February 11, 2020
On 31 January 2020, Airbus SE (Airbus) reached final agreements with the French Parquet National Financier (PNF), the U.K.’s Serious Fraud Office (SFO) and the U.S. Department of Justice (DoJ) in order to resolve investigations into allegations of bribery and corruption. The agreement reached with the U.S. authorities also resolves investigations by the DoJ and the State Department into inaccurate and misleading filings made by Airbus with the State Department pursuant to the International Traffic in Arms Regulations (ITAR).
Under the agreements, which are the largest ever entered into by the PNF and the SFO, Airbus will pay a total of €3.598 billion plus interest and costs to the French, U.K. and U.S. authorities to avoid prosecution. That figure equated to $3,986,888,000 and £3,021,956,000 on 31 January 2020.
This record-breaking enforcement outcome will no doubt be of interest to all corporate entities as they seek to implement, monitor and enforce anti-bribery and corruption policies and procedures. In particular, it provides further examples of the extra-territorial reach of anti-corruption legislation and the willingness of authorities in jurisdictions beyond the U.S. to embrace alternatives to immediate prosecution.
Under the agreement reached with the PNF, known as a Convention Judiciaire d’Intérêt Public (CJIP) or Judicial Public Interest Agreement, Airbus is required to pay €2,083,137,455. Airbus has also committed to submitting its compliance program to targeted audits carried out by the Agence Française Anticorruption (AFA). In return, the PNF has agreed to suspend prosecution for a period of three years.
Under the Deferred Prosecution Agreement (DPA) reached with the SFO, Airbus is required to pay €983,974,311 (£826,439,004) by way of a financial penalty and €6,989,401 (£5,870,390) in costs within 30 days. In return, the SFO has also agreed to suspend prosecution for a period of three years.
Under the DPA reached with the U.S. authorities, Airbus is required to pay €525,655,000 ($582,470,179) to the DoJ and a further €9 million ($9,972,760) to the State Department of which €4.5 million ($4,986,380) may be used for approved remedial compliance measures. In return, the U.S. authorities have agreed to suspend prosecution for a period of three years.
If Airbus complies with the terms of the agreements reached for the length of time that those agreements are in operation, the prosecutions in each jurisdiction will be discontinued. In light of the role to be performed by the AFA under the CJIP, monitors will not be imposed on Airbus under the U.K. or U.S. DPAs.
As readers will undoubtedly be aware, Airbus is one of the two largest manufacturers of commercial aircraft in the world. It also manufactures helicopters, military transports, satellites and launch vehicles. Although known by a different name at the time, the legal entity known as Airbus SE since 2017 was created by the merger of three European aerospace and defense companies in 2000. It was converted into a European public-limited company in 2015.
The turnover for Airbus SE for the years 2011 to 2018 ranged from €49 billion to €66.5 billion. Its profits before finance costs and income taxes for the same period ranged from €1.5 billion to €5 billion, which puts into context the scale of the financial settlement reached.
Airbus operates in a variety of markets and geographical areas using a number of subsidiaries. Although much of the conduct covered by the agreements relates to the activities of those subsidiaries or those acting at their request, Airbus SE, as the parent company, is the only party to the settlement agreements.
The various investigations centered around Airbus’s use of “business partners”—third parties who were used to increase Airbus’s international footprint and to assist in winning sales contracts.
In 2012, Airbus commissioned a private company to review its compliance program and was awarded an “anti-corruption certificate.” At this time, Airbus also had a number of written policies governing payments to, and contractual relationships with, third parties. These policies were specifically aimed at ensuring that third parties were used appropriately and only after sufficient due diligence had been undertaken.
In September 2014, Airbus initiated a review of all third-party relationships. An internal report found material breaches of compliance procedures. This led to a freeze on all payments to business partners and international market development projects. A subsequent review led to a re-structuring of the legal and compliance functions within the business, and, in April 2015, Airbus published new rules regarding future third-party engagements.
As part of its business, Airbus obtained export credit financing from export credit agencies, including U.K. Export Finance (UKEF)—a U.K. Government body. In April 2015, UKEF wrote to Airbus regarding UKEF’s anti-bribery procedures and made specific reference to UKEF’s obligations to report all suspicious circumstances to the SFO.
In late 2015, Airbus conducted a review of the accuracy and completeness of its declarations relating to its use of business partners in applications for export credit financing, and first reported its concerns to UKEF in January 2016. Both UKEF and Airbus reported matters to the SFO on 1 April 2016.
On 15 July 2016, the SFO formally opened a criminal investigation against Airbus and associated persons. Airbus was notified of this on 5 August 2016 and promptly informed the financial markets.
On 31 January 2017, the SFO and the PNF entered into a Joint Investigation Team (JIT). The JIT’s investigation was vast in scale and scope. It covered all of the business partners engaged by Airbus until 2016—more than 1,750 across the globe—although the JIT decided to focus on relationships with 110. The PNF and SFO divided up the conduct under investigation between them by country.
By the end of 2018, the U.S. authorities were also investigating Airbus.
According to court documents, beginning in at least 2008 and continuing until at least 2015, Airbus engaged in and facilitated a scheme to offer and pay bribes to decision-makers and other influencers, including to foreign officials, in order to obtain improper business advantages and to win business.
In France, the U.K. and the U.S., specific examples of Airbus’s conduct were presented in order to demonstrate the allegations made against Airbus. It is certainly not the case that the authorities have alleged, or that Airbus has accepted, that its use of business partners, generally, facilitated the payment of bribes in all or even most cases.
The underlying facts have been described in some quarters as “eyebrow raising.” In one instance, Airbus paid $50 million in sponsorship to a sports team owned by airline executives to help win a contract for 180 aircraft. In another, the wife of an airline executive was used as a consultant on an aircraft contract despite her having no experience in aviation. Airbus later misled the UKEF about her identity when it was applying for assistance in funding the deal.
The financial settlement reached under the CJIP is the largest ever and dwarfs the €500 million public interest fine, or amende d’intérêt public, imposed against Google subsidiaries in September 2019 to settle a PNF tax investigation. It comprises the disgorgement of Airbus’s tainted profits of €1,053,377,113 and an additional penalty of €1,029,760,342. The latter additional penalty was calculated based on the application of a 50% discount rate from the original amount, which the Court applied as a result of inter alia “the exemplary level of cooperation with the JIT investigations.” The fine that Airbus agreed to pay as part of the DPA entered into with the U.S. authorities was also deducted.
It is the tenth CJIP entered into since they were introduced under the French anti-corruption law commonly referred to as Sapin II, which was enacted on 9 December 2016. It is the sixth CJIP entered into by the PNF.
A CJIP may be offered to any legal person under suspicion or investigation for offenses related to corruption in situations in which it appears in line with the public interest not to initiate a criminal prosecution. Any agreement may include the payment of a public interest fine (limited to 30% of the company’s average annual turnover), the implementation of a compliance program under the supervision of the AFA and/or the payment of compensation to victims who have suffered a loss.
Any CJIP agreed between the parties is subject to validation by the Tribunal Judiciaire, which controls (i) whether it is appropriate to use this process, (ii) whether all procedural rules have been complied with and (iii) whether the amount of the fine is within the limits prescribed by Article 41-1-2 of the French Criminal Code and is proportional in light of the profits the company derived from its wrongdoing.
The CJIP reached with Airbus confirms the determination of the French authorities to tackle corruption and an increasing willingness to pursue major international corporations. It also highlights the significant benefits that a corporation can obtain by fully cooperating during the course of an investigation, re-affirming the guidance issued by the PNF and AFA in June 2019. In addition, the AFA concluded that the work carried out by Airbus between 2015 and 2019 to implement corrective measures at an early stage to prevent reoccurrence was of the highest standards in the field. These factors weighed heavily in favor of validation of the CJIP and in the reduction of the fine.
This DPA is the seventh concluded in the U.K. since their introduction in 2014 and the fifth relating to allegations of bribery and corruption. The financial settlement is the largest ever and is significantly greater than the £497,252,645 settlement reached between the SFO and Rolls-Royce in January 2017. To put things into context, the Airbus settlement is bigger than the total value of the financial settlements concluded under all previous DPAs and double the total of all fines paid in respect of all criminal conduct in England and Wales in 2018.
Under the U.K. regime, which was introduced by the Crime and Courts Act 2013, a corporation is charged with offenses, but proceedings are suspended if the DPA is approved. Prior to the terms being agreed, the designated prosecutor must seek a declaration from the court that such an agreement is likely to be in the interests of justice. Such a hearing takes place in private.
Having provided such a declaration on 28 January 2020, the President of the Queen’s Bench Division of the High Court, Dame Victoria Sharp, approved the DPA at a public hearing on 31 January 2020. Its terms are those that lawyers in the U.K. have become familiar with (e.g., payment of a financial penalty and costs, a duty to cooperate as part of the SFO’s ongoing investigations etc.). The financial settlement comprises disgorgement of €585,939,740 and a financial penalty of €398,034,571—the latter being reduced by 50% to take account of Airbus’s willingness to enter into such an agreement, its cooperation and its remediation efforts.
The Court concluded that while Airbus’s conduct was extremely serious, the interests of justice were nevertheless served by a DPA rather than a prosecution for a number of reasons.
First, after what was described by the Judge as “a slow start,” Airbus had cooperated “to the fullest extent possible.” The Court noted that the company had taken an unprecedented step for a Dutch or French domiciled company by reporting conduct that had largely taken place overseas to the U.K. authorities thereby recognizing the extra-territorial effect of the Bribery Act 2010. The Court also listed the various ways in which Airbus had cooperated with the JIT investigations. The list accords with the updated guidance on corporate cooperation issued by the SFO in August 2019. Interestingly, the Court highlighted that Airbus had adopted a “cooperative position in respect of privilege,” which has been a significant issue in recent SFO investigations. Like her French counterpart, the Judge concluded that the level of cooperation was “exemplary.”
Second, the Court highlighted the implementation of a number of measures that have “transformed Airbus into what is, for present purposes (in relation to issues of compliance, culture and the like) effectively a different company.” In addition to the changes to its compliance program and an overhaul of its corporate governance structures, the Court noted the appointment of a new CEO, CFO and General Counsel.
Third, the Court considered the collateral effects of a prosecution and conviction. The Court noted that there are limits as to how far such matters can be taken into account and that “no company is too big to prosecute.” However, factors such as the long-term effects on the viability of a business and potential debarment from tendering for public sector contracts, may be relevant. The efficient use of public resources will also be a factor to take into account.
DPAs have been a feature of the U.S. criminal justice system for longer than they have in France or the U.K. While they must be approved by a court, U.S. judges have traditionally played less of an active role in scrutinizing them than their French and British counterparts, with the parties being given greater leeway to resolve the terms of any agreement between themselves.
The DPA with the DoJ focused solely on a bribery scheme in China. Indeed, the DoJ acknowledged the limited reach of its jurisdiction over Airbus, explaining, “the Company is neither a U.S. issuer nor a domestic concern, and the territorial jurisdiction over the corrupt conduct is limited.” However, despite covering only one jurisdiction and recognizing the stronger claim of the French and U.K. authorities, the DoJ still levied a significant penalty against Airbus.
Under the DPA, the total penalty for the alleged conduct in breach of the Foreign Corrupt Practices Act (FCPA) would have been nearly $2.1 billion. However, the DoJ agreed to credit Airbus with $1.8 billion for the sums to be paid to the PNF. The DoJ also awarded Airbus with a 25% discount for full cooperation and remediation—significantly less than that provided by the French and English courts. Notably, the DoJ did not award voluntary disclosure credit to Airbus since it disclosed the conduct “after the corruption-related investigation being undertaken by [the SFO] in the United Kingdom began and was made public.” The DoJ did note that Airbus “did disclose the conduct to the Fraud Section within a reasonably prompt time of becoming aware of corruption-related conduct that might have a connection to the United States.”
The DoJ’s position regarding voluntary disclosure provides companies with some insight into an issue that has been somewhat ambiguous based on the DoJ’s guidance, but it also raises an interesting conundrum. The FCPA Corporate Enforcement Policy requires companies to provide information to the DoJ “prior to an imminent threat of disclosure or government investigation.” The DoJ guidance does not specify that an investigation of any corrupt conduct, including in a foreign country for foreign conduct, could foreclose a company from receiving voluntary disclosure credit in the U.S. Therefore, after Airbus, to preserve voluntary disclosure credit, and the possibility of a declination, companies will need to decide whether to disclose to U.S. authorities conduct with no U.S. ties in case such ties are later discovered in the course of an ongoing investigation. Paired with the DoJ’s emphasis on timely disclosure, this may prove particularly challenging in practice.
Another noteworthy aspect of the U.S. enforcement action is that the State Department joined the DoJ in order to resolve alleged violations of the Arms Export Control Act and its implementing regulations, the ITAR. These export controls came into play because Airbus provides “defense articles” and “defense services,” which are covered by ITAR regulations (i) prohibiting the payment of “political contributions, fees, and commissions” in connection with ITAR-covered products without reporting them; and (ii) failing to maintain proper records of the sale of these products. The charges made by the State Department cover a larger number of countries, including Ghana, Indonesia and Vietnam.
The involvement of the State Department in an enforcement action against a foreign corporation for corruption-related offenses is quite rare, but recently there has been an increasing overlap between the FCPA and the economic sanctions regime in the U.S. Indeed, in 2019, the U.S. Securities and Exchange Commission brought an enforcement action against Quad/Graphics for alleged violations of the FCPA, economic sanctions and export control laws for engaging in transactions with Cuba. Further, some recent U.S. sanctions regimes have focused on targeting individuals allegedly involved in corrupt activities. Compared to the FCPA, economic sanctions imposed by the U.S. potentially have a much wider application and might be able to allow the U.S. to tackle corrupt conduct beyond the reach of the FCPA.
This outcome has been widely recognized as one of the most important in the field of corporate crime in recent years. Here are the key takeaways: