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Explainer-How Boeing could face the criminal prosecution it avoided in 2021

FILE PHOTO: Airplane fuselages bound for Boeing's 737 Max production facility sit in storage behind Spirit AeroSystems Holdings Inc headquarters, in Wichita

(Reuters) - The U.S. Justice Department said Boeing breached its obligations under a 2021 agreement that kept the planemaker from criminal prosecution following fatal 737 MAX crashes in 2018 and 2019 that killed 346 people.

The finding raises the prospect of Boeing facing prosecution it had previously avoided, which could result in fresh penalties and deepen an ongoing corporate crisis that has already resulted in a management shakeup and government investigations.

Boeing failed to "design, implement, and enforce a compliance and ethics program" to prevent violations of U.S. fraud laws, the Justice Department said in a letter to a Texas judge contained in a court filing late on Tuesday.

Boeing did not immediately respond to a request for comment on Wednesday.

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WHAT IS THE 2021 AGREEMENT?

Boeing in January 2021 agreed with the Justice Department to pay $2.5 billion to resolve a criminal investigation into the company's conduct surrounding the fatal crashes. The agreement included money to compensate victims' relatives and required Boeing to overhaul its compliance practices.

The deal, known as a deferred prosecution agreement, gave the U.S. planemaker a way to avoid being prosecuted on a charge of conspiring to defraud the U.S. Federal Aviation Administration. Prosecutors agreed to ask a court to dismiss the fraud charge if they determined Boeing complied with the agreement over a three-year period.

The agreement was set to expire on Jan. 7, 2024. Two days before that, a panel blew off a new Boeing 737 MAX 9 jet during an Alaska Airlines flight.

WHAT COULD AUTHORITIES DO?

The Justice Department determination exposes Boeing to potential criminal prosecution over the crashes which could carry steep financial penalties and tougher oversight, widening the corporate crisis stemming from the January blowout.

Prosecutors could extend the 2021 settlement for another year or push for oversight by a court-appointed monitor, a costly change from the previous agreement that allowed Boeing to oversee its own changes.

The Justice Department could also push for additional fines or for the company to plead guilty. That could affect Boeing's ability to secure government contracts, according to a Reuters review of prosecutors' actions following findings that companies violated other similar agreements.

However, the Justice Department said in the court filing in Texas that officials will consider steps the planemaker has taken to address and remediate violation of the pact before determining how to proceed.

WHAT IS NEXT?

Boeing has to respond to the Justice Department by June 13. Boeing said on Tuesday night it believes it honored the terms of the agreement. Officials are expected to decide whether to prosecute Boeing by July 7.

Prosecutors are set to meet with family members of the victims of the previous fatal crashes and their lawyers on May 31 to discuss their decision, according to correspondence Reuters reviewed.

Any decision would be closely watched by investors at a time when Boeing is trying to protect its investment grade rating. The planemaker is holding talks to buy supplier Spirit AeroSystems and plans to ramp up now slumping production of its strong-selling 737 MAX in the back half of the year.

A fine comparable to the $2.5 billion penalty in 2021 "would certainly put pressure" on Boeing's rating, said Ben Tsocanos, airlines director of S&P Global Ratings. "The extent would depend on timing, funding and Boeing’s circumstances, including how much progress it has made on a MAX recovery, whether it’s reached a deal to buy Spirit and how it’s funding it.”

(Reporting by Allison Lampert in Montreal, Mike Spector in New York and David Shepardson in Washington; Editing by Matthew lewis)