Jorge and Basch: In Argentina, a new statute on corporate criminal liability for corruption
Tuesday, January 9, 2018 at 9:08AM
Guillermo Jorge and Fernando Basch in Argentina, Corporate Liability

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:

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:

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:

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, (gjorge@glatam.com.ar) and Fernando Basch, right, (fbasch@glatam.com.ar) are partners at Governance Latam, an advisory firm based in Buenos Aires www.glatam.com.ar.

Article originally appeared on The FCPA Blog (http://www.fcpablog.com/).
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