Source: https://www.jdsupra.com/legalnews/airbus-settlement-part-4-alphabet-54033/
Timestamp: 2020-04-03 17:42:48
Document Index: 690670185

Matched Legal Cases: ['art 4', 'art 130', 'art 130', 'art 130', 'art 130', 'art 130', 'art 130', 'art 130']

Airbus Settlement: Part 4 – Alphabet Agency Violations (Export Control and Export Finance) | Thomas Fox - JDSupra
Today, I want to focus on the export control violations detailed in the Airbus settlement documents. These include violations of the Arms Export Control Act (AECA) and its implementing regulations, the International Traffic in Arms Regulations (ITAR) in the United States and United Kingdom Export Finance (UKEF) in the UK.
Airbus’ violations of ITAR came about from conduct largely centered in the US. The specific violation centered on ITAR Part 130, which Airbus had long been aware of, was an acknowledged and recognized risk within the organization and one that the company refused to put policies and procedures around as a conscious decision to foster a business strategy based on bribery and corruption. Most generally, ITAR Part 130 requires disclosures around political contributions, fees and commissions paid in connection with the sale of defense related products and services. It also applies to third parties which assist in these endeavors.
The US-DPA identified several structural factors for these violations. First was the use of corrupt third parties. Second, intentional conduct not to report facts which would have shown violations. Next was the siloed nature of compliance from the business operations and, finally, inadequate training on the company’s ITAR compliance obligations to its employees. This final point was in spite of the fact that senior management was well aware of the company’s ITAR reporting obligations but apparently choose not to make this information available to company employees.
Airbus intentionally and actively worked to hide the payments made to and through their third party business partners. One Airbus Compliance Officer cited in the US-DPA, said, “I doubt that we will ever open our books on a business partner”. When violating the law is advocated by the compliance function, it speaks to the permeation of a culture of corruption throughout the entire organization. Even with this corrupt culture within the compliance function, there were discussions within Airbus about the need to have a compliance program to meet the requirements of ITAR Part 130, even to the point when a new General Counsel (GC) raised the lack of a compliance program as a risk, it was the company’s compliance function which resisted putting a program in place. A senior compliance executive told the GC that the function engaged in “proper due diligence”, that information submitted to the US government was “reviewed carefully” to make sure the obligations of ITAR Part 130 were met. However, none of these statements were true. This is not the situation of an operations person lying to a compliance officer about the involvement of third parties in a transaction; this is the situation of a senior compliance executive knowingly and willfully misrepresenting the truth to the GC.
Even if Airbus had compliance officers who wanted to fulfill their legal obligations in reporting under ITAR Part 130, they were unable to do so. For even though “compliance personnel at the business components were generally aware that business partners were used, they did not personally have access to any business partner agreements and did not know which business partners were associated with which Airbus sales campaigns.” Further, the compliance function performed ZERO due diligence and verification of the information on the business partners, including their background, fees and commission paid, how and where they were paid; and, apparently, “did not inquire with the sales personnel about the same.”
What the Airbus compliance function was exceedingly good at was the design, creation and maintenance of a paper compliance program. The compliance function created a template which ticked all the boxes of ITAR Part 130 compliance but that was it. Indeed it appears the sole function of the compliance function around ITAR compliance was to ensure “the proper paperwork was filed”. All information regarding business partners, their roles, end users were provided by sales personnel and the US “compliance staff performed no independent due diligence about the certifications provided by” the sales personnel.
Another area of Airbus compliance corruption was in the application for export credit from the UK government. In the UK, the UKEF provides such credit. The UK Statement of Facts revealed that an “application required disclosure of any agent or consultant involved in the purchase agreement. Airbus indicated that it had used an agent on the SLA negotiation and it wished to invoke the Special Handling Process within UKEF. This process ensured that only a small number of individuals within UKEF would be provided with the agent’s details. UKEF would then perform due diligence on the agent.” However, the information “submitted falsely suggested that Intermediary 1 was a ‘he’, and that the consultant agreement accurately reflected the total amount Airbus would pay. There was no mention of the market share agreement commission.” The Intermediary was in fact the wife of a government official and her shell company was not mentioned.
UKEF was not satisfied with the initial submission from Airbus and expressed its dissatisfaction. Airbus then replied that the last name of the wife and the government official signing the contract was “homonymy but certainly not the same person. She is not a party to this issue and she is not our agent. We assume this is a coincidence but could you also confirm that your agent has no connection to the airline, its personnel or family members of staff and executives at the airline. We confirm.” A couple of paragraphs later in the Statement of Facts are email quotes from Airbus employees which indicated they knew they were lying but were not going to admit the truth to the UKEF.
None of the Airbus settlement documents called out senior compliance personnel by name but it is clear that at least some part of the compliance function was in on the corruption scheme. Yet the ITAR Part 130 applications were all signed by the US compliance personnel who resisted enhancements to the compliance programs. The fact that compliance resisted the GC’s request for a more robust compliance program may have been based upon the miss-placed idea that if there was no review by the compliance function of due diligence, underlying contracts, commission payments or actual business purposes of the third party business partners there could be no actual knowledge of wrong doing by compliance. It is a good thing the Foreign Corrupt Practices Act (FCPA) outlaws such shenanigans.
Tomorrow, I will take a look at the company’s response after the investigation began and its cooperation.