Boeing has been slapped with a whopping $2.5 billion fine to settle criminal charges with the U.S. Justice Department. The aircraft manufacturer has been accused of defrauding the United States by concealing information about its 737 Max airplane. A delve into the Fraud, the DPA, the Compliance Remediation, and some personal thoughts.
We knew Boeing was in the wrong, but we didn’t realize just how bad.
Boeing made headlines in 2019 when the Max was grounded internationally after 346 people were killed in crashes in Indonesia and Ethiopia. The crashes sent Boeing into severe reputational turbulence and badly hurt its relationships with airlines and aviation regulators worldwide. The scandal generated billions of dollars in fines, settlements, and lost orders: the worst crisis in its 103-year history. Boeing’s CEO was eventually fired long after he long insisted the aircraft was safe, which infuriated the flying public who perceived this as a calculated move putting profitability before consumers’ safety.
According to the DOJ’s statement today, Boeing “knowingly and willfully” conspired to defraud the United States over the 737 Max debacle.
As a result, Boeing entered into a three-year deferred prosecution agreement (DPA) with the DOJ to resolve its conspiracy to defraud the Federal Aviation Administration’s Aircraft Evaluation Group (FAA AEG). The Company admitted to the misconduct and waived its rights to a trial as part of its agreement with DOJ.
The misconduct
Boeing admitted that—through two of its 737 MAX Flight Technical Pilots—it deceived the FAA AEG about its -now-infamous- Maneuvering Characteristics Augmentation System (MCAS). We won’t get into too much technical detail here, but in summary, the two pilots deceived the FAA AEG about MCAS’s Operational Scope and Told the FAA AEG to Delete MCAS from the 737 MAX FSB Report. This report, when published, is crucial to airplane manuals and pilot training materials. As a result of the deletion, the materials lacked information about MCAS, and pilots flying the 737 MAX were not provided any information about MCAS in their training manuals.
As if the deceit wasn’t bad enough, after the crash of Lion Air Flight 610, a Boeing 737 MAX, into the Java Sea near Indonesia ( in which 189 passengers and crew on board died), the same two 737 MAX Flight Technical Pilots continued misleading others—including at Boeing and the FAA—about their knowledge of the problems in the MCAS.
“The tragic crashes of Lion Air Flight 610 and Ethiopian Airlines Flight 302 exposed fraudulent and deceptive conduct by employees of one of the world’s leading commercial airplane manufacturers,” Acting Assistant Attorney General David P. Burns of the Justice Department’s Criminal Division, wrote in a release. “Boeing’s employees chose the path of profit over candor by concealing material information from the FAA concerning the operation of its 737 Max airplane and engaging in an effort to cover up their deception.”
Ok, the misconduct was foul, profit was chosen over candor, but did this entire 737Max debacle come down to only two pilots?
The DPA
Under the terms of the DPA, Boeing will pay over $2.5 billion broken down as follows:
- $243.6 million criminal penalty to the DOJ
- $1.77 billion compensation payments to Boeing’s 737 MAX airline customers,
- a $500 million crash-victim beneficiaries fund to compensate the heirs, relatives, and legal beneficiaries of the 346 passengers who died in the Boeing 737 MAX crashes of Lion Air Flight 610 and Ethiopian Airlines Flight 302.
Regarding this last point, “We continue to mourn alongside the families, loved ones, and friends of the 346 individuals who perished on Lion Air Flight 610 and Ethiopian Airlines Flight 302,” said Special Agent in Charge Andrea M. Kropf. “This landmark deferred prosecution agreement will forever serve as a stark reminder of the paramount importance of safety in the commercial aviation industry, and that integrity and transparency may never be sacrificed for efficiency or profit.”
That’s the least we can say. The flying public may forget past commercial misconduct, but never one putting profits before safety. That one is going down in history. Especially knowing that Boeing does have a prior account: a 2015 civil FAA settlement agreement related to safety and quality issues concerning Boeing’s Commercial Airplanes (BCA) business unit.
The Grand Compliance Plan
Boeing agreed as part of the DPA:
- To continue to cooperate with the Fraud Section in any ongoing or future investigations and prosecutions. To report any evidence or allegation of a violation of U.S. fraud laws committed by Boeing’s employees or agents upon any domestic or foreign government agency (including the FAA), regulator, or any of Boeing’s airline customers.
- To strengthen its compliance program and to enhance compliance program reporting requirements. That entails meeting with the Fraud Section at least quarterly and submitting yearly reports to the Fraud Section regarding the status of its remediation efforts, the results of its testing of its compliance program, and its proposals to ensure that its compliance program is reasonably designed, implemented, and enforced.
- To assign responsibility to one or more Senior Executives for the implementation and oversight of the Company’s compliance code, policies, and procedures regarding U.S. fraud laws. These exec(s) will have the authority to report directly to independent monitoring bodies (i.e., internal audit, the Board of Directors, or any appropriate committee) and will be given an adequate level of stature and autonomy from management as well as sufficient resources and authority to maintain such autonomy.
This makes one wonder: did Boeing, in all its might, not have an independent and well-funded compliance function before?
Then the DOJ determined that an independent compliance monitor was unnecessary based on the following factors, among others: “(i) the misconduct was neither pervasive across the organization, nor undertaken by a large number of employees, nor facilitated by senior management; (ii) although two of Boeing’s 737 MAX Flight Technical Pilots deceived the FAA AEG about MCAS by way of misleading statements, half-truths, and omissions, others in Boeing disclosed MCAS’s expanded operational scope to different FAA personnel who were responsible for determining whether the 737 MAX met U.S. federal airworthiness standards; (iii) the state of Boeing’s remedial improvements to its compliance program and internal controls; and (iv) Boeing’s agreement to enhanced compliance program reporting requirements, as described above”.
And this is where I’m utterly confused. You can’t possibly tell me that two pilots designed the MCAS all by themselves? Some facilitation by senior management had to have occurred when they were arguably trying to cut costs and speed up the plane’s delivery to the international market.
Criminal Liability?
It is worthy to note that the wider aviation industry does not favor criminalizing aviation accidents and its individuals’ related actions. A 2006 Joint Resolution signed by top global aviation safety groups condemned the criminalization of aviation accidents.
The aviation industry believes that threatening aviation professionals with criminal investigations or prosecutions are undermining its work.
“The aviation industry is the most labor-intensive safety operation in the world, and human error is a rare but inevitable factor in the safety chain. Prosecuting basic human error is a grave mistake, as punishment should be reserved for those who are breaking the law”.
As for this particular case, the DPA protects only the Company, not individuals, from prosecution. Evidence arising from the DOJ investigation may be used in parallel against individuals to bring charges of perjury, obstruction of justice, or making a false statement. Although by the looks of it, liability seems focused on the two pilots and not on senior executives.
Does the punishment fit the crime?
It is for the public to judge. But one lesson Boeing did teach us, is not to cut corners when it comes to safety, and the importance of sincerity and transparency when it comes to repairing a tarnished reputation.