Springer v. Jones (Northrop)

In 1972, Tom Jones, the chairman, CEO and President of Northrop Corporation, reached into his office safe, pulled out $100,000 in cash and gave the money to a Newport Beach attorney. Herb Kalmbach was also a Nixon campaign official, and the money was collected to help in the campaign to re-elect the President. Kalmbach would be back for more, this time a $50,000 cash payment to be used as "hush money" for Watergate figure E. Howard Hunt. In 1974, after public revelations of these transactions, CLIPI filed a civil lawsuit contending that corporate money was being improperly diverted to illegal uses and should be repaid by Jones. "At the time we had no way of knowing that this lawsuit would uncover a multi-million dollar system of global bribes that would serve to topple foreign governments," recalls one of the CLIPI staff attorneys who handled the case. Soon after the case was filed, then federal district judge Warren Ferguson permitted discovery over Northrop's vigorous protest. Northrop, a prominent defense contractor, had contended that discovery might compromise national defense secrets. When deposed under oath by CLIPI lawyers, Jones and other Northrop officers revealed that the money in question had been laundered through certain European "consultants." 

Their job was to produce "off the books" funds to be used for bribes and payoffs to foreign government officials in connection with the marketing of Northrop aircraft. Jones claimed that Northrop had entered the bribery business after losing foreign sales to Lockheed and other competitors who were willing to grease the palms of corrupt officials. So much for concerns about revealing high technology secrets. Jones' reach into the safe was serving to reveal a decidedly low-tech underside to the defense business. Seeking to justify its need to conduct further discovery abroad, CLIPI's attorneys filed these explosive deposition transcripts with the district court. Page one new story in The New York Times and other leading newspapers followed. Soon the Senate subpoenaed the Chairmen of both Northrop and Lockheed for widely watched hearings. At CLIPl's urging, then chief enforcement officer for the Securities and Exchange Commission, Stanley Sporkin, became interested in the issue. Suddenly the entire nation became aghast as one major multi-national company after another revealed that they, too, had used foreign bribes and payoffs to sell their products abroad.

Ironically, Northrop was somewhat stingy compared to the biggest player in the bribes race. Over a 20-year period, Exxon spent $54 million on questionable payments, nearly double the amount Northrop would report. One especially favored nation in the bribe taking: Saudi Arabia. A concerned Congress enacted the Foreign Corrupt Practices Act to clamp down on the escalating bribes race. The payoff revelations sent waves around the world. When Northrop and other defense contractors claimed they were only emulating local customs in dishing out bribes, foreign governments put the blame on the free-spending customs of brash Americans. When foreign governments sought the names of those who took bribes, defense contractors convinced then Secretary of State Henry Kissinger to keep these names secret. The Carter Administration would overturn this stance. In the Netherlands, Prince Bernhard, the tall, urbane husband of Queen Juliana, would resign from government positions after admitting he took over $1 million in fees from Lockheed to influence defense sales. At first, these fees were disguised as contributions to an environmental conservation organization. In Japan, a former prime minister and 17 other government officials and business leaders were indicted for taking over $10 million in payoffs from Lockheed. Both Lockheed and Northrop dispensed six-figure payoffs to Saudi Arabian officials. Ironically, the two companies were retaining the same "consultant" to enrich these Officials. The suit against Northrop was settled in 1975. Northrop agreed to cease making any further improper payments and to fully investigate and report on the specifics of all of its questionable payments. Four new outside directors approved by the district court would be named to the board to oversee the investigation and implement any needed reforms. 

Additionally, all company money diverted into improper U.S. political payments was to be personally repaid by company officials who had authorized the transactions. Judge Ferguson described the settlement to Business Week as a "precedent for all large corporations... a landmark in corporate reform." The Consent decree became the model for ensuing settlements entered into by the SEC. Over 100 companies would admit to similar misconduct. In related litigation, CLIPI sued Phillips Petroleum Corporation for dispensing more than $.5 million in bribes and payoffs plus a $100,000 illegal contribution to the ever-present Committee to Re-elect President Nixon. The ensuing settlement, described by the New York Times as significantly impacting such business practices in America, provided for full repayment of the shareholders' moneys and mandated a shift in control from insiders to outside directors. Six court-appointed directors were appointed to the Board. By reaching into the office safe to please Mr. Kalmbach, Mr. Jones had unknowingly helped to initiate major reforms into free-wheeling corporate behavior.