CORRUPTION: Dirty Business Arises in Top European Companies

By Julio Godoy Reprint | | Print |

Julio Godoy

PARIS, Oct 10 2007 (IPS) - New investigations have thrown up serious questions about corruption in leading European companies.

The French stock exchange regulator AMF (Autorité des marches financiers) said Oct. 3 that leading executives of the aeronautical company EADS were involved in “widespread insider trading” operations between November 2005 and April 2006. The total proceeds for beneficiaries who sold some 10 million shares were around 115 million dollars.

The sales came just ahead of a warning in June 2006 of a drop in profits due to delays in deliveries of the new Airbus A-380. Airbus is the main industrial division of EADS.

The June warning sent share prices plummeting. On one single day, Jun. 14, EADS shareholders lost 7.2 billion dollars. EADS share prices are down 40 percent relative to March 2006.

The main buyer of the EADS shares sold between November 2005 and April 2006 was the state-owned bank Caisse des Depots et Consignations. Taxpayers paid the high share prices, and have now to live with the losses.

The AMF says in a report that the trading was of “simultaneous and massive character.” It points out that the main shareholders accused of the insider trading had never before sold their shares.

The AMF said 1,200 employees were involved in the transactions, but it had focused on 21 top managers or shareholders.

These include the biggest private shareholder Arnaud Lagardere, former chief executive officer Noel Forgeard, and former CEO and now director of Airbus Thomas Enders.

The AMF also considers the selling of 7.5 percent of EADS capital Apr. 4 by German carmaker Daimler to be insider trading.

The stock exchange regulator says it has passed its report to the prosecutor’s office investigating the case.

But some fall in prices had seemed imminent also to the French government, which had its own shares in EADS. The government in Paris is being faulted on the one hand for not selling its shares, and on the other for authorising the Caisse des Depots et Consignations to buy the shares of Forgeard, Lagardere and others.

A note by a high ranking officer at the ministry of finance in Paris said in November 2005 that given the turbulence EADS was expected to go through, “it would be well-timed for the state to sell its shares now to benefit from the present prices, which only take into consideration the company’s good news due to past exercises.”

But it was then CEO Forgeard who sold his personal equity. So did his children. Arnaud Lagardere sold 7 percent of his shares for 2.5 billion dollars a few weeks ahead of the Jun. 14 disaster.

“Lagardere made a timely, juicy profit on the back of his own employees,” Hubert Prévaud, a union leader among Airbus workers told IPS.

All those named deny any wrongdoing. Airbus head Thomas Enders and other top executives of EADS have threatened to sue the AMF for its insider trading allegations.

Lagardere says the AMF report is “biased”, and points out that the investigation is not yet over.

Meanwhile, top executives of German high-technology giant Siemens are breathing easy after a deal under which they pay a relatively small fine in exchange for the closing of a corruption case.

Siemens had been found in December 2006 to have paid illegal commissions to foreign state officials to obtain public works contracts. Siemens admitted it paid 420 million euros in illegal commissions, but later estimates put that figure at one billion euros, some 1.35 billion dollars.

But a tribunal in Munich has closed the case, against payment of a penalty of 201 million euros.

According to the anti-corruption watchdog Transparency International (TI), “the fine does not correspond to the profits Siemens obtained through illegal payments of 450 million euros.”

Peter von Blomberg, deputy director of TI, told IPS that “you cannot call such a fine a penalty, since the company must pay back only a small fraction of the profits it obtained through the illegal commissions. Corporations using corrupt practices to do business must be penalised in a noticeable way.”

Uwe Dolata, corruption expert at the German Association of Criminal Federal Investigators points out that “our laws do not allow for a higher fine.”

However, the tribunal decision in Munich is valid only for German inquiries. A U.S. investigation against Siemens is still under way, given that the company’s shares are also traded on Wall Street in New York. If the company is found guilty, the fine in the U.S. could be far higher.

In yet another case, a French tribunal started hearings Oct. 8 on illegal transfer of weapons through a state agency to Africa, especially to Angola in 1993 and 1994. Nine persons face accusations of receiving illegal commissions, including the son of former minister for the interior Charles Pasqua.

In those two years, Angola bought weapons worth 633 million dollars through state-owned military equipment export agency SOFREMI, at the time under Pasqua’s jurisdiction. The weapons included tanks, rockets, helicopters, and combat and transport vehicles.

But two key figures, Pierre Falcone and Arcady Gaydamak, are not answering the judge’s questions.

Falcone, a French citizen was appointed by Angola special ambassador to the United Nations Educational, Scientific and Cultural Organisation (UNESCO) – thereby guaranteeing him diplomatic immunity. He was consequently exempted from testifying by a French tribunal last week. Gaydamak, who has an Israeli passport, has been living in Jerusalem since 2001, and has refused to attend the hearings in Paris.