cash and questions

Investigators, suspects haggle over Airbus corruption case

Eurofighter in Österreich
Zooming closer to what happened. Source: DPA

Airbus is in talks to end a corruption probe in exchange for a fine of up to €80 million, or $98 million.

The case concerns the sale of 15 fighter jets to Austria for €1.7 billion and Munich officials have sifted through masses of documents to ascertain whether bribes were paid to a vast network of firms in order to speed up the deal.

Airbus is currently negotiating the level of the payment but denies the allegations.

But a second investigation, by the Austrian government, threatens not to go away so easily and affects the company’s most senior executives. Viennese officials continue to pursue the case, arguing that top managers must have known about the payments and are therefore culpable.

The Airbus sale under investigation dates from 2003 and questions payments of more than €100 million in transfers to consultants to push the sale through faster. The Munich public prosecutor’s office launched proceedings on suspicion of bribery, serious embezzlement and tax evasion against 16 former managers and advisers associated with the French-German group.

Much remains unclear about whether illegal payments were made and investigators are still digging through terabytes of data dating back six years and covering nearly all of Airbus’ defense business, individuals familiar with the case told Handelsblatt.

So far, prosecutors haven’t managed to prove that any Austrian lawmakers were bribed, leaving only the charges of embezzlement remaining. It is still unclear where Airbus payments worth millions of dollars ended up.

Airbus confirmed during the weekend that the talks were underway and an agreement within reach, but refused to comment on the details. The public prosecutor was also unwilling to comment.

Further meetings between investigators and company officials are planned for this week. An agreement would mean Airbus could avoid making the sale’s details public. Otherwise, a case would reveal broad details about the sale of fighter aircraft to Austria. Airbus will reportedly instead pay fines to the treasury, along with profits that cannot be justified, and observers expect the sum they agree on will be significantly below €100 million.

At the same time, talks are underway with the defense attorneys of the accused managers, who may also be fined, probably in the single-digit millions. Some may receive suspended sentences but none are likely to face prison.

That's where the money trail is lost.

The Austrian case aims higher. Viennese prosecutors include not only consultants and former middle-level managers in their investigations, but also Airbus CEO Tom Enders. Mr. Enders energetically denied any knowledge of illegal payments.

But the question remains where the millions in mystery payments went; the trail suggests they landed in a tax haven. Investigators are still struggling with the question of why Airbus called in a slew of advisors to assist with the deal.

Ostensibly the consultants were employed to handle offset obligations, transactions that often accompany such deals and aim to balance out the economic damage generated by awarding a contract abroad. In the Eurofighter deal, Vienna called on Airbus to organize investments in the country worth €4 billion. Airbus wasn’t obliged to invest the money itself but arranged an investment package with steelmaker ThyssenKrupp and carmaker Daimler, in which the firms received commissions worth millions, as is revealed in the documents seen by Handelsblatt.

Offset deals aren’t unusual; other countries, including Greece, Turkey and Israel have tied similar conditions to weapons sales. But prosecutors see such arrangements as particularly prone to corruption, especially considering the service fees that consultants charge. It’s not always clear who’s ultimately behind the fees, especially when the trail leads to a tax haven. Consulting firms sometimes transfer the money via a network of companies to accounts in the Caribbean or Cyprus, and this was the case with the Airbus millions.

The documents show the offset operations for the Austrian deal were handled by the British company Vector, which was established specifically for this purpose. Airbus transferred at least €71.5 million to Vector between March 2005 and January 2008, and millions more were paid later. Austrian investigators found that the consulting fees paid through Vector ended up in tax havens, mostly via intermediary companies. There, the millions were often withdrawn in cash, a person familiar with the investigations told Handelsblatt. “That’s where the money trail is lost.” The Viennese prosecutors suspect the cash was paid to political decision-makers and are continuing the probe.

Alongside the ongoing scandal, the weekend produced a glimmer of good news for Airbus too. The company managed to beat Boeing in terms of sales last year, with 1,109 orders, 197 more than the company’s American rivals. However, as Airbus also said it may cancel the A380 if a long-term deal with Etihad falls through, it seems 2018 is shaping up to be an interesting year for the European planemaker.

Hans-Peter Siebenhaar is Handelsblatt’s Austria correspondent working from Vienna. Volker Votsmeier is a member of Handelsblatt’s investigative reporting team. Martin Murphy writes about autos defense and steel for Handelsblatt. To contact the authors: siebenhaar@handelsblattgroup.com, votsmeier@handelsblattgroup.com, murphy@handelsblattgroup.com

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