Airbus Could Face Debarment, Fine Over U.S. Export Control Missteps -Lawyers

By Robert Wall Features Dow Jones Newswires

Airbus SE could be barred from receiving U.S. export licenses for military equipment over misstatements that the company says it made on certain arms deals, some legal experts said, though they see a monetary fine as a more likely outcome.

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The European plane maker said this week that it had notified U.S. authorities of misstatements in its export license requests.

The misstatements were related to Airbus's failure to inform authorities about the use of sales agents on certain sales of defense goods and services, though the use of middlemen is not itself a violation.

The company didn't say on which contracts the errors occurred.

"There are likely to be civil penalties levied," said Joseph Gustavus, an export licensing attorney at Miller Canfield.

Airbus first notified U.S. authorities about a potential problem late in 2016. That triggered an in-depth internal Airbus review and, in July, led the company to formally inform U.S. authorities rules were broken.

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The misstatements concern compliance with the Part 130 section of U.S. International Traffic in Arms Regulations rules, also known as ITAR, on political contributions, fees and commissions involved in the export of military equipment.

Though Washington could block Airbus from receiving export licenses or cut off units from doing any business with the U.S. government, such an outcome is unlikely since the company reported itself to U.S. authorities.

"Debarment under the ITAR normally occurs only when there is egregious conduct alleged," Jack R. Hayes, counsel at Steptoe & Johnson LLP.

The State Department wouldn't comment on the case beyond saying "we expect all companies to fully comply with all relevant defense trade export controls."

Airbus Chief Financial Officer Harald Wilhelm said on Tuesday that the State Department was still issuing export licenses to the company.

The size of any fine would depend on the number of misrepresentations Airbus made and their severity. If regulators determine Airbus is a serial offender, it could lead to more severe punishment.

The company is also being investigated by British and French authorities over the use of middlemen on some commercial plane deals. German, Austrian and British regulators are also looking into separate corruption allegations. Airbus has said that it is cooperating with authorities.

Mr. Gustavus said that if the Justice Department becomes involved because of concern of repeated, willful misstatements, the financial penalty could run as high as $1 billion or more.

The government could also require the company to put in place monitoring arrangements to help avoid future missteps.

British arms maker BAE Systems PLC several years ago entered a settlement with the U.S. government for a similar transgression. It agreed in 2011 to pay $79 million in fines, though some of the penalty was suspended. The BAE Systems fine came after the company agreed a $400 million settlement the year prior with the U.S. Justice Department because of violations related to the Foreign Corrupt Practices Act.

"The U.S. government has typically been more than happy to hammer foreign companies for export control violations where there is egregious or other evasive conduct," Mr. Hayes said.

If the Justice Department is involved, a negotiated deferred prosecution agreement is the likely scenario, he said.

Airbus engine supplier Rolls-Royce Holdings PLC this year pleaded guilty to corruption charges and incurred more than $800 million in fines in its deferred prosecution settlement with U.S., British, and Brazilian authorities over misdeeds that stretched over decades.

Write to Robert Wall at robert.wall@wsj.com

(END) Dow Jones Newswires

November 02, 2017 12:48 ET (16:48 GMT)