Embraer investigated for bribery in Argentine, Dominican deals

Reuters

* U.S. and Brazilian investigators collaborate on probe

* Embraer cooperating with authorities, flagged to investors

By Brad Haynes and Aruna Viswanatha

SAO PAULO/WASHINGTON, Nov 2 (Reuters) - U.S. and Brazilianauthorities are investigating whether Embraer SA bribed officials in Argentina and the Dominican Republic tosecure deals for commercial and defense aircraft, according tolegal documents obtained by Reuters.

The investigations involve the sale of 20 passenger jets toan Argentine state airline, worth about $900 million at Embraerlist prices, and a $92 million deal with the Dominican armedforces for eight Super Tucano light attack planes.

The world's third-largest commercial plane maker disclosedtwo years ago that it had been under investigation by the U.S.Department of Justice and the Securities and Exchange Commissionsince 2010 regarding sales of aircraft abroad.

The allegations cast a harsh light on one of Brazil'sbiggest exporters and a cornerstone of its burgeoning defenseindustry, which is looking to build credibility with majorpowers after years of dealing arms in emerging markets.

Embraer's defense division has partnered with Boeing Co to sell an upcoming military cargo jet, its biggest planeever, against Lockheed Martin Corp's Hercules airlifterin the United States and Britain.

In documents reviewed by Reuters, prosecutors cited evidencethat Embraer executives approved a $3.4 million bribe to aDominican official with influence in military procurement.Details of the Dominican Republic case were first reported bythe Wall Street Journal on Saturday.

Embraer is cooperating fully with authorities, the companysaid in a statement, but it declined to comment on details ofallegations due to the confidentiality of the investigation.

"The company requires that all its employees have a conductof strict compliance with laws and regulations," said aspokesman in an emailed statement on Saturday.

Officials at the U.S. Department of Justice and theSecurities and Exchange Commission did not immediately respondto requests for comment. Brazilian federal prosecutors,Dominican defense officials and representatives for Argentina'sstate airline could not immediately be reached for comment.

International cooperation on the investigation reflects arare instance of Brazilian authorities probing a local companyfor its foreign business practices.

Brazil has criminal laws against bribing foreign officials,but no direct equivalent of the Foreign Corrupt Practices Act,which gives U.S. authorities grounds to investigate U.S.-listedcompanies for bribery overseas. Embraer shares called AmericanDepositary Receipts trade on the New York Stock Exchange.

RETIRED COLONEL

In 2008, as Embraer was trying to sell its Super Tucanos tothe Dominican Republic, investigators say the company wasapproached by the director of special projects for the country'sarmed forces, now-retired Colonel Carlos Piccini.

Piccini sought a payment of $3.4 million to facilitate thesale, which Embraer delivered in 2009 through a shell company inUruguay, according to investigators. Attempts to reach Piccinithrough the Dominican armed forces were not successful.

Embraer delivered the first two of eight Super Tucanoaircraft to the Dominican Republic in December 2009 to be usedto combat drug trafficking and run border patrol missions.

The Super Tucano is Embraer's top-selling military plane. Arugged design and low cost make the turboprop popular incounterinsurgency missions from Africa to Southeast Asia. InFebruary, the U.S. Air Force ordered 20 Super Tucanos formissions in Afghanistan.

In documents reviewed by Reuters, officials also cite acorruption investigation raising red flags about dealingsbetween Embraer and an Argentine public official involved in anairline deal.

The official helped negotiate a contract for 20 commercialjets for Austral Lineas Aereas Cielos del Sur between 2008 and2009, investigators said, without elaborating in the documentson evidence of wrongdoing.

In May 2009, Embraer announced an agreement to supplyAustral, a subsidiary of state airline Aerolineas Argentinas,with 20 of its E-190 jets seating 96 passengers. Delivery of theplanes started in September 2010.

Embraer has notified investors of the ongoing legal probethrough its quarterly earnings reports. The company has said itvoluntarily expanded the scope of its internal investigationfollowing a 2010 subpoena to include sales in other countries,which it has reported to U.S. authorities.

Embraer could face substantial fines or sanctions due to theinvestigation, the company said in its earnings report thisweek, but based on outside legal counsel the plane maker saidthere is no basis to estimate how much money to set aside.

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