US AUTHORITIES SAY LAM CORRUPTION INVOLVED CEO

At least two Mozambican officials, including the then chief executive officer of Mozambique Airlines (LAM), were involved in taking a massive bribe from the Brazilian aircraft company, Embraer, according to documentation from the United States Securities and Exchange Commission (SEC). On 24 October, the US Department of Justice issued a very summary account of the charges Embraer faced in connection with bribes offered in four countries – India, Dominican Republic, Saudi Arabia and Mozambique. It said the Mozambican bribe was paid via what it described as “a false agency agreement with an intermediary designated by a high-level official” in Mozambique Airlines (LAM).
But Embraer was also taken to court by the SEC, and the SEC complaint against Embraer is much more detailed, although, like the Justice Department, it does not name the guilty parties. On Mozambique, it gives a blow by blow account of how, between May and September 2008, Embraer negotiated the sale of two of its aircraft to LAM. The sales price was 65 million US dollars, but Embraer also ended up paying a bribe of 800,000 dollars.SEC says that “on or around 13 August 2008, a Mozambique national (referred to as the “Mozambican Agent”) told at least one senior Embraer employee that Embraer should make ‘a gesture’ to unidentified officials in the government of Mozambique when delivering the first aircraft”. The Embraer staff involved in the negotiations believed that “the Mozambican Agent was well connected with officials in the government of Mozambique”.This unnamed agent, the SEC document continues, “did not have any legitimate role” in the negotiations between Embraer and LAM: “instead, he appeared to be acting as a middleman or agent for the government officials involved in the deal, and Embraer officials believed they needed to pay the Mozambican official in order to win the contract”.So senior Embraer officials “approved an offer to the Mozambican agent of between 50,000 and 80,000 dollars per aircraft sold, even though the Mozambican agent had not rendered any legitimate services to Embraer during the negotiations”.
But this bribe was too small, and so, on or around 25 August 2008, the then LAM chief executive officer “called an Embraer sales employee and suggested that a one million dollar ‘gesture’ to the Mozambican agent would be appropriate, but that Embraer could ‘get away’ with only paying 800,000”. Then came a menacing warning – this official threatened “to torpedo the ongoing negotiations with Embraer by giving a competing bid priority over Embraer’s bid”. In other words, without the bribe there would be no sale.The threat clearly worked, since on 15 September, Embraer signed the 65 million dollar purchase agreement for the two aircraft. The official who made the threat was one of three LAM executives who signed the agreement.To make the bribe look legitimate, the Mozambican agent set up a phoney company in Sao Tome and Principe through which the bribe was channeled. SEC found that “on or around 22 April 2009, Embraer’s US-based subsidiary, Embraer RL, executed a consulting agreement with a company based in Sao Tome and Principe which the Mozambican agent controlled and which had only been incorporated in or around November 2008”.The agreement authorized this company, referred to by SEC as “the Mozambican Consultant” to promote sales of the Embraer-190 aircraft to LAM “even though the sale of such aircraft had been completed seven months earlier”. The agreement stated that “the Mozambican Consultant” had begun promoting the Embraer aircraft to LAM in March, even though “the Mozambican Consultant” did not even exist at that date.

Embraer RL then agreed to pay 400,000 dollars per aircraft – exactly the 800,000 dollar bribe mentioned in August 2008. This agreement was signed by two Embraer executives, while “the Mozambican Agent who had initially proposed the bribe payment as ‘a gesture’ signed the consulting agreement on behalf of the Mozambican Consultant”. The Mozambican Consultant, the SEC found, submitted two invoices to Embraer RL, each for 400,000 dollars, and dated 15 August and 25 September 2009. The invoices were both paid to the Mozambican Consultant’s bank account in Portugal. SEC notes “these payments bore no relation to any legitimate services rendered in Mozambique, and were bribes to foreign government officials”, although in Embraer’s accounts they were described as “Sales Commissions”. 

None of this is in dispute. Just as in the cases of the illicit payments in India, Saudi Arabia and the Dominican Republic, Embraer made no attempt to deny that it had paid the bribe.Because it is quoted on the New York Stock Exchange, Embraer falls under US jurisdiction, and had to answer to the US Justice Department and to the SEC. The Justice Department says that Embraer entered into a three-year deferred prosecution agreement (DPA) to resolve the case. As part of the DPA, Embraer admitted to its involvement in a conspiracy to violate anti-bribery and books and records provisions and to its ”willful failure to implement an adequate system of internal accounting controls”. 

The Justice Department fined Embraer 107 million dollars, and its settlement with the SEC cost it 98 million dollars. Embraer will pay the Brazilian authorities 20 million dollars.The Brazilian authorities have charged 11 individuals for their alleged involvement in Embraer’s bribery in the Dominican Republic, while the Saudi authorities have charged two individuals for their alleged involvement in similar offences in Saudi Arabia. Nobody has been charged in Mozambique, and none of the Mozambicans involved have so far not been named. Last week, Deputy Attorney General Taibo Mocubora told a Maputo press conference that Mozambican prosecutors will investigate. Doubtless if the Attorney-General’s office were to approach the US authorities, it could obtain more relevant information on the case, including the names of those involved.