By Chris Prentice and Mike Spector
(Reuters) – The U.S. Justice Department will file criminal fraud charges against Boeing Co over two fatal crashes and will require the planemaker to plead guilty or face trial, people familiar with the matter said on Sunday.
Boeing will have until the end of the week to respond to a plea deal offer from the Justice Department, the people said. Such a deal would allow the company to avoid a legal battle with federal prosecutors. But it could complicate the company’s efforts to overcome the ongoing crisis sparked by the Jan. 5 Alaska Airlines flight control panel explosion.
The proposed deal follows a U.S. Justice Department ruling in May that Boeing violated a 2021 agreement that shielded it from prosecution over deadly crashes in 2018 and 2019 that killed 346 people.
What is the original agreement?
In 2021, the Justice Department agreed to defer its prosecution of Boeing and ultimately asked a judge to dismiss a charge of conspiracy to defraud the FAA as long as the company complied with the terms of the deal over a three-year period.
Boeing agreed to review its compliance practices to prevent violations of U.S. fraud laws and to provide regular reports. But the January in-flight emergency occurred two days before the agreement was due to expire.
The aircraft maker told prosecutors it disagreed with their findings, adding that it had “honored the terms” of the settlement.
what happened after that?
Reuters reported that US Justice Department officials intend to give Boeing until the end of the week to respond to the offer, which they will present as non-negotiable. If Boeing rejects the offer, prosecutors plan to refer the company to trial.
A courtroom battle would carry risks for both sides.
Prosecutors will have to prove that the planemaker conspired to defraud the FAA over the flight system, after a jury in 2022 acquitted a Boeing pilot of related charges.
However, companies are usually unlikely to risk going to trial, because a conviction risks harsher penalties, and a lengthy court process could prolong the uncertainty surrounding the case for Boeing’s investors, suppliers and employees.
What would happen if Boeing pleaded guilty?
That could be the riskiest aspect of the deal terms for Boeing, according to legal experts. A felony conviction could cripple Boeing’s ability to secure government contracts like those with the U.S. military, which make up a large portion of its revenue.
“In the world of government contracting, being indicted or found criminally liable can have a significant impact on a company,” said Franklin Turner, a government contracts attorney at McCarter & English.
Boeing may seek waivers from government departments and agencies to continue contracting with them. Some previous Justice Department settlements have provided details about how officials handled the case. It’s unclear to what extent Boeing’s proposed plea deal might do that.
If the plea offer doesn’t address that issue, government officials in each department or agency will have to decide whether Boeing, as a convicted criminal, deserves an exemption, said Vikramaditya Khanna, a law professor at the University of Michigan.
Will Boeing be subject to financial penalties?
The proposed agreement includes a fine of $487.2 million, and Boeing will have to pay about half of that amount, as the government will credit it for previous fines.
Boeing will likely have to pay damages, an amount that will be decided by a judge. The company has already paid $2.5 billion in fines and restitution in 2021 in connection with the original conspiracy charge, which included a criminal penalty and restitution to customers and relatives of crash victims.
Reuters reported that the plea offer includes placing Boeing on probation for three years and requiring its board of directors to meet with family members of the victims.
If a federal monitor is appointed, who will that monitor be, and how will that monitor be determined?
The proposed plea deal includes the appointment of an independent monitor to review Boeing’s safety and compliance practices for three years.
Under President Joe Biden, the Justice Department has renewed the use of corporate monitors in its deals with companies to resolve allegations of misconduct. The practice had fallen out of favor under the previous administration.
Companies typically resist these requirements. Outside firms, selected by the Justice Department, act as the government’s eyes and ears. The company foots the bill.
Future risks
The acknowledgment will not excuse or provide immunity for the company for any other conduct, including the January 5 incident.