Boeing Fraud Enforcement Action: Part 1 – Introduction

Thomas Fox

Compliance Evangelist

One of the top corporate scandals over the past few years entered its next phase with the settlement by the Department of Justice (DOJ) with The Boeing Company (Boeing) around its fraud in the certification of its 737 MAX aircraft. The resolution was via a Deferred Prosecution Agreement (DPA). Under the DPA, Boeing agreed to pay a total amount of $2.5 billion. According to a DOJ Press Release, this total amount consisted of “a criminal monetary penalty of $243.6 million, compensation payments to Boeing’s 737 MAX airline customers of $1.77 billion, and the establishment of a $500 million crash-victim beneficiaries fund to compensate the heirs, relatives, and legal beneficiaries of the 346 passengers who died in the Boeing 737 MAX crashes of Lion Air Flight 610 and Ethiopian Airlines Flight 302.” It was basically for Boeing’s fraud on the US government.

This scandal engulfed the company and showed at the time, Boeing to be one of the most morally bankrupt companies in the US. The flaws in the 737 MAX led to two plane crashes yet Boeing initially blamed the pilots of those flights all the while knowing there were flaws in the planes. After government oversight groups across the globe banned the 737 MAX from flying and the Federal Aviation Administration (FAA) was considering a similar ban, the then Chief Executive Officer (CEO) of Boeing called President Trump and asked him to intercede to prevent the US from banning the 737 MAX from the air. Once again, all the while knowing about the defects in the 737 MAX. Clearly the safety of the US flying public was not on the forefront of Boeing at that time.

Acting Assistant Attorney General David P. Burns of the Justice Department’s Criminal Division said, “The tragic crashes of Lion Air Flight 610 and Ethiopian Airlines Flight 302 exposed fraudulent and deceptive conduct by employees of one of the world’s leading commercial airplane manufacturers. “Boeing’s employees chose the path of profit over candor by concealing material information from the FAA concerning the operation of its 737 Max airplane and engaging in an effort to cover up their deception. This resolution holds Boeing accountable for its employees’ criminal misconduct, addresses the financial impact to Boeing’s airline customers, and hopefully provides some measure of compensation to the crash-victims’ families and beneficiaries.”

Then US Attorney Erin Nealy Cox for the Northern District of Texas said, “The misleading statements, half-truths, and omissions communicated by Boeing employees to the FAA impeded the government’s ability to ensure the safety of the flying public. This case sends a clear message: The Department of Justice will hold manufacturers like Boeing accountable for defrauding regulators – especially in industries where the stakes are this high.” Special Agent in Charge Emmerson Buie Jr. of the FBI’s Chicago Field Office said, “The substantial penalties and compensation Boeing will pay, demonstrate the consequences of failing to be fully transparent with government regulators. The public should be confident that government regulators are effectively doing their job, and those they regulate are being truthful and transparent.”

However, the settlement and DPA demonstrate that Boeing did make a comeback from its cultural miasma. There is much to be learned by the anti-bribery compliance practitioner from this Boeing DPA. Over the next few blog posts, I will be exploring the DPA and mining it for lessons learned. It was interesting to see how the DOJ evaluated a Fraud Section case that was not a Foreign Corrupt Practices Act (FCPA) enforcement action. The DOJ applied the same formula found in the Corporate Enforcement Policy to the DPA involving Boeing.

According to the DPA, Boeing did not receive any credit for self-disclosure as “it did not timely and voluntarily disclose to the Fraud Section the offense conduct described in the Statement of Facts”. However, Boeing did receive partial credit for its cooperation with the DOJ’s investigation into the Company’s deception of the FAA; the cooperation “ultimately included voluntarily and proactively identifying to the Fraud Section potentially significant documents and Company witnesses and voluntarily organizing voluminous evidence that the Company was obligated to produce”. Going forward, “Boeing has agreed, among other things, to continue to cooperate with the Fraud Section in any ongoing or future investigations and prosecutions. As part of its cooperation, Boeing is required to report any evidence or allegation of a violation of U.S. fraud laws committed by Boeing’s employees or agents upon any domestic or foreign government agency (including the FAA), regulator, or any of Boeing’s airline customers.”

In the area of remediation, Boeing eventually turned itself around as well. The Press Release laid out some of the key remediation steps: (i) creating a permanent aerospace safety committee of the Board of Directors to oversee Boeing’s  governing safety and its interactions with the FAA; (ii) creating a Product and Services Safety organization to strengthen and centralize the safety-related functions; (iii) reorganizing Boeing’s engineering function to have all Boeing engineers report through Boeing’s chief engineer rather than to the business units; (iv) structural changes to Boeing’s Flight Technical Team, including moving Boeing’s Flight Technical Team under the same organizational umbrella as Boeing’s Flight Test Team; (v) adopting new policies and procedures and conducting training to clarify expectations; and (vi) requirements governing communications between Boeing’s Flight Technical Pilots and regulatory authorities. Somewhat more dryly is also noted, “Boeing also made significant changes to its top leadership since the offense occurred.”

There is much to unpack here. Join me tomorrow where I look at the facts of the fraud perpetrated by Boeing.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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