KATHMANDU, Dec 24: The AAR Corp., a US-based aviation services company, has agreed to pay over $55 million to resolve potential violations of the U.S. Foreign Corrupt Practices Act (FCPA) in settlements with the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC).
The Illinois-based company was implicated in bribery schemes involving government officials in Nepal and South Africa, aiming to secure business with state-owned airlines. The AAR admitted to conspiring to pay bribes between 2015 and 2020, resulting in nearly $24 million in illicit profits from the state-owned airlines in Nepal and South Africa, according to a statement issued by the AAR Corp.
The FCPA prevents US companies (and certain foreign companies with US connections) from bribing foreign government officials to secure any kind of business advantage. The bribes can comprise virtually any form of consideration - including meals, travel, and entertainment - and often are disguised as “consulting fees” or “commissions” given through third-party intermediaries.
After self-reporting the potential violations to the DOJ and SEC in 2019, and cooperating with both agencies in a multi-year investigation, the AAR Corp has entered a Non-Prosecution Agreement (NPA) with the DOJ and the SEC has accepted the Company’s Offer of Settlement and issued a cease-and-desist order
As part of the resolution, the total amount payable by AAR under the Non-Prosecution Agreement (NPA) and SEC Order is $55,599,653, inclusive of penalties, forfeiture, and prejudgment interest. This outcome follows the guilty pleas of two individuals linked to the schemes, including a former AAR executive and a third-party agent.
The AAR has admitted bribing Nepali officials to secure business with the state-owned Nepal Airlines Corporation relating to the sale of two Airbus A330-200 aircraft. The company paid millions of dollars in bribes to these officials through intermediary agents.
NAC to buy two widebody jets
The AAR said it entered into an 18-month non-prosecution agreement with the DoJ and SEC after reaching the agreement to pay over $55 million in fines. The company in a statement added it expects to fund these payments using a combination of cash on hand and borrowings under its revolving credit facility.
The US DoJ in a statement said the AAR bribed high-level government officials to obtain business with state-owned airlines in Nepal and South Africa and reaped nearly $24 million in illicit profits as a result. “The Justice Department continues to hold companies and individuals accountable for engaging in international corruption. Today’s resolution also demonstrates how companies that proactively report misconduct, extensively cooperate, and timely and appropriately remediate will receive credit under the Criminal Division’s Corporate Enforcement and Voluntary Self-Disclosure Policy, including in the form of the agreement, the amount of cooperation and remediation credit, and the length of the term,” Chief Counselor Brent Wible of the Justice Department’s Criminal Division said in a statement.
US Attorney Matthew M Graves for the District of Columbia said companies competing on a fair and level playing field are a core value that they expected any US company or anyone doing business in the United States to embrace. “Bribery schemes, whether based inside or outside the United States, harm consumers and companies that are trying to lawfully run their businesses. That is why this office, along with our law enforcement partners, will continue to diligently pursue any individual or company that seeks to profit through corrupt or illegal means,” he said.
The DoJ has maintained that the AAR, through its bribery of government officials in Nepal and South Africa, violated US law enacted to ensure that US businesses do not engage in foreign corruption. “Today’s outcome reflects HSI’s steadfast commitment to enforcing accountability within global commerce. HSI New York will continue to pursue all necessary measures to ensure that those who engage in corrupt practices, regardless of their location or position, are held fully accountable under the law,” a statement quoted the Special Agent in Charge William S Walker of the Homeland Security Investigations (HSI) New York Field Office, as saying.
Who was the mastermind behind bribing Nepali government officials?
Deepak Sharma, 46, who was the President of International Supply Chain for a wholly owned AAR subsidiary, from November 2015 until his suspension in April 2019, was the man behind bribing Nepali government officials including those at the NAC.
Sharma, a UK citizen residing in the UK, resigned from AAR in September 2019. After starting at the AAR subsidiary, Sharma was the lead executive responsible for the Nepal Airlines transaction. During the period, Sharma signed SOX sub-certifications as President of International Supply Chain.
Sharma played a key role in securing the NAC contract, suggesting he could help win the opportunity. In August 2024, in connection with the Nepal Airlines scheme, Sharma pleaded guilty to a one-count criminal information filed in the US charging him with conspiracy to violate the anti-bribery provisions of the FCPA.
Bribery involving NAC wide-body aircraft deal
Sharma allegedly led efforts to influence the RFP, sending internal emails indicating the draft would be written to favor AAR. In December 2015, Sharma worked with Third-Party Agent A and Nepali officials to manipulate the bidding process. By March 2016, he had shared an unpublished draft of the RFP with AAR executives to alter terms in AAR’s favor.
In November 2016, AAR engaged Third-Party Agent A, despite red flags, with a commission of 7% of the aircraft's sale price. AAR’s consortium submitted a bid, and Sharma celebrated the win. In December 2016, AAR learned that Third-Party Agent A planned to use funds for political donations in Nepal, leading to the agent’s termination. The deal was restructured, and AAR's commission was reduced.
AAR later paid $250,000 to Third-Party Agent A for its efforts after the termination of their agreement. In May 2017, Deepak Sharma facilitated an agreement between Third-Party Agent A and Consortium Party A, stipulating a $4 million commission per aircraft, backdated to October 2016. A subsequent agreement in July 2017 replaced Consortium Party A with Special Purpose Vehicle as the paying entity. When payments to Third-Party Agent A were blocked, Sharma helped form Third-Party Agent B in Dubai to receive the payments. In 2018, AAR paid Third-Party Agent A a $250,000 commission, recorded as legitimate, while $2.6 million was paid to Third-Party Agent B. AAR failed to maintain proper internal controls, allowing it to unjustly profit by $6 million.
Please see page 4-7 of the following report for further details.
https://www.sec.gov/files/litigation/admin/2024/34-101987.pdf?
