Boeing buys probation

The first US Air Force F-15E Strike Eagle produced by Boeing Co. lands at Nellis Air Force Base in Nevada.

KAI RYSSDAL: Boeing has found a way back into the government's good graces. The aerospace firm has been wrapped up in two big Pentagon scandals over the past couple of years. In one, Boeing hired a Defense department aide while she was deciding billions of dollars worth of contracts. The other involved some misplaced documents belonging to competitor Lockheed Martin. Despite the accusations, today's deal requires no admission of wrongdoing from Boeing. Just money.

Marketplace's Tess Vigeland looks into a Justice Department strategy that puts wayward companies into corporate purgatory.


TESS VIGELAND: The price of avoiding criminal prosecution — at least in this case — is $615 million. But a settlement doesn't necessarily mean the company's problems go away. Similar Justice Department agreements with the likes of AOL-Time Warner and KPMG essentially put those companies on probation. One slip-up and it's back to the grand jury.
ERIC TALLEY: It is a little bit like a corporate timeout.

Eric Talley teaches securities law at UC Berkeley.

TALLEY: The company is usually going to be under enhanced scrutiny over a number of years. Give the government a position looking over its shoulder.

Talley says these so-called prosecution deferments have gained traction with the Justice Department since the demise of accounting firm Arthur Andersen in 2002.

ERIC TALLEY: Andersen went under not necessarily because of bankruptcy or huge civil penalties. The reason Andersen went under is that it was criminally indicted. And so a lot of these companies are very much trying to avoid a criminal indictment which would make them, often, ineligible to continue to operate.

Critics complain these deals allow companies to escape liability before all the facts are out. Aerospace analyst Richard Aboulafia says any settlement would reflect broader changes at Boeing.

RICHARD ABOULAFIA: Certainly there've been personnel changes, definitely organizational changes in how they do business. And the objective is to say they're making a clean break with the past and they can move on to further Pentagon contracts without that hanging over them.

Since the investigations began three years ago, Boeing has named a new CEO, and just last week appointed an appellate court judge to head its legal department.

I'm Tess Vigeland for Marketplace.

About the author

Tess Vigeland is the host of Marketplace Money, where she takes a deep dive into why we do what we do with our money.

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