DOJ and SEC Collect $22 Million from LAN Airlines for Conduct in Resolving Labor Dispute

by Michael Volkov
Contact

Last week, the Justice Department (here) and the SEC (here) announced parallel FCPA settlements totaling $22 million in fines, penalties and disgorgement against LAN Airlines, a Chile-based airline, for conduct in resolving a labor dispute in Argentina.

In March 2016, the SEC settled a case with LAN’s CEO for approving payments to a consultant, an advisor to the Secretary of Argentina’s Ministry of Transportation, to assist in settling a labor dispute with an Argentine labor union (here for prior post).

The underlying facts are fairly straightforward: executives at LAN entered into a fictitious consulting agreement to pay the consultant for $1.15 million. The agreement allegedly required the consultant to undertake a study of Argentine airline routes, but the consultant never provided any of the described services. Instead, the consultant funneled the monies he received to Argentine labor officials in exchange for the labor union’s abandoning of wage and work requirement claims.

LAN (through its successor company, LATAM Airlines Group) entered into a three-year deferred prosecution agreement (here) and agreed to pay a $12.75 million criminal penalty for violating the accounting provisions of the FCPA. LAN also agreed to retain an independent compliance monitor for a term of 27 months. In a separate action, LAN agreed to an SEC settlement under which it has to pay $9.4 million in disgorgement and prejudgment interest.

The DPA included a more fulsome recitation of factors considered by DOJ in reaching the settlement with LAN. Most significantly, LAN fell short on two important factors – voluntary disclosure and remediation.

According to the DPA, LAN did not voluntarily disclose the matter to DOJ but only reported the matter after press reports in Chile and Argentina reported the initiation of corruption investigations in those countries. On the issue of remediation, DOJ noted that LAN did not remediate the conduct adequately because it failed to discipline the employees responsible, including one high-level executive, referring to the CEO who settled his FCPA case with the SEC in March 2016. LAN’s CEO (and significant owner) has remained in his position at the airline despite his involvement in this matter. As a result of these two factors, LAN paid a fine of $12.75 million, approximately 25 percent above the bottom of the sentencing range under the Sentencing Guidelines.

The focus of the enforcement action by DOJ and the SEC is not bribery but internal controls and books and records violations. DOJ and the SEC are silent on whether the Argentine labor officials were in fact “foreign officials” under the FCPA. DOJ and the SEC suggest that LAN executives knew or had reason to believe that a portion of the payments to the consultants was in fact bribery payments made to the union officials.

DOJ and the SEC both cite the lack of internal controls governing payment of the invoices for so-called sham services as the basis for the internal controls/books and records violations. In particular, DOJ and the SEC cited the fact that: LAN executives knew the description of the services in the consulting agreement was false; the consultant never provided any of the specified services; the consulting agreement was never fully executed but payments were made for several invoices issues under the agreement; LAN directed that payments should be made from an affiliated entity and not the entity specified in the invoice; LAN made payments to the consultant’s personal account in the United States and not to the consultant’s company account.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

Written by:

Michael Volkov
Contact
more
less

The Volkov Law Group on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.