WSJ News Exclusive | U.S. Probes Examine Raytheon’s Dealings With Qatari Defense Contractor

The lawsuit, filed in 2019 by a former Digital Soula Systems director who claimed the QAF had failed to pay for work the consulting firm did on a defense-procurement contract, led to inquiries by the U.S. Securities and Exchange Commission and the U.S. Justice Department, the people familiar with the matter said.

The SEC began making inquiries into the lawsuit’s bribery allegations in the months after it was filed, according to one of the people familiar with the matter. The DOJ soon followed suit, the person added. The agencies share authority to enforce the Foreign Corrupt Practices Act, which prohibits companies from paying bribes to foreign public officials to gain a business advantage, and requires companies to maintain controls to prevent such payments.

The law firm Wilmer Cutler Pickering Hale and Dorr LLP was tapped by Raytheon to conduct an investigation into the allegations in the lawsuit, and has interviewed people with knowledge of Digital Soula Systems and its dealings with Raytheon, according to several people who said they were contacted by the law firm.

Raytheon publicly disclosed parallel FCPA probes in securities filings last year, saying only that authorities were conducting investigations into whether there were improper payments made by Raytheon or its joint venture with France’s

Thales SA

in the Middle East since 2014. The company hasn’t provided any further details about the probes.

A Raytheon spokesman said the company maintains a “rigorous” anticorruption compliance program and is cooperating with the government inquiries. The spokesman declined to comment on the focus of the inquiries, citing the continuing investigations.

A Thales spokeswoman said the investigations disclosed by Raytheon concerned Raytheon or a joint venture under Raytheon’s full control, and that the French company hadn’t received any inquiries from U.S. or French authorities about the matter.

A Justice Department spokesman declined to comment. The SEC didn’t respond to requests for comment.

Founded in 2013, Digital Soula Systems was hired to help Qatar modernize the way it acquires defense products, according to former employees who spoke to The Wall Street Journal. The country has a large defense budget for its size, but lacks the expertise and scale to efficiently manage procurement processes and even some of the advanced equipment it buys, the former employees said.

Qatar, which has a population of fewer than 3 million, spent an estimated $6.5 billion on defense in 2020, according to the International Institute for Strategic Studies. Raytheon has been awarded contracts in Qatar valued at more than $7 billion since 2014, including for building and servicing its signature Patriot missile system and other air-defense infrastructure, according to a tally of public records by the Journal.

Digital Soula Systems entered into a contract with the QAF in March 2015 to advise on the acquisition of an advanced command-and-control system, dubbed the Falcon Project, according to a copy of the agreement viewed by the Journal. The firm’s staff, which consisted primarily of retired military personnel from the U.K., Germany and elsewhere, began arriving in Doha soon after to begin work on the technical specifications for the project, the former employees said.

A formal document requesting bids for the Falcon Project was completed in 2016, but the project by that point was suffering from major delays amid dysfunction and infighting within the QAF, the former employees said. Digital Soula Systems continued operating through mid-2017, expecting it would be hired to review bids for the Falcon Project, but the Qataris soon abandoned the proposed command-and-control system, they said.

After the project’s collapse, Tarek Fouad, a dual U.S. and British citizen and one of Digital Soula Systems’s three directors, sued the QAF for $4.4 million in fees he said were owed for the consulting firm’s work. In the lawsuit, Mr. Fouad also alleged that his two former co-directors had negotiated an illegitimate settlement with the QAF in order to avoid prosecution in Qatar for facilitating the alleged bribery by Raytheon.

The alleged bribes were intended for Sheikh Joaan bin Hamad bin Khalifa Al Thani, the brother of Qatar’s emir, according to Mr. Fouad, in what his legal complaint described as an “apparent effort” to influence Qatar’s acquisition of defense systems.

A spokesperson for Qatar’s Government Communications Office said he was unable to provide anyone who could speak to the bribery allegations in Mr. Fouad’s lawsuit or to related claims about Qatar’s military spending more generally. Mr. Fouad’s two former co-directors, Qatari nationals, couldn’t be reached for comment.

Mr. Fouad alleged that Raytheon between 2014 and 2016 directed a series of payments into bank accounts associated with Digital Soula Systems. Bank statements included in his lawsuit show several such payments from Raytheon in 2014, the former director alleged.

The payments were supposed to be compensation for defense studies that Digital Soula Systems would produce for Raytheon, Mr. Fouad alleged in the suit. But metadata extracted from digital files of the studies appear to show that Raytheon itself had created them, according to a forensic report commissioned by Mr. Fouad and included in his lawsuit. The forensic report was conducted by Secure Network Technologies Inc., an information security consulting firm based in Syracuse, N.Y.

Mr. Fouad in a written statement filed in his lawsuit argued that the work orders for the studies were a sham, since none of the deliverables called for in the contracts were created by Digital Soula Systems directly or indirectly for Raytheon. “This form of bribe is often referred to as a no-work contract,” he said in the statement.

Payments such as those alleged in Mr. Fouad’s lawsuit would have posed a serious FCPA risk for Raytheon, according to lawyers who reviewed the bribery allegations and documents from Mr. Fouad’s lawsuit.

One of Digital Soula Systems’ directors was an active-duty lieutenant colonel for the QAF, and the consulting firm was majority-owned by Sheikh Joaan, according to commercial registration records included by Mr. Fouad in his lawsuit. Sheikh Joaan was the majority owner of a company called Al Sedriah, which held a 60% stake in Digital Soula Systems, the records show.

Raytheon had knowledge of Sheikh Joaan’s stake in Digital Soula Systems, according to Mr. Fouad’s lawsuit. An email included by Mr. Fouad in his lawsuit appears to show a member of Raytheon’s compliance staff asking Mr. Fouad in 2013 for information about Al Sedriah’s owners. Mr. Fouad in his response identified Sheikh Joaan as Al Sedriah’s owner.

“The fact that [Digital Soula Systems] had such close ties not only to the ruling family, but also to a sitting military official, presumably with some degree of influence or insight into Qatari defense purchases” would have been a cause for concern for Raytheon’s compliance department, said Ryan Rohlfsen, a former member of the DOJ’s FCPA unit and a partner at law firm Ropes & Gray LLP.

“There are red flags all over the place from an FCPA liability standpoint,” he said.

In motions to dismiss Mr. Fouad’s lawsuit last year, the QAF and Digital Soula Systems denied his claim that the consulting firm was still owed money for the work it did on the Falcon Project, saying they had already reached a $2.4 million agreement to resolve any unpaid bills.

The QAF and Digital Soula Systems in their filings argued that Mr. Fouad lacked the authority to bring a lawsuit on behalf of the consulting firm and that a U.S. court was an improper forum to resolve his claims. The filings didn’t address Mr. Fouad’s bribery allegations.

Digital Soula Systems in its filings further argued that Mr. Fouad had been removed from his role as a company manager and that the only individuals authorized to act in such a capacity at the time of the suit were his two former co-directors.

Mr. Fouad’s lawsuit was dismissed in 2020 by a district court judge who agreed with the QAF that the U.S. was an improper forum for resolving the dispute. An appeals court in February affirmed the lower-court ruling.

A formal request for bids from defense contractors to build the Falcon Project, launched in 2016, had elicited a single response—from a consortium of companies led by Raytheon, according to former Digital Soula Systems employees and letters viewed by the Journal. But the project never got off the ground.

A sharp decline in oil prices in 2016 prompted the Qatari government to look for ways to cut costs and launch a project review that caused further delays to the Falcon Project, Mr. Fouad said in his lawsuit.

Raytheon’s proposal was filed away by Qatar’s ministry of defense, and the project wasn’t pursued further, former Digital Soula Systems employees said.

Write to Dylan Tokar at [email protected]

Corrections & Amplifications
Raytheon Technologies Corp.

is based in Waltham, Mass. A photo caption in an earlier version of this article incorrectly said Raytheon was based in Woburn, Mass. (Corrected on Sept. 7)