Heavy Metal

How does the defense industry arm itself against budget cuts? With the Pentagon's top brass.

No. 3
Bernard L. Schwartz
Last year's rank: No. 1, New York, N.Y., $555,000 (with wife, Irene)
Schwartz, 72, is the CEO of Loral Space & Communications.

By the end of last summer, no fewer than 10 congressional committees and subcommittees were investigating whether the Clinton administration's policy of allowing aerospace company Loral Space & Communications to launch satellites in China had helped advance Beijing's own missile technology research program. Following the scent, the media has focused its attention on the unfortunate object of the president's affections, Bernard L. Schwartz, the slight, bald, septuagenarian CEO of Loral.

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Schwartz has given Democrats $1.4 million since 1991, during the Clinton years, and was a member of the Mother Jones 400 well before he became mired in this scandal (he ranked No. 1 last year). As Mother Jones reported last year, he was honored on his 71st birthday with a private White House dinner. It's because of this access, Clinton's critics suggest, that the president rubber-stamped Loral's launches in China -- even after Loral apparently ignored security procedures in 1996 by faxing Beijing a draft report about a Chinese rocket crash that destroyed a Loral satellite.

But campaign cash and personal ties are only the obvious way that Loral -- and the defense industry -- buys favors in Washington. An in-depth look shows that thousands of former Pentagon workers routinely go to work for arms makers and defense industry consultants upon their retirement, and confidential memos obtained by Mother Jones from such a company show how easily these cozy relationships influence legislation -- and can lead to the funding of questionable projects. So while congressional investigators continue their investigation into the president's relationship with Loral, they shouldn't look just at Bernard Schwartz. They should also look at people like Nicholas Alexandrow.

Until 1996, Alexandrow, an Air Force colonel, worked at the Defense Technology Security Administration (DTSA), the Pentagon agency that reviews applications for the export of high technology to foreign countries. Alexandrow did not return phone calls from Mother Jones, but three inside sources say that his job at DTSA was to run the Technology Transfer Safeguards Program. That office is charged with ensuring that other countries, including China and Russia, do not obtain sensitive information when they launch satellites for U.S. companies. According to Peter Leitner, a senior strategic trade adviser at DTSA, both countries have taken advantage of such launches to gather details on the critical technologies needed to build and design intercontinental ballistic missiles.

Upon leaving DTSA, Alexandrow took a job as director of launch systems at Loral's offices in Arlington, Virginia. One of his duties at his new post involved winning approval for Loral's foreign launches from his former employers. As one source, who asked not to be identified, says, "When he worked for the government, he was in a regulatory position trying to make sure that things didn't happen. Now he's at Loral, where he's trying to make things happen."

And Alexandrow is in a good position to make things happen. "When Alexandrow calls [DTSA], his calls will be returned quickly," says Leitner. "He's a facilitator for Loral in terms of technical transfers, and he'll get responses faster than an outsider would." (Actually, when Mother Jones called DTSA in September to confirm Alexandrow's career there, a secretary helpfully offered that just that morning Alexandrow had called into the agency several times.)

Just as important, says Leitner, is how the prospect of a private-sector job influenced Alexandrow while he was at DTSA: "How long before he retired did he get a job offer [from Loral]? What kind of offers were being made to him while he was still in government? And how critical was he in ensuring that our national security is being protected by the activities of that very company?"

Another confidential source at DTSA echoed those sentiments: "People like Alexandrow have intimate knowledge of how the process works and know all the loopholes that can help circumvent the bureaucracy. If you're not from the DTSA, you don't even know how to get started."

Between January 1997 and July 1998, the defense industry and its executives shoveled out roughly $7 million in soft money, individual, and PAC donations, according to the Center for Responsive Politics. The No. 1 contributor was Lockheed Martin -- which bought Loral's defense division in 1996. It gave about $1 million, while Boeing was close behind at about $930,000. But defense contractors find it especially useful to hire military officials when they retire.

Ernest Fitzgerald, an Air Force whistleblower who was fired by President Nixon when he exposed cost overruns only to be reinstated four years later after winning a lawsuit, has watched this revolving door for years. "Military officers for the most part are forced to retire when their family expenses are at a peak. They've got a couple of kids in college, and they're still paying the mortgage," says Fitzgerald. "They won't starve on their retired pay. But at the same time they can't keep up their lifestyle."

So they are lured into the defense industry. Here's how he describes the process:

"The services see one of their management duties as placing their retired officers, just like a good university will place its graduates. And the services have the most influence with the contractors. If you're a good, clean-living officer and you don't get drunk at lunch or get caught messing around with the opposite sex in the office, and you don't raise too much of a fuss about horror stories you come across, when you retire, a nice man will come calling. Typically, he'll be another retired officer. And he'll be driving a fancy car, a Mercedes or equivalent, and wearing a $2,000 suit, Gucci shoes, and a Rolex watch. He will offer to make a comfortable life for you by getting you a comfortable job at one of the contractors.

"Now, if you go around kicking people in the shins, [and] raising hell about the outrages committed by the big contractors, no nice man comes calling. It's that simple."

Back in the 1970s, revolving-door stories provoked scandal. Malcolm R. Currie, for example, worked for Hughes Aircraft, then became the Pentagon's undersecretary of defense research and engineering under Nixon and Ford. During Ford's term, Hughes won a $108 million contract to work on the Roland missile. In 1977, Currie went back to Hughes, where his duties included working on the Roland missile project.

Such apparent conflicts of interest led Congress to pass legislation requiring high-ranking officials to file a disclosure report upon leaving the Defense Department and taking an industry job that pays $25,000 a year or more. But it's impossible to determine how fast the revolving door is now spinning because, at the request of the Pentagon, Congress quietly repealed the law in February 1996. ("It didn't really tell us anything, and took a lot of manpower to compile," says David Ream, director of the Pentagon's ethics office.) Whatever public outrage the law's recision might have prompted was absent, in part, because the media failed to report about it.

The Pentagon has destroyed all records kept under the law except for those for the years 1993 to 1995, as well as a summary report for 1992. Mother Jones reviewed the remaining files, located in seven large storage boxes at the National Archives, and found that between 1992 and 1995, 3,288 people from the Pentagon and the armed forces went to work for the defense industry. Of those, 2,482 were officers with the rank of colonel or higher.

The top destination, with 198 former military officials or Pentagon employees, was SAIC, a high-tech firm whose board of directors includes Bobby Ray Inman, former National Security Agency director, and has included former Defense Secretaries William Perry and Melvin Laird, and former CIA Directors John Deutch and Robert Gates. Next were Lockheed (168); Boeing and McDonnell Douglas, which have since merged (71); Northrop-Grumman (62); and Raytheon (56).

After reviewing these records, it's easy to see why the Pentagon wanted the law repealed: The paper trail is simply too embarrassing. Lt. Gen. Gordon Fornell retired from the Air Force in 1993 and within 15 months had picked up consulting work with 10 defense-related firms, including SAIC and Cypress International. Lt. Gen. John Jaquish retired from the Air Force, where he was principal deputy assistant secretary of acquisition, on September 1, 1993. On November 1, he became a consultant to Grumman, Rockwell, and Vought. Exactly three months later he signed on with Litton and Lockheed. Adm. Huntington Hardisty, commander in chief of the U.S. Pacific Command, resigned on March 1, 1991. Within two years, Hardisty was working at six defense consulting jobs, four of which involved greasing the wheels for sales to Taiwan.

Confidential memorandums obtained by Mother Jones from the offices of The Spectrum Group, a consulting and lobbying firm, offer an inside look at the revolving door in action. One memo reports that the firm's revenues have grown from just $287,648 in 1994, a year after the company was founded, to projected revenues of $2.5 million for this year.

A promotional brochure Spectrum sends to potential clients boasts that the firm's "team" includes more than a dozen former admirals and generals, whose "knowledge of [Pentagon] procedures and systems is unmatched." It goes on to quote Mark Goodfriend, CEO of a firm called Next Century Power, a Navy supplier, as saying that The Spectrum Group "was instrumental in helping secure funding and getting us into the procurement loop."

Spectrum avidly seeks to curry favor on Capitol Hill. "Our ability to communicate with members of Congress through their staffs is paramount to Spectrum's success on the hill," reads one memo written by Larry Ayres, the company's executive vice president for government relations and a former Army officer. "It will be my responsibility to go to staff members, introduce myself to them, inform them of what we are doing with regards to our client (whose place of business happens to be in their state or congressional district) and to stimulate their interest in the matter." The company established a PAC last March, which quickly held fundraisers for Reps. Duncan Hunter (R-Calif.), Ike Skelton (D-Mo.), Curt Weldon (R-Penn.), and Bill Young (R-Fla.), all of whom sit on the House National Security Committee, and for Senate Majority Leader Trent Lott (R-Miss.).

But the memos make clear that Spectrum's chief strength is its ties to the Pentagon. One confidential synopsis of activities performed for 19 clients shows that all but one retained Spectrum to help win access to -- or contracts from -- the Defense Department.

One memo boasts of the "outstanding personal contacts" of the firm's employees. That would have to include Jesse Brown, who signed on with Spectrum in September 1997, just two months after he resigned as head of the Department of Veterans Affairs. The company's agenda for a September 18, 1997, meeting shows that Brown was already exploring "Veterans Affairs Opportunities" on behalf of Spectrum.

As detailed by the memos, here are just a few of The Spectrum Group's other activities:

 

  • Spectrum slotted former Air Force Col. Paul McManus to help Delta Air Lines win a contract to repair McDonnell Douglas aircraft engines for the Air Force -- helpfully, McDonnell Douglas was also a Spectrum client at the time. "TSG was successful in bringing the Delta story to the U.S. Air Force from the chief of staff, to the Commander of the Air Force Materiel Command," reads one of the memos. Spectrum also had little problem assisting Delta "in getting their full capabilities understood by the prime contractor McDonnell Douglas," says the synopsis of activities. Spectrum was even "able to significantly modify" McDonnell Douglas' original request for proposal -- a crucial document that explains the job to be performed by bidders -- "in such a way that Delta Air Lines gained the competitive edge for the procurement."

     

  • When the Pentagon targeted a number of military bases in Arizona for closure, the state hired Spectrum to help keep them open. The company deployed retired Air Force Gen. James Davis, who was appointed by House Speaker Newt Gingrich to serve on the 1995 Defense Base Closure and Realignment Commission, to help handle the account. (In its promotional brochure, Spectrum boasts that it has saved 11 bases the Pentagon planned to close.)

     

  • Retired Air Force Lt. Gen. John Conaway, former chief of the National Guard Bureau, represents Lockheed Martin -- which racked up sales to the Air National Guard during Conaway's tenure. At Spectrum, Conaway helps market Lockheed's AL-56M radar warning system to the Air National Guard and its ATARS reconnaissance system to the Navy.

    But while military brass have always advocated bigger defense budgets, after they leave the Pentagon they no longer have to worry about quality control.

    The Sense and Destroy Armor (SADARM) munition, produced by Aerojet, is a shell that, once fired, opens up to release a pair of submunitions, which descend by parachute and use a heat-seeking sensor and microwave radar to home in on and destroy enemy armored vehicles.

     

    Sense and Destroy Armor
    (SADARM) munition
    Some call SADARM a resounding flop and note that it is years behind schedule, is way over budget, and has suffered countless testing failures, including a problem that routinely caused the two submunitions to collide during their parachute descent. And -- according to a former Pentagon employee -- SADARM's heat-seeking sensor is completely unreliable and only "dumb-ass luck" would enable the weapon to hit its target. "The sensor can't distinguish between an armored vehicle and a barbecue grill," says the source. "An opposing army could protect its equipment by lining hibachis up and down the road." Aerojet, meanwhile, denies any problems with SADARM. Says spokeswoman Julie Rovegno: "There's no problem with SADARM. The sensor technology is incredible."

    In 1991, the House voted to kill SADARM, but the Senate saved it. Three years later, Congress reduced its funding because the system repeatedly flunked government tests. In 1995, the General Accounting Office concluded that SADARM "did not meet operational requirements." Despite all this, SADARM lives on. The Army requested $56.5 million for the program in the 1999 budget, and Aerojet is now trying to sell it to the Navy as well.

    What accounts for SADARM's survival? In part, the hard work on its behalf by the former military officers at Spectrum. According to the memos, the firm's Stephen Loftus, a former vice admiral, is helping Aerojet develop a "strategy to gain [the Navy's] support" for SADARM. Loftus is being assisted by Lt. Gen. Gus Cianciolo, who retired in 1992 after serving as an adviser to the Army's procurement czar.