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Embraer investigated for bribery in Argentine, Dominican deals

By Brad Haynes and Aruna Viswanatha

SAO PAULO/WASHINGTON (Reuters) - U.S. and Brazilian authorities are investigating whether Embraer SA bribed officials in Argentina and the Dominican Republic to secure deals for commercial and defense aircraft, according to legal documents reviewed by Reuters.

The investigations involve the sale of 20 passenger jets to an Argentine state airline, worth about $900 million at Embraer list prices, and a $92 million deal with the Dominican armed forces for eight Super Tucano light attack planes, according to documents prepared by prosecutors.

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

The allegations cast a harsh light on one of Brazil's biggest exporters and a cornerstone of its growing defense industry, which is looking to build credibility with major powers 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 plane ever, against Lockheed Martin Corp's Hercules airlifter in the United States and Britain.

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

Embraer is cooperating fully with authorities, the company said in a statement, but it declined to comment on details of allegations because of the confidentiality of the investigation.

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

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

International cooperation on the investigation reflects a rare instance of Brazilian authorities probing a local company for 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.-listed companies for bribery overseas. Embraer shares called American Depositary Receipts trade on the New York Stock Exchange.

RETIRED COLONEL

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

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

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

The Super Tucano is Embraer's top-selling military plane. A rugged design and low cost make the turboprop popular in counterinsurgency missions from Africa to Southeast Asia. In February, the U.S. Air Force ordered 20 Super Tucanos for missions in Afghanistan.

In documents reviewed by Reuters, officials also cite a corruption investigation raising red flags about dealings between Embraer and an unnamed Argentine public official involved in an airline deal.

The official helped negotiate a contract for 20 commercial jets for Austral Lineas Aereas Cielos del Sur between 2008 and 2009, investigators said, without elaborating in the documents on evidence of wrongdoing.

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

Austral ordered two more E-190s in April this year. Embraer and Austral did not respond to questions about the contracts.

Embraer has notified investors of the ongoing legal probe through its quarterly earnings reports. The company has said it voluntarily expanded the scope of its internal investigation following 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 the investigation, the company said in its earnings report this week, but based on outside legal counsel the plane maker said there was no basis to estimate how much money to set aside.

(Reporting by Brad Haynes in Sao Paulo and Aruna Viswanatha in Washington; Additional reporting by Avik Das in Bangalore; Editing by Jackie Frank and Peter Cooney)

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