Chiqiuita Brands International (”Chiquita”) has pled guilty under written plea agreement with DOJ. Chiquita’s sentence will include a $25 million criminal fine, the requirement to implement and maintain an effective compliance and ethics program, and five years’ probation.
At issue is that over a six year period, from 1997-2004, Chiquita made payments to the violent, right-wing terrorist organization United Self-Defense Forces of Colombia (”AUC”). AUC has been designated by the U.S. government as a Foreign Terrorist Organization (”FTO”). Chiquita paid money to the AUC in two regions of the Republic of Colombia where Chiquita had banana-producing operations – making these these payments through its wholly owned Colombian subsidiary known as “Banadex.” In total, Chiquita made over 100 payments to the AUC amounting to over $1.7 million.
On Feb. 20, 2003, a Chiquita employee told a senior Chiquita officer that AUC was an FTO. Chiquita officials spoke with outside counsel who emphatically advised Chiquita that the payments were illegal under United States law and that Chiquita should immediately stop and should dispose of Columbian operations.
In April 2003, the Chiquita Board of Directors was informed of the payments. A Board member objected to the payments and recommended that Chiquita consider taking immediate corrective action, including withdrawing from Colombia. The Board did not follow that recommendation, but instead agreed to disclose promptly to the DOJ. Meanwhile, Banadex personnel were instructed to continue making the payments due to the threat that violence against personnel and assets would ensue should payments stop.
DOJ officials told the Chiquita representatives that the payments were illegal and could not continue – yet acknowledged that the issue of continued payments was complicated.
Notwithstanding the persistent advice of its outside counsel, the Department of Justice’s statement that the payments were illegal and could not continue, and Board involvement in the matter, Chiquita continued to pay the AUC throughout 2003 and early 2004. From April 24, 2003 (the date of Chiquita’s initial disclosure to the Justice Department) through February 4, 2004, Chiquita made 20 payments to the AUC totaling over $300,000. Chiquita sold Banadex to a Colombian buyer in June 2004.
Commentary: This is not a simple cut and dry case and it accurately reflects ethical and legal issues commonly encountered by companies operating in the developing world. Some key takeaways for compliance counsel to remember from this case include: (a) compliance officers have a responsibility to stay abreast of the FTO list; (b) (b) global risk assessments should be undertaken routinely; (c) DOJ showed an element of reasonableness in acknowledging the complexity of the continued payments, but still had to slap an ever harder fine on Chiquita as a result; (d) every company operating globally should have a full time compliance and ethics officer (Chiquita just hired one last week as a result of this); (e) the Board of Directors is becoming more active, and waiting two months to inform the full Board as was the case here, would not likely fly with other boards very well; and (f) sometimes, as Chiquita showed, the only way to extricate yourself fully from a situation like is to sell the operation entirely (not ideal – naturally it would have been better to have a culture in place to begin with which could have resisted making such payments).
