Corporate Criminal Liability Regime

After being discussed and reviewed both in the House of Representatives and in the Senate, on November 8, 2017 the Argentine Congress approved a law which establishes the Corporate Criminal Liability Regime for Crimes against Public Administration and for international bribery (the “Corporate Criminal Liability Regime” and the “Law”, respectively).

The Law seeks to align certain Argentine anti-corruption regulations with international standards that punish legal entities for engaging in corruption cases, regardless of any other sanction applicable to the natural persons involved.

Unlike other Latin American regulations addressing this matter, the Law makes legal entities criminally liable but does not provide for administrative liability─ as is done, for instance, in the Clean Companies Act of Brazil (Law No 12,846). Therefore, the Argentine regime should, in principle, provide greater guarantees for the investigated individuals.
 

1. Liability of Legal Entities

The Law will apply to private legal entities, whether they are companies with domestic or foreign capital, with or without government participation, for the following crimes: (i) local or international bribery (“cohecho”) and influence peddling (“tráfico de influencias”); (ii) negotiations that are incompatible with public office; (iii) illegal payments made to public officials under the guise of taxes or fees owed to the relevant government agency (“concusión”); (iv) illegal enrichment of public officers and employees; and (v) falsification of balance sheets and reports to conceal local or international bribery or influence peddling.

Legal entities are liable when these crimes are committed, directly or indirectly, with their intervention or on their behalf, interest or benefit. According to the Law, legal entities are also liable when the third party acting in benefit or interest of the entity.

The Law also provides for successor liability, entailing that in those cases where a legal entity which is liable under this regime becomes involved in a merger, split or any other modification, the resulting entity remains criminally liable.

Legal entities are exempted from liability if the individual who committed the crime acted exclusively in his/her own benefit and without benefit for the entity.

The Law also sets out  independence of action criteria, establishing in Section 6 that 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 establish that the crime could not have been committed without acquiescence of the authorities of the legal entity.

It may be construed that liability established by the Law has the following characteristics:

1) Cumulative: Because it does not prevent natural persons involved in the crime from being held liable (whether as perpetrator or as accomplice).

2) Conditional: Because it requires that the crime be committed in the interest or benefit of the legal entity and with the intervention of natural persons.

This entails that we are dealing with vicarious liability (liability for the action of others) rather than organizational faults (liability for one’s own acts). Notwithstanding, the Law presents certain leniency for attribution of liability based on organizational fault since, as explained above,  the existence and enforcement of Integrity Programs by themselves may mitigate the penalty imposed and if this arises along with other circumstances, it may even mean the exemption from penalties ─not of the crimes─ (Section 9 of the Law).

3) Special/Particular: Because it applies to those cases expressly provided in the Law.
 

2. Penalties

Section 7 of the Law lists the penalties which may be imposed upon legal entities in the event of perpetration of any of the acts prohibited under the Law. The first penalty provided is the fine.

Fines applicable to legal entities range from 2 to 5 times the “undue” benefit that was obtained or that could have been obtained through the actions carried out in violation of the Law. Although Section 64 of the Criminal Code provides a range of clarifications regarding the fine penalty, the Law establishes that such provisions are not applied to legal entities.

Other penalties may also be imposed on legal entities, namely: full or partial suspension of activities for up to 10 years; debarment from participating in government bids and contracts, for up to 10 years; dissolution and liquidation of the legal entity if it had been established for the sole purpose of committing crimes, or such acts are the legal entity’s core business; loss or suspension of granted government benefits; publication of the condemnatory ruling.

Additionally, the Law provides the forfeiture of goods or assets that are the result or profit of the crime. The Law also states that the forfeiture rules established in the Criminal Code must be applicable.
 

3. Penalties’ adjustment

With respect to the adjustment of penalties provided for in the Law, there are several grounds to be taken into account by the judges, namely: failure to comply with internal rules and procedures; number and hierarchy of the officials, employees and contributors involved; omission of vigilance on the actions of the perpetrators and accomplices in the crime; the extent of the damage caused; amount of money involved in the commission of the crime; the legal entity’s size, nature and economic capacity; the legal entity’s spontaneous self-reporting to the authorities as a result of an internal investigation; subsequent behavior; willingness to mitigate or repair the damage caused; and recidivism.

The Law addresses recidivism in Section 8 in fine as follows: It will be understood that there is recidivism when the legal entity is sanctioned for an offense committed within three (3) years following the date on which a previous absolution judgement becomes definitive. In this sense, the concept of recidivism provided in this Law differs from the one applied to natural persons, in respect of which recidivism exists whenever conviction is imposed by any court of the country upon a person depriving him of his liberty, and such person thereafter commits a new crime even though the offender had been pardoned or his sentence had been commuted. (Section 50, Criminal Code). In the case of legal entities,  recidivism is defined as a reiteration of a conviction.
 

4. Exemption from penalties

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

It is required that these grounds are met simultaneously. If they are not, the occurrence of one or more of them may still be held as grounds to be taken into consideration for penalty adjustment.
 

5. Integrity Program

The Law stipulates the possibility of legal entities implementing compliance programs, that is to say integrity programs consisting of actions, mechanisms and internal proceedings for the promotion of integrity, supervision and control, focused on the prevention, detection and correction of irregularities and unlawful acts on the grounds of the Law (“Integrity Programs”).

Legal entities are not required under the Law to implement the Integrity Programs ─except those contracting with the Government. Notwithstanding, these become a matter of vital importance when taking into account that one of the requisites that must occur to be granted with the exemption of penalties is the existence of a proper control and supervision system.

The Integrity Program ─which has to be appropriate to the specific risks of the activities performs by the legal entity, its size and its economic capacity and, eventually, with the provisions established in the regulation of the Law─  must contain the following minimum elements:

- a code of ethics or conduct, or the existence of integrity policies and proceedings applicable to every director, manager and employee, regardless of the position held or functions, that guides the planning and enforcement of their duties or tasks in a manner that prevents the commission of crimes under the Law;

- specific rules and procedures for preventing unlawful acts within the scope of public tenders, in the execution of administrative contracts or in any other interaction with the public sector;

- the performance of regular training for directors, managers and employees about the Integrity Program.

Additionally, the Integrity Program may contain the following elements: (i) periodical risk analysis and consequent amendment of the program; (ii) evident and clear support to the program by top management; (iii) internal reporting channels open to third parties and promoted appropriately; (iv) a policy protecting whistleblowers from retaliation; (v) an internal investigation mechanism that respects the rights of those under investigation and imposes sanctions on the violations of the Code of Ethics; (vi) background checks on relevant third parties or business partners, including suppliers, distributors, service providers, agents and intermediaries, when contracting their services; (vii) due diligence during M&A transactions, to evaluate potential illegal actions or vulnerabilities in the legal entities involved; (viii) continuous monitoring and evaluation of the Integrity Program effectiveness; (ix) an internal compliance officer in charge of developing, coordinating and supervising the Integrity Program; (x) compliance with the regulations applicable to these programs that are issued by the federal, provincial, municipal or communal authorities with coercive powers over the activities developed by the legal entity.
 

6. Effective Collaboration Agreements

The Law incorporates an innovative tool in Argentine law, providing that until the case goes to trial, the Public Prosecutor’s Office (Ministerio Público Fiscal) ─on behalf of the authorities─ and the legal entity may enter into “Effective Collaboration Agreements” (Acuerdos de Colaboración Eficaz).

Through these agreements, the legal entity undertakes to cooperate with bringing the facts of the case to light, by identifying the perpetrators or accomplices or by recovering the assets or profits proceeding from the crime. This, together with the compliance of the conditions set forth in the agreement, will lead to a deferred prosecution and a reduction of the penalties to be imposed (in the event of a criminal liability sentence being imposed, the only penalties that will be applied are: fines ─reduced ones─ forfeiture and divestment of assets). Both the negotiation of the agreement and the information exchanged in the framework of such negotiation up and until the agreement is approved by the competent judge must be strictly confidential.

The Effective Collaboration Agreement identifies the kind of information and/or evidence to be provided by the legal entity to the authorities and is subject to the following conditions:

- paying a fine equivalent to half the minimum fine established in Section 7 subsection 1 of the Law;

- returning the goods or profits obtained through the commission of the crime; and

- handing over to the State those assets that would presumably be forfeited in the event of a conviction.

The Law provides for a compliance monitoring of the agreement to corroborate the authenticity and usefulness of the information provided by the legal entity. If the authenticity and usefulness of the information are corroborated, the court ruling must respect the conditions established in the agreement, precluding the imposition of other penalties. Otherwise, the judge will annul the agreement and the proceedings will continue according with the general rules.
 

7. Contracting with Federal Government

The existence of an Integrity Program will be a required condition to contract with the Argentine Federal Government when such contracts (i) must be approved by a public official ranked as or above than a minister; and (ii) fall under the Federal Government Contracting Regime (Section 4 of Decree No. 1023/01) and/or under the law of public work (Law No. 13,064), award of public work (No. 17,520), public-private partnership (Law No. 27,328) or concession or licensing contracts for public services.

In this regard, the regulation will have to establish how this requirement will be demonstrated and considered accomplished to celebrate these contracts. We do not rule out the possibilities that the implementing regulations of the law provide, as some foreign laws do, specific certification procedures on the suitability of Integrity Programs to enter into agreements with the Argentine Federal Government.
 

8. Enforceability

The Law will become enforceable 90 days after being published in the Official Gazette. Although the President has the capacity to veto this law, it is not likely that he will do so, since his administration was the main sponsor of the bill.