New law on corporate criminal liability and compliance programs for corruption cases

The Government presented a bill on October 20, 2016; the House of Representatives approved an amended version on July 5, 2017; the Senate approved a new amended version on September 27, 2017 and the House of Representatives approved the final version on November 8, 2017, accepting the amendments introduced by the Senate.

Our previous articles on the evolution of this bill in Congress are available at "Bill on Corporate Criminal Liability for Cases of Corruption and Guidelines for Compliance Programs", “Corporate Criminal Liability and Compliance Programs for Corruption Cases” and "Corporate Criminal Liability and Compliance Programs’ Bill".

1. Enforceability

This law will become enforceable 90 days after being enacted by the President and published in the Official Gazette. Although the President has the capacity to veto this law, it is unlikely that he will do so since his administration was the main sponsor of the bill.

2. Liability of Legal Entities

This law redefines the landscape of corporate criminal liability which until now existed for a limited number of cases including, for example, certain instances of tax evasion and smuggling.

In general, this law seeks to align certain Argentine anti-corruption regulations with international standards that punish legal entities for engaging in such crimes.

The law makes legal entities criminally liable for:

1. local or international bribery (“cohecho”) and influence peddling (“tráfico de influencias”),
2. negotiations that are incompatible with public office,
3. illegal payments made to public officials under the appearance of taxes or fees owed to the relevant government agency (“concusión”),
4. illegal enrichment of public officers and employees, and
5. producing aggravated false balance sheets and reports to cover up local or international bribery or influence peddling.

These crimes involve numerous elements and are complex in nature. Additionally, there are no precedents for several aspects of this law. Therefore, legal entities would be prudent to carry out in depth analysis regarding the reach of this law and how it applies to each of their activities.

Legal entities shall be liable when these crimes are committed, directly or indirectly, with their intervention or on their behalf, interest or benefit. The entities are also liable when the third party acting in benefit or interest of the entity had no capacity to act that way but the entity later ratified such actions in an express or tacit manner. Legal entities are only exempted from liability if the individual who committed the crime acted exclusively in his/her own benefit and without benefit for the entity.

Legal entities may be convicted even if it is not possible to identify or convict the individual involved in the crime, provided that the circumstances of the case allow for establishing that the crime could not have been committed without tolerance of the authorities of the legal entity.

In regard to successor liability, if a legal entity which is liable under this law becomes involved in a merger, split or any other modification, the resulting entity remains liable.

Although previous drafts of the bill included sections making controlling entities liable for economic penalties imposed on their subsidiaries under this law, such articles were removed from the law as approved by Congress.

3. Fines

Fines applicable on legal entities range from 2 to 5 times the “undue” benefit that was obtained or that could have been obtained through the actions incurred in breach of this regulation. Additionally, the authorities may forfeit assets obtained through these illegal actions.

4. Other penalties

Legal entities may also lose or suffer suspension of previously earned government benefits, and they may be debarred from participating in government bids and contracts or in “any other activity related to the government”. In certain cases the courts may order that the company fully or partially suspends its activities for up to 10 years or rule that the legal entity must be terminated when its main purpose or activity was to be used for the illegal actions under analysis. Furthermore, the court ruling shall be published.

Penalties imposed must consider: (i) compliance with internal rules and procedures; (ii) number and hierarchy of the individuals involved; (iii) omission of vigilance on the actions of the authors and participants in the crime; (iv) damage caused; (v) amounts of money involved; (vi) size, nature and economic capacity of the legal entity; (vii) spontaneous self-reporting by the legal entity as a consequence of an internal investigation; (viii) subsequent behavior; and (ix) remediation of damage caused and likelihood of recidivism.

5. Exemption from penalties

The legal entity is exempted from penalties and administrative responsibility when the entity: (a) spontaneously self-reports a crime set forth by this law as a consequence of internal detection and investigation; (b) established, before the facts under investigation occurred, a proper control and supervision system (i.e. compliance program, called “integrity program” by this law) and the breach of such system required an effort by the wrongdoers; and (c) returned the undue benefit obtained through the crime.

6. Compliance Programs Under this Law

Legal entities are not required under this law to implement compliance programs, with the exception of certain dealings with the Government as explained below. In any case, having an effective compliance program may benefit the company when penalties are decided. If implemented, the program must (a) be appropriate to the specific risks of the activities, size and economic capacity of the legal entity, in accordance with further regulations of this law to be enacted by the relevant authorities, and (b) include a Code of Ethics, internal policies to prevent crimes in any interactions with the public sector, and training.

Additionally, if implemented, the program may contain the following elements: periodical risk-analysis and consequent amendment of the program, clear support to the program by top management, internal reporting channels that are open to third parties and promoted appropriately, a policy protecting whistleblowers from retaliation, an internal investigation mechanism that respects the rights of those under investigation and imposes sanctions on the violations of the Code of Ethics, background checks on relevant third-parties, due diligence in M&A transactions to evaluate potential illegal actions or vulnerabilities in the legal entities involved, continuous monitoring and evaluation of the program’s effectiveness, a compliance officer in charge of developing, coordinating and supervising the program, and compliance with the regulations applicable to these programs that are established by the authorities with a policing capacity over the activities of the legal entity at federal, provincial, municipal or communal levels.

The law sets forth that further regulation is expected regarding compliance programs.

7. Compliance Programs as a requisite for Contracting with the Federal Government

Having a compliance program will be a requisite for contracting with the Federal Government when (a) according to applicable regulations such contracts must be approved by a public official ranked as or above than a minister; and (b) if the contracts fall under those regulated by article four of decree 1023/01 (e.g. procurement, sale and purchase, consulting, services, leases, leasing, swaps, concession for using goods in the public and private domain of the Federal Government, public works, concessions of public services and licenses, and all those contracts not specifically excluded from this regime), laws 13,064, 17,520 and 27,328, and concession or licensing contracts for public services.

8. Effective Collaboration Agreements

Legal entities under investigation for breaching this law may enter into effective collaboration agreements with the authorities. To such end, the legal entity must disclose precise and verifiable information that is useful for the investigation of the facts, authors and participants in the crime, as well as to recover assets and profits from the crime.

The agreement shall identify the evidence to be provided by the legal entity and shall be subject to the following conditions: (a) the legal entity shall pay 50% of the minimum fine; (b) the entity must return the things and profits obtained through the crime; and (c) the entity must surrender those goods that presumably would be forfeited in case of conviction to the State.

The agreement also may include the following: (i) actions to remediate damage caused through the illegal actions; (ii) community service; (iii) disciplinary measures against those involved in the crime; and (iv) a compliance program to be implemented or actions to improve a pre-existing one.

9. Preliminary Conclusions

Considering that this law may have material impact and the international trend in fighting corruption, it is advisable that legal entities analyze the scope of this law and evaluate if their actions and their compliance programs meet the standards set forth by this new regulation.