This article was reprinted with permission from FCPAméricas Blog, for which Matteson Ellis is founder, editor and regular contributor.
A lot has been written in the last two years about Embraer’s FCPA investigation, ever since Brazil’s flagship aircraft maker, the third-largest commercial airline manufacturer in the world, announced on November 3, 2011 that it had received a subpoena from the U.S. Securities and Exchange Commission (SEC). FCPAméricas has previously written about the matter here and here.
In light of recent reports from the Wall Street Journal, Compliance Week and others, FCPAméricas takes the opportunity to catch up. This post provides the basic facts known today and lists four key takeaways.
The Facts, as Reported
Embraer is the first known FCPA investigation of a major Latin American-based, multinational corporation. News reports indicate that the activity under review by authorities involves potential illicit payments by the company in at least three different countries. Argentina and the Dominican Republic are two of the three.
In Argentina, bribes (of an undisclosed amount) were allegedly paid to win $900 million in contracts to sell 22 passenger jets to Aerolíneas Argentinas, the government-controlled airline there. In the Dominican Republic, the bribes are said to be valued at $3.4 million to win a $90 million contract for the sale of eight aircraft. The lead government official in charge of the Dominican Republic scheme was the then-Director of Special Projects for the country’s armed forces. The bribes were approved by Embraer executives. Embraer sought assistance from a middleman in the scheme.
Most recently, the Wall Street Journal has reported that Brazilian authorities launched their own bribery investigation into Embraer’s activities as well. The news reports are based on a review of source documentation related to mutual assistance requests between Brazil and the United States, making them appear credible.
Four Key Takeaways
1. A common corruption scheme. If the reports are true, then Embraer’s multi-country bribery scheme was a common one. To win valuable contracts with governments, the company devised kickback schemes so that foreign officials with decision-making authority or special influence could help pave the way for sales. FCPA actions based on similar schemes are numerous and include BizJet in Mexico and Panama and Siemens in Venezuela. (FCPAméricas discusses other common forms of FCPA violations in Latin America here.)
2. A common plan to disguise the scheme. In the U.S., publicly listed companies like Embraer are subject to the FCPA’s accounting provisions, as discussed here. Accounting violations can include mischaracterization of expenses on a company’s books, as described here. It appears that Embraer attempted to hide its $3.4 million in bribe payments to Dominican officials by characterizing them as something else – it recorded them as legitimate fees related to the sale of aircraft to Jordan, when in actuality the payments were made to three shell companies. The fact that the company issued so much in payments to companies that provided no legitimate services might also constitute internal controls violations.
3. FCPA jurisdiction. The Embraer investigation has commanded the attention of boardrooms throughout the region. One common question being asked by Latin American executives is how can the United States Government investigate a Brazilian company for alleged bribes paid in Argentina and the Dominican Republic? In fact, this matter is just one of many examples of U.S. authorities asserting jurisdiction over non-U.S. companies and individuals for activity that occurred mostly, if not completely, outside of the United States. Enforcing the FCPA against non-U.S. entities has actually been a stated priority of enforcement officials, since it helps to level the playing field in the global marketplace for U.S. companies.
In the case of Embraer, there appear to be three potential bases for FCPA jurisdiction. Embraer is publicly listed on the New York Stock Exchange, subjecting the company to the FCPA accounting provisions. It has operations in the United States, which can create a possible link for the FCPA’s anti-bribery provisions. Moreover, recent reports reveal that at least part of the bribes paid to Dominican officials flowed through the U.S. financial system, creating a direct jurisdictional link. FCPAméricas discusses jurisdictional aspects of the law here.
4. The Brazilian investigation. The most significant revelation so far might be that Brazilian authorities are now investigating the company too. In February 2013, they reportedly requested evidence from U.S. authorities under mutual legal assistance provisions of international agreements. Even more significantly, the United States honored the request. This highlights an entirely new enforcement landscape that companies must now consider when operating in the region. In Brazil in particular, no longer can companies be concerned with only U.S. enforcement. They must take into account local enforcement as well.
There are other remaining questions that will likely be answered in time. What is the third country where illicit payments might have occurred, and are there others? Will Argentina and the Dominican Republic open their own investigations? When will Embraer complete its FCPA investigation? Will it settle with U.S. authorities? If so, how much will it ultimately pay? And will Embraer executives go to jail in the United States?
The opinions expressed in this post are those of the author in his or her individual capacity and do not necessarily represent the views of anyone else, including the entities with which the author is affiliated, the author`s employers, other contributors, FCPAméricas or its advertisers. The information in the FCPAméricas blog is intended for public discussion and educational purposes only. It is not intended to provide legal advice to its readers and does not create an attorney-client relationship. It does not seek to describe or convey the quality of legal services. FCPAméricas encourages readers to seek qualified legal counsel regarding anti-corruption laws or any other legal issue. FCPAméricas gives permission to link, post, distribute or reference this article for any lawful purpose, provided attribution is made to the author and to FCPAméricas LLC.
Sign up for our free weekly e-newsletter for more GRC articles, job postings, GRC events, white papers & more…..click here
Matteson Ellis serves as Special Counsel to the FCPA and International Anti-Corruption practice group of Miller & Chevalier Chartered in Washington, DC. He is also founder and principal of Matteson Ellis Law PLLC, a law firm focusing on FCPA compliance and enforcement. He has extensive experience in a broad range of international anti-corruption areas. Previously, he worked with the anti-corruption and anti-fraud investigations and sanctions proceedings unit at The World Bank. Mr. Ellis has helped build compliance programs associated with some of the largest FCPA settlements to date; performed internal investigations in more than 20 countries throughout the Americas, Asia, Europe and Africa considered “high corruption risk” by international monitoring organizations; investigated fraud and corruption and supported administrative sanctions and debarment proceedings for The World Bank and The Inter-American Development Bank; and is fluent in Spanish and Portuguese. Mr. Ellis focuses particularly on the Americas, having spent several years in the region working for a Fortune 50 multinational corporation and a government ethics watchdog group. He regularly speaks on corruption matters throughout the region and is editor of the FCPAméricas Blog. He has worked with every facet of FCPA enforcement and compliance, including legal analysis, internal investigations, third party due diligence, transactional due diligence, anti-corruption policy drafting, compliance training, compliance audits, corruption risk assessments, voluntary disclosures to the U.S. government and resolutions with the U.S. government. He has conducted anti-corruption enforcement and compliance work in the following sectors: agriculture, construction, defense, energy/oil and gas, engineering, financial services, medical devices, mining, pharmaceuticals, gaming, roads/infrastructure and technology. Mr. Ellis received his law degree, cum laude, from Georgetown University Law Center, his masters in foreign affairs from Georgetown’s School of Foreign Service, and his B.A. from Dartmouth College. He co-founded and serves as chairman of the board of The School for Ethics and Global Leadership in Washington, D.C. He is a member of the District of Columbia, Texas, New York, and New Jersey bar associations. Mr. Ellis is also author of The FCPA in Latin America: Common Corruption Risks and Effective Compliance Strategies for the Region.