Defense Contractor Probe Turns Focus to Congress

By RONALD J. OSTROW and JOHN M. BRODER

June 19, 1988 12 AM PT

Times Staff Writers

WASHINGTON — Federal investigators looking into widespread fraud and bribery in the nation’s defense contracting system are now focusing their attention on potential wrongdoing in Congress, where one representative is considered a possible suspect and at least one other is suspected of passing inside information, sources said Friday.

In addition to Rep. Bill Chappell Jr. (D-Fla.), chairman of the House Appropriations subcommittee on defense, House Armed Services Committee member Roy Dyson (D-Md.) is under investigation, The Times has learned.

Chappell said Thursday that his committee is not given information that would be useful to defense contractors. And Dyson said through an aide Friday: “To the best of our understanding, such reports are totally unfounded.”

The FBI investigation, code-named “Ill Wind” in bureau files, is also exploring the activities of the late Rep. Joseph P. Addabbo (D-N. Y.), Chappell’s predecessor as head of the defense subcommmittee, according to sources familiar with the inquiry. Addabbo died in April, 1986.

But law enforcement sources cautioned that the investigation on Capitol Hill is in its early stages and may not yield indictments.

Pentagon sources said Friday that two more Defense Department officials are under scrutiny for their roles in the alleged procurement scandal, in addition to the five high-ranking purchasing officers whose offices already have been searched.

The investigation was aided by wiretaps and electronic listening devices planted in the offices or homes of Victor D. Cohen, deputy assistant Air Force secretary for tactical warfare systems, and James E. Gaines, a top Navy procurement officer. Three other current Pentagon purchasing officials were named last week as subjects of the probe.

A central figure in the inquiry is Melvyn R. Paisley, former Navy research director, who now is a consultant to McDonnell Douglas Corp. and United Technologies Corp., two of the nation’s biggest military contractors and both subjects of the investigation.

Probe Broadening

The Pentagon investigation has been broadened “beyond the wildest imagination,” Sen. Charles E. Grassley (R-Iowa) said after a briefing by Henry E. Hudson, the U.S. attorney in Virginia who is overseeing the inquiry.

Grassley said in an interview that Hudson had indicated that the investigation may result in as many as 200 indictments of current and former government officials, military contracting company executives and consultants, who serve as middlemen in military procurement decisions.

But Grassley said that the outlines of the inquiry are already known, generally involving payoffs from contractors, sometimes through consultants who formerly worked at the Pentagon, to Defense Department officials in exchange for secret information that companies use to obtain profitable contracts. Payments included cash, trips and “other gratuities,” according to investigators.

“Where I see it going now is broadening,” Grassley said. “The general attributes of the case you see today will not change. But you’ll see the net covering more people.”

Grassley said that he had asked Hudson not to tell him if any lawmakers or aides were targets of the inquiry because he did not want to be accused of leaking such information if it appeared in the news media.

Scores Questioned

The focus on Congress grew sharper after the searches conducted Tuesday and Wednesday by FBI agents at the offices of Pentagon officials, defense contractors and consultants across the nation and the questioning of scores of witnesses and possible subjects of the investigation, one official said.

Investigators are known to be encouraged by the amount of information volunteered by witnesses questioned last week.

Some of those involved became cooperative after they were told of evidence--documents and transcripts of electronically recorded conversations--that investigators have assembled, said one official, who refused to be identified by name or agency affiliation.

One source familiar with the investigation rated Chappell as suspected of being “the most involved,” with Dyson regarded as “No. 2.” This source refused to provide specifics of their alleged involvement.

The Armed Services panel has broad supervisory authority over the Pentagon, setting spending limits for the department and individual weapons programs, as well as overseeing military policy. The Appropriations Committee controls the purse strings; if the Pentagon wants more money for a project or weapons system, it must first get committee approval.

Access to Budget Data

Both committees have access to detailed Pentagon budget data and spending targets. It could not be learned whether Dyson’s former aide, Tom Pappas, figures in the probe. Pappas plunged to his death from a New York hotel room in an apparent suicide on May 1, the day the Washington Post published a lengthy account critical of his management of Dyson’s staff.

At the time of his death, Pappas and Dyson were in New York on a trip financed by Unisys Corp., one of the defense firms whose offices were searched by the FBI. Dyson sits on the Armed Services Committee’s subcommittee on procurement and military nuclear systems.

Addabbo, who died two years ago shortly after the investigation began, was a powerful 25-year House veteran who frequently criticized the Pentagon for what he considered excessive and wasteful spending.

But, as he attacked overall military spending, he steered Pentagon contracts to Long Island, N. Y., aircraft and electronics industries, some of which are under scrutiny in the current investigation.

Said one former senior Pentagon official who had numerous dealings with the congressman: “Addabbo held us by the throat. He’d fight us and cut the defense budget, but in the back room he’d deal and use his leverage to get what he wanted” for New York.

Addabbo and Chappell, by virtue of their central role in Pentagon spending decisions, not surprisingly were consistently among Congress’ largest recipients of campaign contributions from military contractors.

Got Contractor Funds

A study prepared last year by Common Cause, a private watchdog group, reported that Addabbo and Chappell each received about $48,000 in contractor political action committee funds during the 1984 election campaign. Only five other members of Congress--all senators--received more.

In addition, Chappell has consistently been among Congress’ largest recipients of honorariums for speeches to defense contractors. His financial disclosure statements for 1986 and 1987 showed that he received $35,500 in such payments from contractors, according to United Press International.

In addition, a UPI review of Federal Election Commission records showed that Chappell’s 1988 reelection campaign committee has received at least $92,300 in contributions from defense contractors’ political action committees in the last four years.

A firm in Chappell’s congressional district, Armtec Inc., is one of the companies searched by federal agents this week.

Dyson’s disclosure statement for 1987 showed that he accepted $9,000 in honorariums from military contractors, UPI reported.

President Reagan, speaking on the PBS “Nightly Business Report” program Friday, applauded the FBI and the Naval Investigative Service for keeping the investigation under wraps for two years.

No Indictments Filed

“They’ve gone public because they do have evidence that there has been some wrongdoing, enough evidence at least that they’re subpoenaing people,” Reagan said. “They haven’t filed any indictments as yet, but that seems to be in the offing.”

The Justice Department has issued more than 200 subpoenas seeking documents relating to Pentagon contracts and began serving them late this week, officials said. The subpoenas are in addition to search warrants executed Tuesday and Wednesday on offices and homes of 38 firms and individuals.

William Harwood, a spokesman for Martin Marietta Corp., one of the nation’s biggest defense and aerospace contractors, said that the firm received a subpoena Thursday requesting extensive documentation on its government contracts. “But,” he said, “to the best of our knowledge, we are not involved in the probe.”

Vice President George Bush declared himself “offended and shocked, like all Americans, at the abuse of public trust that these allegations represent.”

The vice president said he first learned of the investigation in a briefing attended by Reagan a few days ago, but he said they were not told the scope or targets of the investigation.

Bush said that his primary concern is not the effect on his political campaign--which risks again being tarred with an Administration scandal--but the threat that the scandal could “undermine national security.”

Later, however, he indicated that he did not mean to imply that any weapons system had been compromised. “What I want to say is that national security could be compromised if this undermines confidence in the Defense Department,” he said.

On Capitol Hill Friday, defense contractors kept a low profile, instructing their lobbyists and consultants to stay away from the Capitol while the investigation of Pentagon fraud stays in the headlines.

The lobbyists normally would be busy at this time because a Senate Appropriations subcommittee is scheduled to make final decisions this week on a defense money bill.

Contractors Lie Low

“The defense contractors have decided to lie low for the time being,” said a staff aide to a senior Democrat on the appropriations panel.

In a related development, it was learned that the General Accounting Office, the investigative arm of Congress, soon may initiate a separate investigation of the Pentagon procurement scandal.

A source familiar with the matter said that a new division of GAO known as the special investigations division may begin the inquiry at the request of some members of the Senate and House Armed Services committees.

The GAO’s new unit was formed last year to give the agency more expertise in cases that involve violations of criminal statutes.

“It’s always touchy for a branch of Congress to investigate matters that are under scrutiny by the Justice Department,” the source said, refusing to let his name be used. “But Congress has done some parallel things in the past as part of its congressional oversight responsibility.”

He cited the South Korean congressional bribery case of 1978 and more recent investigations involving secret arms sales to Iran and lobbying activities by former White House aide Michael K. Deaver.

Staff writers William J. Eaton, Robert L. Jackson, Cathleen Decker and Melissa Healy contributed to this story.