SFO enters into its seventh DPA with Airbus as part of €3.6bn Global Resolution for Bribery

United KingdomScotland

On 31 January 2020, Dame Victoria Sharp, President of the Queen’s Bench Division, approved a deferred prosecution agreement (“DPA”) worth €991 million between the Serious Fraud Office (“SFO”) and Airbus SE (“Airbus”), the Dutch and French domiciled parent company of the Airbus group, the world’s largest airliner manufacturer. In her judgement, Dame Sharp noted, “To put this figure into context, this financial sanction is greater than the total of all the previous sums paid pursuant to previous DPAs and more than double the total of fines paid in respect of all criminal conduct in England and Wales in 2018.”

The DPA resolves “grave” criminality covering the period 1 July 2011 (the date on which the UK Bribery Act 2010 (“UKBA”) came into force) and 1 June 2015. It forms part of the biggest ever global resolution for bribery, which includes €3.6 billion in financial penalties, involving authorities in France, the UK and the US. On 13 February 2020, Airbus reported a loss of €1.36 billion in 2019, which it attributed in part to the global bribery settlement. The previous year it had reported profits of €3.1 billion.

The terms of the UK DPA require Airbus to disgorge profits of €586 million by 31 January 2023, pay a penalty of €398 million and SFO investigation costs of approximately €7 million within 30 days, report any further serious or complex fraud discovered during the term of the DPA (even if unrelated to the matters covered by the DPA) and ensure substantial remediation and ongoing improvements to its ethics and compliance policies and procedures. While no monitor was appointed under the DPA itself, this was in large part due to Airbus’ settlement with the French authorities appointing the French AFA (anticorruption authority) to monitor its compliance improvements (which could cost Airbus up to another €8.5 million).

On approving the DPA, Airbus agreed, and Dame Sharp was satisfied, that the jurisdiction requirements for the UKBA corporate offence of failing to prevent bribery (under s.7) were met, because it carried on “part of a business in the UK” via two UK subsidiary companies, which were, at all relevant times, “subject to the strategic and operational management of Airbus SE”. This is the first DPA concluded with a non-UK business where all relevant acts forming the basis of the DPA took place outside the UK.Therefore, while not contested, the application of the extra-territorial jurisdictional test for liability under section 7 UKBA is significant.

Airbus’ Offences

The SFO began investigating Airbus (a term used to cover both Airbus SE and all relevant subsidiaries) in July 2016. That followed a self-report by Airbus in April 2016, over allegations it had failed to prevent bribery by third party intermediaries who were engaged to sell commercial and military aircraft to customers in numerous jurisdictions around the world.

As multiple investigating authorities opened investigations into Airbus activities at the same time, each of those authorities (the UK SFO, the French Parquet National Financier (“PNF”), the United States Department of Justice (“DOJ”) and the United States Department of State (“DOS”)) agreed to take responsibility for geographical areas or customers most relevant to their investigations and jurisdiction and, ultimately, entered into their own respective settlements with Airbus in January 2020. The SFO had taken responsibility for Malaysia, Sri Lanka, Taiwan, Indonesia, and Ghana, but the global investigations also covered conduct in China, Colombia, Nepal, South Korea, the United Arab Emirates, Saudi Arabia (Arabsat), Taiwan and Russia.

The five separate counts of bribery under the UK indictment all related to section 7 UKBA, one count for each jurisdiction covered by the SFO’s investigation. Therefore, unlike the French authorities’ investigations, for example (which covered conduct going back to 2004), the conduct investigated only related to the period from 1 July 2011. In each case, the relevant conduct was that between 1 July 2011 and 1 June 2015, persons associated with Airbus (not exclusively its employees) offered or paid bribes to third parties in order to secure the purchase of commercial or military Airbus aircraft:

Count 1: Malaysia – Persons associated with Airbus Group SAS, paid $50m and offered an additional $55m (which was not paid) to directors and/or employees of AirAsia and AirAsia X airlines as sponsorship for a sports team owned by two executives of AirAsia (the additional payment was prevented by a freeze on all payments to relevant intermediaries in late 2014 when Airbus conducted a review of its compliance controls in that area). The payment and offer were to reward those two executives for securing orders for some 180 commercial aircraft from Airbus.

Count 2: Sri Lanka – Persons associated with Airbus SE offered and paid bribes to influence the purchase of 10 commercial aircraft and the lease of 4 more by SriLankan Airlines (the 99.1% state-owned national carrier). Airbus offered up to US$16.84 million, and ultimately paid US$2 million, to a third party intermediary company, which was wholly owned by the wife of a SriLankan Airlines executive, to influence the purchase of the aircraft. When Airbus applied for export credit financing from UK Export Finance (“UKEF”) (a Government body involved in export credit financing), Airbus misled UKEF about the identity of the executive’s wife and continued to mislead UKEF when further questions were asked by them. Ultimately, Airbus withdrew the application for export credit financing.

Count 3: Taiwan - Persons associated with Airbus SE (namely two third party intermediaries) paid bribes totalling more than $13.3m to a director and employee of TransAsia Airways, channelled through companies owned by the two intermediaries, to “reward improper favour” in respect of the purchase of 20 commercial aircraft by TransAsia.

Count 4: Indonesia - Persons associated with Airbus SE (namely a third party intermediary) paid bribes in excess of $3.3 million to/for the personal benefit of employees of the national airline of Indonesia (PT Garuda Indonesia (Persero) Tbk) and its “low-cost” subsidiary (PT Citilink Indonesia) or their family members, to secure/reward improper favour. Those Garuda/Citilink employees were key or significant decision makers in respect of Airbus business during that period, namely Garuda/Citilink’s purchase of 55 Airbus aircraft. The payments were channelled through different routes, including, for example, a payment to a notary in connection with the purchase of a residential property by a relative of a Garuda executive and payments to a company in the BVI owned by the same executive and his wife.

Count 5: Ghana - Persons associated with Airbus SE offered and paid bribes (totalling around $5m) in connection with the sale of 3 military transport aircraft to the Government of Ghana. Airbus engaged an individual (with no prior expertise in the sector), who was a close relative of a senior Ghanaian official involved in the procurement of the aircraft, as its intermediary in connection with the transactions. A number of employees of Airbus knew that the intermediary was a close relative of the official. The intermediary was promised substantial commissions connected to the sales and false documents were created to hide the arrangement. The payments were intended to induce or reward “improper favour” by the Government official towards Airbus. To circumvent compliance controls, the arrangements were presented as being made via a different intermediary who was set up to pass the payment on to the first intermediary (after taking a cut).

Airbus Cooperation in the Investigation

The court noted that there was a “slow start” within Airbus towards self-reporting. It was clear that there were concerns within Airbus from late 2014 when it decided to freeze payments to agents and investigate further. However, the SFO was only notified in April 2016 and then only because of the watchfulness of UKEF, whose due diligence when asked by Airbus to provide export credit financing for certain transactions had uncovered concerns, and who had threatened to report them to the SFO even if Airbus did not. However, the cooperation then provided was described as “exemplary”.

Given the seriousness of the wrongdoing, the Court decided it was appropriate to set out the steps and cooperation provided by Airbus that justified determining that a DPA was in the interests of justice and underpinned its terms.

Interests of Justice

The DPA Code indicates that a prosecution will usually take place unless there are public interest factors against prosecution which clearly outweigh those tending in favour of prosecution.Certain factors favoured prosecution here: that the alleged conduct was part of Airbus’ established business practice; the adverse market impact; and other sanctions imposed on Airbus for similar conduct.Against that, the Court accepted that the following factors outweighed those favouring prosecution: co-operation with the SFO investigation; substantial remedial measures taken; the potential disproportionate consequences for Airbus of a conviction under domestic law and the law of another jurisdiction; the likely collateral effects on the public, Airbus’ employees and shareholders and/or institutional pension holders of a conviction and the fact that there was no previous criminality.She stated, “Airbus has, to use a colloquial phrase, truly turned out its pockets and is now a changed company to that which existed when the wrongdoing occurred.

Terms of the DPA

Duration

A 3-year term was deemed sufficient to be effective here, because the relevant payments would be made within this period, extensive remedial measures had already been taken by Airbus and the French AFA had been appointed to monitor Airbus for the duration of the agreement.

Compensation

No compensation was included because: (i) the SFO could not easily identify a quantifiable loss arising from the criminal conduct; (ii) there was no evidence that any of the products or services sold were defective or unwanted; and (iii) the DPA does not prevent any victims from claiming compensation.

Disgorgement

Expert evidence from the SFO and Airbus agreed that the gross profit from the wrongful conduct was €585,939,740. While the gross profit figure used to calculate the fine element was higher, that was because the parties sought to reflect the principles of totality and proportionality, to which the Court must have regard when conducting any sentencing exercise, and the wider global resolution of the case, by limiting the inclusion of certain costs attributable to each contract in relation to the fine calculation. The Court also accepted that because it was difficult to forecast profitability accurately beyond 31 March 2020, only profit from deliveries by that date should be included.

The financial penalty – the culpability and harm tests

For bribery offences, to calculate the fine amount the “harm” figure will normally be the gross profit from the offending (in this case from aircraft deliveries between 1 July 2011 and 31 March 2020). The appropriate figure, based on various complex contract specific assessments was €954,334,060.A “culpability” multiplier then had to be applied to this sum, before being adjusted for aggravating and mitigating factors.

While during the indictment period Airbus had some bribery prevention policies and procedures in place, prior to September 2014 they were easily bypassed or breached and there was a corporate culture which permitted bribery. Other than count 4 which was deemed to be medium culpability, because no Airbus employees were alleged to be party to the predicate bribery, all of the counts fell within the high culpability category (a 300% multiplier). Having applied this analysis to the gross profit figure, the Court then applied a discount of 50% to take into account Airbus’ “exemplary cooperation and remediation”. This resulted in an overall penalty figure of €398,034,571, with no tax deduction.

Cooperation & Compliance

As noted above, as part of its ongoing cooperation obligations, Airbus must promptly report to the SFO any evidence or allegation of fraud that comes to its knowledge, even if unrelated to the matters settled. It must also continue to implement and review its compliance improvements, which will be subject to monitoring by the French AFA as part of Airbus’ settlement in France.

Costs

Airbus must pay the SFO’s reasonable costs of €6,989,401 (with no tax deduction to be sought) for work prior to 17 January 2020 along with a sum covering the period from that date until the Court’s final approval of the DPA on 31 January 2020.

End of Investigation

The DPA brings to a close the SFO’s investigation into Airbus SE and its controlled subsidiaries, other than a separate investigation by the SFO into GPT (Special Project Management) Ltd, the now defunct UK based Airbus subsidiary, in relation to an ongoing bribery investigation concerning alleged multimillion pound bribes paid to secure a military contract with the Saudi Arabian government. That separate matter was first reported to the SFO by a whistleblower a decade ago. There has been press speculation that its resolution and/or a charging decision has been politically impacted.It remains unclear why the SFO has been unable to reach a decision on that matter and/or when they will do so.

Commentary

Airbus group’s resolution of global bribery issues with UK, French and US authorities for €3.6 billion can be seen as a good outcome for all concerned. Airbus can finally put this hugely expensive and reputationally harmful investigation behind them. The various authorities can hail the largest ever financial settlement for bribery and highlight how their cross-cooperation enabled all issues to be resolved, cognisant of and giving appropriate credit for each others' cross-settlements (ultimately to Airbus’ advantage). It is a big story for the SFO and a big story for the French PNF.

The case also highlights that “adequate procedures” under the UK Bribery Act does not just mean “extensive and sophisticated policies and procedures”. To be “adequate”, they have to work and they have to demonstrate a positive corporate culture exists in the business. Even though there was evidence that Airbus had extensive and sophisticated anti-bribery controls in place (even receiving an anti-corruption compliance certificate in 2012 from an un-named third party company), they were not effective and were easily bypassed, which indicated a poor anti-bribery culture – i.e. they were not adequate procedures.

At the same time, the SFO can point to the successful use of the extraterritorial provisions in the UKBA for the first time, in providing jurisdiction over Airbus and its controlled subsidiaries outside the UK for conduct that took place entirely overseas. That is highly significant; foreign incorporated businesses and groups should take note that they may be exposed to the UKBA if they have UK subsidiaries that are effectively overseen or controlled by the parent. While not directly inconsistent with the Ministry of Justice’s guidance on adequate procedures (in the way it explains how the extra-territorial jurisdiction is intended to operate), it perhaps suggests the time has come to revisit and update that guidance.

Two further elements have emerged concerning the analysis of the interests of justice test, which may come to be used in future cases with the largest global businesses:

  1. The reliance on factors that, despite explicit statements to the contrary in the judgment, give the impression that some companies are just too big to prosecute. No matter how bad the conduct over however long a period, there will always be a way to justify a DPA for them, based on market impact and fallout from a prosecution. Many of the relevant factors justifying this DPA focused heavily on the size and scale and importance of Airbus to the UK (and global) economy and the relative harm that may be caused to the company and investors, employees and markets if a prosecution were to take place. Those factors would not be available to a SME in the same way. The outcome here may be pragmatic and understandable, but it may also suggest justice is a relative concept.
  1. The Court hailed Airbus’ acceptance that the UKBA provided the SFO with extended extraterritorial powers, which was “an unprecedented step for a Dutch and French domiciled company to take, in respect of the reporting of conduct which had taken place almost exclusively overseas.” However, either section 7 UKBA gives the UK jurisdiction to prosecute these matters (and enter into a DPA) or it does not; the Judge must be satisfied that the jurisdiction otherwise exists to prosecute. While it may save time and cost for Airbus to accept jurisdiction, it is not clear why this should be treated as a substantial concession warranting more benign treatment.

Despite the huge sums being paid under the settlements, the fact remains that disgorgement and discounted financial penalties may not remove all the benefit from long-term offending. There will be all sorts of ways in which Airbus will have benefited more generally from the accepted wrongdoing over many years, from bigger and better growth and market positioning, the ability to attract the best talent to give it a competitive advantage, through to its bargaining power in negotiating terms with contractors and even financing arrangements. The extent to which the wrongdoing resulted in such benefits would be very difficult to quantify, but that doesn’t mean it should be ignored.

However, the bigger picture is that the DPA regime is working for corporates and prosecutors and more countries will likely adopt them as a pragmatic way to resolve corporate crime and gain significant financial recoveries. Airbus cooperated very extensively with the SFO, waiving privilege over witness interviews and reports, sharing more than 30 million documents from 200 custodians and regularly updating the SFO on its internal investigations. As commendable as that is, nobody has been prosecuted for any of the endemic criminality identified in this DPA and for which Airbus (and shareholders) have paid a heavy price. Past evidence from all previous UK DPAs may suggest that nobody will be (at least not successfully). For all the praise that the SFO deserves for achieving this outcome, to really change corporate culture, it needs to show that people go to prison when they engage in bribery to win business for their companies. Until then, bribery and now DPAs may be thought of as just part of the cost of doing business.