A new anti-corruption law passed in Argentina portends serious consequences for companies with operations in the country that do not have a robust anti-corruption compliance program in place.
On March 1, 2018, Argentina’s new anti-corruption law—Law 27.401, enacted in December 2017—will enter into force. For Argentina, this is the first law to establish criminal liability for companies that engage in corrupt acts. It also for the first time requires anti-corruption compliance programs in Argentina; prior to this law, compliance programs were neither required nor incentivized.
Argentina has faced a substantial amount of international pressure over the last couple of years for its lax anti-bribery efforts, following a series of high-profile corruption cases under former Argentine President Cristina Fernandez, who herself was indicted in December for treason. With the swearing in of Argentina’s new President Mauricio Macri, the new administration brought with it a push to put anti-corruption high on its agenda.
“We are changing! This law promotes business ethics and severely punishes companies that participate in corrupt acts,” tweeted Laura Alonso, head of the state’s anti-corruption office.
Under the new anti-corruption law (unofficial English translation here), criminal liability will apply to private legal persons, “whether of national or foreign capital, with or without state ownership.” Like the U.S. Foreign Corrupt Practices Act, companies will be held vicariously liable for offenses committed by their owners, directors, executives, employees, or third parties acting on their behalf, where the crime furthers the company’s interest or benefit.
The statute also establishes successor liability in cases of mergers or acquisitions, making it imperative that companies conduct proper due diligence as part of M&A transactions in Argentina.
Several crimes, beyond bribery, can trigger corporate criminal liability under the law, including:
Domestic or transnational bribery or influence peddling;
Negotiations that are incompatible with public office;
Illegal payments made to a public official under the guise of taxes or fees owed to the relevant government agency upon undue request by a public official (“concusión”);
Illegal enrichment of public officials and employees; and
Producing false balance sheets and reports to conceal domestic or transnational bribery or influence peddling.
Article 8 of the law lays out aggravating and mitigating factors that courts will consider in quantifying penalty amounts and determining sanctions, including:
Failure to comply with internal rules and procedures;
The number and hierarchy of employees involved in the offense;
The omission of vigilance over the activity of the participants;
The extent of the damage caused and the amount of money involved in the commission of the offense;
The size, nature, and economic capacity of the legal entity;
Whether the company self-reported to authorities;
The company’s willingness to mitigate or repair the damage; and
Recidivism, where the company has been sanctioned for an offense committed within three years following the date of the final judgment of a previous conviction.
Companies found in violation of the statute risk significant penalties, including any or a combination of the following: fines ranging between two and five times the “undue benefit” obtained or that could have been obtained; or up to 10 years of total or partial suspension of the company’s activities, or debarment from government contracts. Dissolution and liquidation of the company may result, if it was legally created for the sole purpose of committing the offense or when it constitutes its main activity.
One novel provision in the law requires that an adequate “integrity program” (compliance program) be in place for any company that wishes to contract with the national government—for example, contracts that must be approved by ministers or public officials or public service contracts. “That will certainly prompt local public contractors into action and competing bidders into a closer compliance scrutiny,” says Fernando Basch, with law firm Governance Latam in Buenos Aires. “Local companies, especially, and most urgently public contractors, will need to catch up and start implementation.”
“We are changing! This law promotes business ethics and severely punishes companies that participate in corrupt acts.”
Laura Alonso, Head of the State Anti-Corruption Office
Corruption in Argentina goes well beyond big public contracts, Basch explains. 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—there is no value threshold or a facilitating payment exception—companies will need to reassess their risks and take conscious business decisions about how to best deal with such situations,” Basch says.
For legal entities that don’t engage in government contracts, implementing an anti-corruption compliance program is voluntary. As it applies to enforcement under the law, however, companies that have in place a robust compliance program qualify for a reduction in penalties.
Similar to the FCPA Corporate Enforcement Policy, for example, Argentina’s anti-corruption law states that a company can be exempt from penalties and administrative liability if it meets the following requirements: voluntary self-disclosure; the existence of a compliance program; and the disgorgement of illegally obtained profits.
For companies that do put in place a compliance program, it will be deemed adequate if it’s proportionate to the risks, size, and economic capacity of the company. It also must include a code of ethics or code of conduct (or integrity policies and procedures that apply to all employees to guide the planning and fulfillment of tasks or duties to prevent offenses under the law); specific rules and preventive procedures in bidding processes, in the execution of administrative contracts and in any interaction with the public sector; and regular training on the integrity program for directors, managers, and employees.
Among the optional—but highly recommended—elements of a compliance program listed under the statute include the appointment of a compliance officer, robust due diligence and risk management controls for business partners and other third parties, whistleblowing retaliation protections, continuous monitoring and assessment of the integrity program’s effectiveness, among others.
“The adoption of an adequate compliance program and its extension to business partners, distributors, suppliers, and any third party will be at the center of any corporate strategy designed to reduce risks,” Basch. “Relations between foreign companies and their local value chain should also be enhanced, and current risky practices should be understood.”
Multinational companies with operations in Argentina must resist the urge to simply push out the company’s global compliance policies and procedures without doing more, says Jeffrey Lehtman, co-chair of the litigation department at Richards Kibbe & Orbe. “They really do need to take a more bespoke, specialized look at Argentina now and think about whether the program they’ve implemented there is sufficient to comply with what are new local requirements,” he says.
Certain FCPA enforcement elements that have developed over time in the United States have been incorporated into Argentina’s anti-corruption law—for example, benefits companies can achieve if they enter into a collaboration agreement with prosecutors, sharing many of the same elements as a deferred prosecution agreement. To obtain leniency, the company must provide “accurate, useful, and verifiable” information leading to the discovery of relevant facts, the identification of individual offenders, and the recovery of assets. Through these agreements, corporate defendants are eligible for a 50 percent reduction off the bottom of the applicable fine range.
Under the statute, other conditions may be required as well, such as repairing damages caused; providing community services; applying disciplinary measures against those involved; and implementing an integrity program or improving a pre-existing program. The agreement must be in writing and approved by the court.
New enforcement landscape
Moving forward, the real test lies in the implementation of Argentina’s anti-corruption law in practice and how pending corruption investigations will be enforced. Passage of the law itself, however, already appears to be making a positive impact in the legal and compliance community.
Historically in Argentina, in-house legal and compliance officers in some companies have struggled to convince senior management and boards that it’s worth investing the time and resources to develop a robust compliance program. “There was never really a business imperative to get that done,” Lehtman says. “Now with the passage of the law and now with enhanced enforcement, the business imperative is much more apparent to business leaders.”
Lehtman says he saw evidence of that first-hand during his last trip to Argentina, shortly following passage of the law: “For the first time, we had CEO, CFOs, and family patriarchs of family-owned businesses who were interested in hearing from us on how to start thinking about putting in place a compliance program.”
Argentina has experienced a dramatic uptick in anti-corruption enforcement over the last couple of years, with the arrests of Argentine’s former Planning Minister Julio De Vido and former vice president Amado Boudou. “These proceedings are moving forward very fast,” says Gustavo Morales Oliver, a senior attorney at law firm Marval, O’Farrell & Mairal in Argentina. “If the courts are willing to go after former high-ranking officials they will be not be shy about going after companies.”