LAN Airlines made illegal payments to a third party to attempt to settle a labor dispute

The Securities and Exchange Commission has charged South American-based LAN Airlines with making illegal payments to attempt to settle a labor dispute, in violation of the Foreign Corrupt Practices Act. The airline has agreed to pay more than $22 million to settle parallel civil and criminal cases related to improper payments it authorized during a dispute between the airline and its union employees in Argentina.

The SEC's investigation found that when LAN encountered problems negotiating labor agreements with the unions, it was contacted by a consultant from Argentina who offered to negotiate on the company's behalf.

FLAN's CEO, Ignacio Cueto Plaza, approved $1.15 million in payments to the consultant through a sham contract for a purported study of existing air routes in Argentina. Plaza knew that no actual study would be performed and that it was possible the consultant would pass some portion of the money to union officials in Argentina to settle the wage disputes. Earlier this year, the SEC charged LAN's CEO Ignacio Cueto Plaza with FCPA violations and he settled the charges.
To settle the SEC's charges that it failed to keep accurate books and records and maintain adequate internal accounting controls, LAN agreed to pay $9.4 million in disgorgement and prejudgment interest. In a deferred prosecution agreement announced today by the U.S. Department of Justice, LAN agreed to pay a $12.75 million penalty.

"LAN used a sham consulting agreement to make its financial reporting appear as though the company was funding a study rather than steering money to settle labor disputes," said Kara Brockmeyer, Chief of the SEC Enforcement Division's FCPA Unit. "This settlement along with our prior case against the CEO shows that public companies and their executives must be truthful and forthcoming about its overseas consulting agreements or otherwise pay the consequences."

Under the settlement, LAN must retain an independent compliance monitor for a period of not less than 27 months. In reaching the settlement, the SEC considered LAN's remedial acts and general cooperation with the investigation.