Embraer Paying $205 Million to Settle FCPA Charges
(Source: Securities and Exchange Commission; issued Oct. 24, 2016)
The SEC’s complaint alleges that Embraer made more than $83 million in profits as a result of bribe payments from its U.S.-based subsidiary through third-party agents to foreign government officials in the Dominican Republic, Saudi Arabia, and Mozambique. Embraer allegedly created false books and records to conceal the illicit payments, and also engaged in an alleged accounting scheme in India.
According to the SEC’s complaint, $3.52 million in bribes were paid to an official in the Dominican Republic’s air force to secure a military aircraft contract in that country, and $1.65 million in bribes were routed to an official in Saudi Arabia to win business there. An alleged $800,000 payment was made at the behest of a Mozambican government official as a condition of obtaining a contract with a state-owned airline in that country. Approximately $5.76 million was allegedly paid to an agent in India in connection with the sale of three highly specialized military aircraft for India’s air force, and the payments were falsely recorded in Embraer’s books and records as part of a consulting agreement that wasn’t legitimate.
“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,” said Andrew J. Ceresney, Director of the SEC Enforcement Division.
Kara N. Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit, added, “Embraer’s alleged misconduct spanned multiple continents, and it has taken significant ongoing coordination among international regulators and law enforcement agencies to uncover the company’s complex bribery schemes.”
Under the settlement, Embraer must pay a $107 million penalty to the Justice Department as part of a deferred prosecution agreement, 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. Embraer must retain an independent corporate monitor for at least three years.
The SEC’s investigation was conducted by Ernesto Palacios and Thierry Olivier Desmet of the FCPA Unit with assistance from Kathleen Strandell. The SEC appreciates the assistance of the Department of Justice Criminal Division’s Fraud Section, the Federal Bureau of Investigation, the Brazilian Federal Prosecution Service, the Brazilian Federal Police, Brazil’s Comissão de Valores Mobiliários, the South African Financial Services Board, the Swiss Financial Market Supervisory Authority (FINMA), the Banco Central del Uruguay, the Spanish Comisión Nacional del Mercado de Valores, and the French Autorité des Marchés Financiers.
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Embraer Announces the Resolution of Case with the US and Brazilian Authorities
(Source: Embraer; issued Oct. 24, 2016)
As part of the settlement, the company has agreed to retain an external and independent monitorship for up to three years, to ensure full compliance with the settlement terms. The company has also agreed to payments in an aggregate amount of close to $206 million to the U.S. and Brazilian authorities. The settlement further provides that as long as the terms of the agreements are fully honored, no charges will be brought against the company.
This inquiry began in 2010 when Embraer was questioned by American authorities regarding potential nonconformities related to certain commercial transactions abroad. The company then undertook a wide internal investigation, led independently by external law firms.
From the beginning, Embraer took the matter seriously and fully cooperated with the investigation. As events unfolded, the company voluntarily expanded its scope and shared the results with the appropriate authorities.
As part of its commitment to disclose material information to investors, the company has reported the progress of the investigations to the financial markets and to the regulatory agencies in Brazil and the United States. Please refer to the company’s prior disclosures for further information related to the investigations.
The company recently concluded its internal investigation after six years of intensive effort. Hundreds of thousands of documents were analyzed and more than 100 interviews with employees and third parties were conducted. As part of the settlement documentation, the investigation determined that the company was responsible for misdeeds in four transactions between 2007 and 2011 in Saudi Arabia, India, Mozambique and the Dominican Republic. Those transactions involved the sale of 16 aircraft.
The company acknowledges responsibility for the conduct of its employees and agents according to the facts ascertained in the investigation. Embraer deeply regrets this conduct. The company has learned from this experience and will be stronger as it moves forward and continues its nearly 50 years of successful existence in which it has delivered more than 8,000 aircraft in over 90 countries.
The Brazilian Federal Prosecution Service has been conducting its own investigations in parallel and is filing lawsuits against certain individuals. Embraer is not party to these lawsuits.
For many years, Embraer has been improving and expanding its global compliance program for the continuous enhancement of its systems and internal controls. The company conducts ongoing training for its employees and business partners. Company staff members are required to attend workshops and seminars on ethics and integrity and to review relevant case studies. Nearly 400 business partners have been trained in these exercises as well.
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