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SEC v. Embraer, S.A.

 
:
Embraer, S.A.
:
SEC Civil
:
October 24, 2016
:
SEC v. Embraer, S.A.
:
SEC v. Embraer, S.A., No. 0:16-cv-062501 (S.D. Fla. 2016)
:
The DOJ and Brazilian prosecutor’s office have both pursued parallel enforcement actions against Embraer for the same conduct described in the SEC’s complaint.
:
Aircraft
:
Dominican Republic, India, Mozambique, Saudi Arabia
:
2005; 2006; 2007; 2008; 2009; 2010; 2011
:
Former colonel of the Dominican Republic Air Force serving as representative during contract negotiations; Unnamed employees of a Saudi Arabian state-owned enterprise; Unnamed employees of a Mozambican state-owned airline; CEO of a Mozambican state-owned airline.
:
Embraer, S.A. is a manufacturer and exporter of mid-sized commercial jets headquartered in São Paulo, Brazil. Embraer also supplies defense aircrafts for the Brazilian Air Force and other countries throughout Africa, Asia, Europe, and Latin America. In 2015, Embraer employed over 22,000 employees and had revenues of just under $6 billion. During the relevant period of time, Embraer maintained a class of common shares that were registered with the SEC and were traded in the form of American Depository Receipts listed on the New York Stock Exchange.

According to the SEC, between 2005 and 2011, Embraer engaged in a series of improper business practices, including the bribery of foreign officials, in the Dominican Republic, Saudi Arabia, Mozambique, and India. Those alleged improper practices are described below.

Dominican Republic

According to the SEC, between 2008 and 2010, Embraer paid $3.52 million to a government official from the Dominican Republic to obtain an aircraft contract valued at approximately $96.4 million.

Beginning in 2007, Embraer initiated efforts to sell a series of military aircrafts to the Dominican Republic’s air force (Fuerza Aérea de Repúblican Dominican or FAD). The SEC claims that negotiations were managed by a “Dominican Official” who held himself out to be the “Director of Programs and Projects FAD” and was later appointed as the General Manager/Managing Director of Projects and Programs to the Secretary of the Armed Forces of the Dominican Republic.

During the course of negotiations, the SEC alleges that the Dominican Official demanded a commission in exchange for ensuring that the Dominican government would finance the purchase of Embraer’s aircrafts. In September 2008, Embraer executives allegedly agreed to pay the Dominican Official a 3.7 percent commission on the $96.7 million contract (totaling $3.52 million). The SEC claims that Embraer later allegedly executed consulting agreements with four separate Dominican agents to funnel the money to the Dominican Official. Although Embraer’s legal department classified the agreements as “high risk,” Embraer executives were allegedly able to circumvent the company’s internal controls.

Saudi Arabia

According to the SEC, between 2009 and 2011, Embraer paid a Saudi Arabian government official $1.65 million to obtain a contract for the sale of private jets to a Saudi Arabian state-owned entity.

Beginning in 2007, Embraer allegedly learned that an unnamed Saudi Arabian state-owned enterprise was interested in purchasing three used executive jets. Later, in 2009, an official from the Saudi Arabian state-owned enterprise (the “Saudi Official”) allegedly told senior Embraer officials that he could convince the Saudi Arabian enterprise to purchase three new jets in exchange for an agreement to pay the Saudi Official a commission of $550,000 per aircraft. After Embraer finalized the sale of three new executive jets to the Saudi Arabian state-owned enterprise in May 2010, Embraer allegedly funneled the $1.65 million commission to the Saudi Official through a South African company that was owned by an acquaintance of the Saudi Official.

Mozambique

According to the SEC, between May 2008 and September 2008, Embraer paid $800,000 to a Mozambican national (the “Mozambican agent”) with connections to Mozambican government officials to obtain a contract valued at $65 million. The SEC alleges that Embraer understood that at least a portion of the funds would be used to bribe Mozambican officials.

Specifically, beginning in approximately May 2008, the SEC explains that Embraer entered into negotiations with a state-owned Mozambican airline for the sale of two aircrafts worth $65 million. The SEC claims that during the course of the negotiations the Mozambican agent contacted at least one Embraer official with the instruction that Embraer should make a “gesture” to unidentified Mozambican government officials. According to the SEC, the Mozambican agent was a middleman for the government officials involved in the deal and Embraer officials believed they needed to pay the Mozambican agent to win the contract. After Embraer allegedly offered to pay the Mozambican between $50,000 and $80,000 per aircraft, the CEO of the Mozambican state-owned airline threated to end the negotiations if Embraer did not make a “gesture” of between $800,000 and $1 million. The SEC asserts that Embraer subsequently entered into a consulting agreement with the Mozambican agent where Embraer agreed to pay a commission of $400,000 per aircraft.

India

According to the SEC, between 2005 and 2009, Embraer paid $5.76 million to an Indian consultant who assisted the company obtain a defense contract with the Indian Air Force worth $208 million. The payments to the Indian consultant were made in spite of an Indian law that prohibited the use of agents for military sales. To conceal the agreement, Embraer allegedly executed multiple consulting agreements with entities in the U.K. and Singapore to conceal a $5.76 million commission that the company ultimately sought to pay the Indian consultant. The SEC claims that the transactions were misreported on Embraer’s books and records.

***

On October 24, 2016, the SEC announced that it had settled an FCPA enforcement action against Embraer for violations of the FCPA’s anti-bribery, books-and-records, and internal controls provisions. As part of the resolution, Embraer agreed to disgorge $83,816,476 and pay prejudgment interest of $14,431,815. Embraer also agreed to appoint an independent compliance monitory for a period of three years. On the same day, the DOJ announced that it had reached a deferred prosecution agreement with Embraer in connection with a parallel FCPA enforcement action. According to the DOJ, Embraer agreed to pay a criminal monetary penalty of $107,285,090.
:
Anti-bribery (Issuer), Books and records (Issuer), Internal controls (Issuer)
:
Civil Settlement, Compliance Monitor, Disgorgement, Prejudgment Interest
:
Embraer agreed to disgorge $83,816,476 and pay prejudgment interest of $14,431,815. Embraer would receive a credit of up to $20,000,000 based on the U.S. dollar value of any disgorgement paid to Brazilian authorities in the course of a parallel civil proceeding in Brazil. Embraer also agreed to appoint an independent compliance monitor for a three-year term.
:
98,248,291
:
0
:
Issuer
:
Foreign
:
Brazil
:
Contract Procurement/Retention
:
83,816,476
:
Cash
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Sales Agent/Consultant
:
Not stated.
:
Dominican Republic, India, Mozambique, Saudi Arabia
:
Brazil, Switzerland, United States
:
No
:
No
:
Brazil