electric Co. has pleaded guilty to 
charges of defrauding the federal government of $26.5 million in the 
sale of military equipment to Israel. 
   The department said that General Electric at the same time had 
agreed to pay $69 million in fines, penalties, and damages for 
committing the offenses. 
   United States Attorney D. Michael Crites of the Southern District 
of Ohio said General Electric's guilty plea involved funds diverted 
from the U.S.-financed F-16 jet engine program with the Israeli Air 
Force from 1984 to 1990. 
   Crites said General Electric pleaded guilty to offenses that 
included diversion of millions of dollars to former Israeli Air Force 
(IAF) brigadier general Rami Dotan to influence Dotan to assist 
General Electric in securing favorable treatment in connection with 
the F-16 program contracts.  Funds were also diverted for other 
projects and for the personal benefit of the then manager of 
international government sales for General Electric Aircraft Engines. 
Dotan and the sales manager were longstanding friends, and Dotan was 
General Electric's principal contact with the IAF.  Tn 1984, when the 
conspiracy began, Dotan was in charge of the IAF's Propulsion Branch, 
and became IAF Quartermaster General.  He was arrested by the Israeli 
police, court martialed, and sentenced in 1991 by an Israeli military 
tribunal to 13 years imprisonment. 
   General Electric pleaded guilty to a four-count information 
charging: conspiracy to defraud the United States and to commit 
offenses against the United States (Title 18, United States Code, 
Section 371); violation of the Foreign Corrupt Practices Act of 1977, 
by failure to make and keep accurate books and records (Title 15, 
United States Code, Sections 78m(b)(2)(A) and 78ff(a)); false claims 
against the United States (Title 18, United States Code, Section 
287); and engaging in monetary transactions in criminally derived 
property, in violation of the Money Laundering Control Act of 1986 
(Title 18, United States Code, Section 1957).  It was the first time 
a defense contractor had been charged with money laundering. 
Pursuant to the plea agreement filed today, General Electric paid a 
criminal fine of $9.5 million. 
   The information said General Electric, Dotan, and others conspired 
to create false billings for fictitious IAF projects in order to 
divert funds to their own personal use and to unapproved IAF 
projects.  The false billings were submitted under contracts financed 
by a U.S. government program that provides financial aid to certain 
foreign countries to purchase products and services for military 
uses. 
   The diversions were effected in part by covertly siphoning funds 
from U.S. government-funded projects subcontracted to Ingbir 
Engineering and Maintenance Co. of Tel Aviv, Israel, in which Dotan 
had a secret financial interest, the information said.  At Dotan's 
direction, Ingbir Engineering was selected for all subcontract work 
in Israel on a jet engine support contract Israel had awarded to 
General Electric. 
   From 1984 through 1990, General Electric regularly made payments 
to a New Jersey corporation purporting to act as Ingbir Engineering's 
U.S. agent, the information said.  That corporation transmitted 
approximately $23.8 million to Ingbir Engineering, and approximately 
$3.7 million was withheld as a secret fee, the information said. 
This fee was actually a device for diverting funds for the benefit of 
Dotan and the GE sales manager, and most of these funds were 
transferred to a network of European bank accounts controlled by 
Dotan and the sales manager, the information said. 
   Diversions were also effected through a scheme whereby, in 1989 
and 1990, General Electric paid a total of approximately 
$7.875 million to supposedly finance flight tests of a jet engine 
model sold under a U.S. government-funded contract between General 
Electric and Israel.  Approximately $7;425,000 was transmitted to the 
network of European bank accounts controlled by Dotan and the GE 
sales manager. 
   General Electric employees created false documentation attesting 
that the payments to the agent's corporation represented funding for 
flight tests.  General Electric also implemented a plan to recover 
the cost of these payments from sales of the engines.  This cost and 
the plan to recover it through the engine sales were not disclosed to 
Israel or the U.S. government, which provided funding for the engine 
procurement. 
   In addition, the information said, funding for unapproved uses was 
generated through the following schemes involving fictitious 
projects, sold under a U.S. government-funded contract: 
   A. General Electric purportedly sold to Israel two jet engine data 
collection devices called portable test units, but no such units were 
designed or manufactured.  Instead, in 1984, 1985 and 1987, General 
Electric remitted approximately $1,561,960 for uses by Dotan and 
others not authorized for U.S. government funding, and retained the 
balance of the approximately $4 million collected from Israel. 
   B. General Electric purportedly sold to Israel a jet engine test 
facility called an enclosed jet engine test cell and a collection of 
equipment for this facility referred to as the test cell measurement 
kit, but neither was ever built or delivered.  Israel paid General 
Electric approximately $6.85 million for the non-existent enclosed 
test cell, and, in 1988 and 1990, General Electric remitted to 
Ingbir's purported agent approximately $2.35 million for undisclosed 
and unapproved uses.  Israel also paid General Electric approximately 
$614,450.55 for the non-existent test cell measurement kit. 
   C. General Electric purportedly sold to Israel kits to retrofit 
jet engine test cells so that they would be compatible with an 
additional configuration of the F110-GE-100 jet engine, but no such 
kits were ever built or delivered.  General Electric nevertheless 
billed and collected from Israel approximately $3,996,500 for the 
sale of the non-existent kits, in 1988 and 1989.  This scheme was 
devised to generate funding for the development of the F110-GE-100A 
jet engine.  At the time, General Electric planned to sell this 
engine to Israel pursuant to a contract that had not yet been 
awarded.  This use of funds was neither disclosed to nor approved by 
Israel or the U.S. government which funded the contract under which 
the kits were purchased. 
   In the course of these diversion schemes, General Electric 
violated part of the Money Laundering Control Act, which prohibits a 
person from engaging in any monetary transaction over $10,000 if that 
person knows the funds involved are derived from a criminal offense 
and if the funds are derived from any of a number of crimes specified 
in the statute.  The listed crimes include wire fraud. 
   All of the fraudulent schemes charged in the pleadings involved 
violations of the accounting provisions of the Foreign Corrupt 
Practices Act of 1977 (FCPA).  The FCPA, among other things, requires 
every company which issues stock to the public to make and keep 
books, records, and accounts, which, in reasonable detail, accurately 
and fairly reflect the transactions and dispositions of the assets of 
the company. 
   The investigation was conducted by the Department of Justice 
Criminal Division (the Money Laundering section and Fraud Section), 
the United States Attorney for the Southern District of Ohio, the 
Department of Justice Civil Division (the Commercial Litigation 
Branch), the Federal Bureau of Investigation, the Defense Criminal 
Investigative Service, the Internal Revenue Service Criminal 
Investigation Division, and the Defense Contract Audit Agency. 
   The guilty plea was entered into in conjunction with General 
Electric's agreement to settle civil claims in United States ex. 
rel. Taxpayers Against Fraud, a nonprofit-corporation, and Chester 
L. Walsh vs. General Electric Co., a New York corporation, Civil 
Action No: C-1-90-792 (U.S.D.C. S.D. OH).  To settle the civil 
action, General Electric has agreed to pay $59.5 million in civil 
penalties and damages. 
   The statement of facts filed with the court said that General 
Electric provided substantial cooperation in the investigation. 
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