RTX to pay nearly $1 billion for contract fraud and foreign bribes

RTX the defense contractor (previously called Raytheon) has agreed to pay more than $950 million to settle charges related to inflated federal contracts and foreign bribery. The Justice Department made this announcement on 10/17/24

The company admitted that its employees provided false information to the Army resulting in $111 million in inflated contracts for Patriot air-defense systems (around 11 years ago) and a radar system (about 6 years ago). Additionally‚ RTX employees were involved in a scheme to bribe a high-level Qatari air force official between 2012 and 2016 violating the Foreign Corrupt Practices Act

Kevin Driscoll deputy assistant attorney general of the Justice Departments criminal division‚ stated: “Such corrupt and fraudulent conduct especially by a publicly traded US defense contractor erodes public trust“

RTX didnt dispute the allegations and agreed to work with an independent monitor for three years under a deferred prosecution agreement. Chris Johnson an RTX spokesperson‚ said in an email: “RTX is taking responsibility for the misconduct that occurred. We have worked diligently during the investigations to remediate that misconduct and continue to do so“

RTX formed through a merger of Raytheon and United Technologies Corporation (about 4 years ago) is one of the Big Five defense contractors alongside:

• Lockheed Martin
• Boeing
• General Dynamics
• Northrop Grumman

The bulk of the fraud case involved Raytheons sale of Patriot missile systems to the Army (11 years ago). Since Raytheon is the sole manufacturer of this sophisticated defense system – which uses surface-to-air guided missiles to shoot down incoming missiles and aircraft providing protection for troops and civilians – the Army couldnt conduct competitive bidding. Instead‚ it relied on Raytheons cost declarations

Prosecutors told a Massachusetts district court that Raytheon employees knowingly inflated their cost declarations resulting in a $619 million contract with a fraudulent inflation of $100 million. In another instance (about 7 years ago) Raytheon employees falsely inflated salary projections for employees maintaining an Air Force surveillance radar system leading to an $11 million contract overcharge

The foreign bribery charges filed separately in a New York district court alleged that Raytheon employees paid nearly $2 million through sham contracts to benefit a Qatari official hoping to secure government defense contracts. These payments were supposedly for three air-defense studies but Raytheon employees knew “that the Qatari Entities did not perform any work on or incur any cost for the studies“ according to prosecutors

This announcement follows a separate State Department settlement (2 months ago) where RTX agreed to pay $200 million for export control violations. RTX disclosed (3 months ago) that it had reserved $1.24 billion for legal issues with federal regulators. Investors seemed relieved that the fines werenʼt higher: RTXʼs stock closed up 1% on the day of the announcement