The US department of justice said in a court filing on Monday the Brazilian airplane manufacturer Embraer had paid $5.76 in commission in connection with the sale of three “highly specialized military aircraft” to the IAF in 2008.
The commission was paid to an entity identified only as Agent D in the filing, called Deferred Prosecution Agreement, under which Embraer has agreed to pay the $107 million as penalty for violating the Foreign corrupt Practices Act, which is basically by paying bribes, or commissions as they are also called.
“On or about July 3, 2008, Embraer executed a contract to provide three highly specialized military aircraft to the Indian Air Force for approximately $208 million,” the filing said.
“In connection with the deal, Embraer retained the services of Agent D pursuant to 2005 agency agreement. It later paid $5.76 million to Agent D pursuant to a false agency agreement singed in or around 2008.”
Agent D remains unidentified in the filing, but the department of justice has said in such cases before it shared details if a request was made by the government of the country concerned. And it may have already shared those details with the Central Bureau of Investigation, which was probing the allegations in India.
Embraer had entered into an “agency agreement” in 2005 with a “shell company” which was domiciled in the United Kingdom and was affiliated with Agent D. The exact nature of the association was not mentioned in the document.
According to the agreement, Embraer would pay the shell company “a commission of 9% of the value of any defense contracts Embraer obtained in India because Embraer believed Agent D could help ensure that any contract would be awarded on a single-source, rather than competitive, basis”.
Commissions in defence deals are illegal in India. That’s why the deal with the shell company based in the UK. The Brazilian company was aware of the illegality of the deal, the document said, so the fully executed agreement was kept in a safe deposit box in London, which could be accessed only in the presence of an Embraer representative and Agent D or associates.
Shortly after, Embraer signed a memorandum of understanding with India’s Defense Research and Development Organization (DRDO) for developing an early warning radar system, which Embraer believed cold lead to a more lucrative deal.
That followed three years later in 2008, when the IAF announced it was buying three Embraer 145 aircraft for around $208 million.
The US document said Agent D began demanding a commission the day after, citing the 2005 agreement. Embraer agreed to pay $5.76 after a meeting with lawyers representing Agent D.
A new agreement was signed between ECC Investment Switzerland AG (ECC), a fully owned Embraer subsidiary, and a shell company based in Singapore and affiliated to Agent D in November 2009. And, the court filing said, $5.76 million was paid in three lots of $1.92 million each, to the Singaporean company, which “never performed any services related … to the sale to Indian Air Force”.