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Odebrecht / Braskem Bribery Schemes Net Approximate $420 Million FCPA Enforcement Action

oder

Yesterday, the DOJ and SEC announced (here and here) a Foreign Corrupt Practices Act enforcement action against Odebrecht S.A. (a Brazilian holding company) and Braskem S.A. (a Brazil-based petrochemical company in which Odebrecht owns 50.1% of the voting shares, 38.1% of the total share capital and which Odebrecht “effectively controlled” according to the DOJ). Braskem has American Depositary Receipts registered with the SEC and traded on the NYSE and thus the enforcement action also included an SEC component.

Perhaps because of the less than clear DOJ release (clear once one actually reads the original source documents), this action is being reported in various places as a $3.5 billion FCPA enforcement action. While that figure represents the overall global settlement amount (Brazil and Swiss law enforcement also brought related actions), yesterday’s action was most certainly not a $3.5 billion FCPA enforcement action. Not even close.

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Dallas Airmotive Inc. The Latest Aircraft Maintenance Company To Resolve An FCPA Enforcement Action

Dallas Air

First it was Oklahoma-based BizJet International in 2012 (see here).  Then it was Oklahoma-based The NORDAM Group in 2012 (see here). The latest aircraft maintenance company to resolve a Foreign Corrupt Practices Act enforcement action is Texas-based Dallas Airmotive.

Earlier this week, the DOJ announced that “Dallas Airmotive Inc., a provider of aircraft engine maintenance, repair and overhaul (MRO) services based in Grapevine, Texas, has admitted to violations of the Foreign Corrupt Practices Act (FCPA) and agreed to pay a $14 million criminal penalty to resolve charges that it bribed Latin American government officials in order to secure lucrative government contracts.”

As highlighted in this post discussing unsealed documents in connection with individual FCPA prosecutions of BizJet executives, all three enforcement actions seemed to be casually related.

Criminal Information

The Dallas Airmotive criminal information focuses on the conduct of Dallas Airmotive do Brasil (DAB), a corporate affiliate under the direction and control of Dallas Airmotive Inc. (DAI), and the information states that DAB’s employees were supervised and managed by directors and managers of DAI.  According to the information, DAB assisted DAI in providing MRO engine services to customers in Latin America, including to governmental and other customers.  The information states that DAB also bid on and secured engine service contracts with Brazilian government and commercial customers, the work for which was often done in part by DAI.

According to the information, DAI conspired with a DAI Sales Director (an individual responsible for overseeing DAI’s sales efforts in Latin America), a DAI Sales Agent (an individual responsible for obtaining and retaining MRO business for DAI and DAB in Latin America, including with commercial and government customers), a DAI Sales Manager (an individual responsible for obtaining and retaining MRO business for DAI and DAB in Latin America, including with commercial and government customers), DAB Manager A (an individual responsible for obtaining and retaining MRO business for DAI and DAB in Latin America, including with commercial and government customers), DAB Manager B (an individual responsible for obtaining and retaining MRO business for DAI and DAB in Latin America, including with government customers), Official 1 (a Sub-Officer in the Brazilian Air Force – BAF), Official 2 (a Sergeant in the BAF), Official 3 (a Captain for the Governor of the Brazilian state of Roraima), Front Company A (a Brazil-based sales and logistics services company that was affiliated with Official 1), Front Company B (a Brazil-based sales and logistics services company that was beneficially owned by Official 1), and a Intermediary Company (a Brazil-based company that was used to make payments for the benefit of Official 3), and others to make improper payments to the foreign officials to assist DAI in obtaining and retaining business.

According to the information, the purpose of the conspiracy was to obtain and retain engine MRO service business for DAI and DAB from foreign government customers in Latin America, including the BAF, the Peruvian Air Force, the Office of the Governor of the Brazilian State of Roraima, and the Office of the Governor of the Argentinean State of San Juan, by paying bribes to foreign officials employed by such customers.

According to the information, DAI, through its employees and agents, including employees of DAB, discussed in person and via e-mail making bribe payments – which they called “commissions” or “consulting fees” – and granting other benefits to employees of customers, including foreign government customers, in order to obtain and retain for DAI and DAB business to perform engine MRO services.  According to the information, certain bribe payments were wired from DAI’s bank account in New York and DAB’s bank account in Brazil to bank accounts of Front Company A, Front Company B, and Intermediary Company in Brazil.

The information also alleges that DAI/ DAB paid for a vacation for Official 2 and his spouse in exchange for Official 2’s assistance in securing MRO business.

As to Peru and Argentina, the information alleges that payments were made to a bank account of a third party commercial representative in Florida and Argentina (respectively) while knowing that the funds, at least in part, would be passed on to officials of the Peruvian Air Force and the office of the Governor of the Argentinean State of San Juan.

In addition to the conspiracy charge, DAI was also charged with one substantive violation of the FCPA’s anti-bribery provisions.

Deferred Prosecution Agreement

The above charges were resolved via this DPA in which DAI admitted, accepted and acknowledged that it was responsible for the acts alleged in the information.  The 3 year DPA states, under relevant considerations, as follows.

“The DOJ enters into this Agreement based on the individual facts and circumstances presented by this case and the Company. Among the factors considered were the following: (a) the Company’s substantial cooperation, including conducting an internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, and organizing voluminous evidence and information for the DOJ; (b) the Company’s improvements to date to its compliance program and internal controls, as well as its commitment to continue to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth in the DPA; (c) the nature and scope of the offense conduct; and (d) the Company’s agreement to continue to cooperate with the DOJ in any ongoing investigation of the conduct of the Company and its officers, directors, employees, and agents relating to possible violations under investigation by the DOJ.”

As highlighted in the DPA, the advisory guidelines fine range was $17.5 million to $35 million.  The DPA states as follows.

“The Company agrees to pay a monetary penalty in the amount of $14,000,000 to the United States Treasury within ten (10) days of the filing of the Information. The Company and the Office agree that this fine is appropriate given the facts and circumstances of this case, including the cooperation in this matter and the nature and scope of the offense conduct.”

As common in FCPA DPAs, DAI “expressly agree[d] that it shall not, through present or future attorneys, officers, directors, employees, agents or any other person authorized to speak for the Company, make any public statement, in litigation or otherwise, contradicting the acceptance of responsibility by the Company set forth [in the DPA and Information].”

Karen Seymour (Sullivan & Cromwell) represented Dallas Airmotive.

This Wall Street Journal Risk & Compliance post notes:

“A spokeswoman for the company said the U.S. Justice Department acknowledged the firm’s cooperation and the improvements it made to its compliance program. She said the company upholds high standards articulated in its code of business ethics, but it regrets that “those standards were breached by a limited number of third-party agents and employees of Dallas Airmotive’s business in South America” from 2008 through 2012. “These individuals are no longer with the company, and Dallas Airmotive do Brasil and our South American sales team are operating under new leadership,” the spokeswoman said in an email.”

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