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UPDATE 1-Embraer faces U.S. and Brazilian bribery probe - report

Saturday, 2 Nov 2013 | 12:31 PM ET

Nov 1 (Reuters) - U.S. and Brazilian authorities are investigating whether Embraer SA bribed Dominican Republic officials in exchange for a $90 million contract for light attack planes, the Wall Street Journal said, citing legal documents and people familiar with the case.

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 new allegations cast a harsh light on one of Brazil's biggest exporters and a cornerstone of its burgeoning defense industry. The reports come at a crucial moment for Embraer's defense unit, which partnered with Boeing Co to sell a military cargo jet, its biggest plane ever, against Lockheed Martin Corp's Hercules airlifter in the United States and Britain.

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

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 and Dominican defense officials 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 no direct equivalent of the Foreign Corrupt Practices Act, which gives U.S. authorities grounds to investigate U.S.-listed companies for bribing foreign officials. Embraer shares known as American Depositary Receipts trade on the New York Stock Exchange.

According to documents reviewed by the Journal, the U.S. regulators said they had bank records and emails showing Embraer executives approved a $3.4 million bribe to a Dominican official with influence over military procurement.

The Super Tucano aircraft involved in the deal is Embraer's best-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.

Embraer has notified investors of the ongoing legal probe in its quarterly earnings reports, also saying that the company voluntarily expanded the scope of its internal investigation 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 is no basis to estimate how much money to set aside.

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