Here’s what it means when a company like Boeing faces criminal charges | CNN Business

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Criminal charges against a corporation, like the ones the Justice Department is considering bringing against Boeing, would be a serious blow, worsening the company’s already precarious financial situation and further damaging its battered reputation. But it wouldn’t necessarily result in past or current executives facing prison time.

While criminal charges against corporations are fairly common, the overwhelming majority are against small, closely-held companies. They aren’t brought nearly as often against publicly-traded companies, let alone those in the Dow Jones Industrial Average’s index of the nation’s 30 most important companies.

And despite the fact that almost all illegal actions on behalf of a company are committed by individuals, not the company itself, it’s rare for top executives – especially at larger companies – to face personal punishment.

“You don’t have to convict that person,” said Jennifer Arlen, law professor and director of the program on corporate compliance and enforcement at New York University. “Sometimes you don’t need to name them.”

At a smaller, closely held company where the owner is the only employee who would face criminal charges, the owner might be more willing to have the company take the hit. That’s even if it means going out of business due to an unaffordable fine, rather than to charges themselves, Arlen said. But at a major public company with thousands of employees, those top executives making decisions might agree to a settlement that leads to criminal charges for lower level individuals. But they’re unlikely to reach a settlement in which they face criminal prosecution themselves.

But even without any individuals facing prison time, criminal charges have serious enough implications that no publicly traded company wants to have that on its record, Arlen said.

That’s why they typically seek civil, not criminal settlements, as Boeing has done numerous times in just the past few years. Two examples are when it faced charges of violating the Arms Export Control Act, which involved the alleged downloading of sensitive military secrets by unauthorized employees in China, or the False Claims Act, which involved allegations of fraudulent billing on government contracts. Boeing paid tens of millions in fines in recent cases involving those violation, but they were civil settlements, not criminal.

The civil settlement can allow the company to say it has never been convicted of or pleaded guilty to a felony, and thus not have to worry about the legal implications that go with that being on a company’s record.

“No major publicly held firm wants to be convicted of a felony,” Arlen said. “That’s why companies will try to negotiate for something else.”

The company can also reach agreements to defer prosecution, which means the company is essentially given a probationary period after which the threat of prosecution goes away. That’s what Boeing did in January 2021 to settle allegations it defrauded the Federal Aviation Administration when it was seeking certification of the 737 Max.

The potential charges hanging over Boeing currently revolve around that January 2021 deferred prosecution agreement.

The government alleged at that time, and Boeing agreed to in its settlement, that it had provided “misleading statements, half-truths, and omissions” to the FAA about a feature in its 737 Max jets when seeking certification for it to carry passengers.

That feature, and the lack of information Boeing provided about potential problems, were found to be the cause of two fatal crashes of the plane in 2018 and 2019 that killed a total of 346 people.

“The tragic crashes… exposed fraudulent and deceptive conduct by employees of one of the world’s leading commercial airplane manufacturers,” acting Assistant Attorney General David Burns said at the time of the settlement. “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.”

But family members of the crash victims criticized the deal as letting Boeing off too lightly. They have argued Boeing should face new criminal charges and pay a fine as great as $24.9 billion.

Boeing was given a three-year period as part of the settlement to prove to the government that it had changed its behavior, after which it no longer would face the potential of criminal charges over the fraud. But days before that period was due to end, a door plug blew off a Boeing 737 Max jet as the plane, with passengers aboard and flown by Alaska Airlines, approached 16,000 feet. That opened the door to possible prosecution on the earlier charges.

In May, the Justice Department said it was looking into bringing criminal charges against Boeing once again due to a potential violation of that January 2021 agreement. Prosecutors in the DOJ are urging that charges be filed against Boeing, a source familiar with the case has told CNN. Boeing has argued in its own court filings that it did not violate the agreement and that it should be spared prosecution.

No individual – neither the lower-level employees alleged to have provided false information to the FAA, or the top executives of Boeing – were charged with a crime as part of the settlement. One former employee, Mark Forkner, Boeing’s chief technical pilot at the time, allegedly provided some of the false information and was later indicted. His attorneys argued that he was made a scapegoat by Boeing, and he was later found not guilty.

Oil company BP agreed to pay $4 billion in penalties to settle criminal charges, including felony manslaughter charges, related to the explosion and oil spill at its Deepwater Horizon oil platform in 2010. It paid more than $60 billion in other legal settlements related to the accident.

Volkswagen pleaded guilty to three US felony criminal charges and agreed to pay $4.3 billion in criminal and civil penalties in 2017 related to the emissions scandal, in which it cheated emissions tests done on its diesel cars by the US Environmental Protection Agency.

By contrast, Boeing agreed to pay $2.5 billion as part of the January 2021 settlement, but $1.8 billion of that was money it had already agreed to pay to its airline customers as compensation for the 20-month grounding of the planes. The criminal fine paid to the government came to only $244 million, with an additional $500 million set aside to compensate family members of victims.

So there would be serious implications for Boeing with new criminal charges, even if it were to reach a new settlement that defers prosecution once again.

It could face significantly larger fines than the ones it already agreed to pay, fines that could easily stretch into the billions – if not tens of billions – if crash victim families get their way.

That could force Boeing’s debt rating into junk bond status for the first time in its history, significantly raising its borrowing costs and worsening its already precarious financial situation. At the end of the first quarter it had just less than $7 billion in cash on hand, and nearly $47 billion in long-term debt.

There’s a good chance, according to Arlen and other experts, that Boeing ends up having a federal monitor oversee how it conducts business.

“Firms don’t like a monitor,” Arlen said. “But Boeing has some pretty significant quality control problems.”

Pleading guilty to criminal charges rather than again deferring prosecution could result in restrictions on doing business in some countries that have prohibitions on companies found guilty of a felony, Arlen said.

In the most extreme scenario it could be blocked from conducting business with the federal government, a highly unlikely or impossible scenario.

Such a prohibition, while theoretically possible, would be a death sentence for a company that gets 37% of its revenue from US government contracts. Besides the disruption to the American economy that Boeing’s disappearance would cause, it would also deprive the federal government of many of the defense aircraft, rockets and satellites that it gets from Boeing, as well as crippling plans for most of the nation’s airlines to get the planes and parts they need.

Arlen said it is common for smaller companies to be forced out of business by criminal charges and the penalties that follow. It’s less common for larger businesses. But it can happen in the health care sector, where a criminal charge can lead to a company not being able to do business with Medicare or Medicaid.

Perhaps the most famous company forced out of business by criminal charges was accounting firm Arthur Andersen, once one of the nation’s “Big Five” accounting firms that audited the books of major publicly-traded companies. which was found guilty by a jury in 2002 of obstruction of justice for destroying records of its client Enron, after it had been notified of a federal investigation.

The Supreme Court later unanimously overturned that conviction, ruling that “jury instructions at issue simply failed to convey the requisite consciousness of wrongdoing.”

But by the time of that victory in 2005, the conviction had essentially forced the firm out of business.