OSI's $615M fraud recovery

  • Published
  • By Dr. Deborah Kidwell
  • OSI Command Historian

One of the largest monetary recoveries obtained as a result of an Office of Special Investigations fraud investigation, included a $615 million settlement with the Boeing Company. OSI agents worked in conjunction with the U.S. Attorney’s Office for Eastern Virginia, the Defense Criminal Investigative Service and the DoD Inspector General to favorably conclude the case. 

On June 30, 2006, Deputy Attorney General Paul J. McNulty announced the settlement to resolve charges the company improperly used competitor information, obtained illegally from an Air Force official, to procure contracts for launch services worth billions of dollars from the service and the National Aeronautics and Space Administration.

McNulty said, “The American people rightly expect government officials and contractors to act with integrity…The outcome of these investigations sends a clear message to those doing business with the government: harsh consequences await anyone whose conduct falls short of the highest legal and ethical standards.”

Investigations into the matter discovered Boeing’s former Chief Financial Officer, Michael Sears, hired a former Principal Deputy Assistant Secretary of the Air Force for Acquisition and Management, Darleen A. Druyun, after her retirement. Druyun served as the Air Force’s top career civilian acquisition official from 1993-2002 and eventually confessed, while in office, she gave Boeing preferential treatment on numerous contracts.

In one instance, Druyun admitted improperly awarding a $4 billion contract to upgrade C-130 aircraft avionics to Boeing, while in another, she passed rival bidding information to the company and later worked a deal to lease 767 Boeing tankers. Druyun characterized her decision to pay Boeing $100 million excess for upgrading NATO Airborne Warning And Control System aircraft, as a parting gift.  In return, Druyun asked Boeing to employ her daughter and son-in-law, and negotiated a position for herself paying $250,000 a year (plus a $50,000 signing bonus), while still employed by the Air Force. 

Druyun and Sears pleaded guilty to violations of the conflict of interest statues. Druyun admitted  Boeing’s employment of her children and her position offer influenced her contracting decisions.  For her duplicity, she received a nine-month prison sentence, followed by a lengthy period of house arrest and probation. Sears received a similar sentence after admitting to rewarding Druyun with the job in exchange for the information she provided about the bidding process. 

The record-setting settlement included a $565 million civil settlement and a separate $50 million monetary penalty agreement for potentially criminal conduct. Attorneys for the U.S. agreed not to bring criminal charges related to the employee’s conduct as long as Boeing continued to cooperate with investigators and maintained an effective ethics and compliance program, especially in regard to hiring former government officials and the handling of competitor information.

Under the terms of the agreement, if a Boeing executive management employee committed federal crimes during the next two years that were not reported by the company, the U.S. could assess further monetary penalties of up to $10 million for that and the former offense. 

OSI agents worked painstakingly to complete the investigation and document the necessary evidence that led directly to the successful prosecution. Agents and other OSI personnel with business, scientific and technological expertise assisted the prosecution to explain the significance of the contracts and the material components involved in the business deals.

Fraud allegations can come from a number of sources and are scrutinized very seriously. Acting DoD Inspector General Thomas F. Gimble noted that, “This settlement sends a clear message that integrity in DoD contracting is indispensable and that the American public deserves no less than honest government and aggressive vigilance over the expenditure of the nation’s resources.”