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On July 25, LATAM Airlines Group S.A. (LATAM), a Chile-based airline, agreed to settle parallel criminal and civil FCPA matters relating to alleged bribery of Argentine labor union officials through a sham consulting contract with a third party in exchange for the union accepting lower wages and other concessions. LATAM agreed to pay a total of more than $22 million, including a $12.75 million penalty as part of a three-year Deferred Prosecution Agreement (DPA) with DOJ.
As part of the DPA, LATAM agreed to continue cooperating with DOJ’s investigation, to make improvements to its compliance program, and to retain a compliance monitor for a period of more than two years. In the DPA and in its press release regarding the settlement, DOJ noted that it took into account certain factors that weighed against LATAM, including that LATAM did not voluntarily disclose the alleged misconduct (which came to light through Argentinian press reports) or discipline the responsible employees. However, DOJ did note that LATAM cooperated with DOJ’s investigation once the press reports became public, and “provided all relevant facts known to it, including about individuals involved in the misconduct.”
Because of the factors weighing against LATAM, the penalty was within the U.S. Sentencing Guidelines range, and the Company did not receive a discount off the bottom of the range as suggested in DOJ’s recent guidance regarding its FCPA pilot program. As stated in the guidance, in order to be eligible for full mitigation credit, a company must voluntarily disclose the FCPA violations, and the DOJ considers such disclosure as a factor separate and apart from the company’s cooperation in the subsequent investigation. The company must also engage in timely and appropriate remediation, which includes appropriate discipline of employees identified by the company as responsible for the misconduct. The guidance specifically states that a monitor should not be required if the company “has, at the time of resolution, implemented an effective compliance program.”
In this case, one of the first under the FCPA pilot program, DOJ followed its guidance by refusing to give mitigation credit when the company did not voluntarily self-disclose and did not fully remediate. It is difficult to say what, if any, credit LATAM received for its extensive cooperation once the investigation began – cooperation that included turning over to DOJ “all relevant facts known to [the Company], including about individuals involved in the misconduct.”
At the same time, LATAM also settled an SEC administrative enforcement action by agreeing to pay $6.74 million in disgorgement and $2.7 million in prejudgment interest Earlier this year, the Company’s CEO separately settled with the SEC regarding the same scheme, and agreed to pay a $75,000 penalty and attend anti-corruption training.
On February 4, 2016, the SEC announced a settlement with the CEO of Chile-based LAN Airlines S.A. and its holding company Latam Airlines Group SA, Ignacio Cueto Plaza, regarding his approval of the payment of over $1.15 million to an Argentinian consultant in connection with LAN Airlines attempts to settle disputes over wages and work conditions with employees in Argentina. According to the SEC, Cueto knew that a portion of these payments might be passed on to union officials in Argentina and that the actual services agreed to in the underlying consulting agreement would not be performed. Without admitting or denying the SECs findings, Cueto agreed to pay a $75,000 penalty and "certify his compliance with his airlines policies and procedures by attending anti-corruption training among other undertakings." In its administrative cease and desist order, the SEC found that Cueto violated both the FCPAs internal accounting controls and books and records provisions. The company has said that this was an isolated matter, that it cooperated with the SECs investigation, and strengthened its accounting controls since the incident took place.