Airbus Corruption Allegations Point Straight to the Top
EIC 2016 , TBS 2017 / 2017-10-06
Lead

European Aerospace giant Airbus created a “slush fund” in the UK as part of an offset deal with Austria for the sale of the group’s Eurofighter, allege prosecutors in Munich

Current Airbus CEO Thomas Enders has been involved in the creation of a key company in this scheme, documents show

The multi-million deal-making involved a series of suspected shell companies.

This included a five million Euro payment to a firm owned by a Romanian accountant who lives in a 30,000 Euro house in the small town of Bacau. He denied any knowledge about this money transfer

Airbus commissioned an ‘independent’ investigation by law firm Clifford Chance to investigate any corruption

But the legal team was mandated only to ‘fact-find’ and not give a legal analysis, leading to concerns this probe lacked teeth

 

Written by Mediapart and Der Spiegel, and shared with the EIC Network

Eurofighter deal to Austria at heart of corruption allegations

Eurofighter deal to Austria at heart of corruption allegations (Peter R Foster IDMA / Shutterstock.com)

 

November 2014. Thomas Enders, the CEO of Airbus, is furious. Two years after the start of an investigation into the sale of the European aerospace group’s combat plane Eurofighter to Austria, German prosecutors have raided the premises of Airbus Defense, near Munich, for the second time, in a corruption case involving major military contracts.

In a message to the group’s executive committee, Enders states:

“Alleged bribery cases have been intensive as probably never before in our Group. […] Recent police raids in some of our sites, press reports, court actions, all have heightened the concerns of our Board about the compliance situation and practices inside our businesses. […] there’s simply too much shit hitting the fan right now to continue with business as usual.”

Three years later. June 2017. In a speech to the same top executives in the committee, Enders promises again “not to hide the shit under the carpet”.

In the space of three years, the pressure from bribery cases has grown more intense, because of a Franco-British investigation into corruption on civil aircraft sales.  is even worse: the shit hitting the fan is now blowing in the direction of Thomas Enders.

The case that threatens Airbus's German boss is about the Austrian Eurofighter and a British shell company called Vector, which has been investigated by prosecutors in Austria and Germany for the past five years, and involves a Romanian intermediary.

Airbus Germany controlled Vector in secret and transferred 113 million Euro to its bank account. Officially, this money had to be used to provide offsets to the Austrian economy, in exchange for the purchase by Vienna of 15 Eurofighter fighter planes in 2003 for 1.7 billion Euro.

 
British shell company used for purposes of “corruption”. Airbus denies graft

In reality, Vector was "a mere shell company” and a huge "slush fund," Munich prosecutors write in their summaries of the case. Vector has redistributed, through "fake contracts” more than 100 million Euro to dozens of offshore companies registered in the most opaque tax havens, such as Cyprus, the Isle of Man, the British Virgin Islands, Hong Kong and Singapore.

The Munich prosecutors are convinced that "the money has been used, for the most part, for corruption purposes, in particular to influence decision-makers (officials) in order to obtain the contract" for the Austrian Eurofighter.

But today Airbus denies any wrongdoing was uncovered.

“Neither the prosecution in Munich and Vienna, which has lasted for years, nor our own extensive investigations by [law firm] Clifford Chance, have given evidence of bribery related to the sale of Eurofighter aircraft to Austria,” writes an Airbus statement to Der Spiegel. “The alleged allegations of corruption represent a huge damage to the Group's reputation.”

The investigators suspect that some of the Vector money was also used to pay hidden commissions to facilitate the sale of Airbus civil aircrafts. It means that the defense division of Airbus, a German stronghold based in Ottobrun near Munich, may have put part of its alleged slush fund at the disposal of the whole Airbus group.

Until 2005, the boss of this defense division was Thomas Enders, the current CEO of the Franco-German aerospace company. German prosecutors consider that they do not have enough evidence to bring him under investigation.

But the prosecutor's office in Vienna thinks otherwise. Last April it announced that the current CEO of the group was personally prosecuted in this case. Enders responded by stating these accusations are "unfounded" and "politically motivated”.

The criminal investigation files, obtained by Der Spiegel and Mediapart, contain embarrassing documents for the CEO. They show that Tom Enders was involved in the creation of Vector, and that he could hardly ignore its real function.

When he later became the CEO of Airbus, Enders also appears to have worked to stifle the case by ordering internal investigations designed to find nothing that could be understood to be illegal.

The investigation also shows that the Briton John Harrison, the current general secretary and chief compliance officer at Airbus, chosen by Enders to clean up the group, at the time pressured intermediaries not to testify before the Austrian Parliament.

 
Parisian EADS department “a secret service who handled dirty tricks”

The building of this alleged scheme began in 2002. To win the contract for the sale of the Eurofighter, the defense division of the Airbus group, at the time known as EADS, fought hard.

The German bosses from the defence division called for help from EADS International (renamed SMO in 2007). This Paris-based division, which is mainly run by French nationals, has a special department called "International Operations" (EADS International - IO).

This elite force of about fifteen members was asked, at the request of each of the group’s divisions, to facilitate the most sensitive sales by recruiting influential intermediaries and distributing commissions.

"They were like our secret service, whose job was to handle the dirty tricks,” explains a former Airbus executive. Disbanded in 2016 by Thomas Enders following a corruption case in the Airbus civil aircraft division, this IO department is now considered by the CEO to have been solely responsible for corruption within the group.

Yet in 2002, the defense division, then headed by Enders, have no qualms about calling on IO for their expertise. But the head of EADS International, Jean-Paul Gut, refuses, because an internal rule forbids it due to nationality concerns. The Eurofighter is manufactured by a consortium including Germany, Italy and Great Britain, and because the Eurofighter is a competitor of the French Dassault Rafale aircraft, French people in the EADS group are forbidden to work on the Eurofighter campaigns.

For this reason, Airbus defense division picks two of the rare German executives working for EADS International for this job - Manfred Wolff and Klaus Dieter Bergner. The latter is seconded to Eurofighter and becomes head of lobbying for the campaign. Several internal documents show that Enders personally validated Bergner’s appointment.

For this job, Bergner is relocated to Vienna, where he demonstrates the scale of his talents. For example, he endeavors to get close to General Erich Wolf, head of the Austrian Air Force. An intermediary recruited by Bergner pays 87,600 Euro to a company owned by the General's wife, officially to organize an air show, which never happened.

 

For far-right Austrian support, EADS will pay “millions of Euro” to comms company, close to extremist party

EADS is generous to Austria’s farright party. The country’s government is at the time a coalition between the conservatives and the FPÖ, led by the populist leader Joerg Haider. In January 2002, Bergner invites Haider and several FPÖ figures to spend the weekend in a hotel in Brussels.

Two days later, EADS lobbyists draft a "strictly confidential" memo that lists the conditions put forward by the far-right leader to support the Eurofighter's choice. The deal will be honored: in exchange for FPÖ support, EADS will pay millions of euros to a communications company, close to the extremist political party. The group also invested in a technology park located in the electoral fiefdom of Joerg Haider.

Thanks to these strategic moves, Vienna chooses the Eurofighter in July 2003, to the surprise of all. But the problems are about to begin. To win the contract, the Eurofighter consortium has pledged to provide huge offsets: they must bring four billion Euro of revenue to the Austrian economy - twice the value of the contract.

UK company chosen, to hide "names of final beneficiaries"

The Eurofighter consortium pays 183 million Euro to EADS Germany, which is responsible for keeping this promise on behalf of the consortium. For this purpose, an ad hoc company, Euro Business Development (EBD), is established in Vienna. It is directed by the same lobbyist Klaus Dieter Bergner, and has to find contracts for Austrian suppliers.

But curiously, EADS decided that EBD should be administered by another company, officially responsible for organizing this massive offset deal. It was initially planned to be registered in Cyprus with the name Omesco. Eventually, it will be called Vector and be based in London. Internal memos indicate that the British capital was chosen for tax and confidentiality reasons, to hide "the names of the final beneficiaries of Vector".

Today, Airbus states it had the right to create British Limited Liability Companies, and adds: “Vector itself was not based for reasons of confidentiality in London, but for fiscal reasons. As regards Vector's shareholders (facing partners), they were established in accordance with UK law.”

Everything has been planned to dissociate EADS from Vector. Officially, it belongs to two shell companies, owned by Austrian intermediaries specializing in arms sales. Vector’s boss is an Italian financier who is later imprisoned for scamming investors in a Ponzi scheme similar to those of Bernie Madoff.

But secret agreements give full control of Vector to EADS. Behind the scenes, Klaus Dieter Bergner and Manfred Wolff, the two Germans who were recruited from EADS International in Paris, are leading the operations of this British company. They are released from EADS, so that there is no visible link between the group and Vector.

Everything seems to have been planned to protect the group’s executives in case something goes wrong. An internal document explains that the scheme creates a ‘Chinese Wall’ between Vector and the intermediaries that the company pays. If these intermediaries redistribute the funds from Vector, EADS can assert that it did not know.

The scheme looks bad. But Tom Enders is enthusiastic. The head of EADS Defense is personally informed about the Omesco project in Cyprus, yet his British and Italian partners in Eurofighter are against it. The minutes of a meeting of the consortium in May 2004 states that "Dr. Enders pleaded again" for the offset to be managed "by Omesco". Thomas Enders is also informed of the creation of Omesco’s successor Vector, registered on 14 July 2004 in London.

A new Franco-German quarrel will show how Enders involves himself in the affair. As we previously detailed, the French have no right to work on the Eurofighter deal. But an agreement is reached with EADS International head Jean-Paul Gut. His Parisian troops are helping set up Vector, validate the contracts and participate in the creation of the scheme, which they will review. But they will not deal with intermediaries or handle payments.

 

Promising "not to hide the shit under the carpet" Airbus CEO Thomas Enders (weforum.org)

However, Thomas Enders insists that the French should be involved. In an e-mail on 19 November 2004, Johann Heitzmann, head of the Eurofighter program at EADS Germany, says that Enders asked Jean-Paul Gut for Vector to be managed by Jean-Claude Cadudal, the man in charge of the offshore schemes at EADS International - IO, the “secret service" responsible for the most controversial export deals. This is the same service that Thomas Enders today accuses of being the only source of corruption within the group. Back in 2004, Enders was so keen to work with one of its key men, that his request had to be submitted to the two then co-CEOs of the group, Rainer Hertrich and Philippe Camus.

And that's not all. In the same email, Johann Heitzmann explains that Thomas Enders did not succeed at hiring the French. As a result, Heitzmann "prepared with Tom [Enders] the necessary steps to establish our own clearing house." This is how Vector became Airbus Germany’s payment structure, independent of Paris.

But the Parisian “experts" at EADS International seemed to be fully aware of what was going on. They took every possible precaution to cover themselves. On 3 December 2004, EADS International drafts a memorandum giving its green light to the Vector scheme, which is sent in copy to Thomas Enders. It is written by Jean-Claude Cadudal, the man that Enders attempted to hire to manage Vector, two weeks earlier.

The document is explicit. Cadudal insists that this is only EADS International’s opinion on the project "submitted by EADS Germany". He states that his department "was not involved in the Austrian campaign, and therefore has no visibility on the commercial aspects and the consultants". Last but not least, EADS International writes that Vector must know the identity of the beneficial owners of all companies it pays, and audit these "consultants" to verify that they comply with "anti-corruption legislation".

This precaution should have been heeded. At the beginning of 2005, Vector began to get money from EADS Germany. The company will go on to receive a total of 113 million euros. It wired 104 million Euro to 51 dubious companies, among which are 35 offshore structures based in tax havens. While they were supposed to find offset contracts, "all [these] companies did not perform any service that could justify the payments," the Munich prosecutors wrote in a December 2016 case summary.

 
Enough evidence to convince Munich there is "corruption"

Given the opacity of these companies and the lack of judicial cooperation in the tax havens where they are located, German investigators have identified only a small number of the beneficiaries. But what they found was enough to convince them that it was "corruption".

Vector, for example, has been used to keep some of the promises made to the far-right party FPÖ in exchange for its support for the Eurofighter. Vector has thus financed a technology park in Carinthia, the electoral fiefdom of FPÖ head Jörg Haider, for four million Euro.

The prosecutors are also interested in the London-based company City Chambers, which received eight million Euro from Vector. The bills were always issued by the same manager (a front man), but with different signatures. Investigators found an "Activity Report" from City Chambers to Vector. Instead of looking for offsets, the company used EADS money for a "trip to India" in February 2005 with the President of Austria, and a "trip to China” with the Chancellor of the same country, Wolfgang Schüssel.

Another interesting story is about the Formula 1 racetrack in Spielberg, Austria, which has been abandoned since 2003. Energy drink manufacturer Red Bull wants to transform it into an adventure park and a technology university linked to the automobile and aviation industries. In November 2004, EADS Germany pledges to inject 20 million Euro into the project within the offset agreement. Vector is mandated to study this investment opportunity. But the project fails, because it cannot satisfy environmental regulations.

Red Bull then launched a "Spielberg 2" project, which is strongly supported by the Austrian Chancellor, to help him win votes. In April 2005, the advisors of Thomas Enders recommend to him by email not to accept "the suggestion of [Austrian] Chancellor Schüssel". But two weeks later, following a meeting with the Chancellor, Enders announces to his team that he has renewed his promise to invest 20 million Euro. This was never completed, as "Spielberg 2" also failed. Nonetheless, EADS Germany will pay 10 million Euro to Vector a year later, as costs for examining the possibility of this investment opportunity.

But Airbus today states that it had to create Vector because the company “did not have the necessary industry and market knowledge outside of the aviation industry” and that “the use of the expert third parties was required”, which was why outsourcing the job was considered to be economically viable - hence the contract with Vector.

 
A Romanian connection: the accountant from Bacau

But Vector's activity is far from limited to Austria. To understand the full scope of its reach, one must go as far as the eastern city of Bacau in Romania. There lives a Romanian citizen named Constantin Ster. An accountant in a local high school, who owns an apartment worth 30,000 Euro, and had to take out a credit to afford a Dacia Duster, Renault’s low-cost SUV. Clearly, Ster is not rich, yet he is supposed to have received five million Euro from Vector.

When he was questioned by a prosecutor, Ster said that between 1997 and 2009, he lived in Dubai, in the United Arab Emirates, where he worked in a school. The Romanian met a nephew of a local Sheikh and became close to the reigning family. In 2004 he also became acquainted in Dubai with a man who was interested in his high-ranking acquaintances: Manfred Wolff, one of the two Germans who had been taken from EADS International in Paris to manage Vector.

According to Ster, Wolff was looking to sell Airbus civil aircraft in the United Arab Emirates.

"What I understood was that Airbus was competing with Boeing and wanted to win a contract," he told the prosecutor. Ster promised to let Wolff meet a man who could be decisive in concluding the sale. In exchange for this, the Romanian said that Wolff gave him 40,000 USD in cash, and promised the same amount for each plane sold. Interrogated by the Munich prosecutor, Manfred Wolff denied this. He said that he did not know Ster and never worked for the Airbus civil aircraft business.

Yet it was Wolff who ordered the payments to Ster by email. On 31 March 2005, the Romanian sends an invoice of five million Euro to Vector. Officially, the Romanian is paid for having convinced Airbus to sign a contract with an Austrian supplier, within the framework of the Eurofighter offset. This is a fake invoice, it appears, as Ster has never been involved in this deal. Vector pays a first installment of two million Euro. But the money is returned to Vector, for an unknown reason.

The payment of five million Euro is made three months later. But the scheme has changed. Vector pays the money through Columbus, a shell company registered in the Isle of Man. And the beneficiary has become a Dubai company named ICT Business, which belongs to Constantin Ster.

During his interrogation, the Romanian denies everything. He says that he never received the five million Euro, and that he has never heard of Columbus. And the company created in his name in Dubai? He admits having given a copy of his passport to Manfred Wolff, but not for that.

Should we believe him? A British tax consultant gave the same testimony to the investigators. He was acting as a strawman for a company registered in London, City Chambers, which also received money from Vector. The strawman said that he had registered the company on behalf of a client. Soon after, he went to Paris to sign a contract with EADS, in the presence of Klaus-Dieter Bergner and Manfred Wolff. EADS then transferred one million Euro to the strawman's client, an influential Austrian banker.

But the British tax consultant told investigators that he never processed the payments from Columbus. There is, however, his signature on the documents, but he swears that he has not signed anything. He points out that his name has been misspelled on one of the documents. Another was written in such bad English that this shocked the Brit.

If what Constantin Ster and the Briton say is true, this means that Manfred Wolff would have usurped their identities to process secret commissions. And the Dubai story shows that some of the payments could have been used to facilitate sales of Airbus civil aircraft.

 

Suspicion: "funds ready for future corrupt purposes”

What is even more troubling is that the payment to the United Arab Emirates was realized only a few months after the creation of Vector. This suggests that the German slush fund was conceived from the start not only for the Austrian Eurofighter campaign, but also for the entire EADS group. How was the system organised? Did Bergner and Wolff manage these funds in collaboration with their former Parisian colleagues of the special ops department at EADS International?

The Munich prosecutors do not yet have answers. But they do suspect that the transfer of money to offshore companies has enabled EADS, in addition to the Eurofighter, to "have these funds ready for the future corrupt purposes, on the accounts of the third party companies, separated from the assets of EADS". This suspicion is strengthened by the existence of another shell company on the Isle of Man, Comco, which received 13 million Euro from Vector.

Originally controlled by a financier based in Switzerland, its ownership was transferred a few years later to a Mongolian citizen, who holds companies in China and Singapore. Now we are taking a waltz far away from Vienna.

Airbus defends its establishment of Vector.

“The allegation of the establishment of slush funds was not confirmed either by [law firm] Clifford Chance Report or by the public prosecutor's investigation,” a statement reads. “The public repetition and maintenance of these allegations is an unacceptable enormous reputation damage.”

 

EADS official: “it is risky to have our consultants confronted with detailed questions”

The EADS group, now Airbus, has every interest in seeing that Vector never reveals all its secrets. This was evident when the scandal broke out. In 2006, following the first revelations in the press, a parliamentary investigation was set up in Austria. It was tasked to interrogate EADS consultants about the Eurofighter deal.

The Briton John Harrison, general secretary of EADS Defense, is in charge of clearing up the situation. On 2 February 2007 he explains in an e-mail that EADS wrote to its intermediaries to tell them that they should not testify due to the confidentiality clause in their contracts. He claims that it is because the Austrian parliamentary investigation was not impartial. But Harrison also explains that "it is risky to have our consultants confronted with detailed questions that may be used later against us in court proceedings".

The man making these comments is today the chief compliance officer for the whole Airbus group, instructed by Thomas Enders to lead the operation to eradicate corruption within the company.

In 2007, Thomas Enders became co-CEO of EADS, alongside the Frenchman Louis Gallois. Given the effect of the scandal, he ordered an internal audit report, which revealed anomalies. As a consequence, Enders commissioned a second investigation by the law firm Lovells.

The report, released in May 2007, is a farce. It is only 19 pages long. And for good reason. EADS provided very little information. And when the lawyers wanted to talk to witnesses, the group responded that they were irrelevant to the case. In the end, Lovells could only check whether there were invoices that corresponded to payments.

"Only the accounting accuracy has been verified. […] They did not check whether or not the agreed services had actually been rendered," confirmed an internal Airbus auditor to the prosecutors. The lawyers drew an unsurprising conclusion. "Within the (limited) scope of its assignment, Lovells has found no evidence of any criminal and unlawful conduct."

But when German prosecutors opened an investigation and raided EADS Defense near Munich in 2012, the pressure was back on the executives.

Thomas Enders, now the sole CEO of the group, called for a new investigation to be run by law firm Clifford Chance. This time the lawyers produced a report of over 1,000 pages in December 2013. The lawyers had access to a huge amount of information, and auditioned most of the people involved in the case. The verdict? The report "has not revealed any evidence of corruption," says EADS.

It must be said that this was, it seems, the aim sought from the start. In the introduction of the Clifford Chance report, the lawyers explained that EADS only mandated them for a “fact-finding” mission, and that they were “not instructed with a legal analysis of the fact-finding.”

So the report “does not contain any legal assessment”. For example, when the lawyers discover the payment to the wife of the chief of the Austrian air force, Erich Wolf, they write that they “do not know" if it could influence the decision of her husband.

Clifford Chance had access to all the information related to Vector, and even to the complete list of companies who received money. But EADS did not ask its "consultants" to deliver the bank statements and identity of the real beneficial owners of the shell companies.

Almost all of the managers of these structures refused to be interviewed. Result: Clifford Chance could not see beyond the “Chinese Wall” to identify the final destination of most of the payments.

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