RTX Settles Multiple Charges

Defense contractor RTX Corp. will pay more than $950 million to settle multiple criminal cases pending against it, including FCPA and export control violations in the Middle East and government contract fraud here at home. Compliance officers have a few different threads to unravel here, so let’s get to it.

The Justice Department announced the settlement on Wednesday, although RTX (formerly known as Raytheon) had already disclosed earlier this year that a billion-dollar settlement was in the works. Indeed, RTX had already settled civil export control charges with the State Department in September, complete with a $200 million penalty and a raft of export control reforms the company promised to make. 

Today’s resolution piles onto that work, so I guess RTX needs a second raft. Anyway, it includes settlement of… 

• Criminal FCPA charges for bribing government officials in Qatar in the 2010s.
• Civil FCPA charges for the same offenses with the Securities and Exchange Commission, which announced its own RTX deal on Wednesday too.
• Criminal charges for violating the Arms Export Control Act, based on the same issues the State Department resolved last month.
• False Claims Act charges that RTX overcharged the Defense Department for various defense goods, including a Patriot missile system and a radar system.

Raytheon didn’t need to plead guilty to any of the offenses, but it will be subject to a deferred-prosecution agreement for three years and will work under two compliance monitors; one for the FCPA offenses, another for the False Claims Act misconduct. Plus, ya know, the $950 million in penalties and extensive compliance program reforms.

“Such corrupt and fraudulent conduct, especially by a publicly traded U.S. defense contractor, erodes public trust and harms the [Defense Department], businesses that play by the rules, and American taxpayers,” deputy assistant attorney general Kevin Driscoll said in a prepared statement. “Today’s resolutions, with criminal and civil recoveries totaling nearly $1 billion, reflect the Criminal Division’s ability to tackle the most significant and complex white-collar cases across multiple subject matters.”

OK, those are the headlines. Let’s get into the nitty-gritty FCPA stuff.

Corruption in Qatar

As usual, the SEC settlement order for the FCPA violations provides extensive detail on what happened — and yes, it’s bad. Raytheon (the operating unit that had been around for decades, before merging with United Technologies in 2020 and being reborn as RTX Corp.) funneled nearly $2 million in bribes to various Qatari government officials from 2011 through 2017. 

Even worse, from the 2000s to 2020, Raytheon paid a total of more than $30 million to an intermediary who was both a relative of the Qatari Emir and a member of the Council of the Ruling Family. Naturally, that agent had no experience in defense contracting and “provided very little support for work performed” — so a Raytheon employee ghost-wrote the agent’s activity reports into 2022.

Raytheon, people. One of oldest, largest, and most sophisticated defense contractors in the world. Fabricating reports for a no-show business agent in a high-risk country as recently as 18 months ago. JFC.

The first bribery scheme (there are several in the SEC order) was rather straightforward. A relative of the emir was majority shareholder of a supposed defense consulting firm in Qatar. From 2012 to 2017, Raytheon employees cooked up two sham consulting agreements with that firm to undertake “defense studies.” Those arrangements allowed Raytheon to funnel $2 million in bribe payments to various Qatari government officials, who in turn steered $90 million in defense contracts back to Raytheon.

At least two senior managers in the United States understood and participated in the bribery scheme, according to the SEC. For example, at one meeting in 2014, Raytheon managers were assessing the value of the bogus Qatari consulting firm for future contracts, and someone asked what the agent “brings to the table.” The first bullet point in response was “royal connection.” 

Enter the Qatari Agent

More astonishing was a second bribery scheme involving a cousin of the Qatari emir (not to be confused with the prior agent, an immediate family member). This cousin, a former chairman of a large Qatari bank and an adviser to the emir, ran his own business as a fixer and consultant. Raytheon retained this cousin as an agent in 2007. As for due diligence on this person, well… 

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.”

Then came even more red flags, even as the Qatari agent worked for Raytheon year after year. He worked under vague contracts that paid him by “success fees,” which are a clear incentive for the agent to engage in unethical conduct. The agent “ was not willing or able to assist Raytheon personnel with the few substantive tasks that were itemized in the agreements,” the SEC said, and neither the agreements nor Raytheon’s policies required the agent to submit invoices so he could get paid. “Rather, the award of a contract to Raytheon and the receipt of payments from Qatar triggered Raytheon’s payment of commissions to the agent.” 

Still, Raytheon paid this agent some $30 million over the years, including an eye-popping $17 million in the spring of 2020 “to exit the relationship quickly,” presumably because Raytheon was about to merge with United Technologies in April of that year and management didn’t want this guy sullying the start of that new era. 

My favorite detail: the Qatar country manager for Raytheon served as the handler for this agent — ghost-writing his reports and sending messages to other Raytheon executives about “the burden on Qatari Agent of completing Raytheon due diligence forms.” 

Eventually Raytheon employees started pestering the agent for more detail about what he actually did, so the country manager ghost-wrote a complaint from the agent to a senior Raytheon executive. That senior executive then had the same country manager draft a reply to the complaint that the manager had ghost-written, in perhaps the most Dilbertian moment of corporate compliance I’ve ever encountered. One Raytheon attorney even wrote, “Priceless, since [Country Manager] probably wrote the letter from [Qatari Agent Company].” Amen, brother. 

RTX Remediation

OK, back to the whole big mess of misconduct violations announced today. We should note that for the FCPA violations, the export control violations, and the False Claims Act scheme to inflate prices, prosecutors did fault the company for “a period of uncooperativeness” that only ended in 2022 when new management took over what is now RTX Corp. 

Once that new leadership arrived (who also hired new outside counsel), the company did win credit for “significant cooperation” and remediating the many, many compliance shortcomings afoot here. Those steps included:

• Firing the offending employees;
• Strengthening its internal accounting controls for better oversight of third parties;
• Revamping its anti-corruption policies;
• Improving its anti-corruption risk assessments;
• Hiring more compliance staff.

The Justice Department also praised RTX for providing documents, translations, employee witnesses, and financial analyses. The company even “demonstrated its willingness to disclose all relevant facts” by analyzing whether the crime-fraud exception applied to certain potentially privileged documents, and releasing the documents that it deemed fell within the exception.

That’s enough for today, but clearly there’s a lot here for compliance offices to consider. We’ll have more posts coming soon!