Brazilian aircraft-company Embraer today reached a $205 million combined settlement with the Department of Justice, the Securities and Exchange Commission, and Brazilian authorities to resolve allegations of criminal and civil violations of the Foreign Corrupt Practices Act.
Under the settlement agreements, Embraer must pay a $107 million penalty to the Justice Department, and more than $98 million in disgorgement and interest to the SEC. Embraer may receive up to a $20 million credit depending on the amount of disgorgement it will pay to Brazilian authorities in a parallel civil proceeding in Brazil.
Additionally, Embraer also entered into a three-year deferred prosecution agreement with the Justice Department, in which Embraer agreed to continue to cooperate with the Department’s investigation; enhance its compliance program; implement a more adequate system of internal accounting controls; and retain an independent corporate compliance monitor for a term of three years.
As part of the DPA, Embraer admitted to its involvement in a conspiracy to violate the FCPA’s anti-bribery and books and records provisions and to its willful failure to implement an adequate system of internal accounting controls.
According to the company’s admissions, Embraer executives and employees paid bribes to government officials and falsified books and records in connection with aircraft sales to foreign governments and state-owned entities in multiple countries:
In 2008, Embraer paid $3.5 million to an influential government official in the Dominican Republic via a false agency agreement to secure a contract to sell the Dominican Air Force eight military aircraft for approximately $92 million.
In 2008, Embraer paid $800,000 via a false agency agreement with an intermediary designated by a high-level official at Mozambique’s state-owned commercial airline, Linhas Aéreas de Moçambique (LAM), to secure LAM’s agreement to purchase two aircraft from Embraer for approximately $65 million.
In 2009, Embraer paid an agent $5.76 million pursuant to a false agency agreement with a shell company in connection with a contract it secured to sell the Indian Air Force three aircraft for approximately $208 million.
In 2010, Embraer paid $1.6 million to an official at a Saudi Arabian state-owned and state-controlled company via a false agency agreement to secure that instrumentality’s agreement to purchase three aircraft from Embraer for approximately $93 million.
In total, Embraer earned profits of nearly $84 million on the foregoing aircraft sales. According to the SEC complaint, Embraer allegedly created false books and records to conceal the illicit payments, and also engaged in an alleged accounting scheme in India.
“As alleged in our complaint, Embraer realized significant revenues by surreptitiously using third parties to mask bribes paid to government officials with influence over contracts it was competing to win,” Andrew Ceresney, Director of the SEC Enforcement Division, said in a statement.
The Criminal Division’s Fraud Section said it reached this resolution based on a number of factors, including the fact that Embraer did not voluntarily disclose the FCPA violations, but did cooperate with the Department’s investigation after the SEC served it with a subpoena.
“After Embraer began cooperating, it did so fully and disclosed all relevant, non-privileged facts known to it, including about individuals involved in the misconduct,” the Justice Department said. “Embraer did not, however, engage in full remediation.”
Embraer disciplined a number of company employees and executives engaged in the misconduct, but did not discipline a senior executive who was aware of bribery discussions in e-mails in 2004 and had oversight responsibility for the employees engaged in those discussions, according to the Justice Department.
“As a result, the criminal penalty in this case is 20 percent below the bottom of the applicable range under the U.S. Sentencing Guidelines, a discount that reflects Embraer’s full cooperation, but incomplete remediation,” the Justice Department said.
In announcing the settlement, Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit, noted that it took “significant ongoing coordination among international regulators and law enforcement agencies to uncover the company’s complex bribery schemes.”
The SEC received the assistance of the Department of Justice Criminal Division’s Fraud Section, the Federal Bureau of Investigation, as well as authorities in Brazil, the Dominican Republic, and South Africa.
With the cooperation of U.S. authorities, Brazilian authorities have charged 11 individuals for their alleged involvement in Embraer’s misconduct in the Dominican Republic. Saudi Arabian authorities have charged two individuals for their alleged involvement in Embraer’s misconduct in Saudi Arabia.