Will UK’s Airbus Fraud Investigation Alter Future Sales?
The global mega competitive battle between the pan-European (FR, UK,GR = prime governmental interests) Airbus Group and its US rival the Boeing Company is a constant headline on the business pages of most media. Both companies have been known to go to their respective national trade protection agencies to claim that the other is violating some treaty. The various forms of export finance credits offered by their “home” governments have been attacked as unfair supports for their airplane sales.
It is, therefore, news when a UK newspaper headlines the actions of the British as follows:
The Serious Fraud Office has opened a criminal investigation into the company’s use of middlemen to broker deals. It has been reported that the SFO focus is directed at Airbus’ inaccuracy of disclosed “agent payments” as included in the applications for export support, and/or failure to include the names of third parties. The time scopes of the SFO investigations vary between cases.
Airbus issued a statement that said:
“Airbus Group has been informed by the SFO that it has opened a criminal investigation into allegations of fraud, bribery and corruption in the civil aviation business of Airbus Group relating to irregularities concerning third party consultants…We ourselves detected this issue and self-disclosed it to the authorities. It was an effort of our enhanced anti-corruption (policy). Airbus’ management was determined to resolve this issue in cooperation with the authorities.”
Further complications have been noted by a number of different commentators:
- There may be problems between EADS, Airbus’s parent company and the civil airline manufacturer, over a recent directive on compliance initiated by Tom Enders, the CEO of the holding company.
- Airbus has heavily relied on a system called “baksheesh” in the Middle East, a recognition that in order to business in Saudi Arabia, a predicate to significant sales in the Kingdom may be “contributions” of huge sums to local representatives.
- In April, 2016 the UK Export Finance (UKEF), in response to these allegations, ceased funding Airbus’ exports. The equivalent authorities in France and Germany took similar actions. Previously, the UKEF in 2006 required applications for its funds to identify the agents and fees paid. Though the policy was set, the governments and the government-controlled aerospace company continued to debate over the degree of due diligence required and the depth of the disclosures.
- Between the UKEF and EADS, the sales tactics of the Toulouse company may have to change permanently.
- Both UK and German investigations into similar claims as to“baksheeshes” made in relation to military sales in Saudi Arabia.
The usual point-counterpoint nature of the Airbus-Boeing clash may be forecast to result in a claim that “we all do it.” The US Foreign Corrupt Practices Act has been in place since 1977. Since its enactment the Department of Justice and the SEC have vigorously enforced the statute. Generally, there are “two main components: the anti-bribery provisions, which prohibit payments to foreign officials to obtain or retain business, and the accounting provisions that require issuers to make and keep accurate books and records and to maintain an adequate system of internal accounting controls.” A very short quote from a 4,000 word summary of the FCPA shows how far-reaching and complicated this prohibition is.
The history of aircraft sales over time and around the globe by almost all manufacturers includes embarrassing moments of “intermediary commissions.” Many of the purchasers of these massive capital investments, even when the customer/airline is really the country government, must involve attractive financing.
Resolution of the policy issues involved in the SFO case may set the future parameters for these big stakes sales battles.