In October 2024, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) announced settlements with Raytheon Company, a division of multinational defense contractor RTX, over defective pricing and False Claims Act (FCA) allegations, Foreign Corrupt Practices Act (FCPA) violations, Arms Export Control Act (AECA) infractions, and violations of the Traffic in Arms Regulations (ITAR). The settlement stemmed from investigations from numerous Department of Defense investigative agencies, the Department of Homeland Security, multiple divisions of the DOJ and the SEC. The resolution, which included civil and criminal fines, penalties and disgorgement totaling more than $950 million, is one of the largest joint settlements in recent years and provides a unique look at a global settlement implicating myriad statutory regimes, enforcement agencies and disparate underlying conduct.
According to the DOJ's Deferred Prosecution Agreement (DPA), since 2012, Raytheon misled Department of Defense employees during negotiations for certain military contracts, netting more than $111 million in a windfall that the company did not otherwise earn. Specifically, Raytheon admitted in the agreement to making false statements about the cost of producing both PATRIOT missile systems and a radar system, causing the DoD to award two contracts at inflated prices. These statements laid the groundwork for the FCA allegations against Raytheon, which led to the second-largest recorded FCA settlement at $428 million. The FCA claims also carried a component whistleblower qui tam lawsuit, whose plaintiff will receive $4.2 million as her share of the recovery.
Additionally, between 2012 and 2016, the DPA alleged that Raytheon engaged in a scheme to bribe a high-ranking official in the Qatar armed forces to facilitate business with the Middle Eastern nation. To gain favor and military contracts from the QAF official, Raytheon admitted to entering into and paying towards sham subcontracts on air defense operations studies to the benefit of the official. As a result, Raytheon has agreed to pay $230.4 million in criminal penalties and another $36 million in forfeiture under the FCPA. The AECA and ITAR violations both stem from the same Qatari bribery scheme, resulting in an additional $21 million penalty, as Raytheon failed to disclose fees and commissions paid to Qatari officials to the State Department or Directorate of Defense Trade Controls.
Across all allegations and violations, Raytheon received credit for its cooperation with government investigations and its remedial measures to correct and prevent ongoing abuses. The DOJ noted in particular Raytheon's efforts to increase third-party accountability and internal ethics communications while crediting Raytheon for its active disclosure of relevant information, especially where it was unknown to government investigators at the time. Accordingly, the DOJ settlement included reductions from sentencing guidelines of 25% off the 10th percentile above the low end of the range for the defective pricing violation, 20% off the 20th percentile above the low end of the range for the FCPA violation, and 20% off the applicable penalty for the ITAR violations. The SEC settlement includes disgorgement over $48 million, including prejudgment interest, and a civil monetary penalty of $75 million, partially offset by payments towards the DOJ penalties. Raytheon's failure to self-report and its initial delay in cooperation as the government's investigation began, combined with the seriousness of the offenses, prevented the company from getting declination or full cooperation, remediation and self-disclosure credit. In addition to the monetary penalties and payouts, Raytheon must also retain an independent compliance monitor for three years and make key internal compliance program improvements.
The multifaceted allegations, detailed in the DPA between the DOJ and Raytheon, highlight the complicated nature of FCPA violations and their connection with numerous other civil and criminal statutes. Had Raytheon not cooperated as fully and transparently as the DOJ sought during the investigation and resolution of these claims, the company could have faced a penalty payout totaling more than a billion dollars. The Raytheon DPA is a unique look at a unilateral resolution addressing multiple sets of allegations and demonstrates why companies should evaluate whether their compliance programs are designed to address all material legal risks. Contact Venable's Investigations and White Collar Defense Practice for guidance on these issues.