NEW YORK
Tennessee and New York-based contractors will pay $8 million to settle a lawsuit alleging that they sold defective countermeasure flares to the U.S. Army, officials announced today.
The military uses infrared countermeasure flares used to divert enemy heat-seeking missiles away from aircraft, according to officials.
“Our warfighters– along with everyone who relies upon them, including their families – need to know that the equipment they use is of the highest quality and dependability,” said U.S. Attorney William J. Hochul Jr. of New York. “In this case, the magnesium flares made by Kilgore were literally the last line of defense for our brave aviators. Because of today’s resolution, Kilgore will now ensure that similar incidents do not happen in the future.”
Kilgore Flares Company and one of its subcontractors, ESM Group Inc., admitted to selling the flares, in the case of ESM, knowingly evading customs duties owed to the federal government, officials said.
ESM Group, located in New York, manufactures magnesium powder supplied to the chemical, welding and pyrotechnics industries. ESM imported magnesium powder used in the flares from China, which it sold to Kilgore Flares, officials said.
“The Department of Justice is committed to ensuring that contractors do not cut corners in manufacturing critical items sold to the U.S. military,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.
The sale of these flares was brought to light as a result of a whistleblower. This triggered a lawsuit filed by the whistleblower, Reade Manufacturing Co., a domestic manufacturer of magnesium powder, officials said.
The act also allows the whistleblower to receive a share of any funds recovered through the lawsuit. Reade Manufacturing received $400,000 as part of the settlement with ESM, according to officials.
A primary component of these flares is ultra-fine magnesium powder, which combined with other materials, provides ignition and enables the flares to burn at high temperatures and at rates that mimic an aircraft’s engine.
Kilgore’s contracts with the army prohibited the use of magnesium powder from foreign countries, except Canada, in order to maintain domestic manufacturing capability in the interest of national defense, according to authorities.
These are the allegations against Kilgore and ESM:
- From July 2003 through May 2005, ESM knowingly misrepresented the content of ultrafine magnesium powder imported from the PRC in order to avoid paying antidumping duties owed to the United States.
- Antidumping duties protect against foreign companies “dumping” products on the U.S. market at prices below cost.
- The U.S. Department of Commerce assesses and U.S. Customs and Border Protection collects these duties to protect U.S. businesses and level the playing field for domestic products.
- At the time of the imports alleged in this case, ultra-fine magnesium powder from the PRC was subject to a 305 percent antidumping duty.
- The government further alleged that from March 2005 through August 2006, Kilgore used the illegally imported Chinese magnesium powder purchased from ESM in the countermeasure flares it sold to the U.S. Army.
- The Chinese magnesium powder allegedly violated both the requirement for domestically produced powder and engineering specifications required by the contracts.
Kilgore and ESM agreed to pay $6 million and $2 million, respectively, to resolve the government’s allegations.
Prior to the civil settlements with Kilgore and ESM, five former employees and agents of ESM pleaded guilty to criminal offenses related to the magnesium importation scheme, including ESM’s former president, Charles Wright.
The criminal defendants were ordered to pay more than $14 million in restitution, officials said.