Embraer paid USD 5.76 mn to shell company for IAF plane deal

Brazilian aircraft manufacturer Embraer paid USD 5.76 million to a shell company in connection with a contract it secured to sell the Indian Air Force (IAF) three aircraft for about USD 208 million, the US Department of Justice said today.

Such a revelation came as Embraer, as per a Justice Department announcement, entered into a resolution and agreed to pay USD 205 million to resolve charges of corruption and making bribe payments to foreign nations, including to an agent in India for the IAF deal.

Embraer will pay a penalty of over USD 107 million in connection with schemes involving bribery of government officials in the Dominican Republic, Saudi Arabia and Mozambique, and millions more over falsely recorded payments in India via a sham agency agreement.
In a parallel resolution with the Securities and Exchange Commission and Brazilian authorities, the company will also have to pay USD 98 million in disgorgement.

Embraer earned profits of nearly USD 84 million on the aircraft sale to India. In 2009, Embraer paid an agent USD 5.76 million pursuant to a false agency agreement with a shell company in connection with a contract it secured to sell the IAF three aircraft for approximately USD 208 million, the Justice Department said.

"Embraer paid millions of dollars in bribes to win government aircraft contracts in three different continents," said Assistant Attorney General Leslie R Caldwell.

"Embraer tried to bribe their way into several profitable aircraft contracts around the world," said Assistant Special Agent in Charge William J Maddalena.

According to court documents, on July 3, 2008, Embraer executed a contract to provide three highly specialised military aircraft to the IAF for nearly USD 208 million.

In connection with the deal, it retained the services of an unknown agent identified in the court as "Agent D" pursuant to a 2005 agency agreement.

"It later paid USD 5.76 million to Agent D pursuant to a false agency agreement signed in or around 2008," federal prosecutors alleged.

Federal prosecutors said in January 2005, Embraer executed an agency agreement with a shell company domiciled in the UK and affiliated with Agent D (although the name never appeared in the agreement).

Under the agency agreement, Embraer agreed to pay the shell company a commission of nine per cent of the value of any defence contracts Embraer obtained in India because it believed the agent could help ensure that any contract would be awarded on a single-source, rather than competitive, basis.