Latin America’s biggest airline LATAM Airlines Group must pay two U.S. agencies nearly $22.2 million USD in fines to settle bribery charges related to a 2006 corruption case in Argentina. To settle the charges, which the U.S. Department of Justice (DOJ) says were in violation of the Foreign Corrupt Practices Act, the Santiago, Chile-based LATAM will pay $12.8 million USD to the DOJ and $9.4 million USD, including interest, to the U.S. Securities and Exchange Commission (SEC).
This comes on the heels of former LAN CEO Ignacio Cueto Plaza settling a case for his role in the affair for $75,000 USD in February. According to the SEC, the CEO approved a $1.2 million USD payment, wired through a Virginia-based brokerage account, to a consultant in Argentina who negotiated on the airline’s behalf against labor unions.
The funds were routed through a third party under a “sham contract” involving a phony study, says the watchdog, and LAN knew that some of the money would be funneled on to labor unions in order to entice a favorable agreement in its wage disputes with workers.
“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, head of the SEC’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.”
Though the corruption charges stem from LAN’s actions alone, predating its 2012 merger with Brazil-based TAM, the timing of the scandal creates an embarrassing black eye for Latin America’s largest carrier at the same time it is pushing for a larger global presence. Less than two weeks ago, LATAM Group CEO Enrique Cueto was quoted in a Forbes profile boasting of his company’s ability to compete against anyone in the friendly skies.
“Until relatively recently … there was no Latin American airline with a regional presence that could compete at a global level,” Cueto told Forbes. “That is why it was long our ambition to bring LAN and TAM together and create an airline group in Latin America capable of playing in the aviation big leagues.”
The combined airlines waited until mid-2015 to unify their brands, now operating under the LATAM name. LAN Colombia became Colombia’s second largest airline, after Avianca, when it completed a 2010 purchase of the domestic carrier Aires, which at the time had a 22% market share. It has since flown to nearly two dozen different destinations in the Andean country, making Colombia one of its largest markets.
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