CHICAGO – The Boeing Co. (BA) has agreed to pay $15 million to settle federal allegations that it broke the law by selling commercial airplanes equipped with a small chip that has military applications.
It is among the largest fines a company has ever faced for violations of the Arms Control Export Act, which regulates the sale of defense products to overseas interests. The Chicago-based company also agreed to oversight requirements because settlements over previous violations didn't result in full compliance.
According to the State Department charges, Boeing shipped 94 commercial jets overseas between 2000 and 2003 that carried the QRS-11 gyrochip embedded in the flight boxes. At the time, the chip, used in the guidance system of the Maverick missile, was on a list of products that required a license for foreign sales.
The chip is part of a backup system that maintains an artificial horizon for the pilots, Boeing spokesman Tim Neale said Saturday.
The 2-ounce, 1-inch-diameter chip, made by a unit of BEI Technologies in Concord, Calif., sells for less than $2,000. Boeing executives had argued that a military enemy seeking the chip would have alternatives to buying a $60 million jet and taking apart the flight box.
But the State Department said Boeing's sales weren't licensed. And 19 of the planes went to China, where the U.S. export of listed defense items is specifically prohibited.
The company said it has taken steps to prevent further violations.
"There is a greater awareness of what the regulations are," Neale said.
The oversight agreement was signed March 28. The company had faced a maximum fine of $43 million.
Under the settlement, first reported by The Seattle Times, Boeing must appoint an independent, external officer to oversee companywide export-control compliance for two years and retain an outside firm to audit its efforts.
Boeing has been working closely with the State Department to "tighten up" its export process, Neale said.
"We have taken a number of steps to put a more robust export compliance system in place," he said. "And what we're committing to do in this agreement is to continue working with them to make sure we are in compliance."
To ensure compliance, the company promises to cooperate with on-site audits for three years.
Boeing has paid millions in previous settlements. In 1998, the company was fined $10 for sharing technology in a space rocket venture, The Seattle Times reported.
And in 2001, it paid just over $4 million for transferring technology without an export license.