Seattle – The Department of Justice announced today that Bradken Inc. (Bradken), a subsidiary of Hitachi Construction Machinery, has paid $10,896,924 to resolve allegations that Bradken produced and sold substandard steel components for installation on U.S. Navy submarines, announced Assistant Attorney General of the Justice Department’s Civil Division Jody H. Hunt and U.S. Attorney Brian T. Moran for the Western District of Washington. Bradken and Bradken’s former lab director have also been charged criminally.
The United States Attorney’s Office filed a criminal complaint charging Elaine Thomas, Bradken’s former Director of Metallurgy, with Major Fraud Against the United States. Thomas will make her initial appearance in federal court in Tacoma on June 30, 2020. Also today, the United States Attorney’s Office for the Western District of Washington filed a criminal information charging Bradken with Major Fraud Against the United States. Under a deferred prosecution agreement, Bradken has accepted responsibility for the offense and has agreed to take remedial measures. If Bradken complies with the agreement, the government will dismiss the charge after three years.
According to the court filings, Bradken is the U.S. Navy’s leading supplier of high-yield steel for naval submarines. Bradken’s Tacoma foundry produces castings that prime contractors use to fabricate submarine hulls. The Navy requires that the steel meets certain standards for strength and toughness to ensure that it does not fail under certain circumstances, such as a collision. The court filings allege that, for 30 years, the Tacoma foundry (which was acquired by Bradken in 2008), produced castings that had failed lab tests and did not meet the Navy’s standards. The filings allege that Elaine Thomas, as Director of Metallurgy, falsified test results to hide the fact that the steel had failed the tests. Thomas falsified results for over 200 productions of steel, which represent a substantial percentage of the castings Bradken produced for the Navy. As part of the deferred prosecution agreement, Bradken admitted these allegations.
The court filings state there is no evidence that Bradken’s management was aware of the fraud until May 2017. At that time, a lab employee discovered that test cards had been altered and that other discrepancies existed in Bradken’s records. While Bradken initially disclosed these findings to the Navy, it then made misleading statements suggesting that the discrepancies were not the result of fraud. Bradken admits that these misleading statements hindered the Navy’s investigation and its efforts to remediate the risks presented by Bradken’s fraud.
The civil settlement resolves allegations that some of the castings Bradken produced did not conform to the Navy’s specifications. In addition to the allegations concerning the altered test results, the United States contended that Bradken invoiced shipbuilders for the parts as if they were made to the demanding military specification when they were not, causing the shipbuilders to invoice the Navy for parts that did not meet specifications.
“Bradken placed the Navy’s sailors and its operations at risk. Further, after Bradken’s management discovered the falsified data, they misled the Navy about the scope and nature of the fraud. Government contractors must not tolerate fraud within their organizations, and they must be fully forthcoming with the government when they discover it,” said U.S. Attorney Brian T. Moran. “The Navy has taken extensive steps to ensure the safe operation of the affected submarines. Those measures will result in increased costs and maintenance. Our agreement with the company is aimed at ensuring they improve their procedures and inform their peer companies about how their systems failed to detect the fraud. We hope such steps will improve the military procurement system.”
Secretary of the Navy Kenneth J. Braithwaite stated that “U.S. Navy suppliers must meet the very highest standards of quality. Our Sailors and Marines depend upon them to provide the very best equipment thereby enabling the Navy to meet world-wide commitments. While the Navy remains dedicated to maintaining and revitalizing our industrial base, we will aggressively investigate and pursue all possible recoveries from suppliers who do not meet standards.”
The deferred prosecution agreement describes substantial steps taken by Bradken to cooperate with the government’s investigation and overhaul to its quality control and compliance procedures. These steps include entering into a compliance agreement with the Navy, creating new positions devoted to oversight of lab testing and tracking, creating an audit and risk committee to oversee the compliance issues, and implementing of a new lab information system with anti-fraud controls. The company will also publish a detailed account of its missteps in the Casteel Reporter, a trade publication, to educate other government contractors. In addition, Bradken has made changes to the management team in place at the Tacoma Foundry. If Bradken complies with all of the deferred prosecution agreement’s requirements, the government will dismiss the charge after three years.
Bradken is a Delaware corporation with its principal place of business in Kansas City, Missouri, operating as a wholly owned subsidiary of Bradken Ltd. of Newcastle, Australia, which is a subsidiary of Hitachi Construction Machinery. Elaine Thomas, 66, is a resident of Auburn, Washington.
The charges contained in the complaint against Thomas are only allegations. A person is presumed innocent unless and until he or she is proven guilty beyond a reasonable doubt in a court of law.
“This settlement demonstrates the commitment of the Naval Criminal Investigative Service (NCIS) and our law enforcement partners to hold companies accountable for supplying substandard products, especially products that could impact the Department of Navy (DON) war fighting ability, battlefield superiority and the safety of our Sailors and Marines. NCIS will continue to work diligently with our law enforcement partners to safeguard DON major acquisition programs. The success of the DON war fighting ability is dependent upon a sound and reliable acquisition process” said Charles P. King, Special Agent in Charge, NCIS Northwest Field Office.
“The announced settlement is representative of the law enforcement community’s relentless efforts to hold accountable those who engage in unethical business practices that endanger America’s warfighters, corrupts the defense procurement process, and inexcusably wastes taxpayer dollars,” said Bryan Denny, Special Agent in Charge of the Defense Criminal Investigative Service (DCIS), Western Field Office. “This case clearly demonstrates that any unscrupulous actions by government contractors and subcontractors will be reviewed and, if appropriate, vigorously investigated by DCIS and its law enforcement partners.”
The civil settlement, deferred prosecution agreement with Bradken, and pending criminal case against Thomas are the result of a coordinated effort among the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Western District of Washington, the Department of Defense’s Defense Criminal Investigative Service, Naval Criminal Investigative Service, and the Defense Contract Audit Agency.
The cases are being handled by Assistant United States Attorneys Kayla Stahman, Seth Wilkinson, and David Reese Jennings for the U.S. Attorney’s Office, Western District of Washington, and Art Coulter of DOJ’s Civil Division Commercial Litigation Branch.