Boeing pays big fine for arms export violation

SEATTLE – Boeing has paid the largest fine ever levied on a company for violation of the Arms Export Control Act, settling a dispute with the State Department over the unlicensed foreign sales of commercial airplanes carrying a small gyrochip with military applications.

In addition to a $15 million fine, a consent decree signed March 28 imposes oversight requirements on Boeing because three previous settlements of similar alleged violations didn’t result in full compliance with export controls.

Still, Boeing may consider itself lucky. The maximum fine was $43 million.

And because Boeing “has acknowledged the seriousness of the violations … expresses regret for these activities and its willingness to make amends,” the State Department decided that the ultimate sanction of “debarment,” or being banned from government contracts, “is not appropriate.”

According to the State Department charges, between 2000 and 2003 Boeing shipped overseas 94 commercial jets with the QRS-11 gyrochip embedded in the flight boxes, including 19 to China. Export of listed defense items to China is specifically proscribed.

The State Department had determined in 1993 that the chip, used in the guidance system of the Maverick missile, “has significant military utility.” That put the devices on a list of products that require a license for foreign sales.

Boeing continued the exports even after the State Department told the company to stop. Boeing ignored those orders after its lawyers advised that the State Department “did not have jurisdiction” to regulate the exports.

“In hindsight, we should have handled it differently,” said Boeing spokesman Tim Neale. “We would handle it differently today.”

The 2-ounce, 1-inch-diameter QRS-11 chip, made by a unit of BEI Technologies in Concord, Calif., sells for less than $2,000. Boeing executives argued that a military enemy seeking the chip would have alternatives to buying a $60 million jet and taking apart the flight box.