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U.S. v. Embraer, S.A.

 
:
Embraer, S.A.
:
DOJ Criminal
:
October 24, 2016
:
U.S. v. Embraer, S.A.
:
U.S. v. Embraer, S.A., No. 0:16-cr-60294 (S.D. Fla. 2016)
:
The DOJ offered to resolve the charges against Embraer in exchange for the company’s agreement to pay a criminal monetary penalty that fell below the Sentencing Guidelines range despite the fact that Embraer did not self-disclose the violation and had not engaged in complete remediation.
:
Aircraft
:
Dominican Republic, India, Mozambique, Saudi Arabia
:
2008; 2009; 2010; 2011
:
Official from the Dominican Republic Air Force serving as representative during contract negotiations; Unnamed officials from a Saudi Arabian instrumentality; Unnamed officials from a Mozambican state-owned airline, Linhas Aéreas de Moçambique (“LAM”).
:
Embraer, S.A. is a manufacturer and exporter of mid-sized commercial jets headquartered Brazil with operations in Fort Lauderdale, Florida. 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 DOJ, 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 DOJ, between 2008 and 2010, Embraer paid $3.52 million to government officials from the Dominican Republic to obtain an aircraft contract valued at approximately $96.4 million.

Beginning in 2007, Embraer allegedly initiated efforts to sell a series of military aircrafts to the Dominican Republic’s air force (Fuerza Aérea de Repúblican Dominican or FAD). The DOJ claims that negotiations were managed by a “Dominican Official” who held himself out to be the “General Manager” or “Managing Director of the Project.” During the course of the negotiations, the DOJ alleges that Embraer agreed to pay the Dominican Official a $3.52 million commission in exchange for ensuring that the Dominican government approved and financed the purchase of Embraer’s aircrafts. The DOJ claims that Embraer later allegedly executed a consulting agreement with a third-party agent to funnel the money to the Dominican Official. Court documents suggest that the funds paid to the Dominican Official would be distributed to other officials in the Dominican government.

Saudi Arabia

According to the DOJ, 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 instrumentality.

Beginning in 2007, Embraer allegedly learned that an unnamed Saudi Arabian instrumentality was interested in purchasing executive jets. By 2009 the Saudi Arabian instrumentality had narrowed its interest in purchasing the aircrafts from Embraer and one other manufacturer. In late 2009, an official from the Saudi Arabian instrumentality (the “Saudi Official”) allegedly met with an Embraer official and offered to help the company win the aircraft contract in addition to changing the terms of the sale from used to new jets in exchange for a commission. Following a series of exchanges, Embraer allegedly agreed to pay the Saudi Official $550,000 per aircraft. After Embraer finalized the sale of three new executive jets to the Saudi Arabian instrumentality, Embraer allegedly funneled $1.65 million to the Saudi Official through a third-party agent.

Mozambique

According to the DOJ, in 2009 Embraer paid $800,000 to a third-party agent (the “Mozambican Agent”) in connection with a contract valued at $65 million for the sale of two aircrafts to LAM.

Beginning in approximately May 2008, the DOJ explains that Embraer entered into negotiations with LAM for the sale of two aircrafts. The DOJ claims that in approximately August 2008 the Mozambican Agent, who had not previously worked with Embraer, contacted an Embraer executive involved in the LAM negotiations. According to the DOJ, the Mozambican Agent informed the executive that he would be serving as a consultant on the deal and stated that Embraer should be prepared to make a “gesture” when delivering the first aircraft to LAM. In response, Embraer allegedly offered to pay the Mozambican Agent a consultancy fee of $100,000 for the two aircrafts. The DOJ claims that upon receiving Embraer’s offer, the Mozambican Agent stated that he was expecting a higher fee and that LAM may award the contract to a competitor instead. Later, a high-ranking official from LAM allegedly contacted Embraer stating that the initial offer was an “insult” and that a commission of between $1 million and $800,000 would be more appropriate.

According to the DOJ, in mid-September 2008, Embraer finalized the sale of two aircrafts to LAM. Seven months later, Embraer allegedly entered into a consultancy agreement with a recently formed company in São Tomé and Principe that was controlled by the Mozambican Agent. Pursuant to the consultancy agreement, in July and August 2009, Embraer allegedly paid the São Tomé and Principe company a total sum of $800,000 and recorded the payments as a “Sales Commission” on its books-and-records.

India

According to the DOJ, between 2005 and 2009, Embraer paid $5.76 million to a third-party agent (the “Indian Agent”) who assisted the company obtain a defense contract with the Indian Air Force worth $208 million. The payments to the Indian Agent were made in spite of an Indian law that Embraer believed prohibited the use of agents for military sales. To conceal agency relationship between Embraer and the Indian Agent, 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 Agent. The DOJ claims that the transactions were misreported on Embraer’s books and records.

***

On October 24, 2016, the DOJ announced that it resolved an FCPA enforcement action against Embraer through a deferred prosecution agreement. According to the agreement, Embraer acknowledged that it would be charged with one count of conspiracy to violate the FCPA and one count of violating the FCPA’s internal controls provision. Embraer agreed to pay a criminal monetary penalty of $107,285,090 and would appoint an independent compliance monitor for a term of three years. On the same day, the SEC announced that it had resolved a parallel FCPA enforcement action against Embraer where Embraer received a monetary sanction of $98,248,291.
:
Conspiracy - Anti-Bribery, Conspiracy - Books & Records, Internal controls (Issuer)
:
Compliance Monitor, Deferred-prosecution Agreement, Fine
:
Embraer agreed to pay a criminal penalty of $107,285,090 and engage an independent compliance monitor for a period of three years.
:
107,285,090
:
0
:
Issuer
:
Foreign
:
Brazil
:
Contract Procurement/Retention
:
83,816,476
:
Cash, Wire/check
:
Sales Agent/Consultant
:
Not stated.
:
Dominican Republic, India, Mozambique, Saudi Arabia
:
No
:
No
:
Brazil