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Airbus ran ‘massive’ bribery scheme to win orders

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Via Financial Times

Airbus for years conducted a “massive scheme to offer and pay bribes”, involving very senior executives, according to disclosures in courts in Washington DC, Paris and London, as Europe’s aerospace champion agreed to pay €3.6bn in penalties to regulators in France, the UK and the US.

Many of the bribes were paid through shell companies set up by executives working for an autonomous strategy and marketing unit once described by former chief executive Tom Enders as “bullshit castle”, according to investigators in the three countries.

This unit, which managed a corps of middlemen in export markets, concealed the bribes by creating fraudulent contracts, accepting fake invoices for services never delivered, and creating false activity reports, Airbus admitted in the US.

French prosecutors said the company had boosted profits by €1bn as a result of violations uncovered in their investigation.

The details emerged as courts in the three countries approved the deferred prosecution settlement struck with regulators in France, the UK and US. Airbus will pay €2.1bn to France, €983m to the UK and about €530m to the US.

Airbus’s admission of a string of bribery and corruption offences stretching back to at least 2008, as well as breaches of disclosure on US arms export filings, brings to an end a nearly four-year investigation that marks a milestone for global anti-corruption co-operation.

Airbus Chief Executive Tom Enders attends a ceremony during the delivery of the new Airbus A380 aircraft to Singapore Airlines at the French headquarters of aircraft company Airbus in Colomiers near Toulouse, France, December 13, 2017. REUTERS/Regis Duvignau
Former Airbus boss Tom Enders once described the strategy and marketing organisation, which was responsible for middlemen, as ‘bullshit castle’ © Reuters

The admission is also a major victory for anti-corruption reforms introduced in France in 2016, following US action against Alstom and BNP Paribas in 2014. These aimed to match international standards in the pursuit of white-collar crime by toughening sanctions and compliance standards.

During the investigations, Airbus handed over some 30m documents to authorities, while employees around the world were interrogated and computers confiscated.

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“The seriousness of the criminality in this case hardly needs to be spelt out,” said Victoria Sharp, a senior judge in England’s high court. “It is no exaggeration to describe the investigation it gave rise to as worldwide, extending into every continent in which Airbus operates.” The investigations demonstrated “that bribery was . . . endemic in two core business areas within Airbus”.

The fine dwarfs the £671m sanction imposed on Rolls-Royce in 2017 by regulators in the US, UK and Brazil for similar bribery and corruption offences.

The offences spanned several countries including Taiwan, Indonesia, Malaysia, Nepal, Russia, China and Colombia. They were committed at a time when the European aircraft maker was rapidly gaining on its rival Boeing in the global passenger jet market. People close to the group stressed, however, that the violations involved only a minority of aircraft contracts.

At the heart of a catalogue of offences was Airbus’s Strategy and Marketing Organisation, a division dedicated to securing sales in emerging markets.

The organisation has roots in the politically well-connected Lagardère empire, whose founder drove the creation of EADS, now Airbus, through the merger of French German, UK and Spanish aerospace and defence interests in 2000, according to one insider. It provided international consultancy services to companies, politicians and the French intelligence services, the insider said.

Once incorporated into EADS in around 2008, according to court documents, it began working to win export orders for the aerospace company using third-party agents.

In the UK probe individuals associated with Airbus were found to have paid bribes to secure deals with AirAsia and AirAsia X airlines, two airlines headquartered in Malaysia.

Individuals connected to Airbus also channelled $2.4m and $11.9m through two intermediary companies to a TransAsia Airways director for personal benefit, hiding the arrangement using coded language passed between the wrongdoers, which included an Airbus employee.

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Airbus staff also bribed directors of TransAsia Airways, Taiwan’s first private airline, and Sri Lankan Airlines.

US court filings referenced seven unnamed Airbus executives as involved in bribery and corruption, including five who had “senior responsibilities”.

The violations in the US probe centred on Airbus sales in China, where the company used consultants to pay bribes to government officials and executives at Chinese state-owned airlines.

In addition to cash payments, the filings referred to an event at a luxury resort in Hawaii in the summer of 2013, when Airbus treated Chinese airline executives to activities such as “golf, scuba diving, snorkelling cruises, horseback riding, ocean kayaking, surfing lessons, and cocktail and luau dinner receptions”.

The group also admitted violations of export arms regulations known as ITAR. These continued from 2011 to 2016 and involved sales by Airbus’s Defence & Space and Helicopters divisions, according to the filings. Airbus admitted paying political contributions in connection with the sales, failing to keep appropriate records, and using business partners who were not ITAR-registered brokers.

In another instance, Airbus agreed to pay €55m in political contributions in Austria in connection with the sale of Eurofighter Typhoon aircraft.

Now the settlement has been agreed by all three countries, Airbus will be safe from prosecution as long as it commits no further offences and improves compliance procedures. US and UK authorities are considering prosecutions against individuals.

The ruling will also allow Airbus to draw a line under an unhappy period in its recent history, with the investigations prompting a fierce backlash in France and a shake-up of the board.

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Guillaume Faury, the chief executive appointed last April, said the settlements marked an important milestone and would allow Airbus “to move forward and further grow in a sustainable and responsible way”.

(FILES) This file photo taken on February 27, 2015 shows Marwan Lahoud, chief strategy officer of European aerospace giant Airbus, speaking during the company's annual press conference in Munich, southern Germany. Lahoud will leave Airbus Group at the end of February 2017, the European manufacturer announced on February 7, 2017 in a statement. / AFP PHOTO / GUENTER SCHIFFMANNGUENTER SCHIFFMANN/AFP/Getty Images
Marwan Lahoud, who ran Airbus’s Strategy and Marketing Organisation, SMO, a division dedicated to securing sales in emerging markets and at the heart of a catalogue of offences © AFP

The probe into Airbus was launched by Britain’s Serious Fraud Office in 2016, after the company reported inaccuracies in its disclosures to the country’s export credit agency about the use of middlemen.

Two years earlier Mr Enders had halted payments to middlemen as a result of questions over certain commissions and the discrepancies were discovered as part of an internal review of compliance.

Within a year of the SFO probe, the investigation widened and leadership transferred to France’s Parquet Nationale Financier. In 2018, US authorities joined the inquiry, following further admissions from Airbus that it had discovered new inaccuracies in filings related to US arms export controls.

Since discovering the violations, Airbus has sought to co-operate fully with anti-corruption authorities in the hopes of winning the deferred prosecution agreement. The company called on international law firms Dechert and Clifford Chance to conduct an internal investigation that sparked a fierce political backlash in France.

In 2017 Airbus closed the SMO, at the time run by former strategy director Marwan Lahoud, who left in the same year. The company also appointed an independent panel to monitor compliance in 2017.

The panel includes David Gold, the British peer who advised BAE Systems and Rolls-Royce on compliance, Noelle Lenoir, the former French European affairs minister, and Theo Waigel, Germany’s former finance minister.

Airbus will remain under surveillance by authorities for three years and any violation could result in prosecution. A conviction would result in Airbus being banned from bidding for government contracts in several countries.

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