Embraer to pay $205 mn to settle graft charges in India, 3 other countries

Brazilian aircraft manufacturer Embraer has agreed to pay over USD 205 million to resolve charges of corruption and making bribe payments to officials in foreign nations, including USD 5.76 million allegedly paid to an agent in India in connection with the sale of three military aircraft for Indian Air Force.

The corruption charges in India relate to payment of USD 5.76 million to an agent in kickbacks for clinching a deal for the sale of three highly specialised military aircraft for the IAF's Airborne Early Warning and Control System (AWACS).

The CBI has already registered an FIR in the case.

Embraer entered into the resolution to resolve criminal charges and agreed to pay a penalty of more than USD 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, the US Justice Department said.

Under the settlement, apart from the USD 107 million penalty to the Justice Department as part of a deferred prosecution agreement, Embraer must also pay more than USD 98 million in disgorgement and interest to the Securities and Exchange Commission (SEC).

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.

The SEC’s complaint alleges that Embraer made more than USD 83 million in profits as a result of bribe payments from its US-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, USD 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 USD 1.65 million in bribes were routed to an official in Saudi Arabia to win business there.

In 2009, approximately USD 5.76 million was allegedly paid to an agent in India in connection with the sale of three highly specialised military aircraft for Indian Air Force for for approximately USD 208 million 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," Andrew Ceresney, Director of the SEC Enforcement Division, said. 

Assistant Special Agent in Charge William Maddalena of the FBI's Miami Field Office said Embraer tried to bribe their way into several profitable aircraft contracts around the world.

"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!," he said.

According to Embraer's Deferred Prosecution Agreement, in about July 2008, Embraer executed a contract to provide the three highly specialised military aircraft to the Indian Air Force for approximately USD 208 million.

In connection with the deal, it retained the services of an individual described only as Agent D in the prosecution agreement. Agent D's identity is known to the United States and Embraer.

The prosecution agreement said that in around January 2005, Embraer executed an agency agreement with a shell company domiciled in the United Kingdom and affiliated with Agent D.

Under the agency agreement, Embraer agreed to pay the shell company a commission of 9 per cent of the value of any defence 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, the federal complaint said.