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Monday
Oct242016

Embraer pays $205 million to settle FCPA charges

Brazilian aircraft manufacturer Embraer SA is paying more than $205 million to the DOJ and SEC to resolve violations of the Foreign Corrupt Practices Act.

Embraer bribed officials in the Dominican Republic, Saudi Arabia, and Mozambique. The bribes were paid by a U.S.-based subsidiary through third-party agents.

The company made more than $83 million in profits from the bribes.

The SEC also accused Embraer of an accounting scheme in India to hide payments there.

Embraer is paying a $107 million criminal penalty to the Justice Department as part of a three-year deferred prosecution agreement.

It is also paying more than $98 million in disgorgement and interest to the SEC.

Embraer could receive up to a $20 million credit from the SEC depending on the amount of disgorgement it will pay to Brazilian authorities in a separate enforcement action there. 

Even with a $20 million credit, the disgorgement is one of the biggest in an FCPA enforcement action.

In a statement Monday, Embraer said it has reached a settlement with authorities in Brazil for about $20 million. Of that, about $18.5 million is disgorgement.

The DOJ Monday filed a two-count criminal information (pdf) against Embraer SA in federal court in the Southern District of Florida. The information charged the company with an FCPA conspiracy and with violating the FCPA books and records provisions.

The SEC filed a civil complaint (pdf) against the company in the same court Monday. The SEC complaint charged Embraer with FCPA anti-bribery, books and records, and internal controls violations.

The DOJ's deferred prosecution agreement (pdf) was also filed with the federal court Monday.

Embraer agreed to retain an independent corporate monitor for at least three years.

In 2008, Embraer paid $3.5 million to a government official in the Dominican Republic through a phony agency agreement. Embraer won a contract to sell the Dominican Air Force eight military aircraft for $92 million. 

In 2010, Embraer paid $1.6 million to an official at a Saudi Arabian state-owned and -controlled company. Embraer again used a faje agency agreement to pay the bribe. It won a contract to sell three aircraft for $93 million. 

Embraer paid $800,000 under another phony agency agreement in 2008 to bribe a high-level official at Mozambique’s state-owned commercial airline, Linhas Aéreas de Moçambique S.A. (LAM). The airline bought two aircraft from Embraer for $65 million. 

From 2005 to 2009, Embraer hid payments to an agent in India of at least $5.7 million. The company also concealed its relationship with the agent. It sold three aircraft to the Indian Air Force for $208 million.

In August this year, Embraer -- the world's third largest commercial aircraft maker -- said it booked a $200 million loss contingency for an FCPA settlement.

It trades on the NYSE under the symbol ERJ.

The DOJ said Monday that Embraer "did not voluntarily disclose the FCPA violations." 

The company began cooperating in the investigation only after the SEC served it with a subpoena. 

In late 2014, Brazil prosecutors filed a criminal action against eight Embraer SA employees. The investigation focused on the company's sales practices in the Dominican Republic.

The DOJ said Monday that 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." 

But Embraer "did not, however, engage in full remediation," the DOJ said. 

It disciplined some employees and executives for the bribery. But a senior executive with oversight responsibility wasn't punished. Internal emails showed he knew about the practices as early as 2004, the DOJ said.

The $107 million criminal penalty against Embraer was 20 percent below the bottom of the fine range under the U.S. Sentencing Guidelines. The discount reflected "Embraer’s full cooperation but incomplete remediation, according to the DOJ said.

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Richard L. Cassin is the publisher and editor of the FCPA Blog. He'll be the keynote speaker at the FCPA Blog NYC Conference 2016.