When man bites dog…

Headlines are supposed to give some idea about the subject or substance of the article that follows. That’s why we chose this headline. When the cover story of the May 13 U.S.News and World Report, one of the nation’s most widely-read business magazines, is an investigative report titled ‘Profiteers of War,’ with a subhead reading ‘How some of America’s biggest corporations are making millions off the defense build-up since 9/11,’ you’ve got a classic example of man biting dog.

In three articles that take up 12 pages, the editors give page, chapter and verse of how outfits like Boeing, General Electric, Archer Daniels Midland and Raytheon have ripped off billions despite repeated administrative, civil, and criminal violations and alleged violations of federal laws and regulations since 1990.

And we’re not talking about chump change. The federal government spent approximately $235 billion on goods and services for fiscal year 2001. Federal regulations prescribe that taxpayer dollars only be awarded to ‘responsible’ contractors that have a satisfactory record of ‘integrity and business ethics.’

A company can be suspended for up to 18 months or barred from bidding on contracts – debarred – for up to three years for antitrust violations, embezzlement, bribery. The Davis-Bacon Act, Clean Water Act, Clean Air Act and Drugfree Workplace Act, among others, require debarment if violated. For other violations, it is up to the contracting agency to decide whether to issue a sanction.

In its closing days, the Clinton administration issued a rule that would have debarred firms that violated federal, state or foreign laws. In December the Bush administration repealed the rule, leaving it up to the contractor to disclose voluntarily whether it has committed a crime as provided for under the Defense Industry Initiative.

The U.S. News article, based in part on research by the Project on Government Oversight (POGO), a Washington-based public policy group, says that in the 1999 fiscal year 43 of the largest contractors won $185 billion in government business and that of those, 30 paid $3.4 billion in fines over the last 12 years. To add insult to injury, POGO found that 16 of the 43 contractors in the study – who had received 45 percent of all contract dollars awarded that year – had been convicted of 28 criminal violations; four of the top 10 have at least two criminal convictions. Yet only General Electric has been suspended – and that for only five days when its Aircraft Division pled guilty to diverting millions of dollars from the U.S. Foreign Military Aid Program to finance the sale of F-16 engines to Israel.

GE keeps popping up in the POGO report: Between 1990 and 2002 it committed 63 violations and alleged violations and paid approximately $982.9 million in fines/penalties, restitution, and settlements. Among them was a settlement in which it agreed to spend $250 million to clean up PCB contamination in the Housatonic River in Connecticut and Massachusetts.

General Electric Capital Corporation (GE Capital) and its wholly owned subsidiary, Montgomery Ward Credit Corporation, agreed to a $97 million settlement for allegedly inducing consumers who filed for bankruptcy protection to pay debts they did not legally owe.

POGO says Boeing committed nearly 150 violations and paid approximately $358 million in fines/penalties, restitution, and settlements.

Lockheed Martin was charged with 30 violations of the federal law and regulations and paid a civil penalty of $13 million.

Nor are military contractors the only villains. Archer Daniels Midland pled guilty and paid a criminal fine of $100 million – the largest criminal antitrust fine ever – for its role in two international conspiracies to fix prices, eliminate competition and allocate sales in the lysine and citric acid markets worldwide.

TRW Vehicle Safety Systems, a subsidiary of TRW, pled guilty to criminal charges of violating the Resource Conservation and Recovery Act by improperly storing and disposing of waste containing sodium azide, and paid a criminal fine of $12 million; in a related civil action the company paid a civil penalty of $5.6 million and a total of $7.2 million for cleanup and other corrective measures.

Welcome as these articles – and similar ones in other business publications – are, it would be wrong to think they are meant as a contribution to the public interest. Far from it. Rather, they are meant as a warning to their ruling-class colleagues that they should curb their excesses before public opinion forces a reluctant Congress and an even more reluctant White House to take action.

Hy Clymer is a reader in Chicago. He can be reached at pww@pww.org