High-flying crime

Boeing's latest fine sends its corporate rap sheet soaring to $100 million in the last three years.

High-flying crime

ABOUT THE TIME Seattle was lamenting the planned relocation of Boeing headquarters last month, top company officials were quietly finishing up a settlement for yet another violation of U.S. law.

The resulting $3.8 million fine by the U.S. State Department, for illegally offering protected military technology to Australia and five other countries, brought to more than $100 million the amount of government-related fines and settlements levied against Boeing in just the past three years. In assessing the latest fine, the government alleged Boeing racked up 110 violations of U.S. export-control laws.

Boeing’s corporate rap sheet, which dates back at least three decades, wasn’t among the sentimental regrets of Seattleites mourning the headquarters shift. Nor was it one of the selling points brought up in recent weeks as Chicago, Denver, and Dallas officials fell to their knees in hopes Boeing would dub one of their towns the site of the new home office.

But besides getting the headquarters of the world’s biggest plane maker, the winner of the relocation pageant will also get the ivory tower that has helped make Boeing one of the world’s great achievers in the field of corporate wrongdoing.

Historically, the company has publicly renounced some violations while privately winking at others. Boeing’s unwritten rule that some rules can be broken has resulted in decades of settlements, fines, and penalties sought by individuals and the U.S. departments of Justice, State, and Defense, as well as the Federal Trade and Securities Exchange commissions, for bribery, kickbacks, fraud, and military contract and export law violations.

It’s a legal game played by most big corporations, especially defense contractors, that sometimes costs consumers and taxpayers dearly. But Boeing has outshone most other large companies by having both commercial and military products to market, legally and illegally.

Boeing denies it intentionally sets out to violate the law, and says many disputes and claims result merely from differing interpretations of U.S. law and policy. That was partly its explanation in the most recent case.

STATE DEPARTMENT investigators say Boeing illegally promised to share military technology it was barred from exporting to another country—mainly, in this instance, Australia. In a 1998 team competition, Boeing and partners Northrop Grumman and BAE Systems won a $1 billion contract for an Australian airborne radar system called Wedgetail that included four 737s and options for other planes.

Boeing gave itself the edge in the bidding by offering to provide the data and know-how that could make the Australian system equal to the U.S. AWACS system—technology that by law cannot be exported. Boeing proposed similar deals to Singapore, Turkey, Malaysia, Spain, and Italy, says the State Department, breaking so many U.S. laws it would be hard to overlook them.

But Boeing realized its errors, says Patrick Gill, Boeing’s vice president for 737 Airborne Early Warning and Control, and blew the whistle on itself.

“We had an intense marketing campaign [and] didn’t realize violations had occurred until later. We reviewed the program and discovered potential violations,” he says. “We notified State and took corrective action.”

Under the seven-page settlement agreement signed March 30, the State Department took its main action only on the Australian case. It is allowing Boeing to pay the fine in installments through 2004. The agreement also calls for Boeing to spend $400,000 of the fine on itself, creating a special new office to monitor export law compliance.

Around the time it made the illegal offer to Australia in 1998, Boeing had just been fined $10 million by the State Department for a similar export law violation as part of its Sea Launch program. Shouldn’t that have alerted someone that Boeing was already flunking its export law tests? Gill would say only that despite past violations the company is preventively geared up now, having schooled 1,200 workers on export law etiquette.

Was the ultimate message for Boeing in the Australian case—a $3.8 million fine weighed against a $1 billion contract—that such violations can be cost-effective?

Boeing veep Gill disputes that notion. “You may consider it a small fine in your business,” he tells me, “but I consider this a large fine, and it goes directly against the profits of this company and this program, and it’s definitely not taken lightly.”

But Boeing’s history contains a lot of evidence to the contrary. In 1982, for example, facing criminal charges for failing to disclose $7.3 million in “irregular commissions” given to agents and others to induce overseas plane sales, Boeing’s then Chair T. A. Wilson walked into court, entered a guilty plea, and handed over a check for $450,000.

Within years, unrepentant Boeing was back in court. In 1989, the company pleaded guilty to two counts of trafficking in classified Pentagon documents and was hit with a $5 million criminal penalty; a former exec also got a short prison term for theft of documents. In 1991, two former Boeing execs, then with the Department of the Navy, each got prison terms as part of a major military contract-procurement scandal involving Boeing and other defense contractors who sought an inside edge.

Currently, the company faces lingering bribery claims. In a case on appeal in Florida, $2.8 million has been awarded to a Canadian businessman who claimed Boeing put him out of business by running a $786,000 bribery scheme to grease the $64 million sale of jets to Bahamasair in 1989 (a Bahamian government investigation backed his claim).

WHILE CRIMINAL and civil charges have been mostly about money—ranging from commercial airline kickbacks to foreign royal families in the 1970s to defrauding American taxpayers through defense contracts in the 1990s—sometimes lives are said to be at risk.

One of the latest cases, a $61.5 million Boeing settlement in Ohio, was settled last year by whistle-blower Brett Roby and the Justice Department, who accused Boeing of hiding flawed parts on U.S. military choppers, which the U.S. says led to at least one fatal crash (see “Death by chopper,” SW, 8/17/00).

A similar ongoing $20 million lawsuit by an Arizona whistle-blower—also backed by the Justice Department—alleges Boeing has knowingly delivered Apache choppers to the Army since 1984 with faulty devices that led to more than 2,000 unnecessary landings in recent years (see “Floppy choppers,” SW, 7/6/00). Boeing denies the device is at fault.

Is crossing the line just the cost of doing business for Boeing? After all, the government indicts with one hand but with another offers a new contract. Is a bribe here, an illegal promise there OK if it gets the job done? Some critics charge Boeing has become so emboldened that it effectively extended a bribe offer to all of Congress last fall when CEO Phil Condit, pushing for a Boeing-backed pro-China trade vote, prominently announced in D.C. that “We will be supporting people [politicians] that believe in the direction we do.”

Gill says it’s a mistake to think of Boeing and corruption in the same sentence, at least today, despite the recent fines.

“I really resent the implication,” he offers. “If you’re talking about the ethics of Boeing, the Boeing Company by policy and action adheres to the absolute highest standards. Even things that would not have been considered a violation perhaps in other companies we disclose because we are under the microscope [of oversight agencies]. We stay under the boundaries even if that means walking away and losing a contract. That’s Boeing.”


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