By Sarah de Sainte Croix, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – The Brazilian aircraft manufacturer Embraer is under investigation by the United States Securities and Exchange Commission (SEC) on suspicion of violating the U.S. Foreign Corrupt Practices Act (FCPA). Embraer, the fourth largest producer of aircraft in the world, announced it was undertaking an internal investigation into its operations in three countries in response to the subpoena issued by the SEC.

Embraer CEO, Frederico Curado, Brazil News
Embraer's CEO, Frederico Curado, announced that it was under investigation by the SEC, photo by Bel Pedrosa for The World Economic Forum/Flickr Creative Commons License.

The Foreign Corrupt Practices Act prohibits companies whose securities are listed in the U.S. from making payments to foreign officials “for the purposes of obtaining or retaining business for or with, or directing business to, any person.” It also requires that companies keep accurate records of all their transactions.

If found guilty of a criminal charge the company could face fines of up to, and possibly exceeding, US$2 million. Moreover, individual employees or directors within the company could be fined up to US$100,000 each and imprisoned for a maximum of five years.

The sanctions also dictate that firms found to be in violation of the FCPA could be banned from doing business with the U.S. Federal Government.

This could inhibit Embraer’s reported bid to win a nearly US$1.5 billion deal to supply 100 light attack aircraft to the U.S. military. Frederico Curado, Embraer’s CEO, announced on Friday that he was “confident that it won’t prevent us participating in any bidding process.”

Embraer put forward their Super Tucano jets, which carry a price tag of between US$10-15 million. They are currently among the four finalists in the bidding, and if they win, the deal would not only represent their biggest single-sale of Super Tucanos ever, but also a way into the lucrative U.S. defense market.

An Embraer Super Tucano Aircraft, Brazil News
An Embraer Super Tucano, photo by Kfir2010/Wikimedia Creative Commons License.

Despite an initial five percent drop in share prices on the Bovespa on Thursday following the news of the SEC investigation, the stock bounced back again on Friday to close up 4.4 percent at R$11.58 in São Paulo and up 3.45 percent at US$26.95 in New York.

One Brazilian commentator said, “Given that Embraer recorded a third-quarter loss on Wednesday, the cumulative effects of the SEC investigation could be complicated for the company if they are found to be guilty.”

The loss is reportedly due to the recent decline in the strength of the real and a series of delayed deliveries and cancelled orders for executive jets. Curado implied that the company might miss its revenue targets for this year by up to US$200 million, and executive jet deliveries could be down by about twenty due to the cancellations.

Embraer is among the world’s four biggest aircraft manufacturers after Airbus and Boeing, and in direct competition with the Canadian company Bombardier for the production of smaller commuter jets for short-haul regional flights.

Originally a Brazilian government entity, since its privatization in 1994 the company has become one of Brazil’s major manufacturing success stories with orders for aircraft totaling US$16 billion in the third quarter of this year and net profits of R$154 million in the second quarter.


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