APRIL 1981 - VOLUME 2 - NUMBER 4
McDonnell Douglas: Bibery Plot Thickens in Pakistan
The McDonnell Douglas Corporation, which was indicted in 1979 by the U.S. Justice Department for fraud and conspiracy in connection with questionable payments in foreign countries, has received more bad news. In mid-March the Justice Department named James McDonnell, the now-deceased founder of the corporation, and Sanford N. McDonnell, the corporation's current chairman and chief executive officer, as "unindicted co-conspirators" and "co-schemers" in the case.
The Justice Department's case centers on payments the McDonnell Douglas Corporation made to its agents in Pakistan in order to secure sales of four DC-10 aircraft to Pakistan International Airlines (PIA), which is 90 percent owned by the Pakistani government.
According to the indictments handed down by a federal grant jury, McConnell Douglas and four of its executives agreed to pay $500.000 per aircraft to agents working for the company on a commission basis in Pakistan. The executives then attempted to pass on the anticipated costs of the commission fees to PIA by raising the selling price of each plane by $500'000. When PIA and the finance minister of Pakistan inquired as to the amount of commission fees the company proposed to pay, McDonnell Douglas claimed the amount had been only $100,000 per aircraft, and then agreed to lower the price of each DC-10 by $100,000 so that the company, not the Pakistani government, would apparently be paying the fees. The corporation concealed the remaining $400,000 in commissions per aircraft. The grand jury claimed this cost PIA "in excess of $1,000,000."
Not only was PIA defrauded. the grand jury alleged, but also the U.S. Export Import Bank, which helped to finance McDonnell Douglas' sales to PIA. By concealing the commission payments from the Eximbank, "the defendants and various cu-schemers would and did cause the Eximbank to lend to PIA more monies for each of the four DC-10's than would have been required had McDonnell Douglas truthfully disclosed to PI A and the Ministry of Finance" the amount of commission fees it paid, the grant jury charged.
McDonnell Douglas, trying to downplay the case, has denied that the defendants are guilty. "The company and the defendants who have been charged assert their complete innocence of any wrongdoing and are confident of vindication," said a company spokesperson.
Two of the interested parties in the case have taken different tacks toward the company. PIA sued McDonnell Douglas in September, 1979 for compensatory damages of $1.6 million plus interest, punitive damages of $3.2 million and other costs. The trial is being delayed, pending the results of the Justice Department's case.
The U.S. Export Import Bank, for its part, refuses to comment either on the case itself self or on any reprimand it may or may not have given the company during the incidents or after the grand jury's indictment appeared in late 1979. In 1980. Eximbank provided low-interest loans of $404 million to various foreign governments for purchases from McDonnell Douglas worth a total of $942 million.