Downfall of United CEO Illustrates Risk of Domestic Corruption

Downfall of United CEO Illustrates Risk of Domestic Corruption

11 September 2015

The resignation of United Airlines CEO Jeff Smisek and two other senior executives on September 8 illustrates that domestic corruption can pose a similarly significant risk to multi-national corporations and their executives as cross-border corruption.

The resignations stem from a broad U.S. federal investigation into corruption-related misconduct by David Samson, the former Chairman of the Port Authority of New York and New Jersey, which amongst other holding owns Newark Liberty International Airport, a hub for United. During the course of the investigation, federal prosecutors noted a once-a-week flight operated by United from Newark to Colombia, South Carolina, near Samson’s home in Aiken, SC, where he often returned to spend weekends with his wife. The flights departed Newark on Thursday evening and returned Monday morning. It generally ran only half full, lost money, and was even referred to by Port Authority Officials as “the chairman’s flight.”

Further attracting federal prosecutors’ attention was the fact that the flights after Samson took over the Port Authority Chairman’s role and ended within days of his stepping down. During this time, United was involved in negotiations with the Port Authority regarding capital improvements to its hub at Newark and expansion of service to Atlantic City, where the Port Authority had taken over operations. 

In February, federal prosecutors issued subpoenas focusing on whether Samson had actually pushed United to reinstate those flights. Allegedly, according to those in attendance, Samson requested the reinstatement of the route in a “playful, but not joking” manner during a September 2011 dinner between the Port Authority and United in Manhattan, which Smisek attended. 

Whether United Airlines, Smisek, or other executives are charged by federal prosecutors remains to be seen. Officials close to the case believe such a decision may come within weeks. 

But regardless of the outcome, the lesson for multi-national corporations from this incident is clear. As U.S. prosecutors have ramped up enforcement of the Foreign Corrupt Practices Act over the last decade, and other countries have followed by enhancing their own anti-corruption laws and ratcheting up enforcement, many companies have focused on corruption risk outside of the United States and that involving cross border activity. But as demonstrated by the United Airlines scandal, domestic corruption can also pose a serious risk to corporations and their executives. A robust anti-corruption compliance program thus needs to target corruption and bribery across all of a company’s markets of operation.