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Transportation
Santiago, Chile
Nationality of Foreign Officials: Argentina
Summary of Allegations:
In 2006 and 2007, Ignacio Cueto Plaza, then CEO of LAN Airlines, allegedly authorized USD 1.15 million in improper payments to a third party consultant in Argentina in connection with LAN Airlines' attempts to settle disputes on wages and other work conditions between LAN Airlines' subsidiary in Argentina, LAN Argentina, and its employees. The consultant at the time was a Cabinet Advisor in the Ministry of Federal Planning, Public Investment and Service, Department of Transportation. Cueto allegedly was attempting to get the unions to abandon their threats to enforce the single-function rule and to get the unions to accept a wage increase lower than the amount asked for in negotiations.
LAN Airlines and the consultant allegedly agreed that LAN Airlines would make the payment for sham consulting agreement, allegedly authorized by Cueto, to a company controlled by the consultant in Argentina. No due diligence was performed on the consultant or any of his related entities. The unsigned agreement allegedly falsely stated that the consultant would undertake a study of existing air routes in Argentina. Cueto allegedly knew no such study would be performed and the consultant allegedly instead agreed to help settle the labor dispute. In addition, Cueto allegedly understood it was possible that the consultant would pass a portion of the payments along to union officials in Argentina.
To further disguise the sham agreement, Atlantic Aviation Investments LLC ("AAI"), an unrelated LAN subsidiary incorporated in Delaware, was allegedly used to make the improper payments to the consultant's company. For example, consultant's company allegedly sent a backdated invoice to AAI for consulting services with wire transfer instructions to a brokerage account in Virgina owned by the consultant and his wife. Cueto allegedly authorized subordinates to make similar payments that were improperly described as "other debtors" costs on AAI's books and records. These actions circumvented LAN Airlines' internal accounting controls.
LATAM Airlines Groups S.A. ("LATAM") is the successor-in-interest to LAN Airlines. In June 2012, LAN became LATAM following a merger with TAM S.A.
Approximate Alleged Payments to Foreign Officials: USD 1.15 million
Business Advantage Allegedly Obtained: Benefit of USD 6,743,932
Agencies: United States: Department of Justice, United States: Securities and Exchange Commission
Results: Cease-and-Desist Order, Compliance Monitor, Criminal Fine, Deferred Prosecution Agreement, Disgorgement
Year Resolved: 2016
Compliance Monitor: not less than 27 months
Ongoing: No
Details:
On 25 July 2016, the U.S. Securities and Exchange Commission ("SEC") announced that LAN Airlines settled charges with the SEC that it failed to keep accurate books and records and maintain adequate internal accounting controls. As part of the settlement, LAN Airlines agreed to pay disgorgement of USD 6,743,932 and prejudgment interest of USD 2,693,856 to the SEC. The SEC did not impose a civil penalty in recognition of the criminal fine imposed by the U.S. Department of Justice ("DOJ") in their separate settlement. In addition, LAN agreed to retain an independent compliance monitor for a period of not less than 27 months. In its cease-and-desist order, the SEC noted their consideration of LAN Airlines' remedial acts and general cooperation with the investigation in reaching the settlement.
On the same day, 25 July 2016, LATAM also entered into a three-year deferred prosecution agreement with the DOJ acknowledging the criminal conduct related to the government's findings. As it did with the SEC, Lan Airlines agreed to continue its cooperation with the investigations, enhance its compliance program, and retain an independent compliance monitor. In addition, LATAM agreed to pay a criminal fine of USD 12,750,000. Although the DOJ also acknowledged LATAM's cooperation in its investigation, it more significantly noted that LATAM did not voluntarily disclose the FCPA violations until approximately four years after the criminal conduct took place and only after media in Argentina reported on the matter. In addition, LATAM failed to remediate adequately, including failure to adequately discipline employees at issue.
Agencies: United States: Securities and Exchange Commission
Results: Cease-and-Desist Order, Civil Penalty, Prosecution of Individuals
Year Resolved: 2016
Compliance Monitor:
Ongoing: No
Details:
On 4 February 2016, the SEC announced that Cueto agreed to settle charges that he violated the internal accounting controls, books and records, and false records provisions of the U.S. Foreign Corrupt Practices Act ("FCPA").
Without admitting or denying the findings, Cueto agreed to pay USD 75,000 civil penalty and certify his compliance with LATAM's policies and procedures by attending anti-corruption training among other obligations.
Discovery Method: Unspecified
Details:
Country: Argentina