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Harry Cassin
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LATAM Airlines pays $22 million to resolve FCPA offenses

LATAM Airlines Group S.A., a commercial airline company based in Chile, agreed to pay more than $22 million to the DOJ and SEC Monday to resolve FCPA offenses for bribing union officials in Argentina.

The company paid a $12.75 million criminal penalty to the DOJ.

The DOJ charged LATAM in federal court in Miami with one count of violating the FCPA books and records provisions and one count of violating the internal controls provisions of the FCPA.

Also Monday, LATAM paid the SEC $9.44 million — $6.74 million in disgorgement and $2.7 million in prejudgment interest.

The SEC resolved the FCPA violations through an internal administrative order and didn’t go to court.

Executives at LATAM’s predecessor company, LAN Airlines S.A., signed a phony $1.15 million consulting agreement with an advisor to the Secretary of Argentina’s Ministry of Transportation in October 2006. 

The agreement required the consultant to study Argentine airline routes but he actually provided no services.

Instead, the purported consultant funneled the money to Argentine labor union officials, the DOJ said.

The payments convinced the unions to abandon their threats to enforce the single-function rule and accept a wage increase lower than the amount asked for in negotiations.

LAN made about $6.7 million profit because of the bribes.

Payments under the phony consulting agreement went through and to U.S. bank accounts.

In February, the CEO of LAN Airlines settled SEC charges that he violated the FCPA when he authorized the sham payments to the consultant.

Ignacio Cueto Plaza, who was serving as president and chief operating officer at the time, authorized LAN Airlines to wire $1.15 million in payments to the consultant’s Virginia-based brokerage account.

Without admitting or denying the SEC’s findings, Cueto, 51, a Chilean citizen, agreed to pay a $75,000 penalty.

As part of Monday’s deal with the DOJ, LATAM entered into a three-year deferred prosecution agreement. The DPA imposed the $12.75 million criminal penalty and required the company to retain an independent corporate compliance monitor for at least 27 months.

The DOJ said LATAM didn’t voluntarily disclose the FCPA violations. And it didn’t “remediate adequately.” 

The DOJ said,

LATAM failed to discipline in any way the employees responsible for the criminal conduct, including at least one high-level company executive, and thus the ability of the compliance program to be effective in practice is compromised. 

As a result, according to the DOJ, the company paid a penalty within the U.S. Sentencing Guidelines range instead of receiving a discount off the bottom of the range.

The $22.2 million in combined DOJ and SEC penalties “far exceeds the $6.7 million in savings the company had received from its improper payments,” the DOJ said.

LATAM began cooperating “after the press in Argentina uncovered and reported the conduct approximately four years after it had occurred.” 

LATAM’s cooperation included providing “all relevant facts known to it, including about individuals involved in the misconduct,” the DOJ said.

LAN Airlines S.A. was a publicly traded company headquartered in Santiago, Chile, that provided passenger and cargo airline services throughout Latin America. LAN merged with TAM, S.A. in 2012.

Before the merger with TAM, LAN’s common stock traded on the NYSE under the symbol LFL.

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The criminal information (charging document) in U.S. v. LATAM Airlines Group S.A. f/k/a LAN Airlines S.A. filed with the U.S. District Court for the Southern District of Florida on July 25, 2016 is here (pdf).

The Deferred Prosecution Agreement with LATAM Airlines Group is here (pdf).

The SEC’s Securities Exchange Act of 1934 Release No. 78402, Accounting and Auditing Enforcement Release
No. 3792, and Administrative Proceeding File No. 3-17357 (all dated July 25, 2016) In the Matter of LAN Airlines S.A. are here (pdf).


Richard L. Cassin is the publisher and editor of the FCPA Blog. He’ll be the keynote speaker at the FCPA Blog NYC Conference 2016

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1 Comment

  1. This makes for an interesting read. As Unions and Union workers are not Government Officials under FCPA (as far as I know) the question is why this would have been an offence under FCPA. I can only imagine that the recipient was an advisor to the Aviation Ministry and as such defined as a GO. Together with the USD payment into a US bank account, could be the reasons that FCPA was applicable for this clear case of corruption. Or did I miss something else that would justify FCPA jurisdictions?

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