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Military contractors fined after illegally importing materials from China

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A defense contractor and its subcontractor have agreed to pay $8 million to settle charges they violated the False Claims Act by selling, or conspiring to sell, defective flares to the U.S. Army, said the Department of Justice Monday.

The Justice Department said Toone, Tennessee-based Kilgore Flares Co., agreed to pay $6 million to settle charges it sold defective infrared countermeasure flares to the U.S. Army. Its subcontractor, Amherst, New York-based ESM Group Inc., agreed to pay $2 million, which also settled charges it had knowingly evaded customs duties owed to the United States.

The Justice Department said in its statement that the U.S. military uses infrared countermeasure flares to divert enemy heat-seeking missiles away from U.S. military aircraft.

A primary component of the flares is ultrafine magnesium power, which when combined with other materials provides ignition and enables the flares to burn at high temperatures and at rates that mimic an aircraft's engine.

The Justice Department said although Kilgore's contracts with the army prohibit the use of magnesium power from foreign countries except Canada, from July 2003 through May 2005 ESM knowingly misrepresented the content of magnesium power it had imported form the People's Republic of China, which it sold to Kilgore.

The Department of Justice said 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's importation, including its former president, Charles Wright. The criminal defendants were ordered to pay more than $1 4 million in restitution.

The ESM settlement resolved a lawsuit filed under the False Claims Act's whistleblower provisions by Manchester, New Jersey-based Reade Manufacturing Co. Inc., a domestic manufacturer of magnesium power. Reade will receive $400,000 as part of the ESM settlement, the Department of Justice 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, Washington-based head of the Justice Department's Civil Division. “These settlements also show that the department will aggressively pursue those who avoid paying duties to gain an unfair business advantage over competitors who abide by the rules.”

James Williams, Toone-based president of Chemring Countermeasures USA, which operates Kilgore, said in a statement, “Kilgore Flares, LLC, and the Department of Justice have come to a mutually agreeable resolution regarding products that originated with a former supplier. Kilgore remains committed to delivering high quality goods and services to its customers.

An ESM spokesman could not be reached for comment.

In 2014, a federal contractor that supported the U.S. Army in Afghanistan agreed to pay $3.2 million to settle a whistleblower suit filed under the False Claims Act, in which it is charged with submitting false labor charges.