By David Shepardson

WASHINGTON (Reuters) -The U.S. Justice Department said on Friday it has struck a deal in principle with Boeing to allow it to avoid prosecution in a fraud case stemming from two fatal 737 MAX plane crashes that killed 346 people, dealing a blow to victims' relatives.

The agreement allows Boeing to avoid being branded a convicted felon and was harshly criticized by many families who lost relatives in the crashes and had pressed prosecutors to take the U.S. planemaker to trial. A lawyer for family members and two U.S. senators had urged the Justice Department not to abandon its prosecution, but the government quickly rejected the requests.

"This kind of non-prosecution deal is unprecedented and obviously wrong for the deadliest corporate crime in U.S. history. My families will object and hope to convince the court to reject it,” said Paul Cassell, a lawyer representing many of the families.

Boeing agreed to pay an additional $444.5 million into a crash victims’ fund that would be divided evenly per crash victim on top of an additional $243.6 million fine.

The Justice Department expects to file the written agreement with Boeing by the end of next week. Boeing will no longer face oversight by an independent monitor under the agreement.

Boeing will pay in total over $1.1 billion including the fine and compensation to families and over $455 million to strengthen the company’s compliance, safety, and quality programs, the Justice Department said.

"Boeing must continue to improve the effectiveness of its anti-fraud compliance and ethics program and retain an independent compliance consultant," the department said Friday. "We are confident that this resolution is the most just outcome with practical benefits."

Boeing declined immediate comment.

Reuters first reported on May 16 that Boeing had reached a tentative nonprosecution agreement with the government.

The agreement would forestall a June 23 trial date the planemaker faces on a charge it misled U.S. regulators about a crucial flight control system on the 737 MAX, its best-selling jet.

Boeing in July had agreed to plead guilty to a criminal fraud conspiracy charge after the two fatal 737 MAX crashes in Indonesia and Ethiopia spanning 2018 and 2019, pay a fine of up to $487.2 million and face three years of independent oversight.

"With this filing, the DOJ walks away from any pretense to seek justice for the victims of the 737 MAX crashes,” said Javier de Luis, an aerospace engineer of Massachusetts who lost his sister in the Ethiopian crash.

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Boeing no longer will plead guilty, prosecutors told family members of crash victims during a meeting last week. The company's posture changed after a judge rejected a previous plea agreement in December, prosecutors told the family members.

DOJ said Friday that family members and lawyers of over 110 crash victims either support the agreement or settlement efforts without a trial or do not oppose the deal.

Judge Reed O'Connor in Texas said in 2023 that "Boeing's crime may properly be considered the deadliest corporate crime in U.S. history."

Boeing has faced enhanced scrutiny from the Federal Aviation Administration since January 2024, when a new MAX 9 missing four key bolts suffered a mid-air emergency losing a door plug. As a result, DOJ officials decided to reopen the older fatal crashes case and negotiate a plea agreement with Boeing.

The FAA in January 2024 capped production at 38 planes per month.

DOJ officials last year found Boeing had violated a 2021 agreement, reached during the Trump administration's final days, that had shielded the planemaker from prosecution.

(Reporting by David Shepardson; Editing by Chris Reese and Diane Craft)

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