Federal prosecutors today accused Fairchild Industries of falsifying business expense records in an attempt to cover up illegal campaign contributions to politicians sympathetic with the defense industry.
The government made the accusation at the opening of the trial in U.S. District Court against Fairchild and its chairman, Edward G. Uhl, on tax charges.
Fairchild and Uhl did not dispute the existence of the political fund but insisted it was legal because it did not involve corporate money. They also insisted all disputed tax deductions were legal.
"This is a case of stretching the dragnet of the Internal Revenue Service law to catch a political fund that was long dormant when the case was brought," Uhl's attorney, Herbert J. Miller, told the court.
The government could not have charged Fairchild with the existence of the political fund because the statute of limitations had expired. The fund was allegedly disbanded after the 1972 elections. However, violations of tax laws can be prosecuted for up to six years after returns are filed.
The indictments against Fairchild and Uhl were returned by a federal grand jury last Sept. 8, the last day they could have been charged with violations of the 1971 corporate tax return.The indictment against Uhl charges that he, as the company's chief executive officer, was responsible for the false returns.
U.S. Attorney Russell T. Baker Jr. told the jury today that Uhl implemented a system in 1974 to generate money for "congressmen and senators who strongly supported the defense bureaucracy."
Under that system, about 30 Fairchild executives were offered company cars if they agreed to write a check for cash to the company finance department for a percentage of the car's cost, Baker said.
In that manner, Baker said, the executives paid Fairchild 63 percent of each car's cost while the company was claiming on its tax returns that it paid the entire cost and, in addition, deducted more money for the cars by claiming depreciation.
The system, which raised more than $80,000 for political contributions,was "twice illegal," Baker said. He said it was illegal for a corporation to make contributions to any federal political campaign and also illegal for a government contractor to make any political contributions.
Baker's opening was interrupted three times by objections from a battery of defense attorneys extremely sensitive to the political contributions issue. One company attorney said the word "politician" is "becoming like a four-letter word."
Marvin J. Garbis, the attorney for Fairchild, charged that he government and the IRS "are seeking to find a technicality to hang a tax charge on. The evidence will show there was no bribery or kickbacks paid to congressmen."
Garbis praised Uhl, who became president of Fairchild in 1961, for building it into a major defense contractor and innovator in the aircraft industry. Uhl worked everybody overtime to prove that a tiny company which was "barely surviving in 1950" could compete with the aircraft giants, he said.
Uhl's attorney said Fairchild reported net income of $25 million in 1971 and paid more than $4 million in taxes. The figures are comparable for 1972.
The dispute over the fleet of company cars offered to the executives could mean that the corporation owes $6,000 more in taxes if the jury finds that Fairchild took an improper deduction on its taxes.
Garbis contended that the money the corporate executives paid for use of the cars was a voluntary contribution towards the political fund.