Raytheon (which changed its name to RTX in 2003) has been under Foreign Corrupt Practices Act (and related) scrutiny for several years.
As highlighted in this prior post, in late July 2024 the company disclosed that it would be resolving (among other things) an FCPA matter and that settlement would include a DOJ deferred prosecution agreement (with an independent compliance monitor requirement) and an SEC order.
Today, the DOJ and SEC announced resolution of the matter. Resolution involved various prongs including the False Claims Act, the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations.
This post summarizes the net $361.2 FCPA enforcement action (net $259.7 million DOJ FCPA enforcement action and a net $101.5 million SEC FCPA enforcement action).
DOJ
The FCPA enforcement action involved a criminal information charging conspiracy to violate the FCPA’s anti-bribery provisions and conspiracy to violate the AECA.
Under the heading “Bribery Scheme” the information alleges:
“Between in or around 2012 and in or around 2016, RAYTHEON, through certain of its employees and agents, knowingly and willfully conspired and agreed with others to corruptly offer and pay bribes to, and for the benefit of, Foreign Official 1 to secure improper advantages in order to assist RAYTHEON in obtaining and retaining business from the QEAF [The Qatar Emiri Air Force] and QAF [Qatar
Armed Forces] including (1) four supplemental additions to a 1998 contract between RAYTHEON and the GCC [The Cooperation Council for the Arab States of the Gulf, also known as the Gulf Cooperation Council an intergovernmental union of six member states: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates], and (2) a sole-source contract to build a joint operations center (“JOC”) that would interface with Qatar’s several military branches.”
Foreign Official 1 is described as “a citizen of Qatar who served as a high-level official at the QEAF from at least approximately 2009 through approximately June 2016.”
According to the information:
“Before the start of the conspiracy, a company later acquired by RAYTHEON and the six countries comprising the GCC, which included Qatar, entered into a contract to upgrade the GCC countries’ air defense systems (the “GCC Contract”). In or around and between 2012 and 2013, the parties entered into four supplemental contracts to the GCC Contract called “additions,” two of which pertained to Qatar alone (hereinafter, “First Qatar Addition” and “Second Qatar Addition”). Foreign Official 1 was the country leader for Qatar on the GCC Contract and Qatar’s signatory on all four additions. Foreign Official 1 was instrumental in securing QEAF approval for the additions and helping RAYTHEON secure payments from the GCC on the additions.
“In order to secure the additions and to obtain other improper advantages, RAYTHEON bribed Foreign Official 1 by entering into sham subcontracts with Qatari Company [a consulting and information technology services company established in Qatar in or around May 2012. Qatari Company had two wholly-owned subsidiaries also established in Qatar: Qatari Sub 1 … was a defense and security consultancy firm formed in or around July 2012, and Qatari Sub … was a cybersecurity company formed in or around January 2014. Qatari Company, Qatari Sub 1 and Qatari Sub 2 (together, the “Qatari Entities”) were used to receive, conceal and distribute bribe payments from and on behalf of RAYTHEON for the benefit of Foreign Official 1] and Qatari Sub 2, purportedly for the provision of three air defense operations-related studies per contract. The studies were added to the First Qatar Addition and Second Qatar Addition scope of work at Foreign Official 1’s direction. RAYTHEON paid Qatari Company and Qatari Sub 2 nearly $2 million for the studies despite knowing that the Qatari Entities did not perform any work on or incur any cost for the studies. Instead, Raytheon Employee 4 prepared the studies for Qatari Company and Qatari Sub 2 to pass off as their own. The payments to Qatari Company and Qatari Sub 2 for the studies were intended, in whole or in part, as bribes for the benefit of Foreign Official 1.”
According to the information:
“Raytheon Employee 3 [a U.S. citizen] helped Qatari Company and Qatari Sub 1 pass RAYTHEON’s due diligence process —a prerequisite to receiving the sham studies subcontract— by coaching Individual 1 [a citizen of the United States and other countries and an officer and shareholder of the Qatari Entities] on what information to provide to RAYTHEON about the companies’ leadership and capabilities. With the knowledge of Raytheon Employee 3, Individual 1 submitted due diligence forms to RAYTHEON that falsely failed to disclose Foreign Official 1’s involvement or ownership stake in Qatari Company and Qatari Sub 1 and overstated the companies’ experience and capabilities.
After Qatari Company and Qatari Sub 1 completed RAYTHEON’s due diligence process in or around August 2013, Raytheon Employees 3 and 4 [a U.S. citizen] helped Qatari Company secure the subcontract for the studies, including by using personal email accounts to help draft its proposal to RAYTHEON and by assisting Qatari Company in its pricing negotiations with RAYTHEON.”
The information further alleges:
“RAYTHEON also offered an additional bribe to Foreign Official 1 in connection with its attempt to win a potential sole source contract from QAF to build the JOC (the “JOC Contract”).
In or around 2013, QAF established a committee to oversee the potential JOC project. Foreign Official 1 was an advisor to the committee and had a close relationship with one of the Qatari officials leading the committee. At around the same time, Foreign Official 1 became responsible for procurement and logistics at the QEAF, which allowed Foreign Official 1 to have more influence over the award of defense contracts, including the JOC Contract.
In or around February 2016, RAYTHEON entered into a teaming agreement with Qatari Sub 2 in order to corruptly obtain Foreign Official 1’s assistance with the JOC Contract, including obtaining Foreign Official 1’s assistance in directly awarding the JOC Contract to RAYTHEON without a competitive bid.
Pursuant to the teaming agreement, RAYTHEON agreed to subcontract a portion of the work associated with the JOC Contract to Qatari Sub 2. RAYTHEON entered into the teaming agreement despite knowing that Qatari Sub 2 lacked sufficient capabilities to complete the work on the JOC Contract set forth in the agreement and with the intent that at least a portion of what would be paid to Qatari Sub 2 would be funneled as bribes to Foreign Official 1.
Although the Qatari government ultimately did not go forward with the JOC Contract, RAYTHEON’s anticipated revenue on the potential contract was approximately $510 million, and its anticipated profit was approximately $72.6 million.”
The criminal charges were resolved through a three year deferred prosecution agreement. The DPA sets forth the following relevant considerations.
a. the nature and seriousness of the offense conduct … including the Company’s participation in a bribery scheme to obtain defense contracts from the government of Qatar;
b. the Company did not receive voluntary disclosure credit pursuant to the Criminal Division’s Corporate Enforcement and Voluntary Self-Disclosure Policy … because it did not voluntarily and timely disclose to the Offices the conduct …;
c. the Company received credit for its cooperation with the Offices’ investigation … because it cooperated with the investigation and demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct; the Company also received credit for its cooperation and remediation pursuant to the Criminal Division’s Corporate Enforcement and Voluntary Self-Disclosure Policy. The Company’s cooperation included, among other things, (i) providing information obtained through its internal investigation, which allowed the government to preserve and obtain evidence as part of its own independent investigation; (ii) facilitating interviews with current and former employees; (iii) making detailed factual presentations to the Offices; (iv) proactively disclosing certain evidence of which the Offices were previously unaware and identifying key documents in materials produced by the Company; and (v) engaging experts to conduct financial analyses. However, in the initial phases of the investigation, prior to in or around 2022, the Company was at times slow to respond to the Offices’ requests and failed to provide relevant information in its possession; for example, the Company withheld relevant, material information from the government and gave incomplete and misleading presentations regarding the nature and scope of a relevant third-party intermediary relationship;
d. the Company and RTX provided to the Offices all relevant facts known to them, including information about all individuals involved in the conduct … and conduct disclosed to the Offices prior to the Agreement;
e. the Company also received credit pursuant to the Criminal Division’s Corporate Enforcement and Voluntary Self-Disclosure Policy because the Company and RTX engaged in timely remedial measures, including: (i) recalibrating third party review and approval processes to lower Company risk tolerance; (ii) implementing enhanced controls over sales intermediary payments; (iii) hiring empowered subject matter experts to oversee its anti-corruption compliance program and third party management; (iv) implementing data analytics to improve third party monitoring; and (v) developing a multipronged communications strategy to enhance ethics and compliance training and communications;
f. the Company and RTX have enhanced and have committed to continuing to enhance the Company’s compliance program and internal controls, including ensuring that the Company’s compliance program satisfies the minimum elements set forth in Attachment C to this Agreement (Corporate Compliance Program);
g. because certain of the Company’s compliance enhancements are new and have not been fully implemented or tested to demonstrate that they would prevent and detect similar misconduct in the future, and because certain key elements of the Company’s compliance program are still in development, the Offices have determined that the imposition of a Monitor is necessary to reduce the risk of recurrence of misconduct …;
h. the Company has no prior criminal history;
i. the Company has been the subject of three prior civil or regulatory enforcement actions, including: (i) a 2013 consent agreement with the U.S. State Department concerning civil ITAR and Arms Export Control Act violations, in connection to which the Company agreed to hire an independent special compliance officer to oversee the four-year consent decree, while at the same time engaging in the conduct described in the Statement of Facts; (ii) a civil settlement with the Environmental Protection Agency in 2007 concerning payments to clean up contamination sites; and (iii) a resolution with the U.S. Securities and Exchange Commission (“SEC”) in 2006 concerning false and misleading disclosures and improper accounting practices;
j. the Company is resolving concurrently through a Deferred Prosecution Agreement a separate investigation by the Fraud Section’s Market Integrity and Major Frauds Unit and the U.S. Attorney’s Office for the District of Massachusetts concerning procurement fraud and a related separate investigation by the U.S. Department of Justice, Civil Division, Fraud Section (“DOJ Civil”) and the U.S. Attorney’s Office for the District of Massachusetts;
k. the Company’s agreement to concurrently resolve an investigation by the SEC relating to the conduct described in the Statement of Facts and agreement to pay a $75,000,000 civil penalty with an offset of $22,500,000 based on the criminal penalty in this matter, $37,400,090 in disgorgement, and prejudgment interest in connection with the SEC matter; and
l. the Company and RTX have agreed to continue to cooperate with the Offices in any ongoing investigation …;
The DPA sets forth an advisory Sentencing Guidelines criminal penalty range of $240 – $480 million and states:
“The Offices and the Company agree, based on the application of the Sentencing Guidelines to the FCPA-related conduct, that the appropriate criminal penalty for the FCPA-related conduct is $230,400,000 (“FCPA Criminal Penalty”). This reflects a 20 percent discount off the 20th percentile of the Sentencing Guidelines fine range.”
As stated in the DOJ release:
“Under the terms of the DPA, Raytheon will pay a criminal monetary penalty of $230.4 million, pay forfeiture of $36,696,068, and retain an independent compliance monitor for three years. In addition, as part of the resolution of the SEC’s parallel investigation, Raytheon will pay approximately $49.1 million in disgorgement and prejudgment interest and a civil penalty of $75 million ($22.5 million of which will be credited against the criminal monetary penalty). The Justice Department has agreed to credit approximately $7.4 million of the disgorgement Raytheon pays to the SEC against the criminal forfeiture.”
In the DOJ release, Deputy Assistant Attorney General Kevin Driscoll of the Justice Department’s Criminal Division.
“Raytheon engaged in criminal schemes to defraud the U.S. government in connection with contracts for critical military systems and to win business through bribery in Qatar. Such corrupt and fraudulent conduct, especially by a publicly traded U.S. defense contractor, erodes public trust and harms the DOD, businesses that play by the rules, and American taxpayers.”
U.S. Attorney Breon Peace for the Eastern District of New York stated:
“Over the course of several years, Raytheon employees bribed a high-level Qatari military official to obtain lucrative defense contracts and concealed the bribe payments by falsifying documents to the government, in violation of laws including those designed to protect our national security. We will continue to pursue justice against corruption, and as this agreement establishes, enforce meaningful consequences, reforms and monitorship to ensure this misconduct is not repeated.”
SEC
The SEC enforcement action is based on the same core conduct alleged in the DOJ FCPA enforcement action.
This SEC administrative order states in summary fashion:
This matter concerns violations of the anti-bribery, books and records, and internal accounting controls provisions of the Foreign Corrupt Practices Act of 1977 (the “FCPA”) by RTX Corporation, formed after a merger and name change involving Raytheon Company and Raytheon Technologies Corp. (collectively “Raytheon”). Raytheon Company was a Massachusetts-headquartered company that provided aerospace and defense systems for military, and government customers worldwide. From approximately 2011 through 2017, Raytheon Company paid bribes of nearly $2 million to Qatari military and other foreign officials through sham subcontracts with a supplier to obtain Qatari military defense contracts. From the early 2000s into 2020, it paid over $30 million to a Qatari agent who was a relative of the Qatari Emir and a member of the Council of the Ruling Family, in connection with additional defense contracts, under circumstances that created a significant anticorruption risk, leading to inaccurate records, and a wholesale breakdown of the company’s due diligence process and internal accounting controls at Raytheon Company and later Raytheon Technologies. The agent, who had no prior background in military defense contracting and provided very little support for work performed, was allowed to operate in a covert manner, and activity reports were ghost-written by a Raytheon employee until 2022.
Raytheon lacked adequate internal accounting controls related to its payments to agents and suppliers, and their books and records failed to accurately reflect, or contain reasonable detail supporting, such payments. Raytheon Company employees and agents utilized the means and instrumentalities of U.S. interstate commerce in furtherance of the bribe scheme, including bribes paid in U.S. dollars, communications occurring in the U.S. and through U.S. email accounts. As a result of this misconduct, Raytheon was unjustly enriched by approximately $37 million.
Under the heading “Qatari Third-Party Agent Background,” the order states:
“Raytheon had long sought to win military defense contracts in Qatar. However, the process was challenging, given the Qatari military procurement process was opaque. When Raytheon retained Qatari Agent as its representative in Qatar, his royal ties and lack of military defense contracting experience were known. Despite due diligence that revealed red flags of heightened corruption risks, Qatari Agent was engaged on a success fee basis through his Company. Over time, Raytheon personnel learned of additional red flags associated with Qatari Agent that Raytheon failed to address. As one compliance employee stated regarding Qatari Agent, “We have always had some ‘red flags’ that we basically accepted to live with.”
The success-fee arrangement provided for vague services, and Qatari Agent’s primary obligation was to exercise “best efforts” to help Raytheon establish relationships and good will with the Qatari military. Qatari Agent was not willing or able to assist Raytheon personnel with the few substantive tasks that were itemized in the agreements. Neither the agreements nor Raytheon’s policies required Qatari Agent to submit invoices in order to get paid; rather, the award of a contract to Raytheon and the receipt of payments from Qatar triggered Raytheon’s payment of commissions to Qatari Agent. Until at least 2019, Raytheon did not require the Qatari Agent to report its activities on behalf of Raytheon as a condition for payment, and thus Raytheon did not know what Qatari Agent did as its representative in Qatar to help Raytheon win billions in military contracts, or what he did with the millions paid to him. While numerous Raytheon employees raised concerns regarding red flags of high corruption risk, they were overruled by management, who allowed the contracts with Qatari Agent to be extended.
Raytheon employees believed that the Qatari Agent was able to represent Raytheon only as a result of an exception granted by the Emir to a prohibition on companies using sales representatives to assist them in military procurements. No efforts were made by Raytheon to determine whether Qatari Agent engaged in corruption to obtain the exception. Raytheon also simply referred to Qatari Agent in some agreements as a “service provider” instead of representative, but the substance of the relationship did not change.”
Based on the above, the SEC found that Raytheon violated the FCPA’s:
- anti-bribery provisions (“Raytheon Company engaged in the sham supplier scheme to make improper payments to foreign officials to obtain and retain Qatari military defense contracts”);
- books and records provisions (“Raytheon’s books and records inaccurately characterized payments to supplier subcontractors in Qatar that included portions intended for bribes as legitimate business expenses, and it lacked sufficient detail and support to record payments to the supplier subcontractors, and to the third-party agent, as legitimate commissions, and business expenses”), and
- internal controls provisions (, Raytheon failed to implement a system of internal accounting controls sufficient to provide reasonable assurances that access to assets was permitted, and transactions were executed, only in accordance with management’s general or specific authorization. Specifically, Raytheon had insufficient internal accounting controls over vendor management and accounts payable to provide reasonable assurances that Raytheon was adhering to Raytheon’s anti-corruption policy and procedures before paying suppliers and agents, lacked sufficient internal accounting controls over the payments, and failed to address repeated financial controls deficiencies surrounding intermediaries.”).
To resolve the matter, RTX agreed to pay net $101.5 million (disgorgement of $37,400,090, prejudgment interest of $11,786,208, and a civil monetary penalty of $75 million) and the order states that the company “shall receive a civil penalty offset of $22,500,000 based on its payment to the DOJ.”
As a condition of settlement, the SEC also required Raytheon to retain an independent compliance monitor for three years.
Under the heading “Cooperation and Remediation,” the order states:
“After a period of uncooperativeness and following the merger, Raytheon provided significant cooperation under new management, who also hired new outside counsel. New management undertook an internal investigation of the Qatari Agent conduct and reexamined prior work done related to Supplier A. From this point, the company timely produced key documents, provided facts developed in its internal investigation, translated key documents, and made numerous employees, including former employees and employees located abroad, available to speak to Commission staff.
New management also took steps to remediate, including terminating employees involved in the misconduct, some of which were still working with the company despite their known roles in the misconduct. Its remediation included revamping its anti-corruption policies, enhancing internal accounting controls over the retention, payment, and oversight of third parties, improving its anticorruption risk assessments, and expanding its compliance staff. These remedial actions were taken following the merger, and elements of the new program are untested, while continued efforts are underway to make additional enhancements.”
In this release, SEC FCPA Unit Chief Charles Cain stated:
“The penalty in this case reflects the significant misconduct by Raytheon and the need for global companies to implement meaningful internal accounting controls that ensure that payments to intermediaries are not used to circumvent the restrictions of the FCPA,” said Charles E. Cain, Chief of the SEC Enforcement Division’s FCPA Unit.”
Kirkland & Ellis attorneys William Stuckwisch (former Assistant Chief of the DOJ’s FCPA Unit) and Christopher Maner represented Raytheon.
