- AAR Corp., an aviation services provider with billions in contracts with the U.S. Department of Defense and other government agencies, has admitted to doling out millions in bribes to foreign government officials in a complex scheme that involved bid-rigging, phony payments for services, and the use of code names such as “Sisi,” “Cuz,” and “Boetie.” All told, AAR Corp. profited $24 million as a result of the bribery operation, officials said.
AAR Corp. will pay $55 million in fines and penalties to resolve bribery investigations into payments made to high-ranking government officials in Nepal and South Africa, according to the Department of Justice (DOJ).
Wood Dale, Illinois-based AAR Corp. has also entered an 18-month non-prosecution agreement (NPA) in connection with the case. Authorities said a former executive of an AAR subsidiary previously pleaded guilty for his role in the scheme involving officials in Nepal, while a third-party agent of AAR pleaded guilty for his role in the South Africa bribes.
“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,” said Chief Counselor Brent Wible of the Justice Department’s Criminal Division. “The Justice Department continues to hold companies and individuals accountable for engaging in international corruption.”
AAR said in a statement that the resolutions with both the DOJ and Securities and Exchange Commission (SEC) “make clear that the relevant conduct was principally carried out by a former employee of a Company subsidiary and former third-party agents.”
“We are pleased to resolve these matters with the DOJ and SEC,” said John M. Holmes, AAR’s Chairman, President and Chief Executive Officer. Holmes reaffirmed the company’s commitment to transparency, ethics, and compliance in its operations.
AAR holds several significant contracts with the U.S. Department of Defense, with the total value exceeding multiple billions of dollars. In September, AAR was awarded a five-year contract with a ceiling value of $1.2 billion with the U.S. Navy’s Naval Air Systems Command for engine depot maintenance on its P-8A Poseidon Aircraft fleet. That deal came closely on the heels of a separate September contract valued at approximately $1.2 billion to perform airframe maintenance. The DOD did not immediately respond to a request for comment.
AAR Corp.’s Tale of Two Bribes
Both the bribery deals laid out by officials in the NPA and settlement agreements weave a complex tapestry of contracts, bid rigging, disguised fees for consulting, wads of cash, special purpose vehicles, and financial transactions.
According to the details laid out in the NPA, the Nepal scheme involved the state-owned Nepal Airlines Corporation and an AAR subsidiary executive named Deepak Sharma. It spanned 2015 to 2018. The NPA states Sharma allegedly met with a Nepal Airlines Corporation official in November 2015 to discuss a possible deal to sell two Airbus A330-200 aircraft valued at about $210 million. The official proposed using an unnamed intermediary as a “lobbyist,” and Sharma agreed.
The Nepal official later leaked a confidential draft request for proposal (RFP) to Sharma before it went public as part of a bid-rigging scheme, authorities said. Sharma, and others at AAR, allegedly used the inside information to suggest changes to the RFP that would benefit AAR and disadvantage competitors.
In reference to the deal, the official pinged Sharma with a text on Oct. 30, 2016, stating: “[N]o need to worry at all. Almost all higher-ups are in our pocket.”
Authorities alleged Sharma also set up agreements and helped make a total of $2.5 million in bribes through intermediaries, including configuring a new way to make payments to officials after a bank in Hong Kong blocked them. The payments shifted to a new intermediary company in the United Arab Emirates. Ultimately, AAR made $6 million in profits from the contract, according to the NPA.
The South Africa scheme ran from January 2016 to January 2020 and involved San Diego man Julian Aires, who was an executive at an aircraft components company and controlled a South Africa joint venture with a subsidiary. Aires allegedly met with multiple officials of state-owned South African Airways (SAA) and determined that the officials would get a share of the revenue from contracts for South African Airways Technical (SAAT). In exchange, the officials would help AAR in getting and keeping business from SAAT, including a five-year contract, the NPA states.
Aires allegedly arranged payments through an unnamed company and the joint venture partner in the form of a “success fee” and a one-time payment used to bribe officials in South Africa to win the contract. Aires and Sharma were in contact during the process, and kept in touch with each other via emails, the NPA states. Aires allegedly sent Sharma photos of confidential bid information that gave a leg up to the AAR subsidiary.
In addition, Aires and an employee at another unnamed company kept records of the bribes, disguising them as consulting fees and referring to officials by the code names, “Cuz,” “Sisi or “Sissy,” and “Boetie.” Aires also frequently carried cash with him on trips to South Africa and gave the money directly to officials to be shared, authorities said. The NPA states that during the course of the SAAT contract, SAAT paid AAR about $79.6 million. AAR profited $17.9 million in connection, authorities said.
Authorities said Sharma pleaded guilty in the District of Columbia on Aug. 1 to a conspiracy to violate the Foreign Corrupt Practices Act for his role in the Nepal scheme while Aires pleaded guilty in the District of Columbia on July 15 to a conspiracy to violate the FCPA for his role in the South Africa scheme.
AAR said it self reported the potential violations to the SEC and the DOJ in 2019, and has since taken “extensive steps” to enhance its global compliance program. In light of the company’s actions, authorities reduced the criminal penalty by 45%.
“Companies competing on a fair and level playing field is a core value that we expect any U.S. company or anyone doing business in the United States to embrace,” said U.S. Attorney Matthew M. Graves for the District of Columbia. “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.”
