Friday, November 01, 2013

Plane Maker Embraer Faces Bribery Inquiries: WSJ

The Wall Street Journal

By  Joe Palazzolo and Paulo Winterstein

Nov. 1, 2013 7:01 p.m. ET

U.S. and Brazilian authorities are investigating whether aircraft maker Embraer SA bribed officials in the Dominican Republic in return for a $90 million contract to furnish the country's armed forces with attack planes, according to law enforcement documents and people familiar with the case.

The probe takes aim at one of Brazil's highest-profile companies—the world's third-largest commercial aircraft manufacturer—and appears to be among the country's first forays into investigating a domestic company for alleged bribery overseas.

U.S. authorities were investigating Embraer in 2010 for possible violations of the Foreign Corrupt Practices Act, an antibribery statute, according to regulatory filings. A request for evidence sent early this year by Brazil to the U.S., and reviewed by The Wall Street Journal, sheds new light on the probe.

According to the February request, reviewed by the Journal, officials at the U.S. Department of Justice and the SEC first approached Brazilian authorities about an investigation of Embraer at an international anticorruption conference in Paris in March 2012.

In the following months, the Americans said they had evidence—including bank records and emails—that they believed to show that Embraer executives had approved a $3.4 million bribe to a Dominican official with influence over military procurement, according to the request, which was made under a legal-assistance treaty between the two countries.

The alleged payment led to the Dominican government in 2010 purchasing eight Embraer Super Tucanos, turboprop attack support aircraft that have been a darling of air forces in developing countries, the request said.

Embraer, which first disclosed the FCPA probe in 2011, said it has been cooperating with authorities. It hired law firm Baker & McKenzie LLP to conduct an internal investigation after receiving a subpoena from the SEC in September 2010, according to a regulatory filing.

"Integrity, transparency in its business transactions and ethics in its relationships are the principles that always guided Embraer. The Company requires that all its employees have a conduct of strict compliance with laws and regulations, as established in its corporate policies and in its Code of Ethics and Conduct," the company said in an emailed statement Friday. "Due to the mandatory confidentiality of the investigation, the company is unable to comment on it."

Spokesmen for the SEC and the Justice Department declined to comment. Fernando Lacerda Dias and Marcello Paranhos de Oliveira Miller, prosecutors in Brazil's Federal Public Ministry, which is handling the investigation, declined to comment.

Brazil has never prosecuted an individual for paying bribes overseas, according to the anticorruption group Transparency International. The country has picked a high-profile target.

Embraer employs more than 18,000 people at its plants in Brazil, China, Portugal, France and the U.S., and its shares trade on the New York Stock Exchange.  In recent years, the company has made an effort to expand revenue from military and executive airplanes. Its third-quarter profit fell 8%, but the company reported a $17.8 billion backlog of orders at the end of September, the highest level since 2009.

Brazil's government has a golden share in Embraer, allowing it to veto some executive decisions.

The investigation of the Dominican sale centers on a retired colonel, Carlos Piccini, who in 2009 was serving as the Dominican Republic's director of special projects for the armed forces, according to the request from the Brazilians. Mr. Piccini is said to have directed Embraer executives to split the $3.4 million money among bank accounts maintained by three shell companies.

The Dominican Republic Air Force said Mr. Piccini is retired and can't be reached. Phone and email requests to reach Mr. Piccini through the office of the president of the Dominican Republic weren't answered. The president's press office also didn't reply to phone and email requests for comment on the Armed Forces' role in the purchase of Embraer airplanes.

Embraer allegedly routed the payments to Mr. Piccini through a middleman, according to the legal-assistance request. Company officials attempted to conceal the payments by booking them as fees in a deal to sell aircraft to the Kingdom of Jordan that never happened, according to the legal-assistance request.

The U.S. has jurisdiction to investigate Embraer, because its shares trade in New York and because some of the alleged payments passed through the U.S. financial system, according to the legal-assistance request, which the U.S. has honored, according to a person familiar with the matter.

The U.S. was the first country to ban bribery of foreign officials in the 1970s and has brought dozens of cases in the past decade; U.S. officials have long lobbied the international community to join them on the beat.

The Brazilians have opened an investigation of Embraer under a law that bars individuals from making payments to foreign officials to gain a business advantage, according to the request. The country passed a law in August making it a crime for corporations to pay bribes, modeled after the U.S. Foreign Corrupt Practices Act, but it isn't retroactive. Four foreign bribery investigations were under way in Brazil as of this year, Transparency International said in an Oct. 7 report.

Several current and former Embraer executives have retained U.S. lawyers from Schertler & Onorato LLP, Shearman & Sterling LLP, Williams & Connolly LLP and Zuckerman Spaeder LLP.


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