Boeing admits no guilt in scandal

The Department of Justice announced Monday the terms of a proposed global settlement with Boeing over recent procurement scandals. It levies a $615 million fine but lifts the threat of prosecution of the company.

"No charges will be filed," said Doug Bain, Boeing's top lawyer, in a statement.

While the government remains technically free to indict any individuals it has evidence against, prosecutors "are not contemplating any further indictments" against company executives, said a lawyer close to the negotiations, who asked for anonymity. "This case is over."

A senior Justice Department official said the fine is "an attempt to capture in numerical terms some of the money lost to the taxpayer and the government" through Boeing's misconduct. He said no one in the department could recall a larger financial penalty against a defense contractor.

Crucially though, Boeing admits no wrongdoing as a company. According to separate Justice Department and company statements, Boeing has agreed only "to accept responsibility for the conduct of its employees."

Convicted employees include former Chief Financial Officer Mike Sears and executive Darleen Druyun, both of whom have already completed sentences in federal prison.

Sears hired Druyun when she was still working for the Air Force and deeply involved in awarding contracts to the company. She later admitted favoring Boeing in a series of contracts.

Terms of Boeing settlement

$615 million fine: $565 million to resolve civil claims, $50 million as a penalty for criminal activity.

No criminal charges against the company. Cases against individuals already charged are not affected.

Admission of responsibility: Boeing accepts responsibility for the conduct of its employees but doesn't admit guilt as a company.

Ethics compliance measures: Boeing must maintain its agreement with the Air Force to monitor contract awards; it must also follow through with its new internal ethics effort.

Two years' probation: The charges can be prosecuted if a senior executive is indicted in that period.

Source: Department of Justice

Two lower-level Boeing employees, engineer Kenneth Branch — a former Lockheed Martin employee — and his one-time supervisor at Boeing, William Erskine, remain under indictment in U.S. District Court in California. They're accused of stealing proprietary Lockheed documents used to win contracts for Air Force and NASA space rockets.

Thom Mrozek, spokesman for the U.S. Attorney's Office in Los Angeles, said the government settlement with Boeing as a company "has no bearing" on that case, which is scheduled to go to trial June 27.

Boeing has argued throughout the scandals that these individuals acted against company policy and without authority. The government essentially has agreed not to dispute that argument.

But prosecutors could have decided differently. John Coffee, professor of corporate law at Columbia Law School, said a corporation is liable for the acts of any official, providing the officer is acting to benefit the company rather than himself.

"This wasn't an officer off on his own personal frolic," said Coffee. "To the extent this behavior was trying to maximize profits for Boeing, corporate liability would seem obvious."

Yet the government had to weigh the impact of an indictment. In January, Bain, who is to retire July 1 as Boeing's top counsel, warned executives at a private retreat in Orlando, Fla., that conviction could lead to being barred from all government military contracts, which would have devastated the company.

According to the lawyer close to the negotiations, the government chose not to indict based on the so-called "Thompson Memo" guidelines for prosecution of corporations.

The memo was drawn up in 2003 following the collapse of accounting firm Arthur Andersen after it was indicted in the Enron scandal.

The memo, named after its author — Deputy U.S. Attorney General Larry Thompson — laid out nine mitigating factors in deciding whether to push for prosecution, including "voluntary disclosure of wrongdoing" and "any efforts to implement an effective corporate compliance program."

"Boeing scored very well in those factors," the lawyer said.

On a conference call with reporters, a senior Department of Justice official who asked not to be named said: "We looked at all that and we felt this was an appropriate resolution of the case."

By avoiding an admission of corporate guilt, Boeing will make it difficult for others to pursue claims against the company on the same matters.

One outstanding claim is a civil suit brought by Lockheed Martin alleging damage from Boeing's use of the stolen proprietary documents.

But that racketeering lawsuit brought in Orlando, Fla., is stayed. It will remain so, said a Lockheed spokesman, pending approval by the government of an agreement announced a year ago between Lockheed and Boeing to merge their space-rocket businesses. If that approval is granted, as expected, Lockheed will withdraw the suit.

Technically, Boeing is on probation. A government prosecution could be resurrected, according to the Justice Department statement, if within the next two years an executive commits federal crimes and Boeing fails to report the misconduct.

But provided it keeps clean for that period, the dark clouds over Boeing will be lifted. Chief Executive Jim McNerney is "real pleased," said a person who talked with him about the agreement.

The tentative settlement is expected to be finalized in the next few weeks. The Department of Justice said the final agreement will include appendices "that lay out the facts and put the culpability of Boeing in perspective."

Dominic Gates: 206-464-2963 or dgates@seattletimes.com