LAN Airlines (now known as LATAM Airlines Group), a commercial airline company based in South America, has agreed to pay more than $22 million to settle parallel civil and criminal cases related to improper payments it authorized during a dispute between the airline and its union employees in Argentina.

LAN will pay $9.4 million in disgorgement and prejudgment interest to settle the SEC’s charges that it failed to keep accurate books and records and maintain adequate internal accounting controls. Additionally, in a three-year deferred prosecution agreement reached with the U.S. Department of Justice, LAN will pay an additional $12.75 million penalty.

An SEC investigation found that when LAN encountered problems negotiating labor agreements with the unions, it was contacted by a consultant from Argentina who offered to negotiate on the company’s behalf.  The consultant made clear that he would expect compensation for such negotiations, and that payments would be made to third parties who had influence over the unions. 

According to the SEC, LAN’s CEO Ignacio Cueto Plaza, who was serving as president and chief operating officer at the time, approved $1.15 million in payments to the consultant through a sham contract for a purported study of existing air routes in Argentina.  Cueto Plaza knew that no actual study would be performed and that it was possible the consultant would pass some portion of the money to union officials in Argentina to settle the wage disputes, the SEC said.

In February 2016, Cueto Plaza agreed to settle charges with the SEC that he violated the Foreign Corrupt Practices Act when he authorized the improper payments. Without admitting or denying the findings, he agreed to pay a $75,000 penalty and must certify his compliance with the airline’s policies and procedures by attending anti-corruption training, among other undertakings.

“LAN used a sham consulting agreement to make its financial reporting appear as though the company was funding a study rather than steering money to settle labor disputes,” Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit, said in a statement. “This settlement along with our prior case against the CEO shows that public companies and their executives must be truthful and forthcoming about its overseas consulting agreements or otherwise pay the consequences.”

Under the settlement, LAN must retain an independent compliance monitor for a period of not less than 27 months.  In reaching the settlement, the SEC said it took into consideration LAN’s remedial acts and general cooperation with the investigation.

Continue the conversation at Compliance Week Europe: 7-8 November at the Crowne Plaza Brussels. Join us as we look at changes in global anti-corruption regulations, slave labour risks in your supply chain, and how to detect fraud, to name just a few topics. Learn more