SriLankan Airlines Sues Airbus For $1 Billion

The Airbus bribery scandal continues to reverberate around the world. This latest lawsuit against the plane maker revolves around murky allegations of bribery, reputational damage, and lost income at the airline.

SriLankan Airlines is suing Airbus for a whopping $1 billion claiming compensation relating to the bribery consequences surrounding an order of six A330s, four A350s, and a further four A350s to be leased. The airline is seeking to recover damages due to loss of income, loss of reputation and the reimbursement of costs and interests. As well as the billion-dollar in damages being sought, SriLankan Airlines is seeking to cancel the outstanding delivery of four A350-900s and claw back $19 million in pre-delivery payments for these planes.

The misconduct

The issue stems back to the infamous record $4.3bn fine Airbus agreed to pay to US, UK and French authorities over allegations that it had used external consultants to bribe customers to buy its civilian and military aircraft. Airbus was alleged to have paid huge bribes on an “endemic” basis to land contracts in 20 countries. The fine was deemed by the Authorities, the largest ever corporate fine for bribery in the world because the corruption was “grave, pervasive and pernicious”.

Sri Lanka was one of the several countries named in the bribery scandal. The offenses spanned countries including Taiwan, Indonesia, Malaysia, Nepal, Russia, Saudi Arabia, the UAE, China and Colombia. Impacted airlines included the AirAsia Group, TransAsia Airways, Garuda Indonesia and the aviation arm of the Ghanaian government.

In the case of Sri Lankan Airlines specifically, Airbus is alleged to have hired as an agent the wife of the former CEO, and paid her $2 million to “influence” the debt-ridden airline to purchase 10 aircraft from the company in 2013. According the UK Serious Fraud office (SFO) who investigated the misconduct in Sri Lanka, the payment by Airbus was reportedly made via a Brunei shell company to the wife’s company in which she was the only director.

However, in 2015, following the election of a new president in Sri Lanka, the government under him cancelled the order of four aircraft, citing controversies in the agreement. Due to the cancellation, the government had to pay a penalty of $116 million.

Both the former CEO and his wife have been incarcerated.

Transparency International gets involved

Transparency International Sri Lanka (TISL) has been advocating for SriLankan Airlines to take action against Airbus for the bribery. TISL Executive Director Asoka Obeyesekere said upon the announcement of the UK settlement:

“It is important to recall that the fallout from this deal is widely reported to have cost in excess of 17 billion rupees (USD 116mn [2015]) in cancellation penalties. Given that the evidence now shows that corruption was involved in the procurement process, it is imperative that action is taken both internationally and locally to ensure that Airbus and its agents are held accountable for losses inflicted on Sri Lanka.

TISL has noted that this penalties money that could have been used to pay for COVID vaccines for the Sri Lankan people. It estimated that some 24.5 million doses could have been imported for this value.

It remains to be seen how far Sri Lankan will get in pursuing Airbus for such a large amount in compensation.

Inquiries launched

But Sri Lankan is not the only challenge for Airbus. The plane maker is facing increased scrutiny with airlines and foreign governments, some of which have complained they were not forewarned about the charges and claimed little knowledge of the sums of money used around their fleet purchases.

In Ghana, a political storm erupted over accusations of Airbus payments to a relative of a government official in connection with the purchase of military transport planes. The SFO stated that the agent had no aerospace experience. President Nana Akufo-Addo’s office said Ghana would “conduct a prompt inquiry to determine the complicity or otherwise of any Ghanaian government official, past or present”.

In Colombia, airline Avianca said it had hired a law firm to investigate its relationship with Airbus and determine if it had been a victim of wrongdoing. French prosecutors said in settlement documents that Airbus had agreed to pay multi-million dollar commissions to an agent over jet sales to Avianca, some of which were earmarked for a senior executive at the airline’s parent Avianca Holdings. The payments were thwarted by a freeze on agent commissions as Airbus tightened processes in 2014, they said.

In Malaysia, the Malaysian Anti-Corruption Commission (MACC) is investigating the SFO allegations that Airbus paid a bribe of $50 million to win plane orders from Asia’s largest budget airline group Air Asia. The SFO’s allegations concern a 2012 sponsorship agreement between the now-defunct Caterham Formula 1 racing team, founded by AirAsia boss Tony Fernandes, and Airbus’s then-parent, EADS. The SFO claims that EADS paid $50 million to sponsor Caterham, which was jointly owned by two people described as AirAsia Executive 1 and Executive 2. MACC is cooperating with UK Authorities on the investigation.

In Indonesia, the anti-corruption agency, the Corruption Eradication Commission, stated that it plans to use the information released in the Airbus DPA to support the prosecution of two individuals currently awaiting trial for bribery charges relating to Garuda International airline (including their involvement in the Rolls Royce bribery)

Kuwait’s anti-corruption authority (NAZAHA) is investigating allegations of bribes in relation to securing Airbus orders involving Kuwaiti parties. None of these parties have yet been named in the investigations. The NAZAHA spokesperson confirmed that Kuwait will cooperate with UK prosecutors to collect evidence.

It is not yet clear whether any of these parties will be seeking compensation from Airbus or whether the governments will seek legal remedies from the UK, US, or French governments.

Legal Remedies for Victims of Bribery

By making it illegal for those subject to UK, US, or French law to bribe a “foreign official,” laws like the FCPA, UKBA or Sapin II are creating a new class of claimants, foreign governments who incurred damages when their employees were bribed by a UK, US or French company.

In the UK for example, the UK compensation to victim countries in foreign bribery cases may be accounted for in a DPA. The compensation is usually paid to the victim directly by the compensating party or through an intermediary agreed by the parties and approved by the court. Early engagement with DFID and FCO will be required when considering how compensation will be paid to the overseas victim, particularly if they are an overseas government. In the past decade, Tanzania has received more than £37 million (€41 million) in reparations and compensation from two UK companies as part of foreign bribery settlements.

In France, victims who have been harmed, including states, may apply to become a civil party to criminal proceedings. In 2007, Nigeria made itself a partie civile to a money laundering case against a former minister of petroleum, Dan Etété, and received compensation. More recently this year, France adopted a bill allowing the retun of “ill gotten” gains. The bill creates a new mechanism for the French Development Agency to carry out restitution of “ill-gotten” property and assets fraudulently acquired by representatives of foreign states (such as proceeds of corruption). It is now mandatory for the French government to return the proceeds from the sale of such goods, assets and property confiscated from the representatives of foreign countries convicted of money laundering or related financial crimes to the concerned foreign states.

In the US lawsuits were filed by shareholders, business partners, and competitors of those who bribed an employee of a foreign government. These parties were able to file “follow on” actions after an FCPA conviction, asserting the violation caused them compensable injury. In the two most recent cases filed in the US, the governments of Thailand and Haiti were compensated in 2009 and 2010 respectively. In both cases, the US courts ruled the governments were directly harmed by a criminal conspiracy to bribe government officials.

FCPA Cases Where a Foreign Government Successfully Received Compensation

• United States v. Kenny International Corp., No. Cr. 79-372 (D.D.C. 1979) (plea agreement)
( $337,000 paid to the government of the Cook Islands, the amount of financial assistance
provided to a political party in return for promise it would continue a government
contract with defendant if it won election).
• United States v. Napco International, Inc., No. Cr. 3-89-47(1) (D. Minn. 1989) (plea
agreement) ($140,000 paid to U.S. Defense Department to be credited to Niger’s Foreign
Military Sales account as compensation for bribery scheme involving Nigerian officials).
• United States v. F.G. Mason Engineering, Inc., No. B-90-29 (D. Conn. 1990) (plea
agreement) ($160,000 payment plus discounts on future sales to compensate German
government for bribing one of its military intelligence service officers).
• United States v. Diaz, No. 20346-CR-JEM (S.D. Fla. 2009) (plea agreement) (defendant
ordered to pay $73, 824 to the government of Haiti, its fee for serving as intermediary in
bribery scheme between government officials and U.S. firm).
• United States v. Green, No. CR 08-00059(B)-GW (C.D. Cal. 2010) (conviction) (DoJ sought
compensation of $1.8 million, total bribes paid Thai officials; court reduced to $250,000
without explanation)

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