March 31, 2015 / 2:13 PM / 3 years ago

UPDATE 2-Chile's SQM sees $7 mln hit to results from expenses scandal

(Adds detail on regulatory investigation)

SANTIAGO, March 31 (Reuters) - A tax and illicit payments scandal at Chilean fertilizer group SQM worsened on Tuesday as the company took a $7 million charge against first-quarter earnings and board members faced investigation by securities regulators.

Authorities in Chile are investigating whether money from SQM and other companies was siphoned to fund electoral campaigns, principally for the UDI, a right-wing party that has links to the 1973-1990 Augusto Pinochet dictatorship.

SQM, which has rights to some of the world’s largest nitrate and lithium reserves, said earlier this month it had identified around $11 million in improperly documented tax expense payments from the office of its recently fired chief executive officer.

In a statement on Tuesday it said it was in the process of amending its annual statements. As a result, around $4 million in expense-related payments and another $3 million in interest-related payments had been made and will be charged to net income in the first quarter 2015.

Additional penalties and tax charges could also be applied by authorities, SQM said.

“The company cannot guarantee that (external tax) reviews will not lead to the identification of further situations that could result in further tax implications,” it said.

The campaign financing scandal has rocked the Chilean establishment and led investors to question governance at the company. Its board is led by controlling shareholder Julio Ponce, Pinochet’s former son-in-law.

Three board members appointed by Canadian stakeholder Potash Corp have resigned in protest.

Ex-CEO Patricio Contesse and new CEO Patricio de Solminihac both gave evidence at the national tax authority’s headquarters in Santiago on Tuesday.

The Chilean securities regulator, the SVS, said it was investigating Ponce and other members of the board for failure to inform the market of events in a timely way.

The board members now have a chance to defend their actions and depending on the outcome of the investigation may face sanctions from the regulator.

Shares in SQM , which is listed in Santiago and has actively-traded ADRs on the Nasdaq, have been hit hard by the scandal, falling some 30 percent since the start of March.

Reporting by Rosalba O'Brien; Editing by Cynthia Osterman

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