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GAO Ties Defense Contractor to Diversion Of U.S. Aid to Israel

October 27, 1993

WASHINGTON (AP) _ An American aircraft engine maker helped Israeli defense officials divert millions of dollars in U.S. aid to corrupt Israeli military officers, congressional investigators said today.

The General Accounting Office found that Pratt & Whitney and the Israeli Ministry of Defense assisted in diverting $12.5 million in U.S. military aid from 1986 to 1991 through an overpricing scheme organized by former Israeli air force Brig. Gen. Rami Dotan and others.

″This sordid story emphasizes the need for better cooperation from those receiving foreign military assistance,″ said Rep. John Dingell, D-Mich., chairman of the House Energy and Commerce oversight and investigations subcommittee.

Pratt & Whitney, headquartered in East Hartford, Conn., is a division of United Technologies Corp., and one of the government’s two main jet engine contractors. Robert Daniell, chairman and chief executive officer of United Technologies, said he regretted the involvement of Pratt & Whitney in the scheme.

″It is an embarrassment to me personally and to the corporation,″ Daniell said in a statement prepared for testimony today before the House Energy and Commerce subcommittee on oversight and investigations.

″The nature of Pratt & Whitney’s involvement, according to information we have developed, was as an unwitting participant in a deception contrived by former Israeli Air Force General Rami Dotan and others,″ Daniell said.

Dotan is serving a 13-year prison term in Israel for stealing millions of dollars of U.S. aid intended for the Israeli air force.

Last year, General Electric Co. pleaded guilty to criminal charges of conspiring with Dotan to defraud the Pentagon and the Israeli Defense Ministry. The company agreed to pay a $70 million settlement.

Dingell asked the GAO to examine Pratt & Whitney’s role in the case after GE’s conviction.

A Justice Department official, speaking on condition of anonymity, said Pratt & Whitney was under investigation in the case, but would give no details.

The GAO, Congress’ investigative arm, said the scheme involved two small Pratt & Whitney subcontractors - Yrretco and Air Tech.

The companies are owned by Ben Sonnenschein, a retired New Jersey clothing firm manager who transferred excessive profits to a relative who was a close associate of Dotan in Israel. Sonnenschein pleaded guilty last year to currency and income tax violations and received a suspended sentence.

In one set of transactions, the Israeli Defense Ministry amended two contracts with Pratt & Whitney to finance subcontracts, the GAO said. Two orders worth a total of $2.5 million providing for computer software and four orders totaling $10 million were issued.

When it received the software and equipment from subcontractors, Pratt & Whitney sent it to Israel without inspecting or testing the work to determine its true value. In return, the company got a 45 percent markup.

The transactions ended with the arrest of Dotan in October 1990. At that time, Pratt & Whitney had paid $6.5 million to Yrretco and Air Tech, although the two companies had performed only about $600,000 worth of work, the GAO said.

Richard Steiner, director of the GAO’s special investigations office, said in his prepared testimony that investigators believe ″Pratt & Whitney should have known or strongly suspected that government of Israel officials and other Israelis were diverting U.S. funds.″

But Daniell said no Pratt & Whitney employee deliberately or knowingly violated company policies or government regulations.

He said the diversion occurred because the company dealt with an Israeli military hero who demanded total responsiveness from suppliers, that questions drew terse references to Israel’s national security and that weaknesses in subcontracting procedures ″permitted General Dotan and his confederates to subvert the process.″

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