Justice Dept. deflates criticism over settlement with Boeing

WASHINGTON — Despite embarrassing allegations involving two contracting scandals and criminal plea bargains by two of its executives, Boeing had a strong position with the Justice Department in its settlement negotiations, the government's chief attorney in the talks told a Senate panel Tuesday.

The settlement this spring, which included $50 million in criminal fines and $565 million in civil penalties, has been questioned by some senators as too loose and too lenient.

The deal precluded criminal prosecution of the company on those two matters and would have allowed Boeing to deduct settlement costs from its taxes.

In a hearing before the Senate Armed Services Committee, Deputy Attorney General Paul McNulty, who negotiated the settlement while the U.S. attorney for the Eastern District of Virginia, defended it as "an outstanding resolution to an extremely difficult case."

In a detailed explanation of the Justice Department's decision, McNulty noted there were limits to the government's potential punishment of Boeing, given its place as one of a few large defense contractors and its role in Pentagon projects that extend through 2020.

"Contracts at issue are critical to national security; they cannot practicably be terminated," McNulty said. He added that because there were "extensive differences on factual and legal matters" with Boeing, the alternative was years of litigation.

The hearing was called July 18 by Sen. John Warner, R-Va, chairman of the Armed Services Committee, and John McCain, R-Ariz.. They were concerned Boeing would deduct part of the fines from its taxes.

The settlement followed a three-year investigation into Boeing's use of proprietary information from competitor Lockheed Martin, and its improper hiring of Air Force procurement official Darleen Druyun.

Shortly after the senators announced plans to hold the hearing, Boeing removed the problem from the agenda by announcing it had decided not to deduct the fines from its taxes.

That shifted most of the focus in the hearing away from Boeing CEO James McNerney to McNulty.

McCain, who has been Boeing's toughest Senate critic, attempted to press McNulty on his testimony that the Justice Department should remain "tax neutral" in settlement negotiations.

McNulty pressed back, insisting Congress allows corporations to deduct compensatory fines to the U.S. government, and only Congress can change that.

The panel Tuesday was subdued. A half-dozen senators showed, and only four asked questions.

McCain pushed McNulty to confirm that the Justice Department is still looking into Boeing's hiring of a former Air National Guard general as a lobbyist before the end of his one-year "cooling off" with the Defense Department.

But the main issues, the settlement and taxes, had dissolved.

McNerney testified about Boeing's new code of conduct and its Ethics Hotline. He said Boeing is "committed and aligned" to opening up the culture at the company, by encouraging and protecting whistle-blowers.

That prompted praise from senators.

McNerney's situation was helped by the Virginia ties Boeing brought to the room.

Warner, the senior senator from Virginia, is a longtime friend of Boeing's new general counsel, Michael Luttig, a Republican who served for 15 years on the 4th Circuit Court of Appeals in Richmond.

And Boeing's outside counsel, Richard Cullen, is a former U.S. attorney for the Eastern District and a friend of Warner's. Cullen is with an old Richmond law firm, McGuire Woods.

At the end of the meeting, Warner almost seemed apologetic for calling McNerney to account.

In 28 years in the Senate, he said, "We've never had a hearing quite like this one." The intent was not to pile on Boeing, he added: "We were not here to inflict further adverse publicity." And the hearing did not.

Seattle Times aerospace reporter Dominic Gates contributed to this report. Alicia Mundy: 202-662-7457 or amundy@seattletimes.com