Thomas Keul and Julia Schwalm
FCPA + Global Anti-Corruption and Investigations + White Collar Defense
In one of Europe’s largest cross-border corruption investigations, involving multiple jurisdictions including Germany, the United Kingdom, France, and Austria, one chapter concluded at the end of last week: On February 9, 2018, the Munich prosecutor’s office announced the end of its nearly six-year investigation of Airbus’s subsidiary Airbus Defense and Space GmbH (collectively, “Airbus”) related to an agreement to sell 18 Eurofighter aircraft to Austria for roughly €2 billion in 2003, allegedly in exchange for certain “counter-opportunities” or offset deals Airbus was to create for Austrian companies in return. The Munich prosecutor’s office imposed an administrative fine of €250,000 and disgorgement of €81 million on Airbus.
It all started with a chance find in Italy. The Rome prosecution office caught an investment fraudster who had scammed almost €250 million. He came clean and confessed to creating a network of sham companies for Airbus, among other things.
While German prosecutors did not confirm the allegations of bribery of foreign officials, they identified roughly €100 million in payments made to two UK companies for unclear purposes and without discernible consideration in return for the payments. These payments, according to the prosecutors, were made while evading all internal control systems at Airbus.
The fact that Airbus acted negligently when it failed to prevent such payments through adequate internal control systems led to the fine of €81.25 million, intended to disgorge the illegal – indirect – profits gained by Airbus through the payments. Generally, the overall fine in such cases of “administrative offenses” is a matter of prosecutorial discretion, taking into account the importance of the offense itself and of the alleged wrongdoing, but also the financial impact on the company. The largest such fine in Germany in a comparable case was imposed on Siemens in 2008, in the amount of €395 million, and there have been several substantial fines imposed by the Munich prosecutors since then; for example, fines totaling €150 million were imposed on German truck maker MAN in 2009 for failure to prevent bribery. The fine imposed on Airbus is considered relatively low, in light of the more than €100 million in question.
According to prosecutors, the fine includes a penalty for the duration and the large amounts of monies transferred without any supervisory or security measures. However, Airbus managed to reduce the fine by cooperating fully with the prosecution and by undertaking significant efforts to improve its compliance procedures. Airbus hired outside counsel to conduct a detailed and full internal investigation, including interviews of Airbus’s top executives, and presented the entire report to the Munich prosecution office. The company established an Independent Compliance Review Panel of three highly regarded external consultants, one of them the former German Federal Minister of Finance and another a judge at the French High Court. Through these measures, Airbus gave the prosecution “reason to believe such events will not happen again.” While it remains unclear how much the fine was ultimately reduced based on Airbus’s cooperation and remediation measures, the €81 million fine was below expert predictions of a fine well above €100 million. Airbus waived any rights to appeal, so the fine is binding.
Irrespective of the German probe, however, Airbus is still under investigation in Austria, where prosecutors are investigating charges of fraud, bribery, money laundering, and embezzlement (which are still ongoing according to the Austrian Prosecution Spokesman in Vienna).
Separately, Airbus is currently also under investigation by Britain’s Serious Fraud Office and French prosecutors for suspected corruption and bribery in its UK-based civil aviation arm. The probes were opened last year after Airbus itself disclosed suspected irregular transactions to authorities.
Airbus has since warned that the ongoing investigations could have material impact on its profits and businesses, and the threat remains of additional investigations. Austrian authorities have shared their findings with the U.S. Department of Justice, and the Austrian Ministry of Defense is analyzing whether they will withdraw from the Eurofighter deal altogether and demand compensation of all damages. While a global, coordinated resolution of the multi-national investigations would be highly advantageous for Airbus, this is not likely considering the number of different accusations and separate probes.
Currently, German prosecutors are also raiding automotive OEM facilities in connection with investigations about negligent lack of supervision and control in connection with the exhaust emission scandal. As the Airbus case has shown, substantial fines can be imposed even if no criminal offenses are proven – and thus, German companies need to be able to point to an effective, credible compliance system to mitigate the risks associated with a potential enforcement action.
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