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All sectors of the business aviation industry need to understand the implications of tough new bribery legislation to ensure they stay on the right side of the law

 

In November 2014, the Baltic Air Charter Association (BACA) was alerted to the potential bribery of a European broker. The Association subsequently issued a warning to its members about the dangers of bribery and the legal implications if a broker is approached and persuaded to accept incentives from operators.

This is just one of a number of recent bribery cases to hit the business aviation industry – other notable instances include Embraer’s long-running bribery case in Brazil, and the ripping-up of AgustaWestland’s £465m (US$716m) contract to sell a dozen AW101 VIP helicopters to the Indian defense forces.
In light of these stories, the industry is taking a tougher stance on attempts to subvert normal commercial processes, which might previously have been swept under the carpet. Aviation companies that employ ‘improper practices’ (to use an increasingly common description) are playing a dangerous game.

There are two main reasons for this turnaround in attitude: the introduction of the UK’s 2011 Bribery Act, the most comprehensive law of its kind anywhere, and the increasing strength of the USA’s Foreign Corrupt Practices Act 1977. Between them they enable investigators to prosecute dubious behavior all over the world.

Other jurisdictions are following suit, anxious to be seen as compliant in this increasingly transparent and honest environment. A recent example is the Isle of Man, whose own laws against bribery and corruption, largely reflecting those in the UK, came into effect early in 2014.

In the frame
The UK Bribery Act applies to most companies. In aviation it covers pretty much the entire spectrum of the industry’s activities – aircraft managers, corporate employers of pilots, manufacturers with maintenance facilities, brokers, sales agents and others.

In the case of the BACA story, when the operator attempted to bend a decision its way by offering an inducement to the broker, it instantly fell foul of the bribery laws and provided a legal umbrella for the offense to be brought to BACA’s notice, whereupon it was obliged to act. By far the largest air charter association in the world, BACA has one overriding objective: “To promote integrity and ethical business practices.” A highly practical goal, it is intended to facilitate total confidence that parties are dealing fairly with each other.

 

Right: No regulator will get worked up over a business-related trip abroad, which is standard practice in aviation brokerage

 

Transatlantic
The UK’s bribery laws reach far beyond its borders. As offenders are increasingly learning to their cost, an act of bribery committed anywhere by a UK national – or even a person “ordinarily resident in the UK” – is fair game for the authorities. The laws are also transatlantic – a US company with a base in the UK can easily run into trouble with the USA’s Foreign Corrupt Practices Act, which has been claiming some important figures in many industries.

As the World Bank’s corruption index routinely shows, there are several high-risk countries and regions, including Africa, Russia, China and India. In such jurisdictions, a company’s risk of falling foul of bribery laws is particularly high if it uses long-serving agents in the field who may not be fully aware of contemporary anti-corruption laws rather than headquarters-trained employees who have been thoroughly briefed.

With direct effect on aviation, another sea change in the prosecution of bribery and corruption is the way it is being internationalized. Dubious deals in far-off jurisdictions are being brought to light under pressure from, in particular, US authorities who, under President Barack Obama, are determined to stamp out practices that, while occurring elsewhere, can be interpreted under international law as having an effect on the USA.

The Embraer story
That’s how Embraer’s problems began. In 2008, the Brazilian aerospace group sold eight Super Tucano fighters to the Dominican Republic in a US$92m deal that was, according to Brazilian and US authorities, sweetened by a US$3.5m bribe paid to a retired colonel in the Dominican Air Force who had influential contacts in the corridors of power.

There was no problem about the quality of the aircraft – the Super Tucano is popular around the world for its low maintenance and low price. It’s the way the deal was packaged that has embroiled Embraer in this six-year embarrassment. As the Wall Street Journal revealed late last year, Brazil’s justice department lays the blame on eight senior Embraer managers, including a vice president for sales.

It says a lot about the new, no-escape environment that this is probably the first time Brazil, almost certainly under pressure from the US justice department, is prosecuting its own citizens for allegedly paying bribes abroad. Until now, Brazil has done so for offenses at home but not for those committed abroad. 

 

Left: AgustaWestland has been caught up in a bribery case involving its AW101 VIP helicopters in India

 

AgustaWestland
Meanwhile, AgustaWestland’s contract to sell helicopters to India has spectacularly crashed. Last year, India’s ministry of defense, claiming the deal had been influenced by bribes, abruptly canceled the entire order before all the helicopters could be delivered and the entire project is unraveling. In January 2015, two Italian nationals were the subject of a summons for alleged money laundering.

Although the Anglo-Italian manufacturer insists that the tender process leading up to the sale was properly conducted and there is no cause for action, the entire deal appears to have been lost.

Customary practices
But what exactly constitutes corruption? While bribery laws have been toughened up, it doesn’t necessarily mean that salesmen face a long stretch in jail for, say, buying a prospective buyer a drink. As the legal fraternity points out, they are in fact perfectly entitled to employ in the pursuit of new business what are sometimes known as “customary practices” – those that routinely apply in a particular market.

Such practices do not constitute a gray area, as is sometimes said, but are quite clearly defined. For instance, it is perfectly legal to provide what aviation insurance broker Hayward Aviation describes as “normal and appropriate expenditure on hospitality and promotional activities”. In practice this can mean anything from a few drinks to a free dinner. It’s also perfectly acceptable to present a ceremonial gift on an appropriate occasion.

 

Compliance is king
But what if an employee is faced with a bribe, or an offer so dubious that it could be seen as one? For instance, a lucrative contract is on the brink of being signed when the other party suggests – or demands – that a payment be made to a third individual who has not been involved in negotiations to date. This is by no means unusual outside Western Europe and North America.

Lawyers suggest a simple solution. Politely explain that corporate policy requires you to seek the opinion of the company’s compliance officer. Above all, warns Hayward Aviation, “You must not agree to a process just because the other party says ‘This is the way business is done here.’”
The advantage of being prepared with a clear response is that the employee is not put on the spot. He simply takes the details of the proposal to the company’s specialist.

Senior officers
However, if an employee were to break the rules and be caught in the act, the whole company could be at peril if it doesn’t have a robust anti-bribery and corruption system in place. These are what lawyers describe as “adequate procedures”. If there is no such system, management and board – the ‘senior officers’ – may be exposed to fines and imprisonment as well as the employee.

In practice, this that means staff must be fully briefed and trained to deal with such situations. They must keep details of expenses – which cannot be so large that they might be seen as an attempt to unfairly obtain a commercial advantage – and other information about goodwill and hospitality, including a gift register.

The British Business and General Aviation Association (BBGA) puts great importance on this kind of training, staging its own sessions to brief staff on the bribery laws, and urges others to do the same. “We would recommend that BBGA members undertake a review of the potential impact of such a risk as part of their management review,” comments chief executive Marc Bailey. “If there is a concern, they should act to mitigate it accordingly.”

As well as keeping a company on the straight and narrow, this kind of training can serve as a defense if problems surface later. As aviation law specialists Kennedys Law pointed out when the UK bribery laws first came into effect, there is a clear onus on the company to put its house in order. “The act creates a new strict liability offense of failing to prevent bribery,” the firm warns.

Lesson learned
In the meantime, BACA believes the revelations of the alleged bribery attempt have proved valuable. As a spokesman points out, “The fact that the organization highlighted the problem has acted as a strong deterrent by drawing attention to the issue. Many companies are grateful that the implications of carrying out such practices have been made public.” 

April 30, 2015

 

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