Embraer’s Dominican and Indian Bribery Schemes

Introduction

Brazilian company Embraer is best known as a leading producer of regional civil aircraft, but also builds and successfully exports military trainer/light combat and surveillance planes. The company’s global presence includes a U.S. subsidiary and the licensed production of the Embraer Super Tucano in the United States, from where sales are made to the U.S. government and export customers. The U.S. subsidiary was used in the 2000s to engage in bribery of foreign officials around the world, helping to secure sales of both civil and military aircraft. An investigation into this practice resulted in a USD 205 million settlement with U.S. and Brazilian authorities in 2016, and a USD 7 million settlement in the Dominican Republic.

Key Facts

Buyers: Dominican Republic, India. (Also some civil sales to Mozambique and Saudi Arabia.)

Sellers: Embraer (Brazil, USA)

Year of Deals: 2008

Equipment Sold:

Dominican Republic: 8 EMB-314 Super Tucano trainer/light combat aircraft

India: 3 ERJ-145 transport aircraft, converted to Airborne Early-Warning & Control aircraft with Indian radar

Value of Deals:

USD 92 million (Dominican Republic)

USD 208 million (Brazil)

Sums Involved in Corruption Allegations:

USD 3.5 million (Dominican Republic)

USD 5.76 million (Brazil)

Dramatis Personae

Frederico Curado – former CEO of Embraer; allegedly had knowledge of at least the Dominican bribery scheme. Has not been charged.

Eduardo Munhos de Campos – former regional vice president of sales of Embraer; authorized the Dominican bribery scheme. Standing trial in Brazil.

Carlos Ramón Piccini Núñez – retired colonel, director of special projects for the Dominican Armed Forces; architect of the Dominican bribery scheme. Standing trial on bribery charges in the Dominican Republic.

Rafael Peña Antonio – former minister of defense of the Dominican Republic; co-conspirator in the Dominican bribery case. Standing trial in the Dominican Republic.

Luis René Canaán – senator representing the Dominican province of Hermanas Mirabal; suspected recipient of bribes. Has not been charged.

Elio Moti Sonnenfeld – Israeli businessman; middleman in the Super Tucano deal. Cooperated with Brazilian authorities against Embraer and avoided jail time.

Vipin Khanna – London-based businessman and arms dealer; suspected by India’s Central Bureau of Investigation of being the middleman in the ERJ-145 deal. Khanna has been questioned but not detained by Indian authorities.

The Arms Deals

Dominican Republic

In June 2007, while on a visit to the Brazilian aircraft manufacturer Embraer’s plant in San Jose dos Campos, Brazil, President Leonel Fernandez of the Dominican Republic announced that his country would be buying at least eight EMB-314 “Super Tucano” light aircraft to perform border control and counter-narcotics missions. According to a later investigation, there was no public tender for the requirement and the sale of the aircraft was negotiated directly between the Dominican Air Force (the Fuerza Aérea de República Dominicana, or FARD) and Embraer.

A contract for eight twin-seater versions of the aircraft, designated the A-29B, was finalized in January 2009 and the first planes were inducted into the FARD in December 2009. The purchase price for the planes was USD 92 million, and Brazil’s national development bank provided a loan to the Dominican Republic for the acquisition. According to U.S. officials, the new planes helped the Dominican Republic drastically reduce the amount of cocaine being flown across its territory toward the United States.

India

The Embraer project with India swept up in the bribery scandal involved the indigenous development of an airborne early-warning and control (AEW&C) system installed in civilian jets. In February 2005, Embraer signed a memorandum of understanding with India’s Defense Research and Development Organization (DRDO) that led to close collaboration between the two organizations on integrating an Embraer ERJ-145 regional jet with DRDO’s indigenously developed suite of AEW&C electronics. The memorandum was replaced by a USD 210 million contract for three aircraft in July 2008. The first plane was delivered by Embraer to the DRDO in August 2012, and the first finished system was handed to the Indian Air Force in 2017.

Investigations and Outcomes

Dominican Republic

When Embraer revealed in November 2011 that it was under investigation by the U.S. Securities and Exchange Commission (SEC) for potential violations of the U.S. Foreign Corrupt Practices Act, the investigation was already a year old. It had begun in 2010, shortly after the Dominican A-29B contract was signed; in March 2012, U.S. investigators from the SEC and the Department of Justice (DoJ) had started working with Brazilian authorities to reconstruct the bribery scheme.

According to the Criminal Information record filed by the DoJ against Embraer on October 24, 2016, Embraer executives agreed to pay 3.7% of the Super Tucano deal’s value to an official who could help convince the Dominican Senate to approve a financing package. In September 2008, while the financing plan remained under scrutiny by the Senate, the unnamed official secured a promise from Embraer to pay USD 3.52 million to Dominican “shell entities” in exchange for ensuring that the Senate would move the deal forward.

Although the financing arrangements were eventually approved in December that year, the official only received full payment of the promised bribe in October 2010. Embraer’s U.S. subsidiary, the Delaware-incorporated Embraer Representations LLC, made a payment of USD 100,000 through a shell company in April 2009. Following advice to senior managers from Embraer’s legal department about how to best cover up two additional promised payments of USD 2.5 million and USD 920 million, the remaining money was paid in 2010 via a shell company owned by an “Agent A.” To provide cover for the two transfers, the agent signed a fraudulent consultancy agreement to provide services to Embraer for (non-existent) sales to the Royal Jordanian Air Force. The payments were falsely booked as sales commissions in Embraer’s internal accounts, and as sales expenses in its 2010 financial report.

In November 2013, the Wall Street Journal identified the Dominican official at the heart of the case as retired Colonel Carlos Ramón Piccini Núñez, who was serving at the time as director of special projects for the armed forces. Piccini worked with Rafael Peña Antonio, a former minister of defense, to pass bribes to legislators, the Dominican Republic’s Office of the Special Prosecutor for Administrative Corruption alleged in August 2016. At least one suspected ultimate bribe-recipient, Senator Luis René Canaán, has been named so far, but investigating officials have declined to charge him. The special prosecutor’s office has also implicated four businessmen, Daniel Aquino Méndez, Daniel Aquino Hernández, Ysrael Abreu Rosario, and Félix del Orbe Berroa, in the deal. The Dominican investigation is ongoing.

Update (Aug. 30, 2018): On August 14, 2018, Dominican prosecutors announced that Embraer had agreed to a USD 7 million settlement and to provide authorities with detailed information on the bribes paid out.


Frederico Curado, CEO of Embraer, at an industry association meeting in Atlanta, United States, on Oct. 18, 2010. Getty/Bloomberg, Chris Rank.

In September 2014, a Brazilian court filed a criminal complaint against “Agent A,” identified as Elio Moti Sonnenfeld, and eight current or former Embraer executives. Sonnenfeld, an Israeli businessman, decided to cooperate with investigators and the court dropped charges against him in exchange for testimony against his co-defendants. The Brazilian investigation also concluded that “from all indication” it was clear that part of the USD 3.52 million was earmarked for a Dominican Senator. In addition, Sonnenfeld alleged that the CEO of Embraer, Frederico Curado, had knowledge of the bribery scheme. Curado, a 32-year veteran of Embraer, left the company in June 2016 and has not been charged by authorities.

According to the Brazilian criminal complaint, a vice president for sales, Eduardo Munhos de Campos, was the executive who promised to pay bribes to Piccini. Munhos’ co-defendants are other vice-presidents and managers of the firm and as of July 2018, their trial is ongoing. Munhos has not been detained and is currently employed as a sales executive by Leonardo, the Italian defense firm.

India


Vipin Khanna (R) attends a function at the British High Commission in Delhi, India, on Apr. 29, 2011. Getty, Graham Crouch.

The U.S. DoJ’s information report filed in the Embraer investigation also alleged that in January 2005 the company had agreed to pay an unnamed agent nine percent of all future Indian defense sales revenue on the understanding that the agent would be able to secure non-competitive contracts for Embraer. At the time, Embraer employees recognized that the agreement was likely illegal under Indian law and hid the only physical copy of the agreement in a London bank vault. Beginning in July 2008, after Embraer signed a contract with the DRDO for three ERJ-145 regional jets, the agent approached Embraer for payment. In March 2009, Embraer agreed to pay the agent USD 5.76 million—just under nine percent of the deal’s USD 208 million value—and followed through in November that year. To facilitate the transfer, Embraer created a false contract with one of the agent’s controlled companies in Singapore, supposedly for agent services stemming from an unrelated 2008 sale of aircraft. The Singapore shell company then billed an Embraer subsidiary in Switzerland for the USD 5.76 million payment.

In October 2016, India’s Central Bureau of Investigation (CBI) filed an initial complaint against the London-based businessman Vipin Khanna, identifying him as the agent described in the U.S. filings. Khanna, and his son Aditya Khanna, had previously been implicated in the Iraqi Oil-for-Food scandal of the early 2000s, as well as the Barak missile deal. Indian investigators have asked counterparts in the United Kingdom, Switzerland, and Singapore for their cooperation in examining the case. However, thus far the CBI has not made public the names of any officials that may have been bribed or otherwise influenced by Khanna.

Ember’s Settlement with the US Department of Justice

The U.S. investigation ended in 2016 with Embraer accepting guilt with regard to the above allegations, as well as those relating to civil aircraft sales to Mozambique and Saudi Arabia. As part of a Deferred Prosecution Agreement (DPA), the company was fined a total of USD 205.5 million, including USD 83.8 million in “disgorgement” of profits, USD 14.4 million in pre-judgment interest, and a USD 107.3 million criminal penalty—USD 20 million below the recommended minimum for such cases. From this total was deducted a credit for a disgorgement of USD 18.6 million paid to the Brazilian authorities in a separate settlement.

The DoJ also cited Embraer for ‘knowingly and willfully’ failing to implement systems of financial controls to ensure due diligence over agreements with third-party agents. This failure was the responsibility of high-level Embraer executives, who were fully aware that the lack of controls enabled the use of false agency agreements to cover bribes. Embraer accepted the supervision of a corporate monitor for three years. In August 2016, Embraer shareholders filed a lawsuit against the firm, alleging that executive wrongdoing had led to inflation in the price of company shares. This suit was dismissed in March 2018.

Despite the involvement of senior Embraer executives in the bribery schemes, the company has continued to receive US government contracts. Most recently, the U.S. State Department has approved the possible sale of 12 Super Tucano aircraft to Nigeria, from the Super Tucano’s U.S. production line in Jacksonville, Florida, under a partnership between Embraer and the Sierra Nevada Corporation.

Banner Image Credit

Image Caption: A pair of Brazilian Air Force Embraer A-29 Super Tucanos in flight over the Amazon Rainforest on May 28, 2011.
Image Source: Brazilian Ministry of Defense, Sgt. Johnson Barros.

Sources (Click to Expand)

“Bribery Probe Into the Dominican Republic’s 8 Super Tucanos,” Defense Industry Daily (online), Nov. 3, 2013, https://www.defenseindustrydaily.com/8-super-tucanos-to-dominican-republic-05244.

Joe Palazzolo and Rogerio Jelmayer, “Brazil Files Bribery Charges in Embraer Aircraft Sale to Dominican Republic,” The Wall Street Journal (online), Sep. 23, 2014, https://www.wsj.com/articles/brazil-files-bribery-charges-in-embraer-aircraft-sale-to-dominican-republic-1411502236.

“Nombre del senador del caso aviones Tucano está protegido por la ‘más estricta reserve,’” Acento.com.do (online), Sep. 26, 2014, https://acento.com.do/2014/politica/8177765-nombre-del-senador-del-caso-aviones-tucano-esta-protegido-por-la-mas-estricta-reserva.

“Embraer-Tucano: Luis René Canaán es acusado de ser el senador que recibió el dinero de soborno,” Acento.com.do (online), Aug. 12, 2016, https://acento.com.do/2016/actualidad/8372477-embraer-tucano-luis-rene-canaan-es-acusado-de-ser-el-senador-que-recibio-el-dinero-de-soborno.

Yamalie Rosario, “Los super tucanos fueron defendidos en el Congreso por oficiales de las FF.AA.,” Diario Libre (online), Aug. 14, 2016, https://www.diariolibre.com/noticias/los-super-tucanos-fueron-defendidos-en-el-congreso-por-oficiales-de-las-ff-aa-FC4657106.

“Caso Súper Tucano: Libertad para general Peña Antonio y prisión para coronel Carlos Piccini,” El Día (online), Aug. 18, 2016, http://eldia.com.do/tucano-libertad-para-general-pena-antonio-y-prision-para-carlos-piccini.

“Embraer Deal: $5.5 Million Paid As Commission, Claim CBI Sources,” Press Trust of India, Sep. 29, 2016, https://www.ndtv.com/india-news/embraer-deal-5-5-million-paid-as-commission-claim-sources-1467769.

Deepshikha Ghosh, “Case Filed In Embraer Aircraft Deal, Defence Agent Vipin Khanna Named Key Accused,” NDTV (online), Oct. 21, 2016, https://www.ndtv.com/india-news/case-filed-in-embraer-aircraft-deal-defence-agent-vipin-khanna-named-key-accused-1477113.

U.S. Department of Justice, “United States of America v. Embraer S.A., Information,” United States District Court for the Southern District of Florida, Oct. 24, 2016, https://www.justice.gov/criminal-fraud/file/904641/download.

U.S. Department of Justice, “Embraer Agrees to Pay More than $107 Million to Resolve Foreign Corrupt Practices Act Charges,” Press Release, Oct. 24, 2016, https://www.justice.gov/opa/pr/embraer-agrees-pay-more-107-million-resolve-foreign-corrupt-practices-act-charges.

U.S. Securities and Exchange Commission, “Embraer Paying $205 Million to Settle FCPA Charges,” Press Release, Oct. 24, 2016, https://www.sec.gov/news/pressrelease/2016-224.html.

Kevin G. Hall, “Brazilian aircraft maker settles bribery charges,” McClatchy, Oct. 24, 2016, http://www.mcclatchydc.com/news/crime/article110149392.html.

“Termo de Compromisso e de Ajustamento de Conduta,” Comissão de Valores Mobiliários (website), Oct. 24, 2016, http://www.cvm.gov.br/export/sites/cvm/noticias/anexos/2016/20161024-tcacembraer_v2.pdf.

Neeraj Chauhan, “CBI questions Embraer deal ‘middleman’ Vipin Khanna over bribe,” The Times of India, Mar. 2, 2017, https://timesofindia.indiatimes.com/india/cbi-questions-embraer-deal-middleman-vipin-khanna-over-bribe/articleshow/57420087.cms.

Liliam Mateo, “Carlos Piccini no habló a sugerencia de su abogado, es decir no fue interrogado,” El Nuevo Diario (online), June 19, 2017, https://elnuevodiario.com.do/carlos-piccini-2.

Wanda Méndez, “El general Rafael Peña Antonio es interrogado por caso Super Tucano,” La República (online), June 22, 2017, https://www.listindiario.com/la-republica/2017/06/22/471194/el-general-rafael-pena-antonio-es-interrogado-por-caso-super-tucano.

Azaan Javaid, “Embraer deal: CBI turns to UK for information,” Hindustan Times (online), July 23, 2017, http://www.hindustantimes.com/india-news/embraer-deal-cbi-turns-to-uk-for-information/story-RHOh0lzMi6O4vMMq82Y2nO.html.

“Empresa Embraer niega haber sobornado a coronel Piccini para compra de los Tucano,” El Nuevo Diario (online), Oct. 31, 2017, https://elnuevodiario.com.do/empresa-embraer-niega-haber-sobornado-coronel-piccini-compra-los-tucano.

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