The Brazilian airline GOL Linhas Aéreas was charged in the United States after violating the Foreign Corrupt Practices Act (FCPA) and agreed to pay $157 million to settle charges with the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ). Nonetheless, due to the company’s “demonstrated financial condition and inability to pay the fines in full,” the airline will only pay about $44.9 million.
GOL’s bribes
On Thursday, the Securities and Exchange Commission announced it had charged Brazil’s second largest domestic airline, GOL, for violating the FCPA. The São Paulo-based company agreed to pay $70 million to settle the SEC charges. According to the SEC’s Order, GOL bribed prominent Brazilian government officials in exchange for certain favorable payroll tax and aviation fuel tax reductions.
The scheme took place in and around 2011 to 2013 after the Brazilian government proposed an economic stimulus program that consisted, in part, of tax cuts and incentives to boost domestic employment. Around this time, a GOL director committed to pay the approximate equivalent of $5.4 million in bribes to Brazilian politicians to lower certain taxes that financially benefited airlines in the country. Other carriers in Brazil at the time were LATAM, Azul, and Avianca Brasil; none of these airlines are involved in the criminal investigation. In the end, GOL paid about $3.8 million in bribes in 2012 and 2013.
GOL characterized these bribes as payments for services provided, even though the services were never rendered. In all, GOL saved the approximate equivalent of $39.7 million in 2013 due to these bribes, which allowed the air transport industry to be included in a new legislation that allowed companies operating in certain industries to pay between 1% to 3% tax on revenues, rather than the standard 20% tax on payroll.
DOJ’s fine
Charles Cain, the SEC’s FCPA Unit Chief, said that GOL’s case highlighted the need for effective internal accounting controls for transactions initiated at all levels of an organization. He added that GOL’s internal accounting controls were particularly ineffective.
The Brazilian carrier consented to a cease-and-desist order finding that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. It also agreed to enter into a deferred prosecution agreement with the US Department of Justice and to pay more than $87 million to settle criminal charges.
However, “due to Gol’s demonstrated financial condition and inability to pay the fines in full, the SEC and the DOJ waived payment of all but $24.5 million and $17 million of Gol’s payment obligations, respectively. Gol will pay approximately $3.4 million in additional penalties or restitution to Brazilian authorities,” said the SEC in a statement.
Assistant Attorney General Kenneth Polite of the Justice Department's criminal division, said that GOL “entered into fraudulent contracts with third-party vendors for the purpose of generating and concealing the funds necessary to perpetrate this criminal conduct, and then falsely recorded the sham payments in their own books.”
GOL posted a US$540 million net loss in the first half of the year.
GOL’s voice
On Thursday, GOL announced that it had finalized definitive agreements with the Comptroller General of Brazil (CGU), the US DOJ, and SEC for the settlement of their investigations into payments in the approximate equivalent amount of $3.8 million made through GOL in 2012 and 2013 to politically exposed persons.
The airline added that its independent external investigation of this matter was concluded in April 2017 and that it had shared the conclusions of its investigation with the relevant authorities. Moreover, “none of GOL’s current employees or management were aware of any illegal purpose behind any of the identified transactions.”