15. Illegal Bribery

There are precious few examples of the MICC being punished even when its members stray outside the ‘accepted’ parameters of this system of legal bribery. Where they do exist they serve not only as a salutary warning that there are some legal limits, but also as a reminder of the extent to which immoral behaviour is regarded as standard operating procedure in the alternative universe that is the MICC.

In December 2001, Congress approved the lease of 100 Boeing KC-767 in-air-refuelling tankers in a deal worth $26bn for ten years.1 In-air-refuelling tankers are built to gush fuel to other aircraft while flying, using what is essentially a long pipe joining the two planes in mid-air, allowing the recipient aircraft to fly further and for longer.

The decision to lease the aircraft was a remarkable one. The Congressional Budget Office (CBO) determined that the decision to lease with an option to buy later would cost taxpayers $5bn more than buying the aircraft outright. Senator John McCain slammed the deal, claiming: ‘this is war profiteering’.2

The 100 new aircraft were intended to replace the 126 KC-135 ‘E’ tanker aircraft in the US Air Force armoury, despite the Air Force already having 410 upgraded versions of the ‘E’,3 which are intended to stay in service until 2030 or 2040. Air Force studies of its tankers concluded that the cost of maintaining the fleet as it was would rise by only $23m per year over the next forty years but that there might be capacity shortfalls under certain – classified – circumstances. The Air Force had no plans to start updating the tanker fleet until 2013 but 9/11 increased concern about the fleet’s age.4 Quite how newer refuelling tankers could prevent terrorist attacks is not apparent.

In its prioritization process released in October 2001, the Air Force listed sixty budget priorities, but the 100 new tankers did not feature.5 The studies found that the fleet as it was remained in good condition and examined four options:

The first option was to do nothing, thus accepting the cost of $23m per year over forty years, and accepting some risk of shortfall. The second option was to upgrade the 126 ‘E’ tankers, increasing the capacity of the fleet a little and costing $3.2bn.6 The Chairman of the Joint Chiefs of Staff commented that the tanker fleet was ‘relatively healthy’ with ‘lots of flying hours left on them’. The General Accounting Office shared this view and expressed serious concerns about the third and fourth options.7 The third was the direct purchase of 100 Boeing 767 tankers, while retiring the ‘E’ model fleet, at a cost of around $150m per aircraft.8 The total cost was approximately $18bn, with the process of bringing them into service taking eight or nine years. The advantage would be a more modern aircraft with possibly a longer life, though the actual capacity of the fleet would be slightly reduced.9 So none of the shortfalls identified in the Air Force studies would be resolved.

The final option was to lease the 100 Boeing 767 aircraft in their commercial configuration. They would have to be converted and then converted back again at the end of the lease. The total cost of this option, which would last for only ten years, would be $26bn. The option would provide the same tanker capacity and take the same amount of time to bring into service as the direct purchase of the aircraft, with slightly lower immediate costs, but lasting only ten years, suggesting that the actual cost was much higher.10

The leasing solution was not subject to public scrutiny as it was added by the Senate–House Conference Committee to the 2002 Defense Authorization Bill. There was no discussion of the programme in the committee process. The Chairman of the Senate Committee on the Budget, Kent Conrad, proposed to waive government rules determining when leases can be used instead of outright purchases. These rules were put in place to minimize costs, but, as the Office of Management and Budget (OMB) pointed out, in the tanker case the costs were greatly increased with minimal benefit from leasing.11

The deal was clearly intended to benefit Boeing, which had complained that since 9/11 orders for its commercial aircraft had dried up while its biggest rival, Lockheed Martin, had won a major competition to build the Joint Strike Fighter, the F-35.12 The Defense Authorization Bill which contained the earmark for the aircraft lease specified that the Air Force was authorized to lease 100 tankers but only if they were leased from Boeing. Boeing could not have written the earmark better itself and as was later discovered, it pretty much did.

This favouritism was subject to inquiry on 12 February 2002 at a Senate Armed Services Committee hearing on the defence budget. John McCain asked the Air Force Secretary, James Roche, if the prospective contract had been discussed with Boeing’s main competitor, EADS (which owns Airbus). Roche answered: ‘Yes, sir. Back as far as October I made the point that if Airbus could come in and do something, we would be delighted to have that happen.… I have met with Philippe Camus [CEO of EADS] and have opened up the door for him if he wished to do something.’ McCain responded: ‘But doesn’t the legislation say the loan can only be Boeing 767s?’ ‘Yes, sir. But if Airbus did something that was particularly good, I would come back to the Congress, sir.’13

A week later, possibly stung into action, the Air Force did put out a request for information on the contract for both Boeing and EADS, giving two weeks for a response. Predictably enough, Boeing was judged the winner based on its answers.14

John McCain tried to stop the lease deal by exposing the intensive influence peddling that had gone on. He released documents detailing a high-level lobbying campaign by Boeing and the Air Force to fend off critics and competitors to gain what McCain characterized as ‘corporate welfare’.15 Boeing and Air Force email messages and internal memos culled from some 8,000 documents showed that the Air Force and the company assisted each other in structuring the programme, promoting it in Washington and setting requirements so that no other competitors could qualify. The Air Force went so far as to rely on Boeing to provide it with arguments that would play well with influential members of Congress, in the White House and with the news media.16

Rudy DeLeon, a former Under Secretary for the Air Force and Deputy Defense Secretary who became the head of Boeing’s Washington office in July 2001, felt that the emails released by McCain simply showed that ‘people who believed in the program’ were working hard to get it completed. The Washington Post reported that another Boeing official defended the lobbying effort as common practice, suggesting the only unusual thing about it was having it on public display in the emails.17

James Roche also had a revolving-door past. He left the military in 1983 as a Captain, then served as a Staff Director of the US Senate Armed Services Committee from 1983 to 1984 before joining Northrop Grumman. He went on to hold several executive positions with the arms giant until being brought back into government by the Bush administration in 2001. At the time of his appointment Roche was on the Board of Advisers of Frank Gaffney’s hardline Center for Security Policy. The Center’s 2002 annual report title page included a quote from Donald Rumsfeld: ‘If there was any doubt about the power of your ideas, one has only to look at the number of Center associates who now people this administration – and particularly the Department of Defense – to dispel them.’18

In December 2001, language authorizing the deal but providing no money had emerged in legislation in what Capitol Hill veterans refer to as a ‘virgin birth’, meaning it was inserted into the Defense Appropriations Bill after the bill had passed the House and Senate, during closed negotiations between conferees. It was then approved on the House and Senate floors as part of a compromise bill. Ordinarily, costly military systems are bought after being included in formal budget proposals, which lead to Congressional hearings and votes in committees and on the House and Senate floors. In this case, no hearings were held or committee votes taken before the deal was approved.19

The Chairman of the Senate Appropriations Committee, Ted Stevens, a long-time supporter of expanding federal leasing, claimed credit for inserting the language. Stevens was also responsible for ensuring that the funding be only for the leasing of Boeing aircraft and no others. A month before he did so, Stevens received $21,900 in campaign contributions from thirty-one Boeing executives at a fundraiser in Seattle, where Boeing is headquartered. In total the company directed $34,000, the largest contribution, to Stevens’s 2002 re-election campaign.20 Stevens was intimately involved in many aspects of the campaign for the deal. A senior Air Force official, Darleen Druyun, noting that Stevens could ‘work’ a former employee of his, who was then at the OMB, asked Boeing to help produce briefing charts, which the Air Force took to Stevens’s office for his use. Boeing also sought to solidify support from John Murtha by agreeing to explore a subcontract to a firm in his district.21

Boeing and the Air Force jointly planned a campaign ‘to educate the media’ on the merits of the deal. This public education included an op-ed article touting the 767 tankers in five publications by a retired Admiral, Archie Clemins. The piece was actually written by Boeing. Soon after, Clemins became a consultant to the company.22 Richard Perle, the controversial Chairman of the DPAB, was also the co-author of an op-ed in the Wall Street Journal in favour of the tanker deal. Boeing had invested $20m in Perle’s defence-related venture capital firm. The investment was not disclosed in the article.23

The Boeing tanker was initially selected in 2002 and the contract for the leasing deal awarded in 2003.24 However, after protests by Senator McCain and others, the Air Force was forced to compromise by purchasing eighty tankers and leasing the remaining twenty.

But in December 2003, this compromise deal was frozen after allegations surfaced around the behaviour of Boeing and Darleen Druyun.25

Druyun had been Principal Deputy Assistant Secretary of the Air Force for Acquisition and Management from 1993. She oversaw the contract negotiations for Boeing’s leasing of tanker aircraft for the Pentagon.26 In a meeting on 1 April of Air Force and Boeing officials after the company had been selected, Druyun told Boeing to ‘keep in mind’ that the Airbus bid was $5m to $17m cheaper per aeroplane than a basic Boeing 767. Back in 2003, Boeing attempted to explain away Druyun’s comments as her negotiating strategy, describing her as a ‘truly tough negotiator’ who was ‘send[ing] us a clear message that we needed to sharpen our pencil’.27

Druyun, known as ‘Dragon Lady’, had a reputation for being tough. However, Boeing were clearly exempt from her fire-breathing antics. After one meeting, a Boeing executive wrote in a document released by McCain: ‘Meeting today on price was very good. Darleen spent most of the time bringing the USAF price up to our number … It was a good day!’28 According to Boeing emails Druyun was exploring how to get Congress to approve a special waiver of federal accounting rules and was advising the company on how to win over key lawmakers. McCain said the emails demonstrated that ‘the Air Force appeared not so much to negotiate with Boeing as to advocate for it, to the point of giving Boeing unusual control over pricing, and other terms and conditions’.29

In November 2001, the Air Force had drafted a document detailing what capabilities the new tankers needed. Colonel Mark Donohue, an official in the air mobility office, promptly sent it to Boeing for private comment, and the company sought and received concessions so the requirements matched what the 767 could do. Most importantly and extraordinarily, the Air Force agreed to drop a demand that the new tankers match or exceed the capabilities of the old ones.30

Boeing’s lobbying campaign had to be persuasive to bring round politicians and officials when the case for any replacement of tanker aircraft seemed so shaky. An internal Boeing email from one of their lobbyists reflected this. Reporting on a meeting with Roche and Druyun’s boss, the Air Force’s Chief of Procurement, Marvin Sambur, the lobbyist reported that Sambur had turned to Boeing for help: ‘He indicated that the USAF is desperately looking for the rationale for why the USAF should pursue the 767 tanker NOW … It was clear he was looking to find a path forward.’ Another memo showed the complicity of Roche in encouraging lobbying. The lobbyist documented a meeting with the Air Force Secretary and other Air Force officials in which they had ‘urged us to have our friends on the Hill, think tanks, etc. get more visible/vocal with pro-tanker arguments’. He continued that Roche was particularly keen on anything Boeing could do ‘especially if it helps drown out McCain’.31

The lobbying operation targeted both Congress and the White House. Boeing planned to have the House Speaker, J. Dennis Hastert, a Republican from Illinois and a strong supporter of the deal, talk to President Bush and other White House officials. Several Air Force officers took chunks of a corroded tanker wing in the trunk of a car to Capitol Hill, where an Air Force General had been flown in from Oklahoma to brief members of Congress on tanker ageing. A Boeing lobbyist wrote: ‘We are in touch with Andy Card [White House Chief of Staff] and White House political operation. They see increased pressure and realize a political downside to not moving forward with tankers.’32

Another of the company’s lobbyists noted the increasing help from the Deputy Defense Secretary, Paul Wolfowitz, and his boss, Donald Rumsfeld. Roche told Boeing that more involvement from Rumsfeld provided ‘necessary “top cover” for Air Force’, adding that it ‘works better in White House and will help on Capitol Hill’.33 The White House Chief of Staff, acting at what officials said was the direction of President Bush, told the Air Force and OMB to resolve their differences. Bush had been lobbied hard by the House Speaker, Hastert, and Representative Norman Dicks, whose districts were in states that included respectively Boeing’s headquarters and a key production facility.34

Druyun actively encouraged the placing of work in the districts of key politicians. A memo written by Boeing staff after a meeting between Druyun and Boeing executives noted that ‘She [Druyun] also said “work placement could help” [promote the deal], meaning that Boeing should ensure that subcontracts were awarded in the districts of key Congress members.’35

Boeing was rightly concerned about the illogicality of the deal for the taxpayer. Bob Gordon, a Boeing vice-president, worried in an August 2002 email that the company could have a ‘PR risk’ because the idea that leasing was preferable to buying ‘won’t make sense in the newspapers’. He continued that neither Boeing nor an investment banking firm familiar with the deal ‘would ever put its hand on a bible and say [it] makes economic sense’.36 The problem was exacerbated by a report from the Institute for Defense Analyses (IDA), an independent think-tank, which told the Pentagon after a detailed study that the Air Force was overpaying by at least $21m per plane and that the lease violated federal accounting rules. ‘The concern remains that we are not giving the [US government] a fair deal. This continues to be driven by the IDA study and OMB,’ the Boeing Defense Systems president, Jim Albaugh, noted at one point. Another Boeing executive wrote that Roche asked Boeing to pressure other Pentagon bosses to squelch the study. The IDA did not back down.37

Boeing executives also contacted key subcontractors and ‘urged them to be part of the debate’ by calling Card and other administration officials. Boeing’s tame politicians, Hastert and Dicks, directly reached Bush in late September 2002. According to a Boeing email, Bush then instructed Card to be ‘on point’ for the deal. A month later Card called Roche and others to the White House and asked them to detail how many jobs the leasing deal would create. This was a key issue for an administration which had seen 2.5 million jobs lost, and a typical MICC argument, justifying any project however inefficient and unnecessary as a way to stop job losses. The next day Boeing executives wrote in an email to Druyun that the lease would support 25,000 to 30,000 jobs, including both existing and new workers.38 The following day Roche sent a letter to Card that overstated this tally. Citing Boeing as his source he said the deal would create about 39,000 new jobs alone, more than 11,000 at Boeing and 28,000 among suppliers. Card led other meetings about the deal, met Boeing officials and took calls from Dicks and Boeing lobbyists.39

After the OMB continued to speak out against the deal, Boeing agreed to cut the price of the tankers, bringing it closer to the IDA figure. But this was accomplished by further scaling back the tankers’ capabilities. The company was motivated in part, according to its emails, by the looming retirement of the Pentagon’s chief weapons buyer, the Under Secretary of Defense, Edward C. Aldridge Jr, a supporter of the deal. His replacement had already pressed the firm aggressively for a large price cut. On 23 May, Aldridge’s last day at the Pentagon, he announced an agreement with Boeing on most terms of the lease, calling it a way to get new tankers ‘delivered much faster’ than if they were purchased – even though there was no rush to retire the old tankers and there was no sign that leasing would provide new tankers quicker than purchasing.

The deal put in place by Aldridge included a $5bn sole-source maintenance contract for the new tankers and allowed Boeing to earn a 15 per cent profit on the deal, more than double what the company makes from commercial aircraft orders.40 Aldridge was the former president of McDonnell Douglas Electronic Systems, which later became part of Boeing. After leaving the Pentagon he took a job with Lockheed Martin.41 In total, during Aldridge’s forty-six-year career he held twelve high-level positions – six with arms companies, five with the Defense Department and one stint with the OMB. During his next job at Lockheed Martin, Donald Rumsfeld appointed him to the blue-ribbon panel that advises the Pentagon about weapons purchases.42 Despite this constantly revolving door, Aldridge has never been charged with wrongdoing.

Nepotism and cash were key ingredients used by Boeing to win contracts. While examining a deal worth $4bn for Boeing to update C-130 Hercules transport aircraft, Darleen Druyun rang Boeing’s chief financial officer, Mike Sears, and asked him to arrange a job for her daughter’s fiancé, Michael McKee. Boeing gave him a job immediately. Three months later, while the contract was still on the table, Druyun contacted Sears again, this time requesting a job for her daughter, Heather. Again Boeing acquiesced without question or pause. Absurdly, this was not forbidden under Pentagon rules, illustrating the leeway for blatant corruption within the MICC.43

At the height of the tanker negotiations, Heather emailed Sears informing him that her mother planned to leave the Air Force and that her new job ‘must be challenging, tough, lots of responsibility. She is very interested in talking to us, but we would have to give her something that would blow her out of the water. She also mentioned that Boeing has her most admired quality: honest values.’44 Sears discussed potential employment at Boeing with Druyun while she was still overseeing Boeing contracts at the Pentagon. They met secretly for half an hour at Orlando airport in October 2002 to discuss her salary, bonus and starting date at the company, as well as the F-22 contract which Boeing was involved in. In November 2002, she accepted a position as vice-president and deputy general manager of Boeing’s Missile Defense Systems45 with a salary of $250,000 per year and a signing-on bonus of $50,000.46

According to Paul McNulty, who prosecuted Druyun, landing jobs for her family was not against the law but getting a job for herself was a felony, violating conflict of interest laws.47 Druyun’s boss, Marvin Sambur, had outlined the ethics rules governing what jobs Druyun could take after leaving government employment. The two had a handshake agreement that Druyun could join Lockheed Martin as an executive. But shortly after leaving government employment she reneged on the job plan with Lockheed, if that was ever her intention, to go to Boeing.48

Druyun’s position at Boeing was short-lived. She was fired in November 2003 after an internal investigation.49 Initially, she attempted to cover her tracks, but, disgraced and facing five years in jail, she soon decided to tell all she knew about misconduct at the company and cut a deal with prosecutors.50 Initially after her arrest Druyun admitted that she had talked to Boeing about a job while in government, but denied favouring the company. She then admitted to advantaging the company and doctoring a personal journal to hide the conflict of interest.51 Under the terms of her plea agreement she was sentenced to nine months in prison in October 2004 for giving Boeing preferential treatment.52 Druyun served her prison term from January to October 2005 at a minimum security jail in Marianna, Florida.53 She was also given a $5,000 fine, 150 hours of community service and seven months of community confinement upon release.54

In her plea agreement Druyun admitted that, in addition to the tanker case, she had awarded $100m to Boeing as part of a NATO contract in 2002. She admitted that the payment could have been lower, but favoured Boeing because her daughter and son-in-law worked there and she was considering working there as well. She also oversaw a $4bn award to Boeing to modernize the avionics on C-130J aircraft in 2001. In this instance, she favoured Boeing over four competitors because the company had just employed her son-in-law. And she agreed to pay $412m to the company as settlement over a dispute in a C-17 aircraft contract in 2000, at the time when her son-in-law was seeking the job.55

Druyun was also found guilty of manipulating other Air Force contracts to be given to Boeing over competitors.

Despite her disgrace, and the billions involved in her corrupt behaviour, Druyun is still thought to be receiving a government pension.56 Boeing’s Mike Sears, who had agreed with Druyun to lie about their discussions, was fired in November 2003 and sentenced to four months in prison.57

A big question remains as to how much other Boeing staff knew about the relationship with Druyun. Knowledge of their meeting at the airport was disseminated by Sears in an email to ‘The Office Of The Chairman’. It read: ‘Had a “nonmeeting” yesterday … Good reception to job, location, salary. Recommend we put together a formal offer.’58 This suggests that senior executives knew what was going on. Whatever he knew or didn’t know, this evidence cost Boeing’s CEO, Phil Condit, his job. He resigned in December 2003.

The fingerprints of the Air Force Secretary, James Roche, were all over the scandal. Ultimately he was cited for two ethics violations. While he may have been driven by a desire to ease the immediate budget woes of the Air Force by avoiding the upfront costs of a purchase rather than a lease deal, he went further than secretly aiding Boeing in persuading the public, Congress, the Pentagon and the President to support the deal. Roche and the OMB’s Associate Director, Robin Cleveland, had an email exchange in 2003 in which Cleveland, who oversaw the budgeting of national security programmes, sent Roche a CV for her brother on 9 May 2003, saying: ‘I would appreciate anything you can do to help with NG [Northrop Grumman]’, the arms firm where Roche had been a senior executive. Her request came as the administration was deciding on whether to go ahead with the leasing plan, which other top OMB officials had called a waste of money. Roche forwarded Cleveland’s email to a senior Northrop lawyer, with his own endorsement of her brother. He told Cleveland what he had done, adding: ‘Be well. Smile. Give tankers now (Oops, did I say that?…).’ As it turned out, Northrop did not hire Cleveland’s brother. Roche protested later that his note to the Northrop official was a personal communication to a friend. However, his endorsement had been sent officially from the Air Force. Roche was cited for misusing his public office for someone else’s private gain and violating Pentagon rules governing the personal use of email systems.59

Roche resigned in January 2005, shortly before a report on the tanker scandal concluded that he had broken ethics rules.60 In 2003, he had been nominated as Secretary of the Army. John McCain attacked his nomination suggesting that ‘Secretary Roche, contradicting Air Force studies, has been relentless in exaggerating aerial tanker shortfalls and problems in order to win approval of the [Boeing] lease. If this represents the kind of acquisition reforms and defense transformation we can expect from Secretary Roche if he is confirmed as Secretary of the Army, then God help the Army and the American taxpayer.’61 Roche was not confirmed in the post.62

On resigning Roche immediately joined the board of Orbital Sciences Corp., a company involved in the development of space-based weapons.63 In September 2008, Roche joined the board of Compudyne, which calls itself ‘an industry leader in sophisticated security products, integration, and technology for the public security markets’.64

While the Air Force long maintained that Druyun was the lone gunman on the Boeing scandal, investigations fingered other culprits at the Pentagon such as Roche, while a wide cross-section of Pentagon officials, political appointees, White House politicos and Congressmen were involved in pushing for the leasing deal regardless of value to the taxpayer. They included the Air Force’s top acquisitions official, Druyun’s boss Sambur, who had been appointed to the role in 2001, after managing the $1.5bn arms business of ITT Industries. He resigned in January 2005 in an attempt to escape criticism over his role in the Boeing debacle.65

Boeing paid $615m in settlement in May 2006 for its actions in the tanker scandal and the illicit possession of thousands of pages of proprietary documents from its rival Lockheed Martin that it used to win contracts.66 A week after the settlement was announced, an uncensored version of a 2005 Defense Department Inspector General’s report on the deal showed that the original report had concealed significant information. The Inspector General, Joseph Schmitz, submitted his report to the White House before its release, whereupon it was scrubbed of damning information, including forty-five deletions of references to White House officials.67 The original public release had redacted Boeing emails and several references to the company. Freedom of information requests revealed that Boeing and government agencies, in addition to the White House, had been allowed to see the unredacted report before its release. References to members of Congress and staff were also redacted and replaced with vague identifiers. Some of the deletions referred to an agreement between the White House and Congress to shield information from the public and were justified with the following note: ‘The Report does not include full verbatim text of this email because staff of the White House Counsel has indicated its intent to invoke an agreement between Members of Congress and the White House covering the production of tanker-related emails – the inclusion of which full verbatim text in the Inspector General’s independent judgment would have circumvented the agreement.’68

Schmitz’s report did not include any of the comments of either Donald Rumsfeld or Paul Wolfowitz because, according to Schmitz, they had not said anything ‘relevant’. The Washington Post editorialized that ‘If so, investigators must not have asked the right questions. To offer just one example: Mr Roche recounted that Mr. Rumsfeld called him in July 2003 to discuss his then-pending nomination to be Secretary of the Army and “specifically stated that he did not want me to budge on the tanker lease proposal.”’69 A transcript of the Office of the Inspector General’s interview with Rumsfeld revealed that when asked by investigators whether he had approved the deal despite widespread violations of procurement rules, Rumsfeld answered: ‘I don’t remember approving it. But I certainly don’t remember not approving it, if you will.’ He was also asked about the fact that in 2002 President Bush had asked Andy Card to intervene in the Pentagon discussions with Boeing: ‘I have been told,’ Rumsfeld said, ‘that discussions with the President are privileged, and with his immediate staff.’ Much of the rest of the transcript was blacked out and none was included in the public report.70 Schmitz’s team also failed to interview anyone outside the Department of Defense, despite the involvement of several lawmakers, administration officials and even the President.71

Senator Chuck Grassley wrote to Schmitz questioning his ‘decision to submit an Inspector General (IG) report to the White House Counsel for review’. Grassley wrote that the legal authority Schmitz cites ‘appears to be inapplicable and invalid’, that the White House–Congressional agreement has ‘no legal standing whatsoever’ and that Schmitz was ‘not bound by the protocols’. Furthermore, Grassley argued that because of the White House’s redactions ‘potential targets were shielded from possible accountability’.72

John McCain lambasted Schmitz in a Senate hearing on the scandal. In relation to Edward Aldridge, the Pentagon’s chief weapons buyer who approved the deal as he retired and failed to get proper approvals despite suggesting that they were in place, McCain suggested to Schmitz: ‘Mr Aldridge basically lied.’ Schmitz replied: ‘We know generally that … he and others within the Air Force and [the Office of the Secretary of Defense] were trying to treat the appropriations language as if it had waived a whole bunch of legal requirements.’ An incredulous McCain retorted: ‘Don’t you think it would have been important to have his testimony?’ To which Schmitz responded: ‘My staff couldn’t reach him.’ ‘You couldn’t get hold of him through Lockheed Martin?’ asked McCain with more than a hint of irony. ‘I don’t think it’s a mystery,’ Senator John Warner chipped in, ‘he’s on the board of a major defense contractor, it seems to me he’s locatable.’73 It was even easier than Warner might have supposed, given that Schmitz’s brother, former deputy counsel for George H. W. Bush, worked as a registered lobbyist for Lockheed Martin at the time of the Boeing deal and probe.74

In 2005, Joseph Schmitz resigned as Inspector General for the Department of Defense under a cloud of allegations that he had allowed inappropriate political interference by the White House in not only the Boeing probe but other politically sensitive investigations as well. At other points during his tenure Schmitz had failed to address documented evidence of KBR engagement in human trafficking, seizure of workers’ passports, threatening workers that their food and water would be cut off to force them to go to Iraq, and lying to workers about their safety or contract terms.75 Soon after resigning Schmitz went to work for Blackwater, one of the largest and most controversial contractors operating in Iraq.76

The tanker competition was restarted in 2007 and was awarded a year later to a bid by Northrop Grumman and EADS, based upon the Airbus 330 aircraft. Boeing protested at the result, claiming that the competition had unfairly favoured the larger Airbus aircraft, that there had been manipulation of evaluation criteria, and the application of unstated and unsupported priorities among the key system requirements.77 The GAO sided with Boeing and recommended the competition be rebid.78 It was briefly reopened in July 2008 for an ‘expedited recompetition’ before being cancelled again in September due to uncertainty that the process could be completed before the end of the year. It was put on hold until after the US general election.79

In September 2009, the bidding process was restarted once again, this time for 179 aircraft for $35bn over forty years. On this occasion Northrop withdrew in protest, claiming that the set-up of the competition favoured Boeing.80 Despite Northrop’s departure, EADS continued with the contest.81 Both sides accused the other of benefiting from illegal subsidies. The World Trade Organization (WTO) first ruled that Airbus had received illegal financial aid and then released an interim ruling that Boeing had also received illegal subsidies, though at a lower level than those received by Airbus.82

This farcical deal highlights the conflicts of interest that are implicit in an MICC dominated by a rapidly revolving door between government and the defence sector. It also serves as a reminder that even in the rare cases when anyone is brought to book, they get off so lightly that there is little disincentive for the illegal practices to continue.

At the Paris Air Show in 2009, as the bidding process was restarting for the third time, I suggested to the head of Boeing’s tanker division that their corruption in the first tender would surely count against them now. The tall former military officer went puce and looked as though he might answer me physically, before a rotund media officer placed himself between us.

*   *   *

In June 2005, news broke that Congressman Randy ‘Duke’ Cunningham of California, a war hero and member of the House Defense Appropriations subcommittee, had received more than a million dollars in payments from defence contractors for whom he had secured favourable treatment from the Pentagon. He resigned from Congress and was sentenced to just over eight years in prison for conspiracy to commit bribery and fraud. The media delighted in salacious stories of lavish, champagne-drenched parties aboard luxury yachts involving numerous female guests and prostitutes. His is hardly the only tale of corrupt politicians in the US seduced by militarized money but it is among the most colourful.

Cunningham sped to instant stardom on 10 May 1972 when he shot down three MiGs, which, together with the two kills he had already made meant that he had become the first fighter ace since the Korean War.83 At the tail end of an unpopular war this small victory and new title made him a celebrity and changed the course of his life. The ‘Duke’ persona – attention-seeking, self-righteous, with an outsized sense of entitlement – stuck firm. ‘In my opinion, Randy stopped developing as a person on 10 May, 1972,’ said Jack Ensch, a fellow pilot who flew with Cunningham and spent seven months as a POW after being shot down. ‘He was frozen in time, and he never advanced from there.… I always say it was part of my life, it wasn’t my life. With Randy it became his life. And you could say it was the end of his life.’84

Cunningham turned the event into a myth that defined him. He published an autobiography in which he so embellished his opponents that his ghost-writer wrote a correction for the historical record after more research.85 As a fighter ace Cunningham was a hit with the press in Saigon. He returned home to the US and planned a two-week speaking tour that turned into a five-month-long, three-city-a-day media campaign.86 Cunningham loved the attention and continued seeking it: he bought personalized numberplates for his sports car reading ‘MIG ACE’ and invited a photographer along to capture him affixing them. The picture was printed in fifty newspapers around the country.87

He was transferred to Miramar, the Navy fighter pilot training school made famous by the movie Top Gun, where he eventually commanded Fighter Squadron 126. He was a talented pilot but a poor leader, with an entrenched sense of entitlement and immunity.88

This attitude, together with material greed, had revealed itself early in Cunningham’s career. After his third dogfight victory he was to be awarded the Navy Cross, the highest honour the Navy can bestow. Just before the ceremony Cunningham confronted the base commander and told him that he and his co-pilot were boycotting the ceremony to hold out for a higher award, the Medal of Honor. The base commander spat back: ‘The way you get the Medal of Honor is you don’t hold out for it – you die for it. You ain’t going to get the Medal of Honor. Here’s what’s going to go down: First, both of you are going to go get a haircut. Then you’re going to get your blues cleaned and pressed with gold braid and make sure you’ve got a good shine on your shoes. And tomorrow, at ten o’clock, a grateful nation is going to heap praise on two of its lofty heroes and give you the Navy Cross. And you’re going to accept them and be gracious and charming. Anything less than that and I will personally rip your tits off. Now get out of my office.’89 Cunningham told the commander: ‘Well I was counting on getting that money’ – the $100 a month stipend and small tax breaks given to Medal of Honor awardees.

‘Duke’ made the frequent assertion that the film Top Gun was based on him. It even appeared on his Congressional website. The movie’s scriptwriter, Jack Epps, laughs at Cunningham’s self-serving assertion: ‘That is a myth. We didn’t spend two minutes thinking about Randy Cunningham.… I never talked to Randy Cunningham – not once. And I never really paid attention to him or his story.’ In 1988, Cunningham nevertheless formed a company, Top Gun Enterprises Inc., to sell his book and other souvenirs, piggybacking on the success of the film.90

Cunningham’s fame, including as a CNN commentator, enabled him to give speeches for $10,000 a time,91 and to interact with prominent people, including several Republican politicians, leading to a run for Congress in San Diego’s 44th Congressional district in 1990. He wrapped himself in the flag, campaigning in his bomber jacket and describing his opponent, Jim Bates, as a ‘MiG to be shot down’. Bates had faced allegations of sexually harassing his staff, so Cunningham labelled him ‘a sexual pervert who’s guilty as sin’.92 During the contest, it was discovered that Cunningham had not been registered to vote between 1966, when he was twenty-five, and 1988. His first wife later explained that Cunningham had forbidden her from registering to vote over fears that he would be subject to higher state taxes. Despite this, Cunningham managed a narrow win by 1,659 votes.93

As a Congressman, Cunningham was distinguished by a propensity to tears: days after being sworn in he cried over a vote to authorize the Gulf War. He bawled when Newt Gingrich stepped down as Speaker of the House, wept at the impeachment of Clinton, blubbered at the death of Ronald Reagan, shed tears when his son was convicted of drug dealing, choked up talking about his mother and sobbed when the United States recognized Vietnam. Cunningham’s recollection of his actions on 10 May 1972, which he frequently invoked on the House floor, on television and profitably at lobbyist, campaigning and fundraising events, always led to copious tears.94

He was also known for personalizing political arguments, frequently brow-beating opponents with his remarkable virtue built on his heroic military career. Patronizingly he would explain things to ‘the people who have never been in the military’, which by his definition included all Democrats and anyone who opposed a Republican defence budget. Early in his Congressional career he castigated Beverly Byron, a Democrat from Maryland who opposed the budget: ‘Mrs. Byron has never strapped herself into it [a military jet]’, she lacked ‘the background she needs’ to talk about the plane. Byron, however, was from a military family and had flown new equipment as a test pilot. She retorted: ‘Let me assure him that I have, indeed, been strapped into a jet.… I need not say that I have eleven trap shots and eleven cattle shots from the USS Kennedy on A-6s and F-14s. I also happen to be the only female who has ever flown in an SR-71 over Mach 3.2.’ The cheers that greeted this put-down had little impact on Cunningham, who was widely seen as a taunting bully, boorish and not particularly bright.95

At an event for cancer survivors Cunningham, referring to his own experience of a rectal procedure for prostate cancer, described it as ‘just not natural, unless maybe you’re Barney Frank’, the highly respected, openly gay Congressman who later responded that Cunningham ‘seem[ed] to be more interested in discussing homosexuality than most homosexuals’.96 Cunningham gave the finger to an elderly cancer patient at the event after the 74-year-old had called for cuts in the military budget. ‘Fuck you,’ Cunningham shouted at him.97

One thing ‘Duke’ did excel at was fundraising for fellow Republicans, boasting that he had raised over $1m for the ‘Grand Old Party’ in 1996 when he campaigned for sixty candidates. He was desperate to be appointed to the Appropriations Subcommittee on Defense. Newt Gingrich engineered the move in 1997 despite the protests of the committee Chairman, who felt Cunningham was jumping over more senior colleagues. He also inveigled his way onto the Select Committee on Intelligence in 2001. And the following year he found himself a safer Republican seat, moving to California’s 50th district after it had been gerrymandered.98 Thanks to his committee appointments, Cunningham was well placed to supply his constituents with pork from earmarks. But trouble was brewing.

In mid-May 2005, Marcus Stern, a news editor for the small local Copley news service, was looking through a recently released report on privately funded Congressional travel. The report had caused quite a stir, showing travel worth $50m on corporate jets and to posh hotels and resorts paid for by special interest groups, lobbyists and arms companies. Cunningham, as the Copley news service’s local politician, was Stern’s focus. The Congressman’s travel figures were not bad compared to others; he had taken six trips between January 2000 and June 2005 valued at $25,572.04. Two of them intrigued the reporter, trips to Saudi Arabia paid for by a Saudi businessman living in the US, rather than by the Saudi state as might be expected of a trip to promote Saudi political and business relations. Stern attempted to investigate the trips but finding no obvious links between Cunningham and the Saudis he decided to undertake a lifestyle audit to check if the Congressman had more money than he ought to. What he found would spark a major political scandal.99

The reporter came across a national real estate database which showed that Cunningham had bought a mansion in the extremely wealthy neighbourhood of Rancho, Santa Fe. It was assumed the Congressman was living on his $154,700 per annum salary and his wife’s earnings as a high school administrator. But he had bought the house for $2.55m with two mortgages, one for $500,000 and another for $595,000, leaving a significant down payment of $1,455,000. Cunningham probably realized some money from the sale of his previous home, which he had bought for $425,000 in 1988 with financing of $315,000 and sold fifteen years later for $1.675m. That might have been the source of the down payment on the mansion. But Stern noticed something curious in the paperwork: the house had been sold to a company and not an individual or couple.

It was sold to 1523 New Hampshire Ave. LLC, which had a Mitch Wade listed as its president. Wade was also president of another company, MZM Inc., which was located at 1523 New Hampshire Ave. in Washington DC. MZM had, from nowhere, become a top 100 defence contractor since 2003. The company had gone from having no prime government contracts to contracts worth $100m in two years.100

A more intensive look into the real estate data revealed that Wade had bought Cunningham’s old house and almost immediately put the place back on the market at an asking price of $1.68m, slightly more than he’d bought it for. The house sat on the market for eight months before selling for only $975,000, a $700,000 loss for Wade. Clearly Wade had paid Cunningham much more than the house was worth. The overpayment, while interesting, was not illegal nor damning evidence of anything nefarious. Evidence was needed of a quid pro quo from a Congressman on powerful committees dealing with military and intelligence contracts to a remarkably successful defence contractor.101

When Stern called Mitch Wade to ask him directly about the house deal, his press secretary responded that the company had been looking to move to the San Diego area and that the best price had been obtained in both the buying and the selling of the house. Cunningham claimed he had sold the house for as much as he could get, noting that his estate agent had set the price. However, he acknowledged that he had supported contracts for MZM, but claimed it was no different to other arms companies he had supported due to their ties to San Diego, such as Qualcomm, Titan, SAIC and TRW. Cunningham suggested that all he had done for these companies was to ‘write letters of support, saying, hey, I support this program of General Umptiump or Admiral Uptiump supports this program. But I don’t make the decisions on what’s going to be funded or not. It’s based on what the military wants. National Security.’ Of course in the case of earmarks this was untrue. In fact, Cunningham even chatted to the reporter about Charlie Wilson and his success in pushing his pet project.102

The discovery of the unusual house purchase led to numerous reporters, bloggers, amateur researchers and law enforcement officials turning their attention on Cunningham and his campaign donations, valuations of the house and even other lawmakers who benefited from Mitch Wade. Reporters received tip-offs which led them to two boats: the newer of them was registered to Wade, but named the Duke-Stir and by all accounts was used solely by Cunningham. It transpired that Wade also paid everything for the boat, including the yacht club membership and slip fees. Within a matter of days of the first allegations being published, Cunningham was under investigation by the FBI. Mitch Wade soon agreed to cooperate in exchange for a reduced sentence.103

Cunningham tried, cack-handedly, to cover up evidence of the long-running bribery and kickback schemes he had been running. He attempted to coach the owner of an antiques store where he had been a regular customer to say that while Wade paid Cunningham’s bills, he was always paid back. And the Congressman asked the owner to store away some of the many expensive items he had bought. His estate agent was asked to lie about who set the price of his house and whether it was fair market value. And Cunningham forged a letter purporting to show his astonishment at Wade making a loss on the deal in what prosecutors described as ‘repeated and egregious attempts to both fabricate evidence and influence witnesses’. Even the night before he was locked up Cunningham left several suitcases and duffel bags in his soon-to-be-ex-wife’s driveway, containing dirty underwear and $32,000 in cash.104

Despite his disingenuous efforts to conceal it, the evidence against Cunningham was overwhelming. He was sentenced to eight years and four months in prison. He was also fined $1,804,031.50 in back taxes on his corrupt gains, which he would have to pay out of the Congressional and Navy pensions that he still received despite his disgrace.105

Mitch Wade, who helped put Cunningham in prison, was sentenced to thirty months in jail and a fine of $250,000. He benefited from over $150m in corrupt defence contracts, a tab the taxpayer will be picking up.106 Before he set up MZM in 1993, Wade had worked in a variety of civilian, military and intelligence jobs at the Pentagon. He had a high-level security clearance, contacts, and excellent knowledge of the military and intelligence worlds.107

In 1998, he was part of a contract run by Brent Wilkes, who had worked as a tax specialist for Deloitte and Arthur Andersen before setting up his own business, World Finance Group Ltd, in 1984. While the company handled real estate transactions and equipment and aircraft leasing, its name was suspiciously similar to a CIA front involved in the Bay of Pigs fiasco. One of his biggest clients was South Pacific Islands Airlines, which ferried US and other military personnel around the Pacific. Wilkes also did business in El Salvador and Honduras, gaining access to the upper levels of Honduran society.108 He also regularly escorted Congressmen and contractors who were visiting Central America, providing lavish parties and prostitutes to relieve the tedium of working travel.109

Wilkes’s best friend from childhood, Kyle Foggo, better known as ‘Dusty’, became a high-ranking CIA official. Foggo was posted in Honduras and Panama as a CIA money man, handling contracts, logistics and financial dealings. It was widely rumoured that Wilkes was connected to the CIA, where he worked with Foggo, who had been involved in the Contras’ campaign to overthrow the Sandinista government of Nicaragua.110

Wilkes’s mysterious trips to Central America had ended in 1987, around the time of the Iran–Contra scandal and he shut down his World Finance Group Ltd business. By 1992, he was making a very good living as a political consultant, distributing bundles of campaign contributions on behalf of his clients. Some of the contributions turned out to be illegal. On behalf of a digitizing company he was involved in persuading a legislator to earmark a project into a bill to force the California Department of Transport to digitize its maps and blueprints. He had lobbied and made contributions to Cunningham’s predecessor in his second Congressional seat, and made contributions to other notable names, such as John Murtha, to earmark similar projects for military use of the technology. Wilkes had other Congressmen in his pocket, earmarking projects. In 1995, he bought the rights to a rival company’s document digitizing system, hired engineers and created a new company called ADCS Inc. He began courting Cunningham as a sponsor, taking him to posh restaurants and in 1997 bought him a jet boat for $11,255. Cunningham pushed ADCS, winning them an increase in their contract with the Pentagon.111

Cunningham used the return of control of the Panama Canal to Panama, which was scheduled for December 1999, to promote a project to digitize strategically useful documents on the canal. As ADCS was not yet qualified to be a prime contractor for the government, it worked through a qualified contractor for the Department of Veterans’ Affairs. Despite the department having nothing to do with the digitization of the Panama documents, Wilkes arranged for a friendly Congressman in charge of the Veterans’ Affairs Appropriations Subcommittee to be given campaign money. Soon afterwards, ADCS and its partner won a contract for the work. Cunningham’s role was then to bully and cajole programme managers at the department to sign off on unsubstantiated, dodgy and outright fraudulent billing for the projects, threatening any civil servants who objected.112 Mitch Wade was hired in 1997 to provide high-level, security-cleared staff for ADCS’s project. This enabled Wade to get to know ‘Duke’ Cunningham.

After 9/11 and the declaration of the War on Terror, there was virtually no limit on contracts in the military-intelligence field. With Cunningham’s help MZM garnered $163m in contracts, nearly all sole-sourced and classified.113 The company also won a so-called blank-purchase agreement worth $225m. This was a controversial contracting method meant to simplify high-volume business with the government for everyday requirements, but it had little oversight, competition or transparency.114 MZM extracted huge profit margins on the dubious contracts. For example, 850 per cent profit on a $6m earmark attached by Cunningham for storage devices for Counter Intelligence Field Activity, which had not requested the devices and did not need them. Wilkes and Wade bought the devices off the shelf for $700,000. MZM was also involved in contracts in Iraq for translators, and countering improvised explosive devices (IEDs), though the details are classified.115

MZM and Wade gave thousands in bundled campaign contributions to Congressmen, with Wade often illegally paying back MZM employees who were pressured into making individual political contributions.116

Since 1996 Wilkes had been plying Cunningham with prostitutes, private jet travel and limousine services. He gave the war hero $700,000 in gifts and cash in exchange for millions in contracts. The bribes from Wade and Wilkes were passed both directly and through sham purchases such as the house and boats, as well as antiques and a Rolls-Royce.117

The quid pro quo was explicit. When Cunningham’s home and boats were raided a document was found with Wade’s cooperation: the bribe menu. While sitting in a restaurant for lunch, Cunningham had bargained with Wade over his prices for contracts. Written on Congressional notepaper, cryptic to the uneducated eye, the menu showed that Cunningham wanted a $140,000 yacht for the first $16m in contracts, then $50,000 for each additional million dollars. After $340,000 in payments for contracts worth $20m, the cost of each further million would be dropped to $25,000.118 (See p. 327.)

In addition to his involvement with Cunningham, Mitch Wade also pleaded guilty to making illegal campaign contributions to other politicians, though supposedly without their knowledge, and to bribing a Defense Department official and other employees in return for their help in awarding contracts. The Pentagon employees were not named in court filings.119 Brent Wilkes was serving a twelve-year sentence for bribery, conspiracy, fraud and wiretapping but maintains his innocence. He was granted bail in January 2009 while he appeals his conviction. He is still out on bail, and in July 2010 won a poker tournament, earning $10,000.120

Kyle Foggo rose to become an Executive Director at the CIA, responsible for all the agency’s external contracts. He was described as a freewheeling covert logistics officer, credited with organizing the secret supply pipelines that fanned out from Europe at the onset of war to remote regions of Afghanistan and Iraq.121 In 2008, Foggo pleaded guilty to directing CIA contracts to his friend Wilkes. They included a $2m to $3m contract for supplying bottled water to Iraq and Afghanistan, despite Wilkes’s company having no experience in the area. Foggo received bribes from Wilkes and a trip to a Honolulu estate, and had been offered a high-ranking job at one of Wilkes’s companies.122 He was sentenced to thirty-seven months in prison in February 2009.123

Figure 5: Randy Cunningham’s bribe menu

Finally Thomas Kontogiannis, a politically connected Greek developer, was also given a jail sentence for bribing Cunningham. Kontogiannis helped finance the purchase of two homes for the Congressman, even though he knew the money for the purchases had most likely been obtained illegally. He also bought a yacht at a considerably inflated price from Cunningham. Prosecutors argued that in exchange, Kontogiannis used the former war hero to meet world leaders, including President George W. Bush and the Saudi Crown Prince and Defence Minister, Prince Sultan.124

*   *   *

On 20 May 2010, Mark Critz picked up the keys to his old boss’s Capitol Hill office. Two days previously, the former Murtha staffer had won the Johnstown seat left vacant by John Murtha’s death. Many of the defence contractors that benefited from Murtha’s power to dole out Pentagon contracts lined up to help elect Mark Critz, who immediately promised to work as hard as his mentor to shepherd federal money and jobs to the district. Contractors, local business officers and lobbyists contributed $142,400 in the early days of Critz’s campaign, in addition to the $21,400 from large defence contractors. Four former lobbyists of the disgraced PMA Group also contributed to his campaign.125 As local district director for Murtha’s office in Johnstown, Critz was vitally important in recommending to Murtha which companies should receive earmarked contracts.126

Lest anyone think John Murtha was alone in his indiscretions, it is worth noting that twelve of sixteen members of Murtha’s House Appropriations Subcommittee on Defense mimicked the Chairman’s pattern of earmarking, providing targeted military funds to specific contractors represented by former staffers and friends.127 Despite President Obama’s vow to sharply reduce them, as Critz took over from his former boss it was confirmed that the value of Congressional earmarks increased to almost $16bn in fiscal 2010.128

The use of earmarking has exploded since the Reagan years. When Reagan took office in 1981 there were fewer than ten earmarks in the Transportation Bill according to the conservative Heritage Foundation. In 1988, Reagan vetoed the bill because of the 121 earmarks in it. In 1991, earmarks grew to 538, then 1,850 in 1998 and in 2005 reached 6,373, costing $24.2bn according to Taxpayers for Common Sense.129 In 2009, the total earmarks listed by the official OMB database numbered 11,124, worth $15.2bn.130 Along with the increased support in one’s district, earmarks for corporate use elicit support in return, normally as campaign contributions. While the pretence can be maintained that there is no direct quid pro quo for earmarks, the reality allows the system of legalized bribery to thrive in Washington. John Murtha would implicitly acknowledge the connection, according to an unnamed lobbyist: ‘His basic pitch was: “Thank you for helping me so I can continue to help you.”’131

Attempts have been made to roll back aspects of this corruption. In March 2010, the rules were agreed to ban earmarks for for-profit organizations, though this still leaves the door wide open for money to be diverted through non-profit ones. There have also been moves to increase the transparency of earmarks. The Earmark Transparency Act would force all sponsors and co-sponsors of earmarks to be publicly identified along with their earmarks on a public website. The Act is currently in the Congressional process.132

This focus on John Murtha, Charlie Wilson, Darleen Druyun, Randy Cunningham and the scandals they have been involved in, while important, must be seen for what they reveal about the political and economic system: that they are not the exception but part of business-as-usual for Congress and defence contracting. What is never mentioned, for obvious reasons, are the countless scandals, conflicts of interest and abuse that do not result in publicity or prosecution. Hucksters like Cunningham, Murtha and Druyun make the system safer for the more systemic legal bribery and corruption that takes place in the day-to-day practices of the MICC.