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New Statute on Corporate Criminal Liability for Corruption in Argentina 

Last week, the Argentine Government enacted Law 27.401, (Unofficial English translation, here) which will enter into force in March 2018. Guillermo Jorge and Fernando Basch were deeply involved in the drafting and debate of the statute. In the following paragraphs, they provide 10 key points on what you need to know about it.
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1. Which legal entities?
2. Which offenses?
3. Standards of Liability 
4. Defense 
5. NPAs / DPAs
6. What sanctions? 
7. Aggravating / mitigating factors
8. Mandatory Compliance Programs
9. "Adequate" Programs 
10. An active private sector  

New Statute on Corporate Criminal Liability for Corruption in Argentina 

1. Which Legal Entities are subjected to the new regime?

Argentina Law Nº 27.401 establishes criminal liability for “private legal persons”, defined in the Argentine Civil Code as including:

  • Companies incorporated under any legal form (LLCs, PLCs, Partnerships, etc.) whether of national or foreign capital and including State-Owned Enterprises;
  • Civil Associations, Foundations, Mutual Associations, Cooperatives;
  • Churches, confessions, religious communities or entities;
  • Horizontal property regimes.

Notably, labor unions and their healthcare associations (“obras sociales sindicales”), professional associations and political parties are not considered “private legal persons” under Argentine law. Therefore, these entities are out of the new statute's reach. 

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2. Which Offenses trigger Corporate Liability?
Article 1 of the statute establishes the liability of the aforementioned legal persons for the following offenses:
 
  • Active domestic bribery (article 258 of the Criminal Code);
  • Transnational bribery (article 258-bis of the Criminal Code);
  • Trading in influence (Article 258 of the Criminal Code);
  • Participating in the offense of "concusión" - the act of incorporating the proceeds of an illegal exaction into the patrimony of the public official or of a third party (art. 268 of the Criminal Code); 
  • Participating in the offense of illicit enrichment of public officials (art. 268 (1) and (2) of the Criminal Code);
  • An aggravated form of misrepresentation in books and records specifically directed at concealing the commission of bribery or trading in influence offenses (art. 300 bis of the Criminal Code).
It is worth-noting that these offenses do not have a minimum threshold, making legal persons liable regardless of the significance of the prohibited transaction. 
 
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3. Standards of Liabillity 
While the Argentine private sector strongly advocated for a standard of liability based on organizational failure, the statute, following the existent regime for other crimes, favored a standard of strict liability: legal persons are liable for the aforementioned crimes committed, directly or indirectly, with their intervention or in their name, interest or benefit (Article 2). This choice is consistent with the standard of corporate liability already in force for other crimes, such as custom’s crimes, tax crimes, money laundering, insider trading, securities fraud, among others.

The individual offenders may be employees or third parties -even unauthorized third parties, provided that the legal person ratified the act, even tacitly. Therefore, the statute strongly calls for a robust due diligence, monitoring and management program over business partners and other third parties.

The statute also establishes successor liability in cases of merger, acquisition or other forms of corporate transformation. Therefore, integrity due diligence will also become an important part of any M&A transaction. 
 
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4. Defense
Strict liability is somehow corrected by what we called organizational merit –as opposed to a model attributing liability only in case of organizational failure. According to article 9, companies may be exempted from punishment and from administrative liability provided that they:

• Have implemented an adequate compliance program, prior to the commission of the offense and the violation of which required a specific effort from the individual offenders;

• self-report the crime to the competent authorities; and

• return the undue benefit.

Since these three conditions are concurrent, the law is more demanding than the models based on “organizational failure” (Chile, United Kingdom, Spain), where adequate procedures alone are enough for a full defense.
 
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5. Non Prosecution / Deferred Prosecution Agreements 
Companies can also mitigate their sanctions by actively cooperating during the investigation through an “effective collaboration agreement” –a sort of settlement that can take the form of a DPA or an NPA-. To achieve this, defendants must disclose accurate, useful and verifiable information leading to the elucidation of the facts, the recovery of assets, or the identification of individual offenders.  If the Prosecutor is satisfied with the information offered, sanctions may be reduced to:

• the benefit obtained (half the minimum, as stated by the law, which is twice the benefit) plus 

• the restitution of the proceeds and instrumentalities of crime.
 
Additionally, the Prosecutor could add a reparation to victims, the rendering of community services, the application of disciplinary measures to the participants, and the implementation, or improvement, of a compliance program.

The Prosecutor may establish a maximum period of a year for verifying compliance with the conditions set up in the agreement. The agreement must be approved by the Court. 
 
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6. What sanctions are established? 
Convicted legal persons may be punished with any or a combination of the following sanctions (Article 7):

• Fine, of between 2 and 5 times the undue (net) benefit obtained or that could have been obtained through the crime; 

• total or partial suspension of activities, for a maximum of ten years;

• debarment, for a maximum of ten years; 

• dissolution and liquidation of the legal person status, had the legal entity been created for the sole purpose of committing the offense, or when it constitutes its main activity;

• loss or suspension of State benefits that it may have; and/or

• publication of an extract of the conviction at its expense.
 
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7. Aggravating and mitigating factors 
Article 8 establishes 10 factors that the Court should consider to establish the sanction in any concrete case. They are:
  • An evaluation of how internal controls and the compliance structure functioned in the case;
  • the rank of the individual employees involved in the offence;
  • the omission to supervise the conduct of the perpetrators;
  • the extension of the damage caused by the crime;
  • the economic dimension of the offense;
  • the size and economic capacity of the legal person;
  • the degree of cooperation of the company with the investigation; 
  • whether the legal person self-reported the case; 
  • the willingness of the legal person to compensate victims;
  • whether the legal person is a repeated offender.
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8. Mandatory Compliance Programs for some contracts with the National Government
In an innovative step, the statute makes compliance programs a mandatory condition for most contracts with the National Government requiring, due to its amount, the intervention of a Minister, or of the highest authority of a decentralized public entity. Today, contracts exceeding AR$ 100 million (almost USD 6 million) fall under this category.  

Since third parties may trigger liability, big public contractors have excellent reasons to demand their value chain the implementation of compliance measures as well. 
 
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9. What is an "adequate" Compliance or Integrity Program? And its components? 
An integrity program –as the statute names it- is the set of measures and internal procedures to promote integrity, supervision and control, aimed at preventing, detecting and remediating any violation of the law.

Integrity programs will be deemed adequate when commensurate with the industry risks, size and economic capacity of the defendant legal person.

The statute sets certain minimum elements that every integrity program should implement, and other “optional” elements, the implementation of which will depend upon the risk assessment and economic size of the company. 

Under the statute, minimum mandatory components are:
  • a Code of Conduct or Ethics (or integrity policies and procedures that guide the planning and execution of tasks with a preventive approach); 
  • specific rules and preventive procedures in bidding processes, in the execution of administrative contracts and in any interaction with the public sector; and
  • periodic training on the integrity program for directors, administrators and employees.
Such components are, nonetheless, insufficient to put a company in the position to claim a full defense. For instance, without a whistleblowing system and processes for internal investigations it is highly unlikely that a company could self-report –before any authority starts an investigation. Therefore, depending on the size and their risk assessment, companies should be ready to complement the minimum mandatory components with, at least:

• A robust due diligence, risk management program for business partners and other related third parties;
• robust due diligence in all M&A transactions, as successor liability is explicitly established;   
• a visible and unequivocal support from top management; and 
• proper whistleblowing channels, as well as internal investigation procedures. 
 
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10. Looking ahead: a call for the private sector to become active against corruption 
As illustrated by the previous paragraphs, Law 27.401 aims at guiding the behavior of companies towards the prevention of corruption and the cooperation with the authorities in its detection, investigation and remediation. A levelled playing field between local and foreign companies already active in anticorruption practices is therefore expected. 

In the area of public procurement, the new law goes one step further by making integrity programs mandatory for a wide range of contracts with the National Government. That will certainly prompt local public contractors into action, and competing bidders into a closer compliance scrutiny.

But corruption in Argentina goes well beyond such specific contracts. Companies interacting with public authorities at the national, provincial or municipal levels frequently face solicitation and even commercial extortion for routine governmental actions. As legal persons will be liable regardless the amount involved in the offense, the adoption of an adequate compliance program will certainly be a necessary component of any defense corporate strategy. It is also foreseeable that, in some industries, extending such programs to business partners and suppliers will become the rule. Relations between foreign companies and their local value chain will most probably be enhanced, since incentives of all stakeholders will be aligned.   

Integrity programs, however, may be insufficient to reduce risks in economic sectors where corruption is systemic. In such contexts companies will need to make a further step and act collectively –including through their business associations and together with the Government-, to clean their respective industries.

The new law does not necessarily guarantee a reduction in public corruption. But it will certainly move businesses into action to change current practices that put them in the wrong side of the law.   
 
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