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L-3 Communications
Last Updated: October 14, 2008

In the wake of a 1996 Chinese espionage scandal, Frank Lanza and Robert La Penta left their positions as COO and VP of Loral Space and Communication, got some funding from Lehman Brothers, and started L-3 Communications. Ten years after starting with just $125 million and a handful of unwanted Lockheed Martin business units, L-3 has risen to be the ninth largest Pentagon contractor.
   
In February 1996, a rocket belonging to the Chinese army crashed with a Loral satellite aboard. In the ensuing investigation, Loral, at that time under Lanza and LaPenta’s leadership, passed along missile technology to China that the Pentagon said damaged U.S. national security.

Lanza and La Penta left soon after the crash, but CEO Bernard Schwartz stuck around. He lavished over $1 million upon the Democratic Party during Clinton’s second term, provoking the Justice Department to investigate whether his donations swayed export policies. Clinton allowed another Chinese launch in 1998 while his administration was mired in a scandal involving Chinese political donations and Chinese infiltration of U.S. nuclear weapons labs. A Justice Department investigation ultimately exonerated Schwartz,, with the lead investigator saying  “This was a matter which likely did not merit any investigation.”

In 2002, Loral paid the federal government a $14 million fine without admitting wrongdoing. The settlement cleared the way for Loral to sell another satellite to China, with the approval of the U.S. State Department ad the White House.

By then, Lanza and LaPenta were long gone, raising $125 million in funding from Lehman Brothers and others to start L-3 Communications in 1997. The new company immediately hired lobbying group Baker Donelson, where Linda Daschle had just come aboard after a stint as acting director of the FAA. Linda’s husband—and then-Senate Majority Leader—Tom Daschle shepherded a provision through the 2000 transportation budget requiring FAA to buy L-3 scanners. An October 2001 Department of Transportation Inspector General report found L-3’s scanners to be substandard and, in some cases, leaking radiation. Inspector General Kenneth Mead told Congress that the FAA requirement to purchase L-3 equipment would render DOT unable to screen baggage for bombs for “many years.”

L-3 grew rapidly, although it suffered a dent in 2002 after a federal judge upheld a $125 million award against L-3 for committing fraud against OSI Systems. La Penta retired as L-3’s president and CFO in early 2005, just two months before L-3 picked up tainted defense contractor Titan Corp. for $2 billion. Titan had bribed the leaders of Benin, lied to the SEC, and was implicated in prisoner abuse at Abu Ghraib. Titan was also the largest contributor to disgraced former Congressman Randy “Duke” Cunningham, who is in prison for accepting bribes from defense contractors.

La Penta formed a biometrics company called L-1 Identity Solutions in 2005. L-1 stands to benefit greatly from the post 9/11 homeland security contract bonanza, although the history of some of its subsidiaries might argue against that goal: Iridian handles border control for the United Arab Emirates, a major banking center and transportation hub for September 11 hijackers that Al Qaeda may still use to transfer money. New York State uses Viisage technology at the Department of Motor Vehicles, and in October 2007 a fraud unit found that their scanners were routinely declaring counterfeit IDs to be valid.

Nonetheless, L-1 has $100 million in government work—including contracts with the Bureau of Citizenship and Immigration at DHS and passport services for the State Department. L-1 in 2006 recruited former CIA director George Tenet to their board and is pursuing CIA contracts.

In June 2006, Frank Lanza—then CEO and chairman of L-3—died mysteriously. He had helped make L-3 the country’s ninth largest Pentagon contractor, with $4.7 billion in government contracts in 2005 alone. L-3 continued to have trouble with subsidiary Titan. In 2007, the Pentagon reclaimed $32,000 in fraudulent claims from Titan. Also in 2007, Titan employee Faheem Mousa Salam was charged with violating the Foreign Corrupt Practices Act after bribing Iraqi police officials to give Titan contracts to supply police training teams.

Categories

Defense | Homeland Security | Information Technology | International Finance

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