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LAN Airlines fined US$22 million

WASHINGTON, DC: July 25, 2016. The U.S. Securities and Exchange Commission (SEC) and U.S. Department of Justice has fined LAN Airlines (LAN) a total of US$22 million to settle civil and criminal cases relating to payments it made during a dispute with union employees in Argentina.

According to the SEC, as part of a deal that LAN reached with the Argentine government in March 2005, the airline was required to hire between six and eight hundred employees from the state-owned LAFSA and Southern Winds airlines that subsequently became LAN Argentina. The SEC says the five unions involved had no hesitation in seeking wage increases following the acquisitions, and by 2006 LAN's management was involved in negotiations that eventually resulted in work stoppages, slowdowns and strikes by the pilots' and mechanics' unions.

LAN 787 CHILELAN CEO Ignacio Cueto Plaza responded by agreeing to pay a consultant US$1.15 million for a purported study of existing air routes in Argentina. The SEC says the CEO knew the report wouldn't be produced and that some of the money would be given to union officials in Argentina to settle the wage disputes.

By August of that year, the strikes were over and all the unions had settled for wage increases less than their original demands.

In February 2016 the SEC penalized Cueto Plaza US$75,000 for authorizing the payment to the consultant.

Chilean-born Cueto Plaza has been CEO of LAN since 2012. From 1995 to 1998 he was president of LAN Cargo, based in Miami, and from 1999 to 2005 was CEO of LAN's passenger business. In 2005 he became president and COO of LAN Airlines until the merger of LAN and TAM in June 2012. His brother, Enrique Cueto Plaza, is CEO of the LATAM Airlines Group.

LAN has now agreed to pay US$9.4 million to settle the SEC's charges that it failed to maintain adequate accounting controls, and a US$12.75 million penalty to the U.S. Department of Justice.

"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 Foreign Corrupt Practices Act enforcement 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."

In July this year Qatar Airways announced it would acquire up to 10 percent of LATAM following a capital increase of US$613 million by the Santiago, Chile-based company. The deal is expected to complete in the fourth quarter of 2016.

"LATAM represents an exciting opportunity to invest and support the development of our long-term relationship," declared Qatar Airways group CEO Akbar Al Baker. "As a leading airline in Latin America, and key member of oneworld, this investment provides potential opportunities for Qatar Airways' global network, alongside our successful investment in IAG," he added.

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