What was one of the most tragic events in the history of rock and roll? High up on the list must rank the Altamont concert, held at Altamont Race Track ion December 6, 1969. It was so bad that many people felt the 60s actually died on that date. In a new book entitled Altamont: The Rolling Stones, the Hell’s Angels and the Inside Story of Rock’s Darkest Day writer Joel Selvin detailed the miss-steps which led to the event where not one person died (Meredith Hunter, stabbed to death by the Hell’s Angels security, immediately in front of the stage when the Stones were playing) but there were actually four total deaths. Selvin has said of his book, “We pieced together a portrait of a disaster that spun out of control almost as soon as the idea entered the ether.”
I thought about another disaster that has been ongoing for sometime when, earlier this week the Financial Times (FT) reported that the European aircraft manufacturer Airbus announced it is under investigation by the UK Serious Fraud Office (SFO). Robert Wright, in an article entitled “Airbus probe poised to shake up Boeing rivalry”, reported that the SFO “is investigating Airbus’s use of third-party agents in securing certain contracts has put the spotlight on how some deals may have been won. The contracts under investigation look likely to have been predominantly obtained in emerging markets, whose growth was a particular boon to the civil aviation market over the past decade”.
In its announcement Airbus said that the SFO had opened a criminal investigation, into “allegations of “fraud, bribery and corruption” in its civil aviation business relating to “irregularities concerning third-party consultants”.” This announcement follows on the heels of an earlier announcement from Airbus in March that “it was in discussions with the SFO after admitting that it had failed to notify authorities about the use of third-party agents in deals it was asking the UK government to cover with financing guarantees.”
While the use of third party agents, in emerging markets would seem to any anti-corruption compliance practitioner as a high-risk proposition, it appears it was standard operating procedure at Airbus. Contrast that with any US company, which would immediately recognize the danger and potential for illegality in such an arrangement. Yet Airbus conducted business in this very manner or, as Wright wrote, “a relative laxity of controls…on their relationships with middlemen.”
The article also quoted Katherine Dixon, the Transparency International Director for Defense and Security, who said, “the use of third-party agents in civil and military aerospace deals is a particularly high-risk area for corruption.” She added, “We would be strongly in favour of more rigorous controls over the transparency of agents.”
The way Airbus engaged in its business practices has long been an irritant for Boeing. Wright quoted Richard Aboulafia, an analyst for the Virginia-based Teal Group, who said, ““The joke in the US defence industry used to be, ‘Here it’s illegal; there it’s tax-deductible”, referring to the practice of paying fees to third-party agents. “That might not be quite true any more but that’s been the US viewpoint.””
Wright went on to cite an un-named US analyst for the following, “US companies’ processes for reviewing new aircraft orders are “remarkably stringent”. “You probably have more lawyers than salesmen involved”. Wright then noted that the “Investigation should not cause undue harm to the aerospace group Airbus, meanwhile, is perceived by some to have typically taken a more freewheeling approach. The same analyst added, “Airbus’s sales organisation operates with greater autonomy than Boeing’s sales organisation. Airbus has been both creative and abrasive, Boeing a little more deliberate.””
The SFO investigation brings home one of the steady complaints by US antagonists of the Foreign Corrupt Practices Act (FCPA), which is that US companies have to play with a different set of rules than companies from outside the US. This argument is belied by this SFO investigation into Airbus. Dixon noted the SFO investigation might well signal a shift in the UK government’s attitude that focuses on the negative side of bribery and corruption. Airbus itself seems to have appreciated this change as Wright noted, “Airbus’s press release announcing the SFO investigation on Sunday made clear that the company itself had reported the issue: a sign that it appreciated the changes in governments’ expectations.”
A second FT article in the Lex column, entitled “Airbus: cabin pressure”, detailed how these allegations and the SFO investigation might well negatively impact Airbus in another manner, when it reported, “The case might also delay decisions by the US Treasury’s Office of Foreign Assets Control relating to Airbus’ $27bn deal with Iran” for the sale of commercial airplanes. Needless to say, if Airbus were to lose the transaction it would be a huge loss to them and potentially huge boon to Boeing.
There is another manner in which these allegations and the SFO investigation could negatively impact Airbus. Boeing clearly has an opening not only with Iran but with every other deal Airbus brokered through third parties. Boeing might well raise questions about those transactions. Airbus’ situation also give Boeing an opening for a business response, which is that it is the company that does not engage in bribery and corruption to make sales. That message could be a powerful one for not only emerging markets but also long entrenched markets where foreign governments are much more concerned about the perception of being corrupt.
The Airbus corruption investigation may be a commercial opening for Boeing in many emerging markets.Click to tweet
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© Thomas R. Fox, 2016