United Airlines ("United") settled charges with the SEC for failing to follow its own compliance policies and procedures designed to prevent corrupt practices. The settlement Order requires United to implement and adhere to effective internal controls and to pay a $2.4 million civil penalty.
The SEC found that United failed to design and maintain an adequate system of internal controls and, as a result, prepared inaccurate accounting books and records. The SEC found that United allowed management to bypass its internal approval process and authorize a money-losing flight route from Newark, NJ to Columbia, SC in exchange for benefits from a senior official with the Port Authority of New York and New Jersey.
In a memorandum on the case, Cadwalader attorneys cite a related criminal Non-Prosecution Agreement with the United States Attorney's Office for the District of New Jersey – the terms of which include a $2.25 million penalty and multiple remedial anti-bribery compliance requirements. The attorneys note that this case parallels those that are contextualized by the Foreign Corrupt Practices Act.
The memorandumwas authored by Bret Campbell, J. Robert Duncan and Joseph Moreno.
Commentary / Joseph V Moreno
The SEC's action against United serves notice that, in an effective internal control environment, all employees must follow the rules and no one is "above the law" (even in the C-suite). Public companies must not only maintain internal controls that are designed appropriately and operate effectively; their Board of Directors and Audit Committee must also reasonably and appropriately inquire and monitor for potential management overrides of the control environment they are entrusted with overseeing.
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