Recently, Boeing has faced a series of challenges illuminating deep-seated cultural issues within the company. These issues manifest in safety failures, financial struggles, regulatory violations, and severe damage to its reputation.
A $51 million fine
Boeing’s latest setback involves a $51 million fine from the State Department for multiple export control violations, including fundamental licensing oversights for exports to China and Russia. The Directorate of Defense Trade Controls (DDTC) within the State Department uncovered these violations, which Boeing voluntarily admitted.
The infractions against the International Traffic in Arms Regulations (ITAR) ranged from illegal exports to foreign employees in over 15 countries to a trade compliance specialist fabricating an export license for unauthorized shipments of defense items. The DDTC’s imposed penalty, the largest for ITAR violations since 2011, requires Boeing to pay $27 million within two years and allocate the remaining $24 million to enhance its compliance program. Furthermore, Boeing must appoint a DDTC-approved special compliance officer for three years, reporting regularly on the company’s progress.
The DDTC acknowledged Boeing’s post-2020 improvements to its trade compliance program but highlighted aggravating factors contributing to the fine. These included violations causing harm to U.S. national security, exports of significant military equipment, and shipments to proscribed destinations, particularly concerning due to controls on Russia after the 2014 Crimea invasion.
Many violations involved unauthorized exports and retransfer to foreign employees and contractors, including some in China. Boeing permitted illegal downloads of ITAR-controlled technical data from its “digital technical document repository” by employees in overseas “partner facilities.” The exports included documents containing technical data controlled under U.S. Munitions List Categories IV(i), VIII(i), IX(e)(1), XI(d), XII(f), XIII(l), XIX(g), involving Pentagon “platforms” like the F-18, F-15, F-22 aircraft, AH-64 Apache helicopter, and various missiles.
Illegal data exports extended to Boeing facilities in Australia, Canada, France, Germany, Hong Kong, India, Italy, Japan, Kenya, Morocco, Russia, Singapore, South Korea, Spain, Taiwan, Thailand, and the U.K. From 2013 to 2018, Boeing allowed employees or contractors in these countries to unlawfully download ITAR-controlled technical data 80 times.
Boeing disclosed similar violations involving its subsidiaries in Australia and India. In Australia, the failure to add “employee providers” to Technical Assistance Agreements led to eight illegal transfers of USML Category VIII(i) and XI(d) technical data to Australian contractors between October 2019 and February 2020.
A trade compliance specialist at Aviall Services, a Boeing subsidiary, fabricated five export licenses, resulting in seven illegal exports of USML Category XIX(f)(1)-(3) nozzle segments and seal strips to Portugal and Turkey. Other alleged violations included misclassifications, relying on Commerce Department licenses for AH-64 Apache Helicopter parts exports, and misclassifying items exported to Japan, Singapore, the U.K., India, and Qatar.
Boeing’s export violations extended to illegal exports to foreign contractors in Canada and Switzerland, an unlawful shipment of a remote fingerprinting system to India, illegal exports of night-vision goggles to Singapore, and the illegal shipment of F-15 pylons to Saudi Arabia. Violations also included breaches of temporary import licenses, notably in September 2021, when Boeing imported radio equipment from Germany and Singapore into the United States.
The charging letter details additional alleged violations of the terms, conditions, and provisos of DDTC authorizations granted to Boeing, highlighting instances in 2018 and 2019 where Boeing illegally exported controlled technical data to Israel for helicopter upgrades.
Remedies to Boeing’s compliance shortcomings
Boeing committed to implementing a new automated export compliance system, enhancing compliance policies and procedures, and undergoing on-site visits and two external audits by DDTC-approved consultants. Boeing’s cooperation in the investigation and proactive steps toward improvement spared it from debarment by the DDTC.
The consent agreement Boeing and the U.S. Department of State signed on 24 January and 28 February 2024 focuses on the following measures. These are also interesting to know for any exporting companies dealing with export-controlled goods, software, and technology.
Strengthened corporate compliance procedures focused on business operations
- All employees engaged in AECA and ITAR-regulated activities to be familiar with AECA and ITAR and their own and Boeing’s responsibilities thereunder;
- All persons responsible for supervising those employees, including senior managers of those units, to be knowledgeable about the underlying AECA and ITAR policies and principles;
- Names of employees, trainers, and level and area of training received to be recorded
Enhancement of the AECA and ITAR compliance program
Implementation of a comprehensive, automated export compliance system throughout operating divisions, subsidiaries, and business units engaged in AECA and ITAR-regulated activities, with a focus on:
- Tracking the decision process from the initiation to the conclusion of a request for export., reexport or retransfer authorization
- Overseeing and monitoring export, reexport, and retransfer activity
- Covering the initial identification of all technical data and technical assistance in any form proposed to be disclosed to any foreign persons
- Alerting users to the AECA and ITAR requirements on electronic transmissions of ITAR-controlled technical data
- Providing training to all employees concerning electronic transmissions of ITAR-controlled technical data
Product classification review, with regard to:
- The export control jurisdiction of all hardware and/or software dealt with by ACEA and ITAR-regulated operating divisions, subsidiaries, and business units, and any defense services or technical data
- The export control jurisdiction of items procured from suppliers
The company’s actions in the coming years will determine whether it can overcome its challenges and rebuild trust in its operations, safeguarding its future in an increasingly competitive and scrutinized global marketplace.
