In a second major legal setback for Northrop Corp., an international arbitration group has concluded that the company paid $6.25 million to a South Korean power broker in a possibly illegal attempt to sell jet fighters to that country's air force.
The arbitrator rejected Northrop's claim that the money was to build a luxury hotel. The ruling said three company vice presidents were aware of the real purpose of the money and that Northrop's chairman, Thomas V. Jones, probably knew of and approved the payment.
Jones resigned as chairman of Northrop yesterday and was replaced by the company's chief executive, Kent Kresa.
"This is not a situation where low-ranking officers colluded to defraud Northrop, but where Northrop acted, probably illegally, through its top management," said Wolfgang Kuhn, a German lawyer who served as arbitrator for the International Court of Arbitration. The independent, non-governmental court is affiliated with the International Chamber of Commerce.
The new arbitration findings are similar to a report issued in May by a South Korean arbitrator. But the new decision provides substantially more detail, raises the issue of illegality and, according to a federal investigator, is likely to add fuel to two pending criminal inquiries.
A copy of the secret arbitration decision, dated Sept. 4, was obtained by the Los Angeles Times.
Northrop officials said yesterday that they disagreed with the conclusions and would pursue a civil lawsuit in South Korea to recover the money.
"The ruling makes no conclusion or finding to support widespread reports and allegations that the company's investment was to be used to make payments to Korean government officials," said company spokesman Tony Cantafio.
Two federal grand juries are investigating whether the Northrop payment violated U.S. laws against bribing foreign officials and whether the company or Jones violated the terms of a 1975 consent decree that alleged Northrop made $30 million in foreign payments without proper financial controls.