Defense contractor fraud is a significant source of concern for the federal government. In 2015, fraud in the defense industry ranked second, just after healthcare fraud, for the amount recovered in False Claims Act cases.
The top defense companies spend millions of dollars yearly on lobbying to continue winning contracts after facing fraud allegations time and time again. As such, whistleblowers play a central role in bringing contractor fraud to the government’s attention.
Here are six notable defense industry cases that led to successful outcomes for existing and potential whistleblowers.
1. Northrop Grumman
In 2009, Northrop Grumman paid an incredible $325 million to settle False Claims Act violations. The company was accused of selling satellite parts they knew to be defective. The whistleblower in this case, Robert Ferro, was a former scientist at TRW, a Northrop Grumman subsidiary.
Ferro filed an internal report, however TRW allegedly buried it and continued selling the faulty equipment to the Department of Defense. He was awarded $48.8 million once the qui tam suit was resolved.
2. Maersk Line
Federal contractors are required to bill the government at standard rates; if they fail to do so they may be in violation of the False Claims Act. Maersk Line Limited paid $31.9 million in 2012 to settle billing allegations of that nature.
The company was responsible for shipping perishable cargo to troops in Afghanistan and Iraq. Reportedly, Maersk Line systemically billed the government for far more than it was owed and requested excessive late fees, when the delays were in fact the fault of Maersk. The qui tam relator in this case received a $3.6 million award for reporting the alleged wrongdoing.
Boeing is well known for producing commercial airliners, but it’s also one of the most profitable defense contractors in the world. In 2014, the company paid a $23 million settlement for allegedly falsifying labor costs for the construction of an Air Force craft. Labor costs are included in the Defense Department’s standards for claim submissions.
Four Boeing employees brought forth the allegations, and were collectively awarded almost $4 million for their willingness to speak up.
Raytheon is a defense giant with significant contributions to national technology systems. The company is currently facing a $1 billion lawsuit for allegedly overbilling for a weather sensor production project. The production process encountered significant delays, and the company may have improperly calculated costs.
Raytheon attempted to halt the lawsuit because the whistleblower’s claims referred to a generalized pattern of alleged fraud rather than specific instances of it, however a California court sided with the whistleblower and allowed the legal proceedings to continue. The lawsuit is not yet resolved, but that it has been allowed to proceed is an important victory for qui tam relators who present evidence about fraud schemes.
5. United Technologies
Some contractors bill the government for services that weren’t even performed. Back in 1994, United Technologies was forced to answer to allegations that it billed the Defense Department for helicopters that were not yet built, and then designed a cover-up scheme to hide this fraudulent behavior.
United Technologies paid $150 million to resolve the allegations, and $22.5 million went to the company’s former executive who exposed wrongdoing. The case was notable because the whistleblower was at one time a vice president at the company. He claimed to have reported the alleged wrongdoing internally, and that his reports were ignored and suppressed.
Many companies require employees to sign confidentiality agreements during the on-boarding process. It is not legal, however, for companies with federal contracts to include language in these agreements that could suppress whistleblower reports.
The SEC demonstrated its commitment to upholding whistleblower protections in April 2015, when it sued KBR for allegedly requiring employees to sign unlawful confidentiality agreements. The agreements required KBR employees to first inform the company before reporting wrongdoing to federal agencies. As many whistleblowers have experienced, internal reporting isn’t always safe or reliable. KBR paid a $130,000 penalty to settle the charges.
Every Defense Industry Whistleblower Matters
Blowing the whistle on defense contractor fraud is never easy, but every single report of wrongdoing makes a difference. Contractors in the defense industry are by far some of the most powerful organizations in the world, and it often takes the integrity and bravery of individuals to hold them accountable.