Embraer Hit With SEC Subpoena

Brazilian aircraft maker Embraer said this week it received a subpoena from the U.S. Securities and Exchange Commission relating to possible violations of the Foreign Corrupt Practices Act.

Embraer is the world's third largest commercial aircraft manufacturer. It has about 17,000 employees and last year booked $5.3 billion in global sales.

In an SEC filing, it said the investigation centers on three countries, which it didn't name. It said it is cooperating with the SEC and DOJ in an internal investigation.

The aerospace industry has been in the spotlight since early 2010, when U.K.-based BAE paid $400 million to settle FCPA and other charges with the DOJ.

Last month, reports said the U.K. Serious Fraud Office was waiting for approval from the attorney general to pursue a full-scale bribery investigation into EADS, the European aerospace giant. 

The allegations about EADS, like those in the BAE case, concern sales to Saudi Arabia and other Middle East countries.

Embraer SA trades on the NYSE under the symbol ERJ.

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The company's complete FCPA disclosure appeared in its Form 6-K, Report of Foreign Private Issuer, for November 2011.

It said:

In response to a subpoena issued in an investigation by the U.S. Securities and Exchange Commission (“SEC”) relating to possible violations of the U.S. Foreign Corrupt Practices Act , the Company retained outside counsel to conduct an internal investigation into transactions in three specific countries. That internal investigation is ongoing, and the Company is fully cooperating with the SEC and the U.S. Department of Justice (“DOJ”). The Company’s outside counsel has been in regular contact with the SEC and the DOJ and has provided both agencies with documents and other information. The Company’s outside counsel recently met with both agencies to brief them on the status of its investigation. The Company and its outside counsel expect to continue to have discussions with the SEC and the DOJ. The Company is unable to predict duration, scope or results of the investigation.

Is EADS BAE All Over Again?

A report this week in the Telegraph said the U.K. Serious Fraud Office is waiting for approval from the attorney general before pursuing a full-scale bribery investigation into EADS, the European aerospace giant. 

The Telegraph said the SFO has completed 'preliminary inquiries into claims that illegal payments were linked to a £2 billion communications contract awarded to GPT, a subsidiary of EADS.'

The preliminary investigation began after Lt Col Ian Foxley, who worked for GPT, told the SFO that Saudi officials had been given 'luxury cars, jewellery and briefcases full of cash.' Foxley was later fired by GPT.

EADS's £2 billion contract was for an upgrade to the satellite and intranet systems of the Saudi National Guard, which protects the Saudi royal family.

Dominic Grieve, the U.K. attorney general, is reportedly considering diplomatic issues that might arise between the U.K. and Saudi Arabia. In 2006, the SFO dropped a bribery investigation of British aerospace giant BAE because of Saudi threats to end anti-terrorism cooperation with the U.K. BAE eventually paid U.S. enforcers $400 million to settle FCPA-related charges.

EADS -- the European Aeronautic Defence and Space Company -- is based in the Netherlands. It is Europe's biggest aerospace and defense firm. A division makes the Airbus and competes with Boeing.

The Telegraph said the SFO was forced to seek the attorney general's approval because any eventual prosecution would be under the old Corruption Act and not the new Bribery Act, which gives the SFO more latitude.

Whistleblower Alleges EADS Bribery

A former employee of the European military contractor EADS told U.K. investigators the company's middlemen gave Saudi Arabian officials "luxury cars, jewellery and briefcases of cash in an apparent attempt to smooth the passage of a £2 billion communications contract," according to a story in the Telegraph.

The paper named the whistleblower as Lieutenant Colonel Ian Foxley, a former employee of EADS subsidiary GPTA.

The Serious Fraud Office has launched an investigation, according to press reports, and has interviewed Lt Col Foxley.

Lt Col Foxley claims he was fired "after raising concerns about the possibility of bribes changing hands," the Telegraph said.

In 2006, Saudi officials pressured the U.K. government to drop a bribery investigation involving BAE Systems. According to court testimony, the Saudis threatened to stop cooperating with U.K. authorities in the fight against terrorism. The resulting scandal damaged the SFO's reputation and led to new management.

"For confidentiality reasons," an SFO spokesman told the Telegraph, "the SFO will be unable to make any public statement, but if charges are brought or a suspect is arrested it will become public very quickly."

EADS's £2 billion contract was for an upgrade to the satellite and intranet systems of the Saudi National Guard -- "the 125,000-strong force that protects the royal family," the Telegraph said.

EADS is the European Aeronautic Defence and Space Company. It was formed in 2000 by Daimler Aerospace (DASA, Germany), Aerospatiale Matra (France), and Construcciones Aeronuticas SA (CASA, Spain). It is Europe's largest supplier of aerospace, defense and related services. One division makes the Airbus and competes with Boeing. EADS is based in Leiden, the Netherlands.

It has 122,000 employees and in 2010 had revenues of €45.75 billion.

EADS' securities trade on numerous European exchanges, and in the U.S. through the over-the-counter market (pink sheets) under the symbol EADSY.PK.

The SFO Fights For Its Life

Plans to break up the U.K.'s Serious Fraud Office are suddenly on hold.

The Telegraph reported Sunday that the Home Office "hastily" delayed a consultation on its plan to divide the SFO. The plan would send the agency's prosecuting function to the Crown Prosecution Service and its investigating side to the National Crime Agency.

The treasury and business departments, the paper said, oppose the break-up plan.

The SFO was set up in 1988 as an independent agency to investigate and prosecute serious or complex fraud and corruption, including overseas bribery. It will oversee enforcement of the new Bribery Act, set to be effective on July 1.

Some see the plan to disassemble the SFO as a step back from international best practices. The U.S. DOJ, for example, leads both investigations and prosecutions. But the Home Secretary, Theresa May, said in a letter to the U.K. attorney general that there is no best practice.

The BBC's influential business editor Robert Peston, who said he'd seen May's letter, quoted her as telling the attorney general: "Whilst the U.S. model is prosecutor-led, Canada, Australia, and Germany run solidly investigative agencies for economic crime. But there is no 'gold standard,' so in either model we would need to ensure that inherent risks were mitigated effectively."

The break-up plan has already caused high-profile departures at the SFO. Its influential general counsel, Vivian Robinson, left in April for private law practice. Robert Amaee, head of the anti-corruption division, left earlier this year, and late last year, Charlie Monteith, head of the policy section, also resigned.

The BBC's Peston said since last year, 31 defendants prosecuted by the SFO went to trial, and 26 were found guilty. "The conviction rate was 84%, and the average jail sentence was over 30 months. In the same period, £64 million of funds were recovered for victims."

New management came to the agency in 2008 after it was criticized for dropping an investigation into BAE Systems about bribery allegations involving the Saudi royal family.

"The SFO believes that if it were allowed to keep its current structure," Peston said, "its dependence on taxpayer funding could reduce further, thanks to its growing success at levying fines, obtaining compensation and seizing criminally obtained assets for the benefit of the public purse."

The SFO currently has about 100 cases. The agency's budget for 2012 is £33.9 million, and will be reduced to £30 million the next year. In contrast, Peston said, two years ago the SFO had a budget of £53 million for a workload of just 65 cases.

On Friday, Peston called the plan to divide the SFO "the most radical change to the investigation and prosecution of financial crime since the creation of the Serious Fraud Office in 1988."

Italian Citizen Pleads Guilty

Former fugitive Flavio Ricotti pleaded guilty yesterday in federal court in Santa Ana, California to a single count of conspiracy to violate the Foreign Corrupt Practices Act and the Travel Act. 

Ricotti, 51, of Bientina, Italy, was a vice president for sales of Control Components Inc. (CCI). He was arrested in February last year in Frankfurt, Germany and extradited to the United States.

He faces up to five years in prison.

In 2009, Ricotti and five other former executives of CCI were named in a 16-count indictment. Also charged were Stuart Carson, CCI's former president, his wife Hong (Rose) Carson, the former director of sales for China and Taiwan, Paul Cosgrove, former director of worldwide sales, David Edmonds, CCI’s former vice president of worldwide customer service, and Han Yong Kim, the former president of CCI’s Korean office. Their trial is scheduled to start on October 4 this year.

As the DOJ says, an indictment is merely an accusation and the defendants are presumed innocent until proven guilty beyond a reasonable doubt.

Ricotti admitted conspiring with other CCI employees to bribe an official of Saudi Aramco, the Saudi Arabian state-owned oil company, and an employee of a private company in Qatar. The bribes were to help win contracts for CCI, which makes valves for the nuclear, oil and gas, and power industries. The conspiracy charge under the Travel Act related to the bribe to the employee at the private company.

Two other former CCI employees pleaded guilty in 2009 to conspiring to bribe officers and employees of foreign state-owned companies on behalf of CCI.

Mario Covino, an Italian citizen, was CCI's former director of worldwide factory sales. He pleaded guilty to one count of conspiracy to violate the FCPA. Covino admitted arranging bribes of about $1 million to officers and employees of several foreign state-owned companies.

Richard Morlok, CCI’s former finance director, pleaded guilty to one count of conspiracy to violate the FCPA and admitted arranging about $628,000 in bribes to officers and employees of several foreign state-owned companies.

Covino and Morlok are scheduled to be sentenced in February next year. They face up to five years in prison.

In July 2009, CCI pleaded guilty to violating the anti-bribery provisions of the Foreign Corrupt Practices Act (15 U.S.C. §78dd-2) and the Travel Act (18 U.S. C. §1952). It admitted bribing foreign officials in a decade-long scheme to secure contracts in about 36 countries. CCI's three-year plea agreement imposed a criminal fine of $18.2 million and required appointment of a compliance monitor and cooperation with the DOJ's investigation.

CCI is owned by British-based IMI plc, which trades on the London Stock Exchange under the symbol IMI.L.

View the DOJ's April 29, 2011 release here.