Economic Criminal Court confirms free disposition of 70% of revenues from oil and gas exports

1.    Legal and historical background

As a result of the oil and gas industry deregulation policy implemented from late 1989 in Argentina, the Executive Branch (“EB”) passed Decree No 1589/1989. This Decree established the free disposition of 70% of the revenues from exports of crude oil, natural gas and liquefied gas. The free disposition of revenues stimulated investments aimed at the exploration and production of hydrocarbons in Argentina. At that time, currency exchange restrictions were still in force.

Decree No 530/1991 abrogated the obligation to repatriate and negotiate the revenues from product exports in the exchange market. Given this general measure, the free disposition of funds provided by Decree No 1589/1989 for the oil industry became irrelevant, but was not abrogated.

Due to the crisis experienced from late 2001, several emergency measures were implemented. Among others, the EB passed Decree No 1606/2001 abrogating Decree No 530/1991 which had eliminated restrictions on fund transfers abroad. The effectiveness of Decree No 2581/1994 was reestablished, providing for the obligation to repatriate and negotiate in Argentina the revenues from product exports. Six days later, the EB passed Decree No 1638/2001, which provided for some exceptions to the restrictions imposed by Decree No 1606/2001. It was established that “There shall not be any obligation to repatriate revenues from activities especially exempted by the law, by a contract with the Argentine Government or by decrees prior to the date hereof, to the extent of such exemption” (Section 3 of Decree No 1638/2001).

Several concessions granted since 1990 refer to Decree No 1589/1989, among other laws and regulations, and expressly provide for the free disposition of up to 70% of the revenues from the export of the concession products. 

In 2002, based on the free disposition system established by Decree No 1589/1989 and the terms of the concessions, the producers only repatriated 30% of the revenues from oil and gas exports.

At that time, the government and certain legislators wanted to limit the “privileges” of the oil and gas industry, which had a more favorable treatment than exporters of other industries. In an attempt to have all the revenues repatriated, several bills were submitted to the Argentine Congress to abrogate the free disposition of funds contemplated under Decree No 1589/1989. However, none of them succeeded. 

On July 31, 2002, the General Attorney for the Argentine Government (Procurador del Tesoro de la Nación) issued an opinion in connection with a consultation made by Banco Bradesco Argentina S.A. to the Central Bank of Argentina (“BCRA”) whereby he stated that “the exception contemplated in Section 5 of Decree No. 1589/89 is not effective and cannot be enforced under the exchange system established by Decree No. 1606/01 (…)” (Opinion No 235/02 of the General Attorney for the Argentine Government).

Finally, on December 27, 2002, the EB passed Decree No 2703/2002 which provided that “The producers of crude oil, natural gas and liquefied gas shall repatriate (…) at least, THIRTY PER CENT (30%) of the revenues from exports of freely disposable crude oil or its derivatives, and may freely dispose of the remainder”. Decree No 2703/2002 did not specify the treatment applicable to the revenues obtained during 2002 before its issuance.

Based on the Opinion of the General Attorney for the Argentine Government, the BCRA initiated administrative proceedings against oil companies and their directors for failing to repatriate all the export revenues due to an alleged violation of the Foreign Exchange Criminal Law (Law No 19,359, as restated by Decree No 480/1995). After the applicable proceedings at the BCRA, the files were forwarded to the economic criminal courts (fuero penal económico) to be resolved.

2.    The “Colhué Huapi” case

The judgment passed by Economic Criminal Court No 4 in and for the City of Buenos Aires in re “Colhué Huapi S.A. s/ Infracción Ley 24.144”, dated September 25, 2007, resolved the issue in accordance with the law. The court acquitted the oil company and its directors from the alleged violation of the Foreign Exchange Criminal Law.

This was one of the numerous cases where the BCRA initiated proceedings against an oil company for alleged violation of foreign exchange laws and regulations related to the obligation to repatriate and negotiate 100% of the revenues from product exports in Argentina. In this case, the defendants were Colhué Huapi S.A. and its directors.

In 1998, the Argentine Government granted the concession of an oil and gas exploitation project to Colhué Huapi S.A. under Law No 17,319. Such concession expressly provided for the free disposition of hydrocarbons and of the export revenues up to 70% of the amount of each transaction. The concession makes reference to the application of Decree No 1589/1989.

The term of the alleged violation was said to run from March 1, 2002 to April 29, 2002. After a chronological review of the successive decrees passed by the EB on these issues, the Court resolved that the provisions of Decrees No 1606 and 1638/2001 were effective as of the date of the alleged violation. Therefore, the alleged criminal act was not such under the provisions of these two Decrees.

Moreover, the Court held that the exception provided under Decree No 1638/2001 was later ratified by the enactment of Decree No 2703/2002 that determined the maximum limit on the free disposition.

The Court also stated that, in accordance with the provisions of Decrees No 1606/2001 and 1638/2001, the defendants were exempted from repatriating 100% of the revenues, as they had executed a concession contract with the Argentine Government before the enactment of Decree No 1638/2001, and such contract provided that at least 30% of the proceeds of each export transaction would need to be repatriated, and the remaining 70% could be freely disposed of.

The Court considered that the company duly repatriated the percentage of revenues that it was obliged to repatriate under the applicable laws and regulations (i.e. at least 30% of the amount of each export transaction). It was then proved that the revenues obtained from the exports at issue were repatriated in amounts equal to 30.42%, 52.59% and 58.52% of the transactions. Therefore, the Court resolved that the conduct was lawful and acquitted the company and its directors.

It is worth mentioning that even when the Court resolved the case based on the laws and regulations effective as of the date of the alleged violation (Decrees No 1606/2001 and 1638/2001), it applied obiter dictum, the principle of retroactivity of the most favorable criminal law. In fact, the Court considered that even though Decree No 2703/2002 was passed after the investigated facts, it was effective as of the date of commencement of the administrative proceedings, thereby acquitting the acts of the defendants. This basic principle in criminal law had been applied by the Argentine Supreme Court for the specific case of the foreign exchange criminal regime in re “Cristalux”.

The “Colhué Huapi” case is a leading case that clarified the situation of oil and gas companies which repatriated their export revenues into Argentina in 2002 in accordance with the 70/30 rule. It confirmed the free disposition of up to 70% of the revenues, pursuant to effective laws and regulations. It should serve as a guideline for other cases related to this matter.