America's No. 1 financial conglomerate

Chapter 444 This is the rule

It's an open secret that military-industrial complexes defraud the Ministry of National Defense of funds; it's practically commonplace.

Over the course of its long development, a diverse and highly covert set of methods for defrauding the Ministry of National Defense of funds has gradually been formed.

These methods cover all aspects of weapons and equipment research and development, production, procurement, and after-sales service. Each method is carefully designed to circumvent supervision and maximize illegal profits.

Rising costs are one of the most common excuses used by military enterprises. Because the research and development and production of weapons and equipment often involve complex technologies, special materials and long cycles, their cost accounting is inherently complex and opaque. This provides military enterprises with an opportunity to inflate costs and raise prices.

Some military industrial enterprises take advantage of this information asymmetry by deliberately exaggerating factors such as the increase in raw material prices and labor costs, and use this as a pretext to apply to the Ministry of National Defense for higher equipment procurement prices, thereby obtaining additional profits.

Take Raytheon, a company in the Boston Consortium, for example. The price of the launchers for the Patriot air defense missile system has increased by varying degrees almost every year over the past few decades.

The reasons given are excuses such as rising raw material costs and increased costs due to improvements in production processes.

Take rare earth elements for example; these contractors all have stockpiles.

When rare earth prices rise, these materials will quote prices based on the price at that time. When rare earth prices fall, they will demand higher purchase prices, citing the peak price when they purchased the rare earths.

The same principle applies to the main raw materials used in launching devices, such as special steel and electronic components.

In short, they always buy the materials they need for their equipment at the highest possible price.

Besides manipulating equipment prices, the after-sales service of weapons and equipment is also an important channel for fraud, with the Ministry of National Defense being swindled out of training fees by fabricating personnel training needs.

The reason given is that the technology of new weapons and equipment is becoming increasingly sophisticated, which places higher demands on the professional skills of operators and requires an increase in the number of personnel to operate them.

By deliberately exaggerating the operational difficulty of new equipment and fabricating the number of trainees and the training period, the company increases its training expenses.

For example, when a new radar monitoring system is being sold, the company may falsely claim that a large number of professionally trained personnel are required to operate it properly. Based on concerns about the difficulty of operating the new equipment, the Ministry of National Defense often agrees to the training plan proposed by the military industry enterprise and pays the corresponding training fees.

In reality, these new radar monitoring systems are often optimized and can be operated proficiently with only short-term basic training.

But it's all American taxpayers who are footing the bill. Everyone's well-fed, so who cares?

However, the most typical example is the scam involving research and development funding.

The research and development of weapons and equipment is characterized by high investment, high risk, and long cycle. It is difficult to accurately monitor and account for the expenses incurred during the research and development process, which provides convenient conditions for military enterprises to falsely report research and development expenses.

Some military industrial enterprises apply to the Ministry of National Defense for R&D funding far exceeding actual needs by exaggerating the difficulty of R&D, fabricating R&D projects, and repeatedly reimbursing R&D expenses. Most of these falsely reported funds end up in private pockets.

Several years ago, media reports revealed that one of Lockheed's upstream materials suppliers defrauded the Department of Defense of $730 million in research and development funds by falsely reporting the research and development costs of a precious metal supplied.

It was later discovered that the company had not invested any research and development funds in research and development at all; the materials they supplied were all purchased from Japanese companies.

The most egregious example is the questionable actions taken by American military companies in rocket engines.

The F1 engine of the American Saturn V rocket is the world's most powerful single-thrust rocket engine and played an important role in the Apollo moon landing program.

However, the greatest thrust does not necessarily mean the best. Many people have mythologized it, but in reality, it has a lot of drawbacks.

F1 engines use the most primitive open-cycle technology. Although this technology can achieve greater thrust, its energy utilization efficiency is extremely low, and its fuel consumption is astonishingly high.

During rocket flight, a large amount of fuel is discharged directly without being fully burned and utilized. This not only leads to low rocket carrying efficiency but also greatly increases the amount of fuel carried by the rocket.

As a result, in order to meet the flight requirements of rockets, they must carry more fuel and become heavier.

Heavier fuel requires greater thrust and therefore more fuel.

This is a vicious cycle of adding more flour when there's too much water, and adding more water when there's too much flour, ultimately making the Saturn V rocket a massive and complex behemoth.

American aerospace engineers have long been aware of these shortcomings of the F1 engine and know the importance of miniaturized, lightweight, and cost-effective rocket engines for reducing spaceflight costs.

Do you think the United States doesn't want to build smaller rocket engines to save costs?

But it can't do that.

After the Soviet Union collapsed, Russia became so poor that it sold everything it could, which led American arms dealers to see the value of the RD-170 engine.

This is the world's most powerful liquid rocket engine. It has four nozzles, shares a turbopump and a fuel system, so it can be considered as a single engine.

Its thrust is greater than that of the Saturn V's F1 engine, reaching more than 700 tons, exceeding the 680 tons of the American F1 engine. Moreover, its fuel efficiency and specific impulse are far superior to those of the F1 engine.

Most importantly, the RD-170 can be customized.

High thrust? You don't need that much thrust? I'll cut two shotguns off for you.

Still too big? I'll give you a mini version, which focuses on being economical, affordable, and high-quality, maximizing your cost-effectiveness.

Then Boeing and Lockheed Martin saw an opportunity and together they founded ULA.

The company purchased 120 RD-180 rocket engines, modified from RD-170 engines with reduced thrust, at a price of ten million US dollars each.

Then, after some simple modifications and repackaging, it was sold to NASA and the Department of Defense for $5000 million. This way, they could both get away with the research and development costs and quickly reap huge profits.

Even so, ULA claimed that the price was already very cheap, with almost no profit margin, and even felt like they were about to vomit blood.

As they said, compared to other aerospace engine companies in the United States, this price is practically enough to bankrupt them.

Look at the aerospace engine companies in the United States now. A single aerospace engine with less than half the thrust of the RD-180 costs $4000 million.

ULA would never have done this if it weren't to eliminate its competitors and monopolize the supply of aerospace engines.

As competitors gradually disappeared, ULA's monopoly in the US aerospace engine market became increasingly consolidated, and it began to gradually reveal its true colors.

In just a few years, the price of the RD-180 engine that ULA sold to NASA has increased from the initial $5000 million to the current $1.5 million. Furthermore, citing reasons such as rising raw material prices, increased labor costs, and increased R&D investment, they plan to further increase the price in the future.

Even more unbelievable is that while ULA Corporation is reaping huge profits by monopolizing the market, it also applies for huge amounts of research and development funding from the U.S. Department of Defense every year, claiming that it will independently develop new rocket engines and reduce the so-called unfounded production costs.

The research and development funding that Ernst wanted to swindle was for laser weapons.

As early as the 1980s, the Americans proposed the concept of laser weapons and launched related research and development projects.

After more than a decade of development, laser weapon technology still faces many insurmountable technical challenges, such as low energy conversion efficiency, a large amount of electrical energy being wasted in the process of converting into laser energy, severe energy attenuation due to atmospheric scattering and absorption when the laser propagates in the atmosphere, and limited range.

But isn't it precisely because the ideals and goals are so far away that we should invest even more money in research and development?

"Bell Labs' laser technology is in a class of its own globally, so why can't we work together to advance this? I believe the Department of Defense should consider the long-term future equipment needs of the American people."

Massim glanced at Ernst and thought, "What long-term considerations? To put it bluntly, isn't it just about continuous investment and throwing money at the problem?"

You put on such a grand and respectable facade, but do you think you understand the tricks behind it all as well as I do?

"This game is unfair. We're the ones putting in the effort, and we need more benefits."

Ernst simply didn't have the connections or the power to push this together.

Ernst said in a deep voice, "I already said, there's also Blackwater International."

"That was just procurement..." At this point, Massim suddenly looked at Ernst. "You're planning to bring the Elephant people into Cass Defense as well?"

When Ernst mentioned Blackwater earlier, Massim assumed he was referring to the procurement of equipment.

The Microsoft situation has confirmed that the US military will have large-scale operations in the Middle East.

It's not just Blackwater; many employment companies have received related orders.

But now Massim has come to his senses. Ernst mentioned Blackwater not only because he wanted Blackwater to purchase equipment developed by Cass Defense in the future, but also because he wanted to use Cass Defense to build a cross-party arms company.

The development of laser weapons—this project has so much potential!

This also means that the research and development time for this project will be very long and the research and development costs will be very high.

Consequently, many interests will be involved.

With the Boston Consortium joining in, and the bigwigs behind Elephant also getting involved, will Cass Defense ever lack R&D funding again?

"Is the rumor true?" Masim asked.

"What rumor?" Ernst turned to look at him, unsure which one he was referring to.

"It's the rumor that Blackwater International is going to be restructured."

Ernst nodded in agreement.

It shouldn't be called a restructuring; a more accurate term would be merger and acquisition.

Blackwater International expands its scale by acquiring several security companies through mergers and acquisitions, and also gains access to the Department of Defense contracts held by these companies.

However, the core essence of this matter is that through this large-scale merger and reorganization, a large number of large shareholders will emerge. Although Ernst will still be Blackwater's largest shareholder, his shareholding will drop to below 20%.

But he didn't care about any of that, because he had already achieved his goal.

Blackwater has been spurred into becoming one of the largest employment companies in the United States.

He still holds the largest seat on the board of directors of Blackwater International.

Of the 11 board seats established, he held three; otherwise, he wouldn't have agreed to them.

By supporting a large number of retired U.S. military personnel and increasing its influence within the military, Blackwater will also serve as a bridge between the Garfield family and the Elephant Group—that's enough.