Importer, Defense Contractor to Pay $8 Million to Settle Whistleblower Suit
A New York importer and a defense contractor will together pay $8 million to settle allegations that the companies sold defective countermeasure flares made from illegally imported magnesium to the U.S. Army, said the Justice Department on March 28 (here). The importer, ESM Group, will pay $2 million of that total to resolve a whistleblower lawsuit brought by a competitor that alleged it misrepresented the content of its magnesium powder to avoid antidumping duties.
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The settlement follows guilty pleas from five ESM employees in 2015, some of which resulted in prison sentences for smuggling. Reade Manufacturing Company, a domestic manufacturer of magnesium powder, filed the False Claims Act suit against ESM. As the whistleblower, it will receive $400,000 as part of the settlement.
According to the DOJ press release, from 2003 through 2005 ESM “knowingly misrepresented the content of ultrafine magnesium powder” it imported from China to avoid paying antidumping duties as high as 305 percent. Kilgore Flares then bought the illegally imported magnesium powder from ESM, and used it to manufacture countermeasure flares for diverting enemy heat-seeking missiles away from U.S. military aircraft. It then sold those flares to the U.S. Army. The magnesium powder allegedly violated the engineering specifications required by its contract with the U.S. government, resulting in defective flares, said DOJ. The flares also allegedly violated the government requirement that they be made of U.S. or Canadian-origin magnesium.