Guillermo Jorge: How to comply with Argentina’s new corporate criminal liability regime

Argentina’s new law that creates corporate liability for bribery came into effect on March 1. Here are five things to know about Law 27.401 and how it impacts a compliance program.

1) The new law encourages corporate cooperation in the prevention and investigation of corruption.

Legal entities may be exempt from penalties and administrative responsibility if they have implemented an “integrity program,” the minimum requirements of which are defined in the law.

Entities may also be exempt from penalties if they self-reported their unlawful actions to the authorities and returned all undue benefits.

It’s a demanding defense, more stringent in some ways than those of Chile, Spain, or the United Kingdom, in which an adequate compliance program is considered a sufficient defense.

However, the law also offers companies a less demanding solution: an “effective cooperation agreement” (“acuerdo de colaboración eficaz” in Spanish). It’s an agreement between the company and the public prosecutor’s office in which, in exchange for releasing useful and verifiable information that clarifies the unlawful event under investigation, the prosecutor can substantially reduce the sanctions imposed on the company.

2) An integrity program is mandatory for all contracts with the state that require the signature of a minister or another public official of equal rank.

According to National Decree 690/2016, as of March 1, 2018, bidders for contracts with the state that exceed 100 million Argentinean pesos (around $5 million) must prove that they have adopted, as a minimum, the following elements:

• a code of conduct

• controls to minimize risks emerging from interactions with the public sector, and

• appropriate staff training to ensure compliance with said rules.

The success of this system will depend on whether public contracting agencies incorporate these obligations into their bidding documents. Clauses of this nature have already appeared in the bidding documents for the “Highways and Safe Routes Plan” (“Plan de Autopistas y Rutas Seguras” in Spanish), which was recently published by the National Roads Direction and the Ministry of Finance, inaugurating a new era of public-private participation contracts in the country.

3) As bribes are rarely paid directly — an OECD study shows that in more than 75 percent of cases of bribery, illegal payments are made through intermediaries — the law not only makes companies responsible for the conduct of their managers and employees, but also for any third party entities such as suppliers, distributors, and business partners that obtain an undue benefit from the company.

This third-party risk makes it paramount that integrity programs include due diligence processes that minimize risks present in the value chain, as well as controls in the onboarding process of suppliers and contractors and in contracts with potentially risky intermediaries.

4) Companies must incorporate compliance hotlines and develop internal procedures to investigate reports within their integrity programs in order to cooperate with the authorities.

These features are necessary to receive exemption from any penalties or to participate in an effective cooperation agreement.

The procedures must be compatible with the constitutional and labor rights of the individuals who are reported and placed under investigation.  

Poorly designed procedures may detract from the benefits of cooperating with the authorities.

Among the most important safeguards that companies should contemplate, we highlight:

• implementing rules that limit employees’ expectation of privacy in relation to communications channeled through company systems

• delineating audit and termination rights in contracts with third parties in order to ensure access to information outside the company and minimize liability for offenses committed by third parties; and

• cappropriately protecting the rights of individuals under investigation in order to guarantee the legality of the information obtained through interviews.

5) Many of the small bribes paid in Argentina daily to “unlock” bureaucratic or red tape procedures are not paid by companies to obtain undue benefits or to reduce competition, but rather for fear of delaying or hindering business through means of inspections, permits, import and export procedures, and the like.

However, for offenses that trigger corporate responsibility — namely bribery, influence peddling, and the use of false balance sheets to conceal those illegal acts — it is irrelevant whether the company offers the bribe or the public official demands payment.

Faced with an unethical demand from a public official, the company can pay or report the incident. However, if the company pays, both the company and the public official will be held responsible unless the company is able to prove it was a victim of extortion or an illegal exaction.

For this reason, many companies seek counsel in the face of these unethical practices and protect themselves from commercial reprisals associated with reporting a bribe request. In some cases, companies and related groups have created collective action strategies to deal with the bribe demands and how to respond to them.

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As in other countries from the region that have already adopted similar legislation — Chile, Brazil, Mexico, Colombia, Peru, Bolivia — the incentive structure imposed by Argentina’s Law 27.401 requires companies to recalculate their risks and rewards for compliance programs. 

Those who see an opportunity in this new regime will adopt robust programs that, in the long term, will result not only in their benefit, but in that of society as a whole.

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Guillermo Jorge, pictured above, ([email protected]) is a partner at Governance Latam, an advisory firm based in Buenos Aires www.glatam.com.ar.