The United States Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) continued their stunning run in 2016 of Foreign Corrupt Practices Act (FCPA) resolutions with the announcement of the resolution of the Embraer enforcement action. The resolution documents included a deferred prosecution agreement (DPA) as well as criminal information with the DOJ and a complaint with the SEC. This post will begin a multi-part series exploring the enforcement action. It will consider the government’s case and the company’s response, and, finally, the lessons to be learned by the compliance practitioner.
Embraer agreed to a total fine of US$205 million of which US$107 million goes to the DOJ as a criminal penalty and US$98 million goes to the SEC as disgorgement. This represents one of the largest disgorgements in an FCPA enforcement action. It was reported that Embraer could receive a credit of as much as US$20 million from the SEC depending on the amount of disgorgement it paid to Brazilian authorities in a separate enforcement action. Embraer ultimately reached a US$20 million settlement with Brazilian authorities of which approximately US$18.5 million was disgorgement.
Yet the fines and penalties could have been lessened, even with the egregious conduct listed below. Embraer did not self-disclose the violative conduct to the DOJ. It only began full cooperation with both the DOJ and the SEC after receiving a subpoena from the SEC. Finally, the company also did not engage in full remediation.
According to a DOJ press release: ‘It disciplined a number of company employees and executives engaged in the misconduct, but did not discipline a senior executive who was aware of bribery discussions in emails in 2004 and had oversight responsibility for the employees engaged in those discussions. As a result, the criminal penalty in this case is 20 percent below the bottom of the applicable range under the United States Sentencing Guidelines, a discount that reflects Embraer’s full cooperation but incomplete remediation.’
Also of note is the fact that other jurisdictions have brought criminal charges against former Embraer executives and employees. These other countries include Brazil, which has charged 11 individuals for alleged involvement in misconduct in the Dominican Republic, and the Kingdom of Saudi Arabia, which has charged two individuals for alleged involvement in misconduct in the Arab state.
The Embraer resolution by the DOJ and the SEC should be viewed by compliance practitioners as yet another significant episode in what is turning out to be a most dramatic year in FCPA enforcement.