AIR Airbus SE

By Benjamin Katz in London and Matthew Dalton in Paris 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 1, 2020).

Airbus SE agreed with the U.S. to have its global defense business monitored by an external compliance officer -- part of a sweeping EUR3.6 billion ($4 billion) deal with American, U.K. and French prosecutors that settles alleged bribery and export-control violations against the plane maker.

Airbus disclosed the financial terms of the deal -- the largest international settlement over alleged bribery ever -- earlier this week. Prosecutors and officials in all three jurisdictions, in detailed allegations released Friday, said the company made illicit payments for years to intermediaries to secure contracts for its planes and other products.

In one example, British prosecutors said Airbus paid $50 million between October 2013 and January 2015 to sponsor a sports team jointly owned by two AirAsia executives in Malaysia. Airbus allegedly made the payment to secure an order for 180 aircraft. An AirAsia representative wasn't immediately available for comment.

In some cases, communications related to payments were allegedly disguised using fake names and coded emails. British prosecutors say payments in one instance were referred to as "medications and dosages prescribed by Dr. Brown" -- Dr. Brown being an alias for an Airbus executive and the dosages referencing invoices. In the same deal, at a different time, a senior airline executive was referred to as Van Gogh and details of the deal were referenced as his "paintings," the prosecutors said.

The U.S. also accused Airbus of violating export-control laws related to the sale of defense gear with American components. It alleged Airbus hadn't accurately disclosed political contributions, fees and commissions in connection with defense sales and had failed to maintain records of military equipment subject to U.S. export-control rules.

As part of the settlement, the U.S. State Department said Airbus agreed to pay the department $10 million. It said it would suspend $5 million of that penalty if Airbus spends the amount on U.S.-approved compliance improvements.

Airbus also agreed to appoint an external compliance officer for at least two years to monitor the company's handling of its defense-related sales and disclosures around the world. The plane maker must also conduct two separate audits of its defense activities during a three-year period. The company can be prosecuted if it fails to fully comply with the agreement over the period, the State Department said.

The defense-business monitoring represents an unusual example of U.S.-mandated oversight of the business practices of a large, foreign industrial heavyweight. Airbus is a Franco-German aviation giant that competes globally for commercial and defense business with American firms, including rival Boeing Co.

Airbus, based in Toulouse, France, hasn't determined where the compliance officer will be based. As part of its deal with French and British prosecutors, Airbus agreed separately to allow additional monitoring by a French-led compliance team to ensure the company meets the terms of the broader deal.

By agreeing to the deal, called a deferred prosecution agreement, Airbus isn't required to admit or deny specific wrongdoing, and it avoids criminal charges that would bar it from winning contracts in the U.S. and European Union.

The settlements "turn the page on unacceptable business practices from the past," Airbus Chairman Denis Ranque said in a statement. "The strengthening of our compliance programmes at Airbus is designed to ensure that such misconduct cannot happen again."

A French judge said the company is alleged to have made illicit payments to middlemen in China, South Korea, Russia, Japan, Colombia and other countries. U.S. and U.K. prosecutors issued their own allegations. Of the dozen-plus jurisdictions named, the biggest contracts involved Chinese customers.

According to French prosecutors, Airbus contributed $24.2 million between 2012 and 2017 to an entity called the China Aviation Cooperation Fund, which was supposed to fund activities such as the training of Chinese pilots. Some of the money served as a slush fund to bribe Chinese bureaucrats and airline company executives, according to the French settlement.

A representative of the Chinese embassy in Washington wasn't immediately available for comment.

The settlement covers allegations between 2004 and 2016, and included contracts in Turkey, the United Arab Emirates, Brazil, Taiwan and Nepal, French prosecutors said.

French prosecutors said in court Friday that the overall fine had been reduced by half because of Airbus's cooperation. France will take the greatest share of the settlement: EUR2.08 billion. U.S. authorities will take EUR984 million and the U.K. will take EUR527 million.

Authorities are deciding whether to prosecute individual Airbus executives who they say directed the payments. "We must now examine the responsibility of individuals," said Jean-Francois Bohnert, the French financial prosecutor.

Airbus disclosed the probe into suspect payments about four years ago. At the time, it said it alerted authorities after discovering irregularities in its submissions for state-backed funding guarantees.

An entity inside Airbus, called the Strategy and Marketing Organization that employed about 150 people, was responsible for arranging the illicit payments, according to French and British prosecutors. The SMO used elaborate strings of shell companies in tax-haven states to help conceal the purpose of funds intermediaries used to pay bribes on the plane maker's behalf, according to the allegations. In addition to cash, so-called "business partners" allegedly promised airline officials luxury trips and apartments.

The SMO was formed in 2008, and typically would pay agents a percentage of an aircraft deal's value or a fixed amount per plane, according to British prosecutors. The unit had an annual budget of up to $300 million.

Write to Benjamin Katz at ben.katz@wsj.com and Matthew Dalton at Matthew.Dalton@wsj.com

(END) Dow Jones Newswires

February 01, 2020 02:47 ET (07:47 GMT)

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