LATAM / LAN Airlines: A Route Study That Bought a Labor Deal

In the LATAM / LAN Airlines FCPA case, the airline agreed to give up $6.74 million in profits in a Securities and Exchange Commission settlement over a sham consulting arrangement. As LATAM admitted in its deferred prosecution agreement, the contract described an airline-route study while the money paid Argentine union officials for concessions in a labor dispute. For someone who knew the negotiations, approved the transfer or expected to receive the study, the difference was visible inside the business.

The Justice Department announced the resolution on July 25, 2016. LATAM was a commercial airline company based in Chile, and the conduct involved its predecessor, LAN Airlines. The case connects the business decision to the false paperwork: what management wanted from the unions, what it authorized the consultant to do, and what the agreement said the airline was buying.

The Route Study That Never Happened

Under its deferred prosecution agreement, as described by the Justice Department, LATAM admitted that LAN executives arranged a fictitious consulting agreement in October 2006. The consultant was an advisor to the Secretary of Argentina’s Ministry of Transportation. His supposed assignment was to study Argentine airline routes, but he provided no such services.

The company’s admissions described where the money went instead. The consultant funneled it to Argentine labor union officials in exchange for concessions on wages and an agreement not to enforce a costly labor rule. The Justice Department reported that LAN profited by more than $6.7 million from the bribes.

The airline had paid someone whose actual job was to change the outcome of a negotiation, while the agreement described research. We see a convenient fiction: management could get what it wanted without a page of the promised study.

A sham consulting contract separates the description that travels through the business from the purpose known to the people arranging the deal. In LAN’s case, the route-study language pointed toward airline planning, while the admitted payment route led to the labor officials. An employee familiar with either side could recognize a mismatch that the contract alone concealed.

The Executive Approval and the Virginia Account

The Securities and Exchange Commission’s separate February 4, 2016 announcement about LAN’s executive alleged that the person serving as president and chief operating officer authorized the sham agreement. The agency said LAN wired $1.15 million to the consultant’s Virginia-based brokerage account. It described the agreement as unsigned.

According to the SEC, the executive knew the route study would never be performed. The consultant had instead agreed to help settle the labor dispute, and the executive understood that some of the money might pass to Argentine union officials.

The SEC alleged that the executive approved the payments to get the unions to abandon threats to enforce the single-function rule and accept a wage increase smaller than they had demanded. That detail puts the workers’ stake in view: the payments targeted the size of the raise their unions were seeking.

The banking detail gives this transaction a concrete U.S. connection. An Argentine labor negotiation, a Chilean airline and a Virginia brokerage account appear in the same payment chain. The person who knew why management wanted the payment and the person who processed the transfer could each hold a different part of its explanation.

Why the Accounting Mattered

The Justice Department described the corporate resolution as involving the Foreign Corrupt Practices Act’s accounting provisions. The Securities and Exchange Commission separately alleged that the executive violated internal accounting controls, books-and-records and false-records requirements. The executive agreed to pay a $75,000 civil penalty. These accounting issues put the service description and the approval decision at the center of the case.

The contract said the airline was buying a study. The SEC alleged that the approving executive already knew there would be no study, while the company’s criminal admissions described money reaching union officials. For a finance employee, that is a concrete difference between the transaction presented for payment and the purpose understood by management.

Cooperation Left a Management Problem Unfixed

The Justice Department said Argentine press reporting exposed the conduct and that LATAM had not voluntarily disclosed it. Once the company began cooperating, it did so fully and provided all relevant facts known to it, including facts about the people involved.

Its assessment of the company’s response inside the business was sharply different. The Justice Department said LATAM had not adequately remedied the problem and had failed to discipline the responsible employees, including at least one senior executive. It said that failure compromised the compliance program’s effectiveness in practice.

We find that hard to square: full cooperation with investigators, yet no discipline for the people responsible. An employee who knows what happened after the facts surfaced can explain whether management’s response reached the people responsible.

A study of Fresenius Medical Care gives that distinction a wider business context. In Fresenius Medical Care: A Case Study on the FCPA, published by the Journal of Forensic and Investigative Accounting in 2022, the researchers described an internal audit that flagged a third-party relationship while senior management continued making payments. Their conclusion captured the weakness of controls that employees could work around:

The study concerns Fresenius, but its finding sharpens the question an insider can answer in another business. What happened to the payment after someone knew the stated purpose did not hold up? A policy and a warning each leave a record. So does the decision to carry on.

Other Cases Where Consulting Concealed the Deal

Embraer allegedly disguised a Dominican payment as a $3.42 million advance commission for aircraft sales in Jordan, where no contract was awarded. The SEC’s complaint alleged that senior executives kept the promised payment alive after legal review became an obstacle. It described their instruction plainly:

The comparison with LAN is the business purpose hidden behind the service description. The SEC alleged that Embraer’s Jordan paperwork concealed a Dominican payment, while LATAM admitted that LAN used an Argentine route study to conceal payments for labor concessions. In both accounts, knowing what the company actually wanted makes the paperwork intelligible.

Panasonic Avionics admitted in its deferred prosecution agreement that it paid an airline official $875,000 through a service provider and recorded the payments as consulting, although little or none of the money paid for actual consulting. Its admitted statement of facts described an internal audit that could not locate the consultant’s work. Employees explained that no services had been requested during the preceding twelve months, even as the company kept paying the invoices.

The same false-service device appeared beyond aviation. Olympus Latin America admitted in its deferred prosecution agreement that payments to an agent in Mexico were recorded as public-bid administrative and advisory services that were neither performed nor required. For an insider, the useful connection across these cases is the gap between the work named in the payment records and the decision the money was meant to influence.

What an Airline Insider Can Explain

The most useful evidence connects the approval, payment and business purpose. A consultant agreement describes the assignment. The work actually delivered tests that description. Payment records show who received the money, while the people involved in the negotiations may know what management expected in return.

For an airline employee, those connections can run across labor relations, operations and finance. The person expecting a route study may know that no work arrived. The employee handling the consultant’s account may know who approved the transfer, while someone involved in the labor dispute may understand why management wanted it made. We work with you to connect that knowledge to the company’s decisions and the records that explain them.

You Know What the Consultant Was Paid to Do

If the study never arrived but the labor deal did, speak with our whistleblower experts about what you saw. We stay beside you to build your strongest foreign bribery whistleblower case and bring in foreign bribery whistleblower lawyers who know how sham consulting payments are booked.