Impact of Criminal Investigations in Contracting with the Argentine Government

1. Introduction

 

In recent months, ongoing criminal investigations regarding potential crimes related to contracts executed with the Argentine Government have raised speculation about whether orders of indictment issued against some businessmen could impact on the ability of the companies where they act as directors or shareholders to execute contracts with the Argentine Government.

 

Although some public comments had been made on this matter by officials of the Argentine Government, no formal statements had been issued by the relevant agencies.

 

In this context, on October 31, 2018, the Attorney General’s Office ((the "PTN" after its Spanish acronym) issued an important opinion about (i) the extension of debarment from contracting with the Argentine Government to the companies in which such individuals act as directors or shareholders based on Decree 1023/2001 and its regulations (the "General Procurement Regime"); and (ii) the impact of Law No. 27,401 on Corporate Criminal Liability (the "LRPE" after its Spanish acronym).

 

2. The PTN’s Opinion

 

The PTN was consulted in connection with a bidding process carried out by the Argentine Ministry of Interior, Public Works and Housing, and had to opine whether debarment of individuals from contracting with the Argentine Government due to an indictment in a criminal case for the alleged commission of a fraudulent administration crime against Public Administration (regulated in the General Procurement Regime) could be extended to the companies where those individuals acted as directors or shareholders.

 

Additionally, the PTN opined on the impact of the LRPE in the examined case due to a reference made by the Legal Service of the LPRE.

 

1. Possible extension to legal entities of the debarment from contracting with the Argentine Government of criminally indicted individuals

 

Regarding the first issue, the PTN considered that the debarment cause for criminal indictment regulated in the General Procurement Regime did not authorize its extension to the companies in which the indicted individuals acted as directors or shareholders.

 

Likewise, the PTN argued that the extension of the debarment would not proceed due to the application of the "theory of piercing of corporate veil".

 

The PTN explained that this theory pursues to hold shareholders liable for the abusive consequences of corporate actions, and that its scope could not be extended to operate in the opposite direction and, thus, justify the debarment of a legal entity to contract with the Argentine Government if one of its directors or shareholders is indicted.

 

2. Significance of the LRPE

 

On the second issue, the PTN claimed that the approval of the LRPE, together with other previous regulations that recognized the criminal liability of legal entities, expose legal entities to be criminally liable "for the crimes committed, directly or indirectly, with their intervention or in their name, interest or benefit, even when the acting party is a third party without representation, if the legal entity has ratified the management, even implicitly"; and that it "will be released of such responsibility when the individual that commits the crime acted for their own benefit and without generating any profit for the legal entity."

 

Thus, the PTN understood that, for the facts occurred after becoming effective, the LRPE extended, in an implicit, partial and supervening way, the debarment cause of criminal indictment under the General Procurement Regime, and that, currently, it should be interpreted that when this rule refers to “persons” (without clarifying), it includes both individuals and legal entities.

 

However, the PTN considered that in said bidding process the indictments of individuals could not extend their effects over legal entities, as the investigated facts occurred before the LRPE became effective, the LRPE is not retroactive and the bidding legal entities were not indicted.

 

The PTN concluded that even if it was proven that the crimes committed by the indicted individuals had been committed, directly or indirectly, with the intervention or in the name, interest or benefit of the bidding legal entities, the LRPE and the new scope of the cause of debarment of the General Procurement Regime would not be applicable to these legal entities in the context of this bidding, as they occurred prior to the entry into force of the LRPE.

 

3. Conclusions

 

The opinion of the PTN is important because it provides some interpretive parameters in relation to ongoing criminal investigations and to the decisions that could be adopted against directors or shareholders of contracting companies of the Argentine Government.
 

However, considering the different procurement regimes and the different situations that could arise, it seems advisable to analyze each situation on a case-by-case basis and to monitor how these issues evolve.