DOJ/SEC FCPA Enforcement Action: LATAM Airlines

The fines? Totaling $22.2 million, which include a $12.75 million criminal penalty paid to the Department of Justice, $6.74 million in disgorgement, and $2.7 million to the Securities and Exchange Commission in prejudgment interest. 

This is part of a 3-year Deferred Prosecution Agreement (DPA) agreed to by LATAM, which is the successor to LAN Chile, the Chilean airline. It also agreed to an independent monitor for at last 27 months.

So, what did they do? From the DOJ press release:

According to admissions made in the resolution documents, executives at LATAM’s predecessor-in-interest, LAN Airlines S.A. (LAN), executed a fictitious $1.15 million consulting agreement with an advisor to the Secretary of Argentina’s Ministry of Transportation in October 2006.  Although the agreement purportedly required the consultant to undertake a study of Argentine airline routes, the consultant never provided any such services.  Instead, the purported consultant funneled the monies he received pursuant to the contract to Argentine labor union officials in exchange for the union agreeing to accept lower wages and  to not enforce what would have been a costly labor rule.  In total, LAN profited by more than $6.7 million as a result of the bribes paid to the union officials.

According to the filed charges, two counts, each with a maximum fine of $25 million or twice the gross gain, were filed.

Why did the final penalty end up where it did ($12.75 million)?

The department reached this resolution based on a number of factors, including:

  •  the fact that LATAM did not voluntarily disclose the FCPA violations, but did cooperate with the department’s investigation after the press in Argentina uncovered and reported the conduct approximately four years after it had occurred.  
    • After LATAM began cooperating, it did so fully and provided all relevant facts known to it, including about individuals involved in the misconduct.  
  • LATAM did not, however, remediate adequately.  
    • 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, the company paid a penalty within the U.S. Sentencing Guidelines range instead of receiving a discount off the bottom of the range.

Links:

DOJ Notice

LATAM DPA

LATAM Charges Information

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