The probe was launched in March after the office of the acting Defense Department inspector general received reports saying that Shanahan, a former Boeing executive, had boosted Boeing in Pentagon meetings, disparaged Boeing’s competitors, pressured Pentagon officials to buy Boeing products and sought to influence the Air Force’s decision on accepting a Boeing aircraft, the KC-46 tanker plane, after technical problems delayed its delivery.
Shanahan, under questioning from Sen. Richard Blumenthal (D-Conn.) during a Senate Armed Services Committee hearing on March 14, said he would support an investigation, and one was opened the following day.
The findings by acting inspector general Glenn Fine, first reported Thursday by the Wall Street Journal, state that Shanahan “fully complied with his ethics agreements and his ethical obligations.”
“While Shanahan did routinely refer to his prior industry experience in meetings, witnesses interpreted it, and told us, that he was doing it to describe his experience and to improve Government management of DoD programs, rather than to promote Boeing or its products,” the report said.
The inspector general — an independent government official who examines programs and people for fraud, waste and abuse and ethical violations — interviewed Shanahan and 33 other witnesses. The watchdog’s office also reviewed more than 7,300 pages of documents, including 1,700 that were classified, the report said.
The witnesses interviewed included Mattis, the Pentagon’s top generals and other senior appointed officials who regularly interacted with Shanahan.
A spokesman for Shanahan, Army Lt. Col. Joe Buccino, said in a statement that Shanahan had complied with ethics agreements at all times and “remains focused on retooling the military for great power competition, executing the national defense strategy, and providing the highest quality care for our servicemembers and their families.”
A defense official, speaking on the condition of anonymity because of the sensitivity of the issue, said the report validates measures the Pentagon put in place to prevent conflicts of interest.
“It is very hard to circumvent the firewalls” enacted while Shanahan was serving as the department’s No. 2 official, the defense official said. “The staff took an overly conservative approach to any matter that may cause a perception of impropriety.”
But at least one senior official who was interviewed expressed concerns about Shanahan’s decisions.
Air Force Secretary Heather Wilson, who has resigned and is expected to leave the Pentagon soon, told investigators that she was concerned about three issues — a Dec. 6 meeting Shanahan had with SpaceX chief executive Elon Musk, a classified topic that was not detailed in the report, and Shanahan’s potential involvement in the KC-46 program, the report said.
Wilson said she was concerned about the appearance of the Musk meeting, which took place soon after Boeing beat SpaceX for an Air Force space launch services contract, and told Shanahan he probably needed to recuse himself, the report said. A member of Shanahan’s staff sought advice from the Defense Department Standards of Conduct Office and was told that there were no objections to the proposed meeting.
“I felt in a difficult ethical position myself in that case,” Wilson recalled.
Sen. Jack Reed (R.I.), the ranking Democrat on the Senate Armed Services Committee, said that Pentagon leaders must be “focused only on the country’s interests,” suggesting in a statement that Shanahan is likely to face skepticism during a potential Senate confirmation process despite the watchdog findings.
“In this case, the Inspector General found the allegations of bias were unsubstantiated,” Reed said. “The report also shows the wide swath of national security matters that Acting Secretary Shanahan is barred from, which strikes me as something the Senate needs to consider.”
The inspector general found some evidence that Shanahan disparaged the Pentagon program overseeing the F-35, which is made by a Boeing competitor, Lockheed Martin, and is the costliest weapons program in U.S. history, at more than $400 billion. It has been a frequent target of Trump’s since his presidential campaign.
But witnesses who recalled Shanahan speaking negatively about the F-35 program said he was “justifiably critical of how the F-35 Joint Program Office and Lockheed Martin managed the F-35 program,” the report said.
Vice Adm. Mat Winter, who oversees the F-35 Joint Program Office, told investigators that Shanahan called the F-35 “f---ed up” early in his tenure as deputy defense secretary, the report said. When Winter’s team presented data and comments from pilots casting the aircraft in a favorable light, Shanahan zeroed in on its cost.
“Okay. [The F-35 aircraft] works. But it costs too much,” Winter recalled Shanahan saying, according to the report. “So now the program is screwed up because it costs too much. It’s screwed up because you are accepting the poor performance of your industry partners to include Lockheed Martin.”
Shanahan, in his interview with the inspector general, drew a distinction between the F-35 aircraft and the program managing it.
“The acting defense secretary told investigators the F-35 aircraft itself is ‘awesome,’ but that the program is ‘f---ed up,’ ” the report said.
Mattis defended Shanahan’s comments, saying that the department was looking at Lockheed “as an owner of the airplane.”
“Yeah maybe he said something like that but he’s doing his job as far as I’m concerned,” Mattis said, according to the report. “I didn’t pay him to be a shrinking violet when it came to saving the Government money.”
Other senior officers recalled Shanahan stopping them mid-conversation if they brought up something related to Boeing.
“I never heard him say anything about Boeing,” said Gen. David L. Goldfein, the chief of staff of the Air Force. “My experience is that he’s been very disciplined about adhering to the recusal.”
The release of the report raises the question of whether Trump will nominate Shanahan to be his new defense secretary, and how quickly.
Shanahan took over at a tumultuous time: When Mattis resigned in December, he was expected to stay in office through February to allow for a smooth transition. Instead, Trump forced him out within days after growing angry with negative news coverage.
The situation left the Pentagon in rare circumstances, without clarity on who its next chief would be. As of Thursday, Shanahan was the longest-serving acting defense secretary in U.S. history, holding the position for 114 days. The only two previous acting Pentagon chiefs were Bill Clements, who held the position for 39 days under President Richard M. Nixon in 1973, and William Howard Taft IV, who had it for 60 days in 1989.
If confirmed, Shanahan will take over a department that has numerous vacancies, including deputy defense secretary, the position to which he was confirmed, and Air Force secretary. He will inherit a Defense Department that has increasingly been under fire for avoiding describing unclassified basics about its operations, shunning on-camera briefings with the news media for more than 300 days and further restricting access to senior commanders in war zones.
Shanahan has taken a low-key style as acting defense secretary, implementing the national defense strategy that Mattis unveiled last year with an emphasis on preparing for “great power competition” against China and Russia, as opposed to counterinsurgency fights in countries such as Iraq and Afghanistan.
Among the priorities that Shanahan has pressed for is the Space Force, a new military service that he and other Pentagon leaders have backed, after earlier skepticism that such a move was a good idea before Trump backed it. Shanahan has argued that space is increasingly contested and needs more specific attention within Pentagon bureaucracy.
“Space needs an advocate,” he said during an event at the Center for Strategic and International Studies in Washington in March. “The advocate will be the Space Force.”
Shanahan spent more than three decades with Boeing, where he managed both commercial airline and defense programs. Among them were the 787 Dreamliner, the company’s missile defense systems and rotorcraft aircraft including the Osprey, Apache and Chinook.
Correction: An earlier version of this report misstated the number of days Shanahan has served as acting defense secretary. As of Thursday he had held that position for 114 days, not 112.