New Law establishing a Corporate Criminal Liability Regime for Corruption Cases- Importance of the Integrity Programs
By Eduardo Patricio Bonis
Argentina enacted a criminal liability regime for private legal entities, whether with domestic or foreign capital and with or without government participation, for the following crimes: (i) local and international bribery and influence peddling, (ii) negotiations that are incompatible with public office, (iii) concusión (i.e. illegal payments to public officials upon undue request of such public official under the appearance of fees owed or taxes or contributions to a relevant agency), (iv) illegal enrichment of public officials and employees, and (v) aggravated false balance sheets and reports .
This new Law is the result of a regional and international trend which aims to undertake a serious fight against corruption.
It must be highlighted that the Law –as similar laws in other countries do-, has extraterritorial effects. Indeed, Argentine citizens and also legal entities that are domiciled in the Argentine Republic or that have branches in the Argentine Republic shall be held criminally liable for the crimes of bribery and influence peddling committed abroad (article 258 bis Criminal Code).
As per this new Law, it will be very important that the companies start to draft or review their internal procedures and compliance programs to implement effective mechanisms following the provisions of this new Law in order to prevent, detect and report to the pertinent authorities the commission of the above described crimes while carrying out their commercial activities. The aforementioned, in order to avoid (or at least diminish) the serious penalties set forth by the Law (we shall expand on this in point II below).
Therefore, it will be important that companies implement internal Codes of Ethics and compliance programs, ensuring also the effective compliance within the company, to train all their personnel -including hierarchical and management staff- and to implement mechanisms that allow not only to report activities that breach said Codes but also to verify the integrity and reputation of third parties and partners with whom the legal entity enters into commercial agreements.
In accordance with the Law, legal entities shall be held criminally liable for the above described crimes when said crimes are directly or indirectly committed with their intervention or on their behalf, interest or benefit. They shall be held criminally liable as well in case third parties act on their behalf without being empowered to that end, provided that said acts are later ratified by the legal person –including the case of implied ratification-.
The legal entity will not be liable only in cases where the person who commits the crime acts in his or her behalf and the legal entity does not obtain profits. The aforementioned, leaving aside other cases in which the legal entity will be exempted from penalties (e.g. in case of spontaneously self-report of a crime set forth by this Law, proper control and supervision system in place and return of the undue benefit obtained from the crime – we shall expand on this in point V below).
Moreover, the Law established the successive liability for the resulting entity in cases of mergers, splits, or any other corporate reorganization process.
We shall address below the most relevant aspects of this new Law:
I. GRADUATION OF THE PENALTIES. IMPORTANCE OF INTEGRITY PROGRAMS
The Law makes available to the judge various parameters and grounds to be taken into account in order to graduate the penalties, to wit: if the organization has failed to comply with internal rules and procedures, (thereby emphasizing the importance of the implementation of integrity programs); number and hierarchy of the officials and employees involved in the crime; omission to oversight the activity of the authors and participants; the legal entity’s spontaneous self-reporting to the authorities as a result of an internal investigation. In short, all issues that have to do with a robust integrity program correctly implemented and effectively used by the company.
Likewise, the Law establishes other considerations to be taken into account by the judge such as the company’s subsequent behavior, willingness to mitigate or repair the damage caused, if it is a case of recidivism, the extent of the damage caused, the amount of money involved, the size, nature and economic capacity of the legal entity.
Legal persons will be subject to the following penalties:
(i) fines between 2 to 5 times the undue benefit obtained or that could have been obtained from the crime;
(ii) total or partial suspension of activities – up to 10 years;
(iii) debarment from participating in public bids for public works or services, or in any other activity related to the government –up to 10 years;
(iv) dissolution and liquidation of the legal entity when it was created for the sole purpose of committing the crime or those acts constitute the main activity of the entity;
(v) the loss or suspension of granted governmental benefits; and
(vi) the publication of an extract of the conviction.
In addition, the Law provides that, in all cases, the rules relating to the seizure of the goods or assets that have served to commit the crimes, its profits or proceeds will apply (article 23 of the Criminal Code).
III. SPECIAL TERM OF STATUTE OF LIMITATIONS
The Law sets forth a special statute of limitations for these criminal actions that will be six years, regardless of the specific statute of limitations for each of the crimes listed above, set forth by the Criminal Code for the perpetrators of the crimes, or their accomplices.
IV. INDEPENDENCE OF ACTIONS
In addition, this new Law sets out that the legal entity may be convicted for the commission of crimes even though the individual who committed the crime was not identified or convicted if the circumstances of the case determine that the crime could not have been committed without the tolerance of the legal entity.
V. EXEMPTION FROM PENALTIES
This Law establishes that the legal entity will be exempted from penalties and administrative liability if the following requirements are simultaneously met:
- the legal entity spontaneously self-reports the crime as a result of internal detection and investigation procedures;
- the legal entity has implemented -before the crime was committed- a control and supervision system in following the parameters set forth by the Law and the breach of said system meant an effort for the wrongdoers.
- the legal entity must have returned the illicit profit.
VI. REPRESENTATION AND CONFLICT OF INTEREST
The Law sets forth that the legal entity shall be represented by its legal representative or any individual with a special power of attorney. In addition, the legal entity shall appoint a defense lawyer. Moreover, if a conflict of interest arises between the legal entity and the legal representative, the legal entity shall be notified to appoint a new legal representative.
VII. EFFECTIVE COLLABORATION AGREEMENTS
The Law sets forth the possibility for the legal entities to enter into an Effective Collaboration Agreement with the Public Prosecutor´s Office. To that end, the legal entity shall provide to the Public Prosecutor detailed, useful and verifiable information or facts to (i) clarify the facts, (ii) identify the wrongdoers or accomplices, or (iii) recover the profits gained from the commission of the crime.
This agreement may be entered into between said parties until the case goes to trial. The negotiation between the legal entity and the Public Prosecutor- as well as the information exchanged during such negotiation- and until the mentioned agreement is approved will be strictly confidential.
The agreement that must determine the information or facts and evidence to be provided will be subject to the following terms and conditions:
- the payment of a fine equivalent to the amount of the undue profit that was obtained from the commission of the crime or that could have been obtained from the commission of the crime;
- return the assets and profits that were obtained from the commission of the crime; and
- hand over to the government those assets that would likely be forfeited if the legal entity were to be convicted.
Furthermore, the Law sets forth that pursuant to the facts of each case, other terms and conditions may be agreed, such as:
- the undertaking of the necessary course of action to repair the damage;
- the performing of services in favor of the community;
- the implementation of disciplinary actions against those individuals who took part in the commission of the crime; and
- the enforcement of an Integrity Program according to the Law (article 22 y 23 of the Law) or the improvement or modification of an existing program.
VIII. APPROVAL AND VERIFICATION OF THE EFFECTIVE COLLABORATION AGREEMENT
The Effective Collaboration Agreement must be filed before the competent judge who will be in charge of approving it, make observations or reject said agreement.
If the agreement is rejected, the information and evidence provided shall be returned to the legal entity or destroyed. Said information and evidence could not be used in a judicial proceeding.
The Law further sets forth that a monitoring of the fulfillment of the agreement terms shall take place within the term of one year. In said monitoring, the public prosecutor or the judge will corroborate the authenticity and usefulness of the information provided. If the authenticity and usefulness of the information are corroborated, the ruling shall be issued following the terms and conditions agreed upon in the Effective Collaboration Agreement, precluding the imposition of other penalties. If that is not the case, the judge will annul the agreement and the proceedings will continue as per the applicable laws.
IX. INTEGRITY PROGRAM
The Law establishes that the legal entity shall adopt Integrity Programs (hereinafter referred to as the “Programs”), that shall consist in actions, mechanisms and internal procedures to foster integrity, supervision and internal control to prevent, detect and rectify the irregularities and unlawful acts described in the Law.
These Programs must be developed in accordance with and taking into account the risks of the commercial activities carried out by the legal entity, its size and its economic capacity. Moreover, the mentioned Programs must meet some of the following requirements:
- a code of ethics or compliance program or policies or integrity programs applicable to directors, managers and employees as guidance to undertake and execute their tasks in order to prevent the commission of the crimes described in the Law;
- specific rules and procedures to prevent the commission of unlawful acts within tenders and bidding procedures, execution of administrative contracts or any other agreement entered into with governmental agencies; and
- regular training programs on these matters for directors, managers and employees.
Furthermore, the Law sets forth that these Programs may comprehend: (i) regular analysis of risks and consequent adjustments of these Programs; (ii) clear support shown by the hierarchical and management staff to these Programs; (iii) internal reporting channels that are opened to third parties; (iv) protection policies for whistleblower against retaliation; (v) internal investigation system; (vi) procedures to verify the integrity and reputation of third parties and commercial partners, such as suppliers, distributors, service providers, agents and intermediaries; (vii) due diligence processes when dealing with transformation processes or M&As to detect unlawful acts or weakness of the legal entities involved; (viii) continuous control and assessment of these Programs´ effectiveness; (ix) internal employee in charge of the development, coordination and supervision of these Programs.; and (x) compliance with regulatory requirements.
X. CONTRACTS WITH NATIONAL GOVERNMENT
The Law sets forth that the Integrity Programs meeting the requirements set forth by the Law (articles 22 y 23, hereinabove explained in point IX) are required to enter into contracts with the National Government when (i) such contracts must be approved by at least a minister or a higher-ranking official due to its amount; and (ii) fall under the Federal Government Contracting Regime (article 4, Decree No. 1023/2001) and/ or under Public Works Law (No. 13.064), Public Work Concessions (Law No. 17.520), Public-Private Participation Agreements (Law No. 27.328) or Concessions or License Agreements for public services.
Notwithstanding the foregoing, the regulatory decree or secondary regulations (which are still pending to be issued) will have to establish the way by which legal entities will evidence compliance with the above mentioned requirements in order to be able to enter into agreements with the National Government.
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Buenos Aires, January 2018