Mozambique: Embraer Bribe Comes to Trial

Maputo — Former Mozambican Transport Minister Paulo Zucula appeared before the Maputo City Court on Thursday charged with illicit business participation, money laundering, abuse of trust and of power, and membership of a criminal association.

Accused alongside Zucula are the former Chairperson of the Board of Mozambique Airlines (LAM), Jose Viegas, and the former Mozambique manager of the South African petro-chemical giant Sasol, Mateus Zimba.

The case arises from a bribe of 800,000 US dollars that the Brazilian company Embraer admits it paid in order to secure the sale of two Embraer aircraft to LAM.

The prosecution claims that the three accused conspired, in 2008, to inflate the price of the Embraer planes to include the 800,000 dollar bribe.

At the time, LAM was planning to renew its fleet of aircraft. The recommendation, from the consultancy firm Ernst & Young, was to buy four planes, two from Embraer, and two from the Canadian company Bombardier.

According to the prosecution, negotiations were undertaken with Embraer to purchase two second-hand Embraer Q-400 aircraft, each of which would cost about 30 million dollars. On top of that came the bribe: the Mozambican conspirators first demanded a million dollars, but when Embraer objected, the dropped their demand to 800,000 dollars.

Viegas dealt with the negotiations between LAM and Embraer, and sent a letter to Zucula, stressing the importance for LAM of buying the planes. The prosecution says Zucula gave a favourable opinion to the request, without consulting his Ministry's legal advisers. Zucula's opinon then went to the Finance Ministry, where it was approved by the Director of the Treasury. A state guarantee was issued which allowed LAM to obtain finance for the operation from one of Mozambique's main commercial banks, the BCI.

The problem for the defence is that years ago Embraer confessed to paying bribes. The bribe came to light due to investigations by Brazilian and United States prosecutors into Embraer's business practices. Embraer confessed to paying bribes to secure contracts in several countries, including Mozambique. The settlement Embraer reached with the US and Brazilian authorities involved paying total fines of around 225 million dollars, and giving full details of the bribes, which have been in the public domain for years.

Between 2008 and 2011, Embraer paid bribes in the Dominican Republic, Saudi Arabia and Mozambique. The US Justice Department also found "improper conduct" by Embraer in India. Embraer's profits from all the bribery schemes was estimated at 83.8 million dollars.

From the documents of the Brazilian Federal Prosecutor's Office, we know that Viegas negotiated the size of the bribe. He insisted that the deal would not go ahead without a bribe.

Embraer was at first reluctant to "offer" more than US$80,000. But Viegas allegedly said he had received reactions from unnamed other people who regarded the Embraer offer "as an insult and to some extent it would have been less offensive to offer nothing at all". He thought a million dollars would be acceptable, but eventually settled on US$800,000.

When Viegas was told that Embraer did not have that sort of money to pay for what would be passed off as "consultancy services", he suggested simply increasing the price of the aircraft. Instead of the original price of US$32 million, each aircraft would now cost US$32.69 million. This was the price in the sales agreement between Embraer and LAM signed on 13 September 2008. Viegas thus betrayed his trust as LAM chairperson by artificially inflating the price of aircraft purchased by the company

Zimba, an old friend of Zucula, was the middleman. He set up a shell company called Xihevele, registered in São Tomé and Príncipe, the sole purpose of which was to move the money from Embraer to the recipients of the bribe. Embraer paid the bribe, disguised as "sales commissions", in two instalments of US$400,000 each to a Xihevele account in Portugal.

"The company was created solely to receive the Embraer bribe", said the prosecution. Once the money was received, it was divided between Zucula (430,000 dollars) and Zimba (370,000 dollars). According to the bank documents, none of the money went to Viegas, and so the only charge against him in the current court case is illicit participation in business.

The US Justice Department, in its case against Embraer, stated in 2016 "Numerous high-level Embraer executives knew that the various agency agreements... falsely represented that payments were being made for legitimate agency services, and that the true purpose of the payments made to the agents was to funnel bribes to foreign officials. Many of the high-level executives who knew about the false nature of the agreements and the improper purpose of the payments had the authority and responsibility to ensure that Embraer devised and maintained an adequate system of internal accounting controls. They knew that Embraer's then-existing internal accounting controls failed to prevent Embraer from entering into false agency agreements and making improper payments, and knowingly and wilfully failed to implement adequate internal accounting controls... in part to permit Embraer to enter into false agency agreements and funnel bribes to foreign officials".

Despite the US and Brazilian cases against Embraer, the defence lawyers insist that the purchase of the planes was clean and obeyed all Mozambique's procurement rules. They claimed that the 800,000 dollars was not a bribe but a normal sales commission, and denied that the deal had in any way damaged the interests of the Mozambican state.

The prosecution, however, is demanding that the three accused pay compensation to the state of 83 million meticais (1.27 million US dollars) - it says Zucula should pay 40 million meticais, Zimba 33 million and Viegas 10 million.

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