WASHINGTON (Reuters) - U.S. prosecutors are recommending to senior Justice Department officials that criminal charges be brought against Boeing after finding the planemaker violated a settlement related to two fatal crashes, two people familiar with the matter told Reuters.

The Justice Department must decide by July 7 whether to prosecute Boeing. The recommendation of prosecutors handling the case has not been previously reported. 

In May, officials determined the company breached a 2021 agreement that had shielded Boeing from a criminal charge of conspiracy to commit fraud arising from two fatal crashes in 2018 and 2019 involving the 737 MAX jet.

Under the 2021 deal, the Justice Department agreed not to prosecute Boeing over allegations it defrauded the Federal Aviation Administration so long as the company overhauled its compliance practices and submitted regular reports. Boeing also agreed to pay $2.5 billion to settle the investigation. 

Boeing declined to comment. It has previously said it has "honored the terms" of the 2021 settlement, which had a three-year term and is known as a deferred prosecution agreement. Boeing has told the Justice Department it disagrees with its determination that the company violated the settlement, Reuters reported this month.

A spokesperson for the Justice Department declined to comment.    

The two sides are in discussions over a potential resolution to the Justice Department's investigation and there is no guarantee officials will move forward with charges, the two sources said. The internal Justice Department deliberations remain ongoing and no final decisions have been reached, they added.

Criminal charges would deepen an unfolding crisis at Boeing, which has faced intense scrutiny from U.S. prosecutors, regulators and lawmakers after a panel blew off one of its jets operated by Alaska Airlines mid-flight Jan. 5, just two days before the 2021 settlement expired.

The sources did not specify what criminal charges Justice Department officials are considering, but one of the people said they could extend beyond the original 2021 fraud conspiracy charge.   

Alternatively, instead of prosecuting Boeing, the DOJ could extend the 2021 settlement by a year or propose new, stricter terms, the sources said.

In addition to financial penalties, the strictest settlements typically involve installing a third party to monitor a company's compliance. The DOJ can also require the company to admit its wrongdoing by pleading guilty.

Boeing may be willing to pay a penalty and agree to a monitor, but believes a guilty plea, which typically incurs additional business restrictions, could be too damaging, said one of the sources. Boeing derives significant revenue from contracts with the U.S. government, including the Defense Department, which could be jeopardized by a felony conviction, one of the sources said.

Relatives of the victims of the two fatal 737 MAX crashes have long criticized the 2021 agreement, arguing that Justice Department officials should have prosecuted the company and its executives. 

At a Senate hearing in June, Chief Executive Dave Calhoun acknowledged the company's shortcomings on safety and apologized to the families who lost loved ones.

Last week, the families pressed prosecutors to seek a fine against the planemaker of nearly $25 billion and move forward with a criminal prosecution.