On 31 January 2020, Dame Victoria Sharp, the President of the Queen’s Bench Division sitting in the Crown Court in Southwark, approved the Deferred Prosecution Agreement (“DPA”) between the UK Serious Fraud Office (“SFO”) and Airbus S.E. (“Airbus”), the ultimate parent company of the Airbus Group. Under the DPA, Airbus must pay €990,963,712 to the SFO — the largest UK DPA financial settlement to date and greater than the combined total of all previous financial settlements under UK DPAs.
The DPA represents the conclusion of the SFOs joint investigation with the French National Financial Prosecutor (“PNF”) into Airbus, and with whom Airbus has separately entered into a Judicial Public Interest Agreement (“CJIP”). Airbus has also reached parallel settlements with the US Department of Justice and the US Department of State, which bring the total figure that Airbus must pay to settle the investigations in all three jurisdictions to greater than €3.5 billion.
This matter reflects the trend of increasing transnational enforcement action with respect to bribery and corruption resulting in large global settlements, including in instances where all or the majority of conduct occurred overseas.
In this briefing, we provide an overview of the Airbus investigation, draw out the Court’s key considerations in its determination that a DPA was in the interests of justice (despite the egregious nature of the conduct) and we consider the potential implications for corporates who may wish to pursue a DPA where bribery and corruption is identified. In particular, Dame Sharp’s comments in relation to Airbus’ self-reporting and cooperation, and her emphasis on the importance of debarment for Airbus, add useful colour to the increasing pool of DPA case law. As this is also the first instance of a UK DPA being reached with a non-UK entity (Airbus is registered in the Netherlands), we also discuss the jurisdictional reach of the ‘failure to prevent’ offence under section 7 of the UK Bribery Act 2010 (the “Act”); albeit that, as jurisdiction was conceded by Airbus, it was not a contested matter that the Court had to determine.
The UK DPA concludes the SFO’s investigation into the conduct of members of Airbus’ senior management, employees and sales agents / intermediaries (referred to in the Statement of Facts, the DPA and the judgment as ‘Business Partners’) with respect to orders and sales of aircraft in Malaysia, Sri Lanka, Taiwan, Indonesia and Ghana (other than in relation to the SFO’s separate investigation into Airbus’ subsidiary, GPT (Special Project Management) Ltd, which remains ongoing). The relevant conduct is said to have taken place between 1 July 2011 and 1 June 2015, however 1 July 2011 was the commencement date of the Act and the ‘failure to prevent’ offence, so conduct may have occurred prior to this date.
In brief, the conduct covered under the UK DPA relates to the following payments or offers of payment:
- US $105 million to executives of a Malaysian airline in connection with orders of 180 aircraft;
- US $16.84 million to an executive of a Sri Lankan airline in connection with orders of 10 aircraft and the lease of a further 4 aircraft;
- US $14.335 million to an executive of a Taiwanese airline in connection with orders of 20 aircraft;
- US $3.3 million to executives / persons connected to executives of an Indonesian airline and their subsidiary in connection with orders of 55 aircraft; and
- Approximately US $5 million to persons connected to an official in the Government of Ghana with respect to the order of 3 military transport aircraft.
The SFO commenced its investigation as a result of the proposed lease of aircraft by the Sri Lankan airline referred to above. As part of the lease, Airbus submitted an application for export credit finance to UK Export Finance (“UKEF”), a UK government body, in November 2014, which required the disclosure of the details of any agent or consultant involved with the underlying agreement. UKEF identified several issues and expressed concerns in relation to the information Airbus provided to it, which resulted in Airbus withdrawing the application. Both UKEF and Airbus subsequently reported to the SFO on 1 April 2016, the SFO investigation was opened on 15 July 2016 and a Joint Investigation Team Agreement (“JITA”) was entered into between SFO and PNF on 31 January 2017.
The creation of a Joint Investigation Team is novel in the context of DPAs. It seems that one important reason for this was to ensure access to relevant information and documents that the SFO would otherwise have been unable to receive, given French blocking legislation prohibits certain disclosures of information by French persons and entities in foreign judicial and administrative proceedings.
The individuals involved in the misconduct have been anonymised in the DPA, judgment and Statement of Facts so as to not prejudice any potential subsequent prosecution of those individuals – however, in a separate interview with the BBC, the Director of the SFO, Lisa Osofsky, has already indicated that any prosecutions of individuals may take place in France rather than the UK, given the centre of gravity of the conduct and the French blocking legislation, which would will likely restrict the disclosure of certain evidence to overseas prosecuting authorities.
Jurisdictional scope of the ‘failure to prevent’ offence
As outlined above, this was the first UK DPA with a non-UK entity. The ‘failure to prevent’ offence created by section 7 of the Act applies not only to UK-incorporated companies but also to, inter alia, bodies corporate (wherever incorporated) which carry on a business, or part of a business, in any part of the UK. The question of what “carrying on part of a business” in the UK entails has been an area of great interest since the Act was passed. The Ministry of Justice ‘adequate procedures’ guidance, issued under section 9 of the Act, suggests that this can be “answered by applying a common sense approach”, that the court will be the final arbiter in any particular case, but that “applying a common sense approach would mean that organisations that do not have a demonstrable business presence in the UK would not be caught…for example…having a UK subsidiary will not, in itself, mean that a parent company is carrying on business in the UK, since a subsidiary may act independently of its parent..”
It is apparent from the Statement of Facts that the parties agreed that Airbus did carry on business in the UK. This appears to be on the basis that (a) Airbus SE had two UK subsidiaries (Airbus Operations Limited and Airbus Military UK Ltd) and (b) those companies were subject, through intermediary holding companies outside the UK “to the strategic and operational management of Airbus SE”. Whilst the point was presumably not argued in detail (as it had been agreed by the parties), Dame Sharp concurred that “it follows from these facts, and indeed is common ground”, that Airbus SE was subject to the section 7 offence. This is significant, since there is arguably scope for a narrower reading of section 7, and serves as a powerful reminder to non-UK parent companies that their management of UK-incorporated subsidiaries may make the parent subject to the Act, even in respect of conduct which is unrelated to the UK.
Interestingly, Airbus’ acceptance of the SFO’s jurisdiction factored into Dame Sharp’s positive view of Airbus’ cooperation (see further below); it was said that this was “an unprecedented step for a Dutch and French domiciled company to take, in respect of the reporting of conduct which had taken place almost exclusively overseas”.
The ‘interests of justice’ analysis
Under para 8(1) of Schedule 17 of the Crime and Courts Act 2013, the court must determine whether a DPA is in the interests of justice. Dame Sharp’s view was that this was the case as the serious nature of the conduct was nevertheless outweighed by other factors. These factors were primarily Airbus’ self-reporting of the conduct, its subsequent degree of cooperation with the SFO, that the company is now “a changed company to that which existed when the wrongdoing occurred” and the potential disproportionate collateral impact that a criminal prosecution would have on Airbus and innocent third parties flowing from its likely debarment from public contracts.
The nature of the conduct
In the judgment, Dame Sharp described the level of criminality involved in the conduct as “grave”. It took place over many years, extended to every continent in which Airbus operates, was indicative of wrongdoing being endemic in two of Airbus’ core business areas, involved a number of very senior and senior Airbus employees, including some with compliance responsibilities, and included the creation of false invoices, the communication of false information and the deliberate circumvention of compliance procedures. In some cases, it involved public officials or employees of state-owned entities, and took place in a context of increased international awareness of corruption risks and the harm caused by bribery.
The Court recognised that the conduct was also egregious. The Malaysian conduct included the sponsorship of a sports team jointly and personally owned by two airline executives, and which was unconnected to the airline itself. The Sri Lankan conduct included payments to the wife of an airline executive (in relation to which Airbus employees were being directed by the airline executive himself through his personal Gmail account). The Taiwan conduct involved exchanges of emails between Airbus employees and its Business Partners in which aliases were used to refer to the relevant airline executive and codes used to describe the payments to be made.
The main counterpoint against the above and in favour of the DPA was the quality of Airbus’ self-reporting and cooperation with the investigators – and that was so despite some acknowledged limitations to the speed and nature of its self-reporting.
In respect of self-reporting, Airbus was also found to have cooperated with the SFO to “the fullest extent possible”, despite it getting off to a “slow start”; Airbus was aware of potential concerns at least a year and a half prior to its first report to the SFO. In brief, from late 2013, various internal mechanisms had identified opportunities for enhancement and concerns in relation to Airbus’ policies and procedures for the engagement of third parties, which culminated in payments to Business Partners being frozen and subject to close scrutiny by a centralised, special-purpose committee in October 2014.
Dame Sharp also acknowledged that the “true catalyst” for Airbus’ self-report to the SFO was the fact that UKEF had already identified concerns and was itself obliged to report concerns to the SFO.
However, Dame Sharp noted that Airbus had identified ‘red flags’ to UKEF at a time when UKEF had put Airbus on notice that it (UKEF) considered itself obliged to report corruption suspicions to the SFO. When UKEF later informed Airbus that it would be making a notification to the SFO and that it encouraged Airbus do likewise, Airbus duly did so. Dame Sharp also took a broad approach to the concept of self-reporting, including within it all subsequent self-reports that were of a high-quality and brought significant wrongdoing to light that would not otherwise have come to the attention of the SFO. This is similar to the approach in the Rolls-Royce case, where there was no initial self-report (the allegations of corruption instead appearing in press reports), but what was subsequently reported by the company was “far more extensive (and of a different order) than what may have been exposed without the cooperation provided”.
The result is a growing (albeit still small) body of case law suggesting that a DPA may be available in the absence of an initial self-report, providing there is sufficiently extensive subsequent cooperation, and ongoing reporting of previously undiscovered conduct. Further, that a report to a body which it is known will pass information to the SFO may attract some ‘cooperation credit’. Companies should, however, bear in mind that all the DPA judgments to date, and the DPA Code of Practice, emphasise the importance of early, proactive, self-reporting. The cases where a DPA has been approved notwithstanding the lack of a self-report operate as the exception rather than the rule; the decision to open DPA negotiations is also at the discretion of the SFO and cannot be guaranteed even with a self-report, let alone without one.
Dame Sharp expressly refers to 24 matters that are said to demonstrate the level of Airbus’ cooperation with the SFO and these reflect a broad range of activity. On the one hand, they include unsurprising examples such as: a clear commitment from the Airbus Board and its Ethics and Compliance Committee (responsible for the internal investigation) to fully cooperate with the SFO; presentations to the SFO about the progress and findings of Airbus’ internal investigation; coordination with respect to interviews, including the provision of the first accounts of the interviewees; the provision of internal reports regarding the adequacy of Airbus’ compliance processes; and updating the SFO on further activity of concern identified by Airbus’ new compliance controls.
Other examples given, however, reflect what might be considered to be the usual practice of investigation management and perhaps suggest an attempt to categorise as much conduct as possible as ‘cooperation’. These include the collection and de-duplication of documents from custodians, the use of predictive coding in document review, the provision of a log of documents withheld on the ground of legal professional privilege and the basis for that claim and the removal of, or otherwise parting with, top management and other individuals. Further examples of cooperation include the production of various documents to the SFO, in circumstances where it is not clear from the judgment whether their production was or could in any event have been compelled by the SFO’s exercise of its powers under Section 2 of the Criminal Justice Act 1987, and liaison with the SFO regarding media communications.
As mentioned above, a feature in Dame Sharp’s consideration of Airbus’ cooperation was that Airbus’ took the “unprecedented step” as a non-UK domiciled company of accepting that the Act “provided the SFO with extended extraterritorial powers and with a potential interested in the facts of the matter post 2011”, even where the relevant conduct took place almost exclusively overseas.
The Court reaffirmed the importance of corporate compliance reform when deciding whether a DPA is in the interests of justice. The nature of Airbus’ reform is not unusual and included: the commissioning of an independent compliance review; the restructuring of the Airbus Ethics and Compliance teams to ensure functional independence from the business; the creation of a new Ethics and Compliance sub-committee of the Board; the appointment of a new Ethics and Compliance Officer; the creation of new compliance roles and hiring experienced senior compliance professionals; revision of its policies and procedures in relation to reviews by, among others, external consultants and the French Anti-corruption agency, the AFA; and, launching a new ABC risk assessment.
A further step taken by Airbus, however, and one that might be more challenging for any companies for whom agents and intermediaries acting on their behalf are a necessary part of their business model, was that Airbus significantly reduced the use of external consultants across the Group and ceased the use of consultants entirely in relation to the sales of aircraft within the commercial aircraft division.
The SFO did not seek the appointment of an external monitor as part of the DPA. This was due to the extent of Airbus’ reform (as outlined above) and that the French CJIP required ongoing monitoring of Airbus by the AFA.
Risk of debarment
A substantial factor in favour of the DPA was the significant risk of debarment from public contracts that Airbus might face in the event of a successful prosecution, and the consequent economic impact. Airbus estimated that the financial impact of debarment would exceed €200 billion and Dame Sharp recognised that debarment would affect thousands of Airbus’ employees in the UK, its share price and consequently pensioners, and thousands of third party suppliers to Airbus. The judgment also noted a report that was commissioned by Airbus that showed that its debarment could decrease the gross domestic product of each of the US, UK, France, Germany and Spain by over €100 billion.
This approach is different to that suggested by Davis J in the Serco Geografix DPA in which he expressed reservations about placing weight on the risk of mandatory debarment to support a DPA, on the basis that this could be argued to involve the Court in making a quasi-political decision. It should be recognised, however, that Dame Sharp distinguishes (perhaps finely) between the two cases and between (a) instances where the risk is of mandatory debarment in the UK (considered in Serco Geographix) as opposed to (b) the risk of discretionary debarment in the UK (relevant in Airbus, since a section 7 offence triggers only discretionary debarment), coupled with either mandatory or discretionary debarment in other jurisdictions.
Calculation of the financial sanction
Airbus’ total financial settlement under the UK DPA is composed of: the disgorgement of profits associated with the conduct (€585,939,740); a financial penalty (€398,034,571); and payment of the SFOs costs in relation to the investigation and DPA (€6,989,401).
The typical starting point when determining the applicable financial penalty is the gross profit derived from the relevant conduct, which in this case would have been €983,540,822 (note, there are fewer deductions made to this figure than the disgorgement figure, which is why the two differ). A harm multiplier would then be applied to the gross profit attributed to each of the counts, taking into account the totality of the relevant conduct.
In this instance, however, the Court agreed with the parties that such an approach would not be just and proportionate, particularly given the amount Airbus was required to pay to resolve the non-UK investigations. Instead, the average gross profit starting point was taken across the Malaysia, Sri Lanka, Taiwan and Indonesia conduct.
The Court also applied a harm multiplier of 300 percent to this average gross profit. It recognised that the Malaysia, Sri Lanka and Taiwan conduct amounted to ‘Category A’ offending, the highest level of culpability, by virtue of Airbus’ abuse of dominant market position, position of trust and responsibility, the fact that the offending took place over a sustained period of time and that it involved senior Airbus employees. The Indonesia conduct was considered to be ‘Category B’ offending, because no Airbus employees are alleged to have been party to the underlying bribery, which was instead committed by Airbus’ Business Partner. The above analysis resulted in a total harm figure of €715,750,545 with respect to this conduct.
A total harm figure of €80,318,596 was determined for the Ghana conduct, which was also recognised as ‘Category A’ offending.
A total discount of 50 percent was subsequently applied to these two amounts. A reduction of one third was applied to account for the resolution of the matter by DPA and a further reduction of 16.7 percent was applied in light of Airbus’ exemplary cooperation and remediation.
These calculations are a further example of what seem to be ‘scientific’ sentencing guidelines being applied in a flexible and in some respects novel manner, to achieve a result which the parties and the Court consider just and proportionate. Whilst this may achieve a just result in a particular case, it continues to introduce additional uncertainty in the level of fine to which any particular offending may give rise.
The Airbus DPA is significant not only because it far surpasses the financial settlements made in previous UK DPAs, but because it demonstrates that the SFO and the Court may be willing to confer self-reporting and cooperation credit in a wide range of circumstances, including where there is substantial self-reporting and cooperation which is nevertheless flawed in some way and where the wrongdoing involved is particularly egregious. The DPA also underlines that extensive compliance programme reform, aimed at preventing future misconduct, continues to be an important factor in determining whether a DPA is in the interests of justice.
The case had a number of other novel features, such as the first UK DPA with a foreign company by virtue of its concession on the jurisdiction of the UK Bribery Act and the creation of a joint investigation team with the French authorities.
Of particular note too, is that the Airbus DPA shows that companies extensively involved in public contracting may be able to convince the Court that real and significant risks of debarment should factor into the public interest considerations in favour of a DPA, in appropriate cases.