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US may prosecute Boeing ( BA ), decision by July 7

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Boeing ( BA ) may face fines, tighter oversight if US prosecutes

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Boeing ( BA ) says it believes it honored 2021 agreement

(Recasts to provide context on January in-flight blowout, adds

Boeing ( BA ) statement in paragraphs 7-8, comments from lawyers for

victims' families in paragraphs 12-13, next possible Justice

Department steps in paragraphs 16-18)

By David Shepardson and Mike Spector

May 14 (Reuters) - The U.S. Justice Department said on

Tuesday that Boeing Co ( BA ) had breached its obligations in a

2021 agreement that shielded the planemaker from criminal

prosecution over fatal 737 MAX crashes in 2018 and 2019 that

killed 346 people.

The Justice Department said in a court filing in Texas that

the U.S. planemaker had failed to "design, implement, and

enforce a compliance and ethics program to prevent and detect

violations of the U.S. fraud laws throughout its operations."

Justice Department officials made the finding in the wake of

a separate January in-flight blowout that exposed continuing

safety and quality issues at Boeing ( BA ). A panel blew off a new

Boeing 737 MAX 9 jet during a Jan. 5 Alaska Airlines

flight, just two days before the 2021 agreement shielding Boeing ( BA )

from prosecution over the previous fatal crashes expired.

The determination exposes Boeing ( BA ) to a potential criminal

prosecution over the 2018 and 2019 crashes that could carry

steep financial penalties and tougher oversight, deepening a

corporate crisis and reputational damage stemming from the

January blowout.

While Boeing ( BA ) is now subject to prosecution as a result

of breaching the 2021 agreement, the Justice Department said in

the court filing, officials will consider steps the planemaker

has taken to address and remediate violation of the pact before

determining how to proceed.

The Justice Department directed Boeing ( BA ) to respond by June 13

and intends to decide whether to prosecute Boeing ( BA ) by July 7, the

filing said.

Boeing ( BA ) confirmed it had received word from the Justice

Department of its determination that the company breached the

2021 deal, known as a deferred prosecution agreement, or DPA.

"We believe that we have honored the terms of that

agreement, and look forward to the opportunity to respond to the

Department on this issue," Boeing ( BA ) said in a statement late on

Tuesday. "As we do so, we will engage with the Department with

the utmost transparency, as we have throughout the entire term

of the agreement, including in response to their questions

following the Alaska Airlines 1282 accident."

The Justice Department declined to comment beyond the

court filing.

Boeing's ( BA ) ongoing crisis has already resulted in a management

shakeup and government investigations. During a U.S. Senate

hearing in April, a Boeing ( BA ) engineer testified the company took

dangerous manufacturing shortcuts with certain planes and

sidelined him when he raised safety concerns, claims the company

disputes.

Relatives of people killed in the crashes and their

lawyers, meanwhile, had argued that Boeing ( BA ) violated the 2021

deal with prosecutors, which required the company to overhaul

its compliance program. Federal prosecutors had previously

agreed to ask a judge to dismiss a criminal charge against the

planemaker so long as it complied with the deal's terms over a

three-year period.

But the Jan. 5 in-flight blowout occurred just two days

before the agreement expired. Justice Department officials

weighed that incident as part of a broader probe into whether

Boeing ( BA ) violated the deal, people familiar with the matter

previously told Reuters.

Justice Department officials are set to meet with family

members of the victims of the previous fatal crashes and their

lawyers on May 31 to discuss their decision, according to

correspondence Reuters reviewed.

"This is an important first step towards holding Boeing ( BA )

accountable for the deaths of 346 passengers and crew on the two

flights," Paul Cassell, a lawyer representing victims' family

members, told Reuters. "But now the Justice Department needs to

move this prosecution forward, vigorously and effectively

towards a conviction."

Erin Applebaum, another lawyer for victims' family

members, told Reuters that she and her clients were "pleased

that DOJ has chosen to do the right thing" and hoped a

prosecution would follow.

NEXT STEPS

In January 2021, Boeing ( BA ) agreed to pay $2.5 billion to

resolve a criminal investigation into the company's conduct

surrounding the previous fatal crashes. The company agreed to

compensate victims' relatives and overhaul its compliance

practices as part of the deal with prosecutors.

The agreement gives U.S. officials six months from the

deal's Jan. 7 expiration to decide whether to prosecute Boeing ( BA )

on a charge that the company conspired to defraud the Federal

Aviation Administration or pursue other alternatives to

dismissing the case.

Prosecutors can extend the 2021 settlement for another

year or push for oversight by a court-appointed monitor, a

costly change from the 2021 agreement where Boeing ( BA ) was allowed

to oversee its own changes to its practices.

The Justice Department could also attempt to hit the

planemaker with additional fines or push the company to plead

guilty, an outcome that could affect Boeing's ( BA ) ability to secure

government contracts, according to a Reuters review of

prosecutors' actions following findings that companies violated

other similar agreements.

Breaches of such agreements deferring prosecution are

rare. But the Justice Department under President Joe Biden has

ratcheted up scrutiny on repeat corporate wrongdoers and has

penalized companies that violate these deals.

Just over a year ago, Sweden's Ericsson

agreed to pay a hefty fine and plead guilty after violating its

own 2019 deal with prosecutors.