The failure of Airbus to declare its agents highlights the weakness of self-disclosure requirements and why governments can and should use export policies to reduce the influence of corrupt middlemen.
In April this year, UK Export Finance suspended applications for export credit from Airbus Group, after Airbus reported that it had failed to declare the use of third-party agents. France and Germany have also frozen financial backing for Airbus export credit deals while the UK Serious Fraud Office (SFO) carries out its investigations.
Sadly Airbus is one of a long line of companies that have run into trouble with the use of agents. Agents and intermediaries have played a key role in defence procurement for decades and are often an important part of doing business overseas. However, they are also widely recognised as one of the highest risk factors across the defence sector. In 2013, more than 90% of reported US Foreign Corrupt Practices Act (FCPA) cases were found to have involved third party intermediaries, while a global survey of compliance officers published in 2016 found one of the main reasons behind increases in company bribery and corruption risks was increases in the number of third party relationships. And the risks posed to companies by unscrupulous agents are growing. Global defence spending is rising, but rising fastest in places where standards of governance and accountability are weakest. Meanwhile, as stagnating Western defence markets remain woefully fragmented, governments are pushing companies to compete in what are effectively some of the most corruption prone environments in the world. In the last five years, 80% of UK exports of major conventional weapons have been delivered to markets with high to critical corruption risk in their defence institutions. As a result, companies operating in these markets are depending on agents to participate in bidding and carry out contracts, either due to legal requirements or realities on the ground.
Our new report 'Licence to Bribe?' highlights the absurd and contradictory approach by governments. On the one hand, major exporting governments are requiring ever more stringent adherence to anti-bribery legislation, and on the other they are simply pushing businesses into jurisdictions where corruption risks are highest with little thought as to the consequences. While many governments have adopted controls to deter corrupt deals from taking place on their own soil, they fail to require the same standards be observed in the markets where they seek to do business.
Airbus is a clear demonstration of how export policies can and should be used to regulate, not compound, the risks associated with the use of agents. Like other major exporters, the UK provides export credit or guarantees through UK Export Finance to help companies seeking business in emerging markets. Companies seeking support are required to disclose to UK Export Finance all agents associated with the contract, and the amount paid to them.
Within the EU, it has been said that the UK Export Finance has “the toughest requirements about disclosing intermediaries”. But, the UK only requires this level of disclosure for transactions requiring financial support. In contrast, the US’s International Traffic in Arms Regulations (ITAR), contain stringent declaration requirements around the use and payment of agents, which apply to all companies.
The UK and the EU could clearly do better. Yet despite the increased risks posed by new markets, this is not being matched by greater transparency around the use of agents and intermediaries. On the contrary, UK Export Finance is currently considering proposals to simplify its anti-bribery and corruption procedures, potentially weakening disclosure requirements relating to agents.
Governments cannot continue to turn a blind eye to the destructive impact of their defence export policies. The cost of doing business in risky and corrupt markets can be the future stability of some of the most insecure parts of the world.
Photo: © Crown Copyright.