Bill proposes corporate criminal liability in certain cases of corruption in Argentina
June 2017 | EXPERT BRIEFING | FRAUD & CORRUPTION
A bill on corporate criminal liability for cases of corruption is under discussion in Congress. If approved, it would materially change the anti-corruption landscape for legal entities operating in Argentina by imposing modern regulations that follow international standards.
Mauricio Macri took office as president of Argentina in December 2015. His campaign emphasised, among other things, the relevance of actively fighting against corruption. During Macri’s first year in office, Argentina adopted several anti-corruption regulations. Some of them address conflicts of interest involving the government, benefits for those involved in cases of bribery that collaborate with the authorities and gifts to public officials. Additionally, there is a set of bills under discussion in Congress to regulate lobby, asset recovery in cases of corruption and corporate criminal liability in certain cases of corruption (the Bill).
The Bill proposes making legal entities liable for crimes against the Argentine public administration – including, but not limited to, bribery of local public officials – and for transnational bribery, when the crimes: (i) were committed directly or indirectly, in their names, in their interest or on their behalf, and when the legal entity might benefit from the crimes; (ii) were committed by any of their owners, partners, shareholders or associates having influence on the will of the legal entity, their representatives, directors, managers, or any other members or employees under their supervision or direction, or their representatives in partnership, agency, concession or trust agreements; and (iii) resulted from a lack of appropriate supervision and control by the legal entity.
Legal entities would meet the appropriate supervision and control requirement by implementing an ‘integrity programme’(i.e., a compliance programme) which is appropriate to the risks arising from the legal entity’s activities, its size and economic capacity – to prevent, detect, remediate and report to the authorities the criminal activities falling within the scope of the Bill.
When evaluating the effectiveness of such programmes, the courts should consider the ‘existence’ of the following: (i) a code of conduct or anti-corruption policies and procedures for guiding the actions of the members of the entity preventing the commission of the crimes addressed by the Bill; (ii) rules and procedures to prevent illegal actions in any interaction with the public sector; (iii) applying the code of conduct or the policies and procedures to third parties when necessary according to the risks involved; (iv) periodic compliance training for all members of the company and for relevant third parties; (v) periodic risks assessments and adjustments to the compliance programme; (vi) clear and visible support for the compliance programme by the senior management; (vii) communication channels visibly available to members of the entity and to third parties for reporting any irregularities; (viii) clear policies to avoid retaliation against whistleblowers; (ix) an internal investigations system that protects the rights of those under investigation and imposes effective sanctions on those who violate the code of conduct; (x) due diligence procedures to review the integrity and reputation of third parties when engaging them and while the relationship lasts; (xi) due diligence in cases of corporate transformations and acquisitions, to identify irregularities, illegal actions or the existence of ‘vulnerabilities’ in the legal entities involved; (xii) continued monitoring and evaluation of the compliance programme; and (xiii) an individual in charge of the development, coordination and supervision of the compliance programme.
Legal entities shall also be liable for the actions of their third-party contractors – both individuals and legal entities – when they fail to conduct due diligence. Additionally, in cases of corporate transformation (i.e., converting into a different type of legal entity), merger, split or similar, the resulting entity shall have successor liability with respect to the actions of the original entity that could breach the crimes addressed by the Bill, unless they adopted the due diligence procedures.
Moreover, controlling legal entities shall be jointly and severally liable for the remediation of damages caused by the controlled entities and for the economic sanctions imposed on them for committing the crimes addressed by the Bill.
In regard to penalties, the Bill sets forth that the legal entities may suffer fines from 1 to 20 percent of their gross income obtained in the year immediately preceding the year in which the crime was committed; total or partial suspension of activities up to 10 years; total or partial suspension of trademarks and patents up to 10 years; publication of the ruling in national newspapers; suspension or termination of government benefits and subsidies, and suspension from participating in public bids or in any other activity for up to 10 years; termination of the legal entity if it was created only for committing the crimes or if such crimes where the entity’s main activity; and forfeiture of assets or income derived from the illegal activities.
When graduating the penalties, the courts shall consider: (i) the number and hierarchy of those involved; (ii) if the crime was committed directly or through third-party intermediaries; (iii) the nature, size and economic capacity of the legal entity; (iv) the seriousness of the illegal actions; (v) the possibility that the sanctions bring serious damage to the community or to a public service; (vi) the existence and scope of an internal control and supervision system at the legal entity; (vii) the spontaneous self-reporting by the legal entity to the authorities as a consequence of the entity’s own detection and investigation of illegal actions; (viii) the cooperation of the legal entity to clarify the facts of the case; (ix) the subsequent behaviour of the entity, and the predisposition to mitigate or remediate the damage; (x) whether the crime was committed with the knowledge, acquiescence or participation of the top management of the entity; (xi) whether the crime caused, directly or indirectly, serious damage to the community, environmental damage or damage to a public service; (xii) whether the crime was repeatedly committed through a period of time; and (xiii) whether the entity previously committed any of the crimes addressed by the Bill.
Furthermore, until the case goes to trial, the legal entity may enter into ‘effective collaboration agreements’ with the authorities to cooperate in exchange for a deferred prosecution. Such cooperation requires the legal entity to disclose information useful to clarify the facts case, identify those involved and recover assets or profits obtained through the criminal activities. These negotiations are confidential.
Criticism by the OECD
In March 2017, the Organisation for Economic Co-operation and Development (OECD) Working Group on Bribery completed its supplemental report on Argentina’s implementation of the Convention on Combating Transnational Bribery. Argentina signed this Convention years ago and, therefore, committed to actions such as approving legislation to punish legal entities engaged in transnational bribery.
The report notes some positive developments such as the recent approval of certain anti-corruption regulations. However, it also emphasises, among other things, the need for more, faster and better enforcement of anti-corruption regulations and holding legal entities liable for transnational bribery, as proposed by the Bill.
In regard to the Bill, the OECD specifically criticised it by saying it lacks protections for whistleblowers, lacks punishment for corruption-related false accounting, maintains a different set of rules for corporate liability for money laundering and lacks specific asset-recovery rules.
The Bill is a major step for Argentina. Although it is not the first proposal to criminalise corrupt actions by legal entities, it certainly is the one which obtained a higher position in the agenda of the government and, thus, in the media.
If this Bill – or a similar one – is passed, the courts may have different views on how to enforce it, and reaching unified criteria could take several years and cases. This could be a major challenge for the companies subject to this regulation. However, such challenge may be ameliorated, for example, if the authorities decide to issue guidelines on how to comply with the new law.
It remains uncertain whether the Bill will be passed. However, in any case, this Bill demonstrates that Argentina is seriously considering the international trend on corporate criminal liability for cases of corruption.
Gustavo L. Morales Oliver is an associate at Marval, O’Farrell and Mairal. He can be contacted on +54 11 4310 0100 or by email: firstname.lastname@example.org.
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Gustavo L. Morales Oliver
Marval, O’Farrell and Mairal