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Embraer Discloses Expected $200 Million FCPA Enforcement Action


Earlier this week (see here and here), a Chilean airline wrote a $22 million check to the U.S. Treasury to resolve a Foreign Corrupt Practices Act enforcement action focused on an Argentine labor dispute.

Today Embraer, a Brazilian airplane manufacturer, disclosed that it will soon write an approximate $200 million check to the U.S. Treasury to resolve a FCPA enforcement action expected to center on conduct in the Dominican Republic.

The Company’s disclosure states in full:

SEC/DOJ Investigations Update

“The Company received in September, 2010 a subpoena from the SEC and associated inquiries from the U.S. Department of Justice, or DOJ, concerning possible non-compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, in relation to certain aircraft sales outside of Brazil. In response, the Company retained outside counsel to conduct an internal investigation of sales in three countries.

In light of additional information, the Company voluntarily expanded the scope of the internal investigation to include sales in other countries, reported on these matters to the SEC and the DOJ and otherwise cooperated with them. In May 2015, the Company has begun discussions with the DOJ for a possible resolution of the allegations of non-compliance with the FCPA. In 2016, the negotiations with the U.S. authorities for the settlement of the allegations of non-compliance with the FCPA have significantly progressed, to the point that Embraer recognized a US$200 million loss contingency in the quarter ended June 30, 2016, reflecting the likely outcome of this matter. The amount of the contingency is an estimate and has not been finally determined.

In addition to the monetary consequences, a final settlement with the DOJ and the SEC is likely to include: (1) a deferred prosecution agreement (DPA), under which the prosecution of criminal charges against Embraer will be deferred for the term of the DPA, and dismissed upon the expiration of the term of the DPA, and (2) an imposition of an independent monitor to assess the Company’s compliance with the terms of any agreement that may be reached with the U.S. authorities. These may not be the only non-monetary consequences contained in any final settlement. The negotiations with the U.S. authorities are ongoing and thus subject to change. There is no assurance that Embraer will ultimately reach a final settlement of these matters with the U.S. government agencies.

Related proceedings and developments in other countries are ongoing and could result in additional fines, which may be substantial, and possibly other substantial sanctions and adverse consequences. The Company believes that there is no adequate basis at this time for estimating accruals or quantifying any contingency with respect to these matters.

The Company will continue to cooperate with the governmental authorities, as circumstances may require.

In light of the internal investigation, we embarked on a comprehensive effort to improve and expand our compliance program worldwide. This multi-year task involved reexamining every aspect of our compliance systems, and where appropriate, redesigning or adding to them. Some of the key enhancements include the creation of a Compliance Department; the appointment of a Chief Compliance Officer reporting to Embraer’s general counsel, which, for these matters, reports directly to the Risk and Audit Committee of the Board of Directors; the development of a program to monitor engagement of and payments to third parties; improvements to compliance policies, procedure and controls; the enhancement of anonymous and other reporting channels; and the development of a comprehensive training and education program designed to maintain and reinforce a strong compliance culture at all levels of Embraer globally. The Company will continue to promote enhancements and update its compliance program.”

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