South Korean Engineering Company Pleads Guilty to Defrauding U.S. Army, Agrees to Pay $68.4 Million
(STL.News) – US Department of StateSK Engineering & Construction Co. Ltd. (SK), one of the largest engineering firms in the Republic of Korea, pleaded guilty today to one count of wire fraud, in connection with a fraudulent scheme to obtain U.S. Army contracts through payments to a U.S. Department of Defense contracting official and the submission of false claims to the U.S. government.
SK entered the plea, pursuant to a plea agreement with the United States, before U.S. District Judge Thomas L. Parker in the Western District of Tennessee, who sentenced SK to pay $60,578,847.08 in criminal fines, the largest fine ever imposed against a criminal defendant in the Western District of Tennessee, pay $2,601,883.86 in restitution to the U.S. Army, and serve three years of probation, during which time SK agreed not to pursue U.S. federal government contracts. The U.S. Army previously suspended SK by order dated Nov. 17, 2017, from future contracting throughout the executive branch of the U.S. Government.
As part of SK’s plea agreement, SK agreed to, among other things, cooperate fully with the United States in all matters relating to the conduct covered by the plea agreement and other conduct under investigation by the United States, to report violations of U.S. federal law, and to continue to implement a compliance and ethics program designed to effectively detect and deter violations of U.S. federal law throughout its operations. Separately, SK has entered into a False Claims Act settlement with the United States, under which it is obligated to pay $5,200,000 in civil penalties to the United States, which the department credited against SK’s criminal fine.
“SK paid millions of dollars to secure contracts with the Army and submitted false claims to conceal those illicit payments,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division. “Today’s guilty plea and substantial criminal penalty sends a clear message: companies who voluntarily self-disclose misconduct, cooperate, and remediate will receive appropriate credit for their efforts. But companies like SK – which withheld and destroyed documents, attempted to persuade a witness not to cooperate, and failed to discipline any responsible employees – will pay a price.”
“This settlement demonstrates our commitment to root out corrupt practices that harm our military and American taxpayers, and to hold contractors accountable for their corruption,” said Assistant Attorney General Jody Hunt of the Justice Department’s Civil Division.
“Protecting the U.S. Treasury and the interests of the federal government abroad is a top priority of this office, and this guilty plea and sentence shows our commitment to hold foreign actors accountable for major fraud committed against the United States,” said U.S. Attorney D. Michael Dunavant of the Western District of Tennessee. “The scheme committed by the defendant in this case is a serious crime of dishonesty and deceit that strikes at the very heart of those national interests and will not be tolerated. The Army-CID, the FBI, and DCIS are to be commended for their diligent investigative work in uncovering and exposing this fraud, and I am pleased that we have achieved justice by holding the defendant legally and financially accountable.”
“American contracts are not for sale in the United States, nor abroad,” said Paul Delacourt, the Assistant Director in Charge of the FBI’s Los Angeles Field Office. “This case should send a message to companies and officials domestically and overseas that the FBI and our partners will hold accountable those who threaten the integrity of our military operations and who abuse their position to profit personally at the expense of American taxpayers.”
“This plea demonstrates the great cooperation among our federal investigators and prosecutors,” said Director Frank Robey of the U.S. Army Criminal Investigation Command’s (CID) Major Procurement Fraud Unit. “It also holds SK responsible for their actions and sends a strong message that this type of conduct will not be tolerated.”
“This sort of abhorrent behavior is a serious threat to the integrity of the DoD acquisition process and a gross betrayal of the public trust” said Special Agent in Charge Stan Newell of the Defense Criminal Investigative Service (DCIS), Transnational Operations Field Office. “The special agents of the DCIS, along with our partner agencies, will vigorously investigate and bring to justice those who pilfer taxpayer dollars and shamelessly enrich themselves through corruption and deceit.”
According to plea documents, SK obtained a large U.S. Army construction contract at Camp Humphreys, South Korea in 2008 worth hundreds of millions of dollars. SK paid millions of dollars to a fake Korean construction company named S&Teoul, which subsequently paid that money to a contracting official with the U.S. Army Corps of Engineers. In order to cover approximately $2.6 million in payments to S&Teoul, and ultimately to the contracting official, SK submitted false documents to the U.S. Army.
SK also admitted that its employees obstructed and attempted to obstruct federal criminal investigations of the fraud and bribery scheme. SK admitted that, in April 2015, its employees burned large numbers of documents related to U.S. Army contracts, in order to hamper U.S. and Korean investigators. Further, SK admitted that, in the fall of 2017, its employees obstructed a federal criminal proceeding by attempting to persuade an individual not to cooperate with U.S. authorities.
A number of relevant considerations contributed to the United States’ criminal resolution with SK, including that SK frustrated the United States’ investigation by withholding requested documents and information, destroying documents relevant to a pending federal investigation, and attempting to persuade a potential witness not to cooperate with the investigation. In addition, SK did not discipline any employees responsible for the misconduct, either through direct participation or failure in oversight, or those with supervisory authority over the area in which the criminal activity occurred, and failed to retain business records and otherwise failed to prohibit the improper destruction and deletion of business records.
In November 2018, two SK employees, Hyeong-won Lee and Dong-Guel Lee, were indicted by a federal grand jury in the Western District of Tennessee on charges of conspiracy, major fraud against the United States, wire fraud, money laundering conspiracy, and obstruction of justice for their alleged roles in the scheme.
The indictment is only an accusation, and the defendants are presumed innocent unless and until found guilty by a court of law. The case is U.S. v. Lee (2:18-cr-20378-TLP). Hyeong-won Lee and Dong-Guel Lee are currently fugitives of justice.
Army-CID, DCIS, and the FBI’s Los Angeles Field Office investigated this case. Assistant Chief Justin Weitz and Trial Attorney Danny Nguyen of the Criminal Division’s Fraud Section, and Assistant U.S. Attorney Tony Arvin of the Western District of Tennessee prosecuted the case. Trial Attorney Andrew Steinberg of the Civil Division’s Fraud Section represented the government in the civil case. The Criminal Division’s Office of International Affairs and Public Integrity Section and the Korean National Police Agency provided assistance in connection with the case.