Embraer to Pay $205 Million to Settle Corruption Probes

Updated on
  • Aircraft maker admits to bribe payments in multiple countries
  • U.S. says case highlights cooperation with Brazil authorities

Embraer SA agreed to pay $205 million to resolve long-running corruption probes by the U.S. and Brazil that started with an airplane deal with the Dominican Republic and spread to other countries, including Saudi Arabia and Mozambique.

Under the settlement, Embraer will pay $107 million to the U.S. Justice Department and enter into a three-year deferred prosecution agreement. The company, which admitted to being involved in a conspiracy to violate U.S. anti-bribery laws, will pay an additional penalty of $98 million to the Securities and Exchange Commission. The company is paying Brazilian authorities $20 million, an amount that will be deducted from its SEC bill, according to a statement from the agency. 

QuickTake: The economic costs of corporate corruption

The U.S. has pointed to the Embraer investigation as a model of cross-border cooperation. With the Justice Department’s assistance, Brazilian authorities have charged 11 individuals while Saudi Arabia has charged two individuals, U.S. officials said.

“Between U.S., Brazilian and Saudi authorities, bribe payers and bribe takers alike have been brought to justice for their wrongdoing,” Assistant Attorney General Leslie Caldwell said in a written statement.

Putting the probes behind the company would help wipe the slate clean for Embraer Chief Executive Officer Paulo Cesar de Souza e Silva, who succeeded Frederico Curado this year. The company set aside $200 million in second-quarter provisions for the anticipated settlement, leading to a net loss of $99.4 million.

Embraer fell 0.5 percent to 15.58 reais at 5:22 p.m. in Sao Paulo.

Company’s ‘Regrets’

“The company acknowledges responsibility for the conduct of its employees and agents according to the facts ascertained in the investigation,” Embraer said in a statement. “Embraer deeply regrets this conduct. The company has learned from this experience and will be stronger as it moves forward.”

The SEC alleged that Embraer made more than $83 million in profits by paying bribes from a U.S. subsidiary to government officials in the Dominican Republic and several other countries. The bribes included a $3.52 million payment to a Dominican air force official for a military contract, $1.65 million to a Saudi official and $800,000 in Mozambique.

Embraer allegedly kept false books and records to hide the payments in violation of the Foreign Corrupt Practices Act, the SEC said. Embraer also falsely recorded a $5.76 million payment to an agent in India in connection with the sale of specialized aircraft to that country, the agency said.

‘Significant Revenues’

“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,” Andrew J. Ceresney, head of the SEC’s enforcement division, said in a statement.

The Dominican Republic in August arrested a former defense minister and three others, accused of accepting a $3.5 million bribe from Embraer in exchange for placing an order for military aircraft. 

The arrests were part of an investigation by U.S. and Brazilian authorities into the 2009 purchase of eight Super Tucano turboprop planes for $94 million. The Dominican government said it used the aircraft to combat aerial drops of drugs from South America.

Bribery Methods

The documents in the Justice Department case detail the methods used by Embraer executives to funnel money to government officials through a web of third-party agents and using bank accounts in the U.S. and elsewhere.

In India, to work around bidding rules that would have disadvantaged Embraer, the company beginning in 2005 used a shell company based in the U.K. to hire a person to ensure defense contracts would be awarded to Embraer without competitive bidding, according to the court documents.

The agreement between the unidentified U.K. company and Embraer was so secretive that the only “fully executed” version was placed in a lockbox in London, which could be opened only if an Embraer official and an associate of the agent were present, according to court records.

Three years later, Embraer executed a contract valued at $208 million to provide three highly specialized aircraft for the Indian Air Force, authorities said. The agent was paid a $5.76 million commission, they said.

In Mozambique, Embraer’s offer to pay a government official $100,000 to $160,000 as “commission” in a $64 million deal in 2008 over two aircraft was viewed as an insult.

“It would have been less insulting to give nothing,” a Mozambique official said to an Embraer executive, according to court documents. The official suggested a $1 million payment.