Bribery & corruption risk: Airbus reports €1.4B loss as enforcement fines soar to record heights
This should have been a bumper year for Airbus, after rival Boeing grounded its 737 MAX aircraft following fatal crashes. Yet the multinational aerospace company reported a troubling loss of €1.4B earlier this month. A key reason for this result is a series record fines for bribery in many countries. The case is a stark reminder of the reputational, regulatory, financial and strategic costs when a compliance programme falls short.
Airbus recently agreed to pay a record €3.6 billion in penalties to the U.S., France and UK. This roughly breaks down as €990M to the UK, €2.1B to France, and €540M to the U.S. This is the highest ever corporate fine for bribery in the UK, surpassing the £671 million paid by Rolls-Royce in 2017.
The reason? Airbus paid bribes in Malaysia, Sri Lanka, Indonesia, Taiwan and Ghana between 2011 and 2015, using used a network of agents to make large ‘backhander’ payments to foreign officials to land high-value contracts. This operation was run by a unit at its French headquarters.
Airbus is headquartered in France, and this case is the latest evidence that the French authorities are improving their record of legislation and enforcement against bribery and corruption. Prior to new anti-corruption legislation introduced in 2016 (known as Sapin II), France had never convicted a company of corruption. As the Financial Times wrote recently, “France long had a reputation for being lax on global corruption and outsourcing its juiciest cases to U.S. prosecutors—Airbus’ record settlement in an international bribery probe shows this era may be over.”
Adding up the costs of non-compliance with anti-bribery & corruption laws
The Airbus case is a reminder of the significant costs of bribery and corruption. For Airbus, these included:
- Substantial fines: The €3.6B in fines contributed to the company’s €1.4B annual loss. Airbus CEO Guillaume Faury acknowledged in a press release that the bribery investigations are partly responsible, noting, “The reported earnings also reflect the final agreements with the authorities resolving the compliance investigations and a charge related to revised export assumptions for the A400M [transport aircraft].”
- Business disruption: Airbus was under investigation by regulators in France, the UK and the U.S. for four years, requiring a significant time investment by corporate leaders. In addition to paying fines, Airbus will enter into three-year agreements to improve its compliance practices, which will cause further disruption.
- Reputational damage: Reputation is particularly important for companies in the aerospace industry at the moment, after Greta Thunberg’s campaign against the environmental costs of air travel and the fatal crashes of Boeing planes. The negative headlines surrounding the bribery scheme certainly had a dampening effect on the company’s reputation.
- Growth stagnation: Airbus had a clear opportunity this year in the wake of Boeing’s own reputational crises. Instead, this bribery and corruption investigation means Airbus must focus on damage control for its own reputation and tackling the risk of bribery and corruption. Its CEO hinted at this focus when he identified “company culture” as one of three priorities for 2020.
- Staff turnover: The Guardian reports that "scores of senior executives” were sacked during the investigation. Airbus also announced thousands of job cuts in late February, although it did not explicitly link these to the fines.
Enforcement trends to watch
This case also demonstrates a number of trends in modern anti-bribery and corruption work which companies should be aware of:
- Cross-border cooperation among regulators: The investigation was an international effort involving three countries. The Financial Times said the level of co-operation on this case was “unusual”, especially for French prosecutors.
- Investigations are going high tech: Technology is increasingly used in corruption investigations, making it easier for regulators to uncover corruption. Predictive coding software technology was used in this investigation to sift through millions of emails, contracts and other documents.
- Deferred Prosecution Agreements (DPAs) have become the new normal. Under its agreement with the UK’s Serious Fraud Office, Airbus will pay the fine and improve its compliance programme while being monitored for three years. If it cannot demonstrate improvement, it will face prosecution.
- Enforcement efforts are improving: Globally, anti-bribery and corruption legislation and enforcement has increased. Prior to new anti-corruption legislation introduced in 2016 (known as Sapin II), France had never convicted a company of corruption. As the Financial Times wrote recently, “France long had a reputation for being lax on global corruption and outsourcing its juiciest cases to U.S. prosecutors—Airbus’ record settlement in an international bribery probe shows this era may be over.”
The UK Bribery Act 2010 addresses both business-to-business bribery and bribes to public officials, requiring companies to address six principles in risk management programmes:
- Developing a programme that is proportional to the risks faced
- Securing top-level commitment to anti-bribery and corruption compliance
- Conducting risk assessments to identify potential problem areas
- Implementing risk-based due diligence of third parties
- Communicating the importance of compliance across the organisation
- Engaging in ongoing monitoring and periodic re-evaluation of risk to protect against compliance failures
These principles point companies towards the best way to minimize the risk of bribery and corruption in across third-party networks of customers, suppliers and other agents acting on behalf of organisations. Given the strengthening of anti-bribery and corruption laws, companies must implement robust risk management processes—from mapping corruption risks for different jurisdictions and sectors to implementing risk-aligned due diligence and monitoring of third parties. How confident are you that your current compliance programme could stand up to scrutiny?