WASHINGTON (Reuters) - The U.S. Justice Department is close to bringing criminal charges against U.S. aerospace giant McDonnell Douglas and one of China's largest government-owned companies for violating U.S. export controls, sources familiar with the matter said on Friday.
They said the Justice Department has been negotiating with McDonnell Douglas, which is now a part of the Boeing Co., and with China's National Aero-Technology Import Export Corp., a state-owned Chinese aerospace firm known as Catic, over the 1994 export of machine tools to China.
It turned out some of the tools had been diverted to a Chinese military factory that makes missiles. A spokesman for Boeing, which bought McDonnell Douglas in 1997, denied any wrongdoing.
If the negotiations fail to result in the companies reaching plea agreements, the Justice Department is prepared to bring a criminal indictment, the sources said.
They said the companies have been given a deadline of later in October to decide what they are going to do.
The Justice Department's long-running grand jury investigation, which dates back to 1996, involved McDonnell Douglas' sale in 1994 of surplus machine tools to the Chinese company for $5 million.
The machinery was from a decommissioned U.S. Defense Department plant that had been owned by the government but operated under contract by McDonnell Douglas.
The sale was part of a billion-dollar jetliner deal in 1994 in which McDonnell Douglas was to build aircraft in China.
The U.S. government had licensed the machine tools to the Chinese company only for use on commercial aircraft. When McDonnell Douglas in 1995 learned that the tools had been diverted to a military facility that produces missiles, it informed the U.S. Commerce Department of the diversion.
``We don't believe we did anything wrong. We complied with the requirements of our export license,'' Boeing spokesman Larry McCracken said.
The company discovered the equipment in question, a flat metal press, was not in the intended location in early 1995 during its first quarterly inspection required under the terms of its export license, McCracken said.
The company ultimately shipped the equipment, which had never been hooked up, to a Shanghai facility doing work on the company's commercial jets for the Chinese market.
``This is an example of the export control system working the way it's supposed to,'' McCracken said.
A Justice Department spokesman declined to comment on the case. Barbara Van Gelder, a lawyer for Catic, was unavailable for comment.
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