Jorge and Basch: In Argentina, a new statute on corporate criminal liability for corruption

On December 1, the Argentine government enacted Law 27.401, which will enter into force in March 2018. We were deeply involved in the drafting and debate of the statute. In this post and the next one, we’ll summarize some of the key features of the new law.

Which legal entities are subjected to the new regime? Argentina Law Nº 27.401 (unofficial English translation here) establishes criminal liability for “private legal persons,” defined in the Argentine Civil Code.

These include:

• 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, and

• 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.

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), and

• 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).

Notably, these offenses do not have a minimum threshold, making legal persons liable regardless of the significance of the prohibited transaction.

Standards of Liability. The Argentine private sector strongly advocated for a standard of liability based on organizational failure. But consistent with the existent regime for other crimes, the law creates 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 approach 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, and 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 creates a need for robust due diligence, monitoring, and management programs 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.

Defenses. Strict liability is mitigated somewhat by what we called “organizational merit,” which can offset 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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In the next post, we’ll talk about deferred prosecution agreements under the new law, as well as penalties and other sanctions for offense, aggravating and mitigating factors, mandatory compliance programs for some contracts with the national government, and components of an “adequate” compliance or integrity program.

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Guillermo Jorge, pictured above left, ([email protected]) and Fernando Basch, right, ([email protected]) are partners at Governance Latam, an advisory firm based in Buenos Aires www.glatam.com.ar.