29 October 2016

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US Justice Dept. Expose Embraer Paid $5.76 Million Bribe to sell IAF 3 aircrafts

Embraer Agrees to Pay More than $107 Million to Resolve Foreign Corrupt Practices Act Charges

US Justice Dept. Expose Embraer Paid $5.76 Million Bribe to sell IAF 3 aircrafts
Parallel Resolutions with the Securities and Exchange Commission and Brazilian Authorities Equaling $97 Million in Disgorgement Also Announced

Brazilian aircraft manufacturer Embraer S.A. (Embraer) entered into a resolution to resolve criminal charges and agreed to pay a penalty of more than $107 million in connection with schemes involving the bribery of government officials in the Dominican Republic, Saudi Arabia and Mozambique, and to pay millions more in falsely recorded payments in India via a sham agency agreement.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and Assistant Special Agent in Charge William J. Maddalena of the FBI’s Miami Field Office made the announcement.

“Embraer paid millions of dollars in bribes to win government aircraft contracts in three different continents,” said Assistant Attorney General Caldwell.  “But this prosecution shows that the Criminal Division will hold accountable those who treat corruption as a mere cost of doing business.

Between U.S., Brazilian and Saudi authorities, bribe payers and bribe takers alike have been brought to justice for their wrongdoing.”

“Embraer tried to bribe their way into several profitable aircraft contracts around the world,” said Assistant Special Agent in Charge Maddalena.  “Instead of reaping a nice profit, their criminal conduct earned the Brazilian aircraft manufacturer a substantial penalty that more than wiped out their gains from these contracts.  Crime does not pay!”

According to the company’s admissions, Embraer executives and employees paid bribes to government officials and falsified books and records in connection with aircraft sales to foreign governments and state-owned entities in multiple countries.

In 2008, Embraer paid $3.52 million to an influential government official in the Dominican Republic via a false agency agreement to secure a contract to sell the Dominican Air Force eight military aircraft for approximately $92 million.

In 2010, Embraer paid $1.65 million to an official at a Saudi Arabian state-owned and -controlled company via a false agency agreement to secure that instrumentality’s agreement to purchase three aircraft from Embraer for approximately $93 million.

In 2008, Embraer paid $800,000 via a false agency agreement with an intermediary designated by a high-level official at Mozambique’s state-owned commercial airline, Linhas Aéreas de Moçambique S.A. (LAM), to secure LAM’s agreement to purchase two aircraft from Embraer for approximately $65 million.

In 2009, Embraer paid an agent $5.76 million pursuant to a false agency agreement with a shell company in connection with a contract it secured to sell the Indian Air Force three aircraft for approximately $208 million.

On or about July 3, 2008, EM BRAER executed a contract to provide three highlyspecialized military aircraft to the Indian Air Force for approximately $208 million, ln connection with the deal, EM BRAER retained the services of Agent D pursuant to a 2005 agency agreement. It later paid $5.76 million to Agent D pursuant to a false agency agreement signed in or around 2008

In or around January 2005, EMBRAER executed an agency agreement with a shell company domiciled in the United Kingdom and affiliated with Agent D (although Agent D’s name never appeared in the agreement). Under the agency agreement, EMBRAER agreed to pay the shell company a commission of 9% of the value of any defense contracts EMBRAER obtained in India because EMBRAER believed Agent D could help ensure that any contract would be awarded on a single-source, rather than competitive, basis. EMBRAER personnel thought the agreement with Agent D was illegal under Indian law and thus took steps to conceal its existence, including secreting the sole fully-executed version of the agreement in a safe deposit box in London that could be opened only when both an EMBRAER employee and Agent  D or an associate of Agent D were present.
Less than a month after executing the agency agreement with the shell company, on or about February 8, 2005, EMBRAER announced that it had signed a memorandum of understanding (MOU) with India s Defence Research and Development Organization to support the development of a new early warning radar system for the Indian Air Force, which EMBRAER believed could ultimately result in EMBRAER securing a contract for the sale of three Embraer 145 aircraft.

On or about July 3, 2008, nearly three years after signing the MOU, the Indian Air Force agreed to purchase three aircraft from EMBRAER for approximately $208 million (the India contract). The next day, on or about July 4, 2008, Agent D contacted EMBRAER employees and demanded payment of the commission pursuant to the contract referenced inAgent D continued making demands for payment and, in or around February and March 2009, an EMBRAER executive met with lawyers representing Agent D to discuss Agent D’s payment demands. Following these discussions, EMBRAER executives agreed to pay $5.76 million to Agent D to settle the claim.

To conceal the payment EMBRAER created a false agency agreement. On or about November 21, 2009, more than a year after EMBRAER was awarded the India contract, EMBRAER, through its wholly owned subsidiary, ECC Investment Switzerland AG (“ECC), executed an agency agreement with a shell company domiciled in Singapore and affiliated with Agent D for its purported services as an agent in a sale EMBRAER had made to an unrelated customer in another country that had purchased an EMBRAER aircraft more than a year earlier, in or around July 2008. The Singaporean shell company never performed any services related to that sale or to the sale to the Indian Air Force.

The same day that the agency agreement was executed, the Singaporean shell company delivered three invoices to ECC, each for $1.92 million. EMBRAER, through ECC, remitted three payments to the shell company shortly thereafter. EMBRAER s books and records did not reflect that this transaction was related to its arrangement with Agent D EMBRAER, through its executives and employees, together with others, paid or caused to be paid $5.76 million to shell companies associated with Agent D, intending that some or all of the payments be given to Agent D, which EMBRAER executives and employees believed to be illegal under Indian law. In total, Embraer earned profits of nearly $84 million on the foregoing aircraft sales.

Embraer entered into a three-year deferred prosecution agreement (DPA) to resolve the case.

As part of the DPA, Embraer admitted to its involvement in a conspiracy to violate the FCPA’s anti-bribery and books and records provisions and to its willful failure to implement an adequate system of internal accounting controls.

Embraer agreed to pay a criminal penalty of $107,285,090; continue to cooperate with the department’s investigation; enhance its compliance program; implement a more adequate system of internal accounting controls; and retain an independent corporate compliance monitor for a term of three years.

The Criminal Division’s Fraud Section reached this resolution based on a number of factors, including the fact that Embraer did not voluntarily disclose the FCPA violations, but did cooperate with the department’s investigation after the Securities and Exchange Commission (SEC) served it with a subpoena.  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.

Embraer did not, however, engage in full remediation.  It disciplined a number of company employees and executives engaged in the misconduct, but did not discipline a senior executive who was aware of bribery discussions in emails in 2004 and had oversight responsibility for the employees engaged in those discussions.  As a result, the criminal penalty in this case is 20 percent below the bottom of the applicable range under the U.S. Sentencing Guidelines, a discount that reflects Embraer’s full cooperation but incomplete remediation.

In related matters, Embraer reached settlements with both the SEC and Brazilian authorities.  Embraer reached a settlement with the SEC, under which it agreed to pay $83.8 million in disgorgement and $14.4 million in prejudgment interest.

The SEC has agreed to credit the disgorgement that Embraer pays to Brazilian authorities.  Embraer also reached a settlement with Brazilian authorities under which it agreed to pay $20 million in disgorgement.

With the cooperation of U.S. authorities, Brazilian authorities have charged 11 individuals for their alleged involvement in Embraer’s misconduct in the Dominican Republic.  Saudi Arabian authorities have charged two individuals for their alleged involvement in Embraer’s misconduct in Saudi Arabia.

The FBI’s Miami Field Office investigated the case.  Senior Trial Attorney Jason Linder and Trial Attorney John-Alex Romano of the Criminal Division’s Fraud Section prosecuted the case.

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Saturday, October 29, 2016

Tags – US Expose India Corruption Case Embraer IAF


Sujatha Sathya October 30, 2016  

informative post

wish you a very happy deepavali