Boeing may pay $615 million to close federal contracting investigations

Defense contractor Boeing Co. tentatively has agreed to avoid criminal charges and pay $615 million to settle two federal investigations into contracting scandals at the company, Justice Department officials said Monday.

Boeing would pay $565 million in civil claims and another $50 million to close the criminal investigations but make no new admissions of wrongdoing, gaining immunity from prosecution if the company and its senior executives stay out of legal trouble for two years, according to senior Justice Department officials. The settlement would allow some mid-level company officials to be prosecuted, but senior executives would be shielded, the department said.

If the two sides iron out details of the arrangement as anticipated over the next few weeks, the settlement would close investigations into contracts connected with Darleen Druyun, a former senior Air Force acquisition official who served nine months in jail after pleading guilty to giving the Chicago-based defense contractor preferential treatment in exchange for a job there and other favors. Michael Sears, then a Boeing senior executive, was fired and served four months' jail time for his role, and company chairman Phil Condit resigned.

Boeing also is being investigated in connection with improperly obtaining documents from its Bethesda, Md.-based rival Lockheed Martin. The papers were used to win a contract related to government rocket-launches and may have been used to win additional business with the National Aeronautics and Space Administration. Some of the company's contracts were rescinded as a result and awarded to Lockheed at a higher cost, the Justice Department officials said.

The officials said both cases had criminal and civil penalty components. The $565 million civil penalty was designed in part to recapture government costs associated with restructuring Boeing's contracts and recompensing other government losses associated with the cases, they said.

A Sunday Wall Street Journal report on the settlement cited anonymous sources in noting that the Justice Department earlier had sought heftier penalties of $750 million and felony pleas by the company, but those were gradually whittled down to the present arrangement as higher-ranking Department officials became involved in the long negotiations.

Under the provisional settlement terms, Boeing would be subject to enhanced ethics and compliance supervision for two years, and violation of the terms would allow the government to reopen the cases for prosecution or assess up to $10 million in additional fines, Justice officials said.

But Boeing has recently shown some signs of an increased focus on ethical conduct. The company's chief executive officer, president and chairman, Jim McNerney, has expanded executive compensation criteria to include integrity and ethical leadership considerations, The Wall Street Journal reported. And last week, former federal appeals court judge J. Michael Luttig resigned from the bench to become chief counsel and senior vice president of the company.

If finalized, the Boeing settlement would be one of the largest defense-related agreements reached with the federal government. Charles Miller, a Justice spokesman, said the department had reached a $1.7 billion agreement with HCA-The Healthcare Co., a hospital chain, to settle civil and criminal charges of falsely billing a government program for medical claims, and had reached several large settlements with pharmaceutical companies. But he and other senior officials were not aware of any defense settlements larger than the one currently on the table. Boeing officials confirmed the settlement announcement.

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