Embraer Admits Illicit Payments for Military Sales

by Chris Pocock and Neelam Mathews

 - October 28, 2016, 7:37 AM

Embraer has agreed to pay some $205 million to settle corruption charges involving sales of military and civil airplanes to four customers. The agreements with the U.S. Department of Justice, the U.S. Securities and Exchange Commission (SEC), Brazil’s Ministério Público Federal (MPF) and the Brazilian Comissão de Valores Mobiliários (CVM) end a six-year graft probe that found that Embraer paid bribes and created false records to conceal illicit payments. But further action could be taken against Embraer in India, concerning the acquisition of three EMB-145 aircraft for conversion to the AWACS role, suggested the Indian defense minister.

Three EMB-145 turboprop airliners were converted in India for the AWACS mission. (Photo: Neelam Mathews)

This inquiry began in 2010, when U.S. authorities questioned Embraer about “potential nonconformities” related to certain commercial transactions abroad. The company proceeded to undertake an investigation led independently by external law firms.

The SEC’s complaint alleged 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 also allegedly engaged in an accounting scheme in India.

According to the SEC, Embraer paid $3.52 million in bribes to an official in the Dominican Republic’s air force to secure a contract for eight Super Tucano light attack turboprops, and another $1.65 million in bribes to an official in Saudi Arabia to win a sale of three E170 jet airliners to Saudi Aramco. It also allegedly paid $800,000 at the behest of a Mozambican government official as a condition of obtaining a contract involving two E190s with state-owned LAM. 

Finally, some $5.76 million allegedly went to an agent in India in connection with the sale of the three EMB-145s to the Indian Air Force (IAF). Embraer falsely recorded those payments in its books and records as part of an illegitimate consulting agreement. Those aircraft received an indigenous radar system designed by the government’s Defense Research and Development Organization (DRDO). The IAF is expected to receive the first one soon, but now favors longer-endurance and higher-altitude platforms for the AWACS mission.

As part of the settlement, Embraer has agreed to retain an external and independent “monitorship” for up to three years to ensure full compliance with the settlement terms. The settlement also means that none of the authorities will bring charges against the company as long as Embraer fully honors the terms of the agreement.

In a statement, Embraer said its internal investigation involved the analysis of hundreds of thousands of documents and more than 100 interviews with employees and third parties. “The company acknowledges responsibility for the conduct of its employees and agents according to the facts ascertained in the investigation,” it said. “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.”

Separately, the Brazilian Federal Prosecution Service continues to conduct its own investigations and plans to file lawsuits against certain individuals. Embraer is not a party to those lawsuits.

Indian defense minister Manohar Parrikar said this week that Embraer “cannot escape Indian laws just because it has struck a settlement with American authorities.” He said while the EMB-145s would not be grounded, a new blacklisting policy will be finalized next month. Parrikar added: “In American law, criminal processes can be compounded [settlement through payment of fines]. However, in India, criminal law is not compounded unless the acts are of a very minor nature.”