The huge corruption scandal threatening Airbus

ItIt is the biggest financial scandal since the Elf oil company affair 20 years ago. According to Mediapart's information the ongoing parallel French and British corruption investigations into the European aerospace and defence group Airbus are examining claims that hundreds of millions of hidden commissions were paid out in relation to the sale of jet airliners, allegations brought to light by the group's own internal probes. In the Elf affair, France's largest corruption scandal to date, some 300 million euros of funds were misappropriated.

Since the story broke in 2016 Airbus – formerly EADS – has sought to play the affair down. When the Serious Fraud Office (SFO) in England and Wales and then its French counterpart the Parquet National Financier (PNF) began their investigations, the group spoke simply of “inexactitudes and omissions” in declarations of the amounts paid to “consultants” or middlemen who helped clinch the lucrative export deals.

It took nearly a year for the company to recognise, discreetly, the scale of the affair. In its 2016 annual report, published in April this year, Airbus started to concede the affair was perhaps a bit more serious than had been anticipated. The group recognised that it risked a heavy “monetary penalty” in relation to the French and British investigations. The affair could also block access to certain public markets, cause “damage to Airbus' business or reputation”, undermine its sales, reduce financing options for export deals and even lead to its shareholders taking legal action for prejudicial damages in relation to the alleged corruption.

In a sign of how seriously the issue has now being taken, Mediapart reveals that the board of directors at Airbus, which until now had just taken the views of the senior executives, has decided to ask an independent firm of lawyers to assess the scale of the risks and the measures that should be adopted.

In late May Airbus also announced it was setting up an independent panel to evaluate the extent to which group practices conform with anti-corruption rules. It will be under the control of three senior figures, one from each of the three leading countries involved in the European aerospace group. The British 'representative' is David Gold, a lawyer and member of the House of Lords who worked on behalf of British firms Rolls-Royce and BAE Systems when they were being investigated by the SFO. For France there is Noëlle Lenoir, a former member of France's two leading judicial and administrative bodies, the Conseil d'État and the Constitutional Council, a minister for European business affairs under President Jacques Chirac, the former ethics commissioner at the National Assembly and a lawyer with the law firm Kramer Levin Naftalis & Frankel. The German involvement comes in the form of Theodor Waigel, who was finance minister under Chancellor Helmut Kohl and a leading figure in the Christian Social Union (CSU) party in Bavaria.

According to outside observers the panel's purpose is to prove to the British and French authorities - oddly, the German justice system has not opened an investigation into the affair – that the group's culture has changed, and that Airbus no longer uses middlemen to clinch its sales. “We have been cooperating fully with the investigations that ensued and further improving our compliance system is obviously our number one priority now,” Airbus Chief Executive Officer Tom Enders said in a statement in May this year.

This demonstration that things have changed is of the utmost importance. It will determine whether or not the British or French prosecution authorities will accept a deal. That would allow the aviation company to avoid a public trial and instead simply be subject to very large fines. “We're expecting these investigations to last some time, perhaps years,” Enders said at Le Bourget air show in France in June this year.

There is indeed a risk that Airbus will live under the shadow of these judicial threats for a long time. The affair could thus have a terrible impact on this strategically-important European industrial flagship, in which France and Germany each have 11% stakes. It makes Airbus passenger jets plus Eurofighter military jets, civilian and military helicopters, missiles, satellites and the Ariane rockets. Nor is this affair the only threat the group faces. Mediapart has calculated that in addition to this one, Airbus is linked to nine affairs involving alleged corruption, of which seven are the object of judicial proceedings in six different countries.

The tension inside the Airbus groups is not made any easier by the knowledge that the Americans are watching the situation closely. They could launch judicial action outside their territory – a practice the Europeans have never opposed – into alleged corruption with devastating effect, as they have already shown with European firm Alstom, which was bought soon afterwards by General Electric. People close to the Airbus affair say that it was to block such a move by the Americans that the British and French started their investigations as a matter of urgency.

Neither France's PNF financial prosecutors nor Britain's SFO would speak to Mediapart, a sign of how sensitive the case is. In a written response Airbus itself told Mediapart that they could not comment on the detail of the case because an “investigation is in course”. Instead the group highlighted its new “reinforced anti-corruption policy” implemented since the affair came to light. This has been on its website since this spring.

Some internal sources say that at the beginning the group's German CEO Tom Enders monitored the case at a distance, and that it was only in recent months that he realised just how much was at stake and took direct control. The German boss is, according to several sources, “worried”. Even more so as he faces proceedings against him directly in another case, involving alleged bribes in a Eurofighter deal with Austria.

From 2000 to 2005 Enders was head of the group's Defence Division which makes the Eurofighter, and Austria bought 18 of them in 2003. According to Austria's Defence Ministry, they were overcharged by some 183 million euros over the deal. Out of this sum, the Austrians says 100 million euros was paid out in kickbacks via front companies managed by an Italian middleman for Airbus.

The German prosecutors based in Munich, who are also investigating the affair, did not include Airbus CEO in their list of indicted people. But to the great anger of Tom Enders, the Austrian authorities saw things differently. The Airbus CEO has rejected the claims as “unfounded” and accuses the Austrian authorities of having leaked details of his alleged involvement for “political reasons”. While he has insisted the group will cooperate fully with the Austrian authorities, he has also indicated that he will defend himself very vigorously.

Tom Enders, aware of the high stakes for him and the group, has adopted the mantle of Mr Clean. He has launched internal inquiries and anti-corruption reforms and makes much of his “cooperation” with the PNF in France and the SFO in London. He has promised the group will get to the bottom of what has happened. “If even more serious errors or facts are discovered we will systematically take the appropriate measures,” he has said. The brutality of the clean-up measures have, however, caused some disquiet within the group. Some have attacked the unparalleled concentration of power now in Enders' hands, against an existing backdrop of gloom among French executives at the growing influence of Germany inside the group.

One of the first measures taken by the group CEO was to dismantle the department which is today at the centre of the French and British investigations: the Strategy and Marketing Organisation (SMO). Since the creation of Airbus's forerunner EADS in 2000 this department has been intimately involved with the most sensitive export contracts. “It was the equivalent of the secret services, with people whose job was to carry out dirty tricks,” says one former executive at the group.

In concrete terms the department was in charge of selecting, dealing with and paying all the middlemen – the “commercial agents” - used to win contracts, both civil and military. Airbus has the right to pay people who are influential provided they are not paid as bribes. “But in some difficult countries, you have to oil the wheels,” says the former executive. “So you find an agent who has the contacts and you oil the machinery. That's how the business works and Boeing [editor's note, the European group's US competitor] does the same even if they operate differently.”

The SMO was very much a French show and was based in the old Paris headquarters of EADS on Boulevard Montmorency. It reported directly to the group's number 2 in charge of commerce and strategy, first of all Jean-Paul Gut – who used to work for the Lagardère Group – and then the man who replaced him in 2007 Marwan Lahoud.

Lahoud left the group in February this year, and some close observers say his departure is solely linked to the management strategy employed by Tom Enders since his arrival in 2012. “With the reorganisation Marwan Lahoud has found himself with no real function. His position as head of strategy no longer served a purpose as now everything goes up to Tom Enders,” says someone close to the situation. Others, though, suspect that the group wanted to part company as soon as possible with him in order to distance itself as quickly as possible from one of the central figures in the commercial system at Airbus, a system that is at the centre of the criminal investigations. Lahoud's right-hand man and the director of the SMO, Jean-Pierre Talamoni, left the business at the same time.

The SMO did its job to the group's satisfaction for nearly 15 years, working in complete anonymity, right up to the moment the first affairs broke. The first warning came in 2012 when prosecutors in Europe started investigating military contracts in Saudi Arabia and Romania and the Austrian Eurofighter deal. But the veil of secrecy was only torn away two years later.

The Kazakh helicopter affair broke in September 2014. During a search at the premises of Airbus helicopters – formerly the Eurocopter Group – French investigators found emails, revealed by Mediapart, showing the group had agreed in principle to hand over 12 million euros in hidden commissions to the Kazakh prime minister to help the sale of helicopters. The emails show the key role of the SMO and its director Jean-Pierre Talamoni. Mediapart later revealed that the Airbus group's number 2 Marwan Lahoud had, on several occasions, met the middleman chosen to move the alleged commissions.

The judicial machinery gets involves

Also in 2014, two Turkish middlemen lodged a formal complaint against the Airbus group to demand commission payments they thought they should have received over a huge contract concluded seven years earlier: the sale of 160 Airbus passenger jets to China for 10 billion dollars. It was the first time that an affair of this scale had hit the civil aviation division, the group's leading division responsible for 74% of its turnover.

The background documents to this affair, revealed by Mediapart, are very embarrassing for Airbus. The intermediaries produced a handwritten page, which they say was written by Marwan Lahoud – something he denies – which forecasts commissions reaching up to 250 million dollars. They revealed, too, the tricks the SMO used to hide the alleged commissions on the sale of 34 Airbuses to Turkey, thanks to false invoices in relation to a fictitious pipeline project in the Caspian Sea (see below). Other documents indicate an arrangement that allegedly allowed payments to be made to one of the key Airbus middlemen in China, Dilsat Atus, via a front company based in the Cayman Islands.

After an investigation prosecutors in Paris decided not to pursue this case any further. But at the time there was panic inside the Airbus headquarters. Following the Chinese affair, the group decided in 2014 to freeze payments owed to all middlemen. Completely legitimate agents were deprived of fees that they should received, despite the support of their contacts within the group itself.

Commercial managers were alarmed, pointing out that in doing this Airbus risked losing all its commercial openings, for there are some countries where it is impossible to do without agents. But the group's legal department held firm. Its view was that Airbus should pay nothing unless a court's judgement or an arbitration decision forced it to do so, thus removing its responsibility. Several angry agents duly took Airbus to courts of law or arbitration courts.

As the website Intelligence Online revealed, the following year Tom Enders took fresh measures. In March 2015 he named Briton John Harrison as Group General Counsel, covering the responsibilities of Corporate Secretary, General Counsel and Ethics and Compliance, and in charge of cleaning up matters. The two men already knew each other well. John Harrison carried out the same functions at Airbus Defence and Space when Tom Enders was in charge of that division of the group. He was also familiar with the Eurofighter contract with Austria.

John Harrison's mission was clear: to clean things up by dismantling the SMO. An internal investigation into the sale of civilian aircraft was handed to American law firm Hughes Hubbard & Reed. Many inside the company disapproved of this choice. For the lawyers had access to every confidential document on the commissions and middlemen. The SMO's employees had to undergo questioning and the data from their computers and their mobile phones was examined. In other words, an American firm had unlimited access to this European group's most sensitive secrets.

On the basis of the first conclusions from the internal investigations Airbus decided to refer some irregularities to Britain's UK Export Finance (UKEF), a state agency that grants export credit. To obtain these public finance guarantees, which are very important in financing deals, under UK law Airbus had to give details of the amounts paid to intermediaries.

In early 2016 the group admitted to the British agency that it had omitted to declare some commissions. UKEF's counterpart in France and Germany, COFACE and Euler Hermes respectively, were also alerted. Given the seriousness of the claims, the three agencies immediately stopped their export credits, which was a tough blow for the group. Airbus says that at the same time it also informed the Serious Fraud Office (SFO), the unit which handles major fraud and corruption allegations in Britain.

Eighteen months on and the reasons why John Harrison chose to call in the authorities in this way remain inexplicable, at least to managers at the group. Was, as some suspect, the legal director under orders to clean up the one remaining division that was not yet under the control of Tom Enders? Did he fear that the affair would come out one day and that he preferred to get ahead of the game, in the hope of getting softer treatment? Did he fear that the American justice system would take up the case? Did Tom Enders himself approve the operation? It is hard to imagine that the Airbus CEO simply watched from “afar” in such a sensitive case.

Several inside the group warned John Harrison about the dangers of such a step if it was badly handled. “He thought that reporting the mistakes in the additional cases would allow the past to be buried and, because he's British, that it would be easy to negotiate with the SFO,” says someone close to the case. “He thought that at the worst there would be a deal with the justice system, like in the case of Rolls-Royce. Tom Enders watched the case from a distance and let it happen. But nothing went as planned. He opened a Pandora's Box. And no one knows when it will be possible to close it.”

Once the self-denunciation had taken place, the judicial system got involved. In France the Ministry of Finance, to which COFACE reports, referred the matter to the fraud authorities the Parquet National Financier (PNF), who began a preliminary investigation into alleged corruption. It was the same in Britain where UKEF referred the case to the SFO which in August 2016 began an investigation into alleged “fraud, bribery and corruption”.

Officials at the SFO were not slow to grasp the scale of the affair. At the time they were in the process of concluding an enormous investigation into the aero engine manufacturers Rolls-Royce, an Airbus supplier. As part of the resulting 'Deferred Prosecution Agreement' or DPA deal to end proceedings, Rolls-Royce has to pay out 497.24 million pounds. When parallel deals with the US and Brazilian authorities are taken into accounts the total rises to 671 million pounds. The SFO are now using the knowledge they gained from one investigation for the next one. In several countries the British firm used the same middlemen as Airbus. “If [the investigation] had started at Airbus without having done Rolls, it would take longer,” a source close to the probe told the Financial Times.

According to Mediapart's information, Airbus's initial admission of wrongdoing concerned, among others, payments to Soedarjo Soetikno, a businessman who until January headed Mugi Rekso Abadia (MRA), an Indonesian media and entertainment group. Soetikno is also the owner of Connaught International, a consulting company based in Singapore, and is one of the external agents who have taken Airbus to court after it decided to freeze payments to its intermediaries. It would appear from his deposition that he billed for more than the sum Airbus declared to the British authorities.

The SFO's investigation into Rolls-Royce established that the engine maker had paid commissions into the account of Soetikno's Singapore shell company. These were then distributed in the form of bribes – 1.3 million euros in cash and 2 million dollars in gifts to the former CEO of the Indonesian national airline, Garuda Indonesia, which was at the time buying 50 Airbus planes. When SFO officials discovered that Airbus had also paid hidden commissions to the same middleman, they saw a possible explanation of how the money may have been used.

Thanks to several internal Airbus sources, Mediapart was able to access some of the information included in the reports from the internal investigation by Hughes, Hubbard & Reed, which form the basis of the Franco-British investigations. The documents, which give very precise details on the mechanics of the commissions, describe an entire system and could prove highly embarrassing for the group.

The reports identified problematic transactions in the sale of civil aircraft in several countries, including Saudi Arabia, Kazakhstan, the Philippines, Indonesia and Austria. This list is far from exhaustive. “There are not many contracts that were done properly,” said one informed source.

A legal settlement the only option?

Other examples may still be added to the case being built against Airbus. There are suspicions that illegal commissions were paid in China, as Mediapart has already revealed. A criminal investigation was begun in Sri Lanka in 2015 into “shocking corruption practices” in the purchase of ten Airbus planes for 2.3 billion dollars. Also in 2015, the Mauritian tourism minister called for an inquiry into the role of an Irish middleman who was suspected of having paid the former prime minister to facilitate the purchase of six Airbuses by Air Mauritius in 2014.

Airbus's internal investigation uncovered commissions totalling hundreds of millions of euros. Investigators with the French PNF and British SFO will now have to distinguish between payments that were legal, which correspond to remuneration for middlemen, and those that are problematic.

The possibility of corruption is suggested by various things. First, there is the size of the commissions in question, which in some instances represent 10% or more of the contracts they relate to. As aircraft sales often run into billions of euros, it does not seem very likely that such huge sums would have been exclusively used to remunerate 'agents'.

There is also the complexity of the financial arrangements that Airbus's SMO constructed for the payment of commissions. Airbus is thought to have used front companies concealed in tax havens such as the Isle of Man, one of the company's preferred staging posts. Other commissions were allegedly hidden among so-called 'offsets', industrial rebates that Airbus granted for assembly and component purchases to countries that bought its planes.

A former manager recalls a middleman whose remuneration was disguised as a contract to supply bolts. “When the bolts arrived, we threw them away. It was better they shouldn’t be used on the planes!” he said.

There is one key person who knows all Airbus's financial secrets. Olivier Brun, previously at SMO in charge of creating the offshore arrangements through which hidden commissions passed, left Airbus last year and has since gone to live in Switzerland. According to Mediapart's information, his Geneva home was searched last spring by the French investigators. As revealed by Intelligence Online, he was interviewed by French investigators after that, as was the former head of SMO, Jean-Pierre Talamoni.

Similar arrangements appear also to have been used for military contracts. In February 2016, French police officers from the Central Anti-Corruption Office searched the homes of both Lahoud, Airbus's former second-in-command, and Talamoni, whose interview on the French TV programme Cash Investigation can be seen below. They also visited Airbus's offices in the Paris region and found traces of a new possible hidden commission of 8 million euros paid via Singapore as part of satellite deal in Kazakhstan.

And there is also an ongoing Franco-Swiss investigation into a gold mine in Mali. Mediapart revealed in June that Airbus is suspected of having paid out at least 10 million euros to invest in the mine, which has hardly produced any gold, so as to pave the way for the sale of military equipment to Mali. The investment transited through an offshore arrangement conceived by the SMO team via Luxembourg, Geneva and the United Arab Emirates. As Bloomberg recently reported, the transaction was carried out a few months after Tom Enders was appointed Airbus CEO.

Now that the Airbus affair is taking on greater proportions than its top management originally imagined, the group is seeking to close the case as quickly as possible. It would be a disaster for the company if it were to be convicted of corruption as that would disqualify it from some public sector contracts, particularly in the United States. A swift settlement is also in Airbus's interests if it is to quickly re-gain access to export credits, which it cannot do without for very long.

Its only way out is to sign an out-of-court settlement without admitting guilt, as Rolls-Royce did in January. “This is certainly something we are considering,” Enders told the Financial Times in April. A group spokesperson told Mediapart that no negotiation was underway, that the procedure could take years and that the final decision would rest with the SFO and PNF.

However, an internal source close to the case said it was illusory to think Airbus could obtain the same deal as Rolls Royce. “The British judicial system will never accept a fine limited to a few hundred million pounds,” this source said, adding that legal sanctions were more likely to run into billions. And the US could still open its own criminal inquiry if it felt the sanctions were too light.

According to Mediapart's information, the American authorities have already tried to put together a corruption case against Airbus. In December 2014, Department of Justice agents even met discreetly at a restaurant near the US Embassy in Paris with middlemen who had worked for Airbus. They promised them a new life in the US and good compensation in exchange for testifying against Airbus. It is not known whether the offer was accepted.

For the moment the American authorities have not begun an investigation, but they could do so at any time. This is a sword of Damocles hanging not only over Airbus's Toulouse headquarters but also over the heads of European governments.

The question remains of where legal responsibility lies. France's 2016 anti-corruption law, known as Sapin II, states that while a legal settlement with prosecutors ends a company's legal responsibility, that does not apply to its agents, whether directors or direct and indirect employees. And in Britain, unmasking those who have taken part in a fraudulent arrangement is one of the necessary conditions for a company or individual being able to get a legal settlement in the first place, according to a lawyer who specialises in corruption cases.

That means Airbus might have to give the names of former and current directors to investigators. Whether or not the group would go so far as to sacrifice its employees is a moot point. But it is a critical one, including for Enders himself and other top managers. 

An Airbus spokesperson confirmed that some contracts for the sale of civilian aircraft were signed personally by Enders when he was head of the Airbus Commercial Aircraft division from 2007 to 2012. Since then they have been signed by his successor, Fabrice Brégier, who is still in the job. These contracts were signed according to Airbus's internal procedures and in line with rules and regulations, the company spokesman said.

A suspicion also hangs over other corruption cases involving military equipment. “Senior managers have information that could be explosive. It is not in Airbus's interests to see it exposed in public. But some people are not at all prepared to sacrifice themselves for Enders, who, they believe, has mistreated them,” said a source who is familiar with the case.

All that means Airbus is entering a zone of serious turbulence. Some people wonder if Enders' own job could be under threat. He seems ready to give pledges to shore up his now contested position. But according to persistent rumours, Harrison, whom some senior managers have nicknamed “Savonarole” after a Dominican preacher who was hanged in Renaissance Florence and was known as a despotic denouncer of clerical corruption, could soon be on his way out.

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• The French version of this article can be found here.

English version by Michael Streeter and Sue Landau