the takedown

Defense Contractors to Pay $8 Million in Defective Countermeasure Flares Settlement

The U.S. Justice Department announced an $8 million settlement with two defense contractors over allegations of selling defective infrared countermeasure flares to the U.S. Army thereby violating the False Claims Act.

Kilgore Flares Company of Tennessee manufactures and sells electronics and energetic products like flares to the U.S. military. One of Kilgore’s subcontractors, ESM Group Inc. of New York, manufactures magnesium powder for these flares, in addition to other chemical, welding, and pyrotechnics industries. ESM imported the magnesium powder used in the flares from China and then sold it to Kilgore.

The military uses infrared counter-measure flares to divert enemy heat-seeking missiles away from aircraft, according to the DOJ statement. When this ultra-fine magnesium powder is combined with other materials, it creates high-temperature burning in the flares that mimics the heat of an aircraft's engine.

Kilgore's contracts with the Army prohibited the use of magnesium powder from foreign countries, except Canada, so using ESM’s illegally imported powder violated the requirements for domestically-produced powder and engineering specifications required by the contracts.

Meanwhile, ESM knowingly misrepresented the content of the magnesium powder imported from China to avoid paying antidumping duties to the U.S. Antidumping duties protect U.S. businesses against foreign companies dumping products on the U.S. market at prices below cost. At the time of the imports alleged, there was a 305 percent antidumping duty on ultrafine magnesium powder from China.

“Such schemes, perpetrated by dishonest contractors and individuals, place the American Warfighter in danger, erode public confidence and undermine the mission of our military services. The DCIS and its law enforcement partners will continue to tirelessly pursue and investigate procurement fraud allegations in order to safeguard our military members and to shield America’s investment in national defense,” said Special Agent in Charge Craig W. Rupert of the U.S. Department of Defense Inspector General, DCIS. 

Five former employees and agents of ESM pled guilty to criminal offenses related to the powder import scheme prior to the civil settlements. Among which was ESM’s former president, Charles Wright. The criminal defendants were ordered to pay $14 million in restitution.

“The components of U.S. military equipment are held to rigorous standards to ensure our military superiority and the safety of our warfighters,” said Special Agent in Charge James Spero of Homeland Security Investigations (HSI) Buffalo. “When short cuts are taken, lives are put at risk. This settlement ensures that the companies involved are held responsible for their actions and further emphasizes HSI’s commitment to ensuring that the sale and distribution of products used by our military is done with integrity.”

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