Corporate Guilty Plea Indicates DOJ’s Commitment to Enforcement in Defense Industry

The US Department of Justice’s recent prosecution of Cambridge International Systems Inc. illustrates its ongoing pursuit of corporate criminal enforcement in the defense arena.

In recent years, DOJ has emphasized its commitment to corporate enforcement by unveiling a series of new policies designed to curb corporate crime and incentivize improved compliance programs. [1] These policies, which have been accompanied by additional corporate prosecutions, pose unique issues for government contractors and other companies in the defense space.

Earlier this year, DOJ announced that Cambridge International Systems Inc., a Virginia-based defense contractor, had pleaded guilty to conspiracy to commit bribery for offering free meals, sports tickets, and other things of value to a Naval Information Warfare Center (NIWC) employee. In exchange, the employee ensured that Cambridge was awarded over $100 million in US Department of Defense contracts. The Cambridge guilty plea signals that DOJ remains committed to corporate criminal enforcement—especially when it comes to fraud and corruption surrounding government contracts and defense procurement.

According to court documents, beginning in 2014, Cambridge employees provided things of value to James Soriano, an engineer and project lead at the NIWC in San Diego, California. [2] Soriano, who was a contracting officer representative, had the authority to influence the award of defense contracts, approve contractor invoices, conduct contract performance reviews, and oversee contractor performance. (Soriano was separately indicted and has pleaded guilty to bribery. [3])

According to Cambridge’s plea agreement, Cambridge employees provided Soriano with meals and entertainment, with most items valued at less than $1,000—some meals were valued as low as $53. Cambridge also gave Soriano a ticket to the Major League Baseball All-Star game in 2018. In addition, Cambridge hired Soriano’s friends and family members on Soriano’s recommendation.

In exchange for these benefits, Soriano utilized his position at NIWC to advance Cambridge’s business interests. Specifically, Soriano ensured that Cambridge was awarded two high-paying defense contract task orders, leading to over $7 million in profits. Cambridge employees also drafted various procurement documents that Soriano used for bidding processes where Cambridge was competing against other companies.

Cambridge will be sentenced in July 2024. The company has already agreed to forfeit over $1.6 million in illicit proceeds and faces a fine of close to $15 million for its actions. Beyond financial penalties, Cambridge faces potentially severe civil and regulatory consequences, including potential suspension and debarment.

ANALYSIS

In recent years, DOJ has ramped up its rhetoric on corporate criminal enforcement. This rhetoric has been accompanied by increased enforcement involving defense contractors.

In 2020, DOJ prosecuted a South Korean company, SK Engineering & Construction Co. Ltd., in connection with a fraudulent scheme to obtain US Army contracts through payments to a US Department of Defense contracting official and the submission of false claims to the US government. SK Engineering ultimately pleaded guilty to wire fraud, paid $68.4 million in criminal and civil fines, and agreed to not seek US government contracts for a multiyear period.

In 2021, Balfour Beatty Communities LLC (BBC), a military housing contractor, pleaded guilty to fraud against the United States. BBC accepted a guilty plea and agreed to pay over $33.6 million in criminal fines and over $31.8 million in restitution to the US military, serve three years of probation, and engage an independent compliance monitor for a period of three years.

More recently, a former four-star admiral and two business executives were arrested in May 2024 for allegedly participating in a bribery scheme while the admiral was commanding US Naval Forces in Europe and Africa.

The Cambridge case indicates that DOJ’s corporate criminal enforcement focus extends to government procurement and contracts. Notably, the charges were brought by the US Attorney’s Office in the Southern District of California with no publicly acknowledged involvement from Main Justice. Given the number of opportunities and DOJ’s messaging surrounding corporate enforcement, both Main Justice and the US Attorney Offices are likely to show interest in bringing corporate criminal enforcement cases involving government procurement and contracts.

This increased interest from DOJ also heightens the risk of suspension or debarment for government contractors from future government work. In most cases, government agencies have significant discretion to decide whether there are sufficient grounds for suspension or debarment. Government contractors subject to DOJ investigations, litigation, and resolutions run the risk of being excluded from receiving government contracts or financial assistance awards.

The Cambridge matter demonstrates that corporate criminal enforcement extends beyond the “big bribe” cases, such as SK Engineering. The bribes in the Cambridge case were relatively small: dinners, baseball tickets, and other gifts. But federal ethics rules and criminal laws prohibit providing bribes, gratuities, or things of value in connection with federal contracts or subcontracts. Compliance programs that don’t “sweat the small stuff” run the risk of criminal, civil, and regulatory exposure.

Due to high-value contracts and the close and frequent interaction with government officials, the defense industry faces unique risks surrounding corruption and bribery. As a result, companies in the defense space should be conscious of their anti-corruption and government contract compliance, especially regarding government disclosures and due diligence, in order to mitigate these risks.