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Defense contractors pay $8M to settle defective flares allegations

Kilgore Flare Company and ESM Group have agreed to pay $8 million to settle government allegations related to the False Claims Act.
By Richard Tomkins   |   March 29, 2016 at 12:09 PM
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WASHINGTON, March 29 (UPI) -- Two U.S. Defense contractors are settling allegations of selling defective counter-measure flares to the U.S. Army in violation of the False Claims Act.

The U.S. Justice Department identified the companies as the Kilgore Flares Company of Tennessee and the ESM Group of New York.

The two agreed to pay a total $8 million to settle the matter, with ESM paying for allegedly avoiding the payment of customs duties on Chinese-made magnesium powder used in the flares.

"The Department of Justice is committed to ensuring that contractors do not cut corners in manufacturing critical items sold to the U.S. military," said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department's Civil Division. "These settlements also show that the department will aggressively pursue those who avoid paying duties to gain an unfair business advantage over competitors who abide by the rules."

Infrared counter-measure flares are used by the military to divert enemy heat-seeking missiles away from aircraft. Ultra-fine magnesium powder -- combined with other materials -- is used in the flares for high-temperature burning that mimics the heat of aircraft's engine.

Kilgore's contracts with the Army prohibited the use of magnesium powder from foreign countries, except Canada.

The United States alleged that from July 2003 through May 2005, ESM knowingly misrepresented the content of magnesium powder imported from China to avoid paying anti-dumping customs duties -- at that time, 305 percent.

The government also alleged that from March 2005 through August 2006, Kilgore used the illegally imported Chinese magnesium powder it bought from ESM in the countermeasure flares it sold to the U.S. Army.

"Our warfighter -- along with everyone who relies upon them, including their families -- need to know that the equipment they use is of the highest quality and dependability," said U.S. Attorney William J. Hochul Jr. of the Western District of New York.

Five former employees and agents of ESM pleaded guilty to criminal offenses related to the magnesium importation scheme in earlier criminal proceedings and were ordered to pay more than $14 million in restitution.

The Justice Department said the settlement with ESM resolved a lawsuit filed under the whistleblower provision of the False Claims Act, which allows private parties to sue on behalf of the United States those who falsely claim federal funds or who avoid paying funds owed to the government.

The whistleblower lawsuit was filed by Reade Manufacturing Company, a domestic manufacturer of magnesium powder. It received $400,000 as part of the settlement with ESM. The lawsuit against ESM is captioned United States ex rel. Reade Manufacturing Co. v. ESM Group, Inc., Civ. No. 10 - CV - 504-S (W.D.N.Y.).

Claims resolved by these settlements are allegations only, the Justice Department said, and "there has been no determination of liability except as admitted by the individual defendants in the criminal proceedings."

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