What the hell was Boeing thinking when it agreed to sell a satellite containing top-secret technology to a startup company financed by China?  How the hell did this deal pass muster and gain an export license from the Commerce Department?

I am not the only one baffled:

Af­ter re­view­ing the trans­action, Adm. Den­nis Blair, a for­mer U.S. di­rec­tor of na­tional in­tel­li­gence, told the Jour­nal that he was baf­fled Boe­ing would pro­ceed with the project.  Adm. Blair chairs an ad­vi­sory com­mit­tee for Lock­heed Mar­tin Space Sys­tems, a Boe­ing com­peti­tor.

The Wall Street Journal deserves huge kudos for uncovering a genuine scandal involving national security in a series of two articles, the latter of which (link repaired) was just published, revealing that Boeing has belatedly backed out  of handing over the precious secrets, The first article, published December 4, lays out the genesis of the deal:

Workers at a Boeing Co. plant in Los Angeles are nearing completion of a new satellite, which uses restricted technology relied on by the U.S. military.  It was ordered by a local startup that seeks to improve web access in Africa.

In reality, the satellite is being funded by Chinese state money, according to corporate records, court documents and people close to the project.

About $200 million flowed to the satellite project from a state-owned Chinese financial firm in a complex deal that used offshore companies to channel China's money to Boeing.  It included a discussion with a longtime friend of China's president, said the startup's founders.

 There's a good reason why China was willing to lay out the big bucks:

Such technology would help fill in a missing piece of the puzzle for China as it seeks to secure its status as a superpower alongside the U.S. It would bolster China's burgeoning space program, as well as initiatives to dominate cutting-edge industries and expand its influence in the developing world.

But there was no good reason (other than $$$,$$$,$$$) for this deal to be permitted:

A web of U.S. laws effectively prohibits exporting satellite technology to China, and its satellites lag far behind those made in America.  Current and former U.S. officials, and people close to the startup, called Global IP, fear the satellite could ultimately be used by China's government or military once in space, or its technology reverse-engineered.

Boeing claims it followed established procedures:

Boeing said in a written statement it "undertakes rigorous measures to comply with U.S. export regulations and protect national interests."

The company, the second-largest federal contractor after Lockheed Martin Corp., said it obtained an export license from the Commerce Department for the Global IP satellite "and will continue to work closely with Commerce officials to ensure appropriate protection of satellite technology."

But:

Boeing declined to say what it told Commerce officials about the deal or its financing when seeking the license, or to answer most other specific questions from The Wall Street Journal.  The Commerce Department said it couldn't comment on an individual application.

It is disconcerting that this deal came to light thanks only to a spat breaking out between the founders of the startup Global IP and their Chinese financiers.  If the Chinese had been willing to spend a bit more, would the deal have been pulled off?

In the second article, published today, we learn that Boeing has backed out of the project.  But my friend Mike Nadler calls out Boeing for hiding behind an excuse: "Well at least Boeing is stopping this transaction, even if cowardly doing so under the guise of missed payments, probably an excuse to avoid admitting negligence/greed in ignoring previous red flags and also to not offend China." 

Boeing Co. said Thursday it was canceling a controversial satellite order that was financed by a Chinese government-owned firm, citing default for nonpayment[.]

This is a huge scandal.  Boeing has a lot to answer for.  I trust there will be legislative and possibly criminal investigations.  I won't prejudge that level of liability, but I am mad as hell that this contract got anywhere with our second-largest military contractor.  Boeing makes a lot of money selling military equipment to the U.S. Government On the other hand, it also makes a ton of money selling commercial airliners to China.

I wonder if Boeing's main law firm, Perkins and Coie, will be handling the legal fallout?  They have their own questions to answer about serving as cutouts for the Fusion GPS dossier.

Hat tip: Bryan Demko