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Corporate fraud in the Southern Cone of the Americas

Roberto Durrieu Figueroa, Estudio Durrieu Abogados, Argentina

Preventing and combating unlawful economic activity are extremely difficult tasks for countries in South America. They have been compelled to establish universal principles aiming at guaranteeing an efficient preventive combat of corporate fraud.

Moreover, the obvious failure of states in the region to effectively reduce the development of corporate fraud and public corruption has obliged universal jurisdiction to pass new rules related to corporate governance with the purpose of guaranteeing a fairer, as well as more loyal and transparent, business activity. These rules simply delegate powers – traditionally in the charge of the State – to different agents of economic activity (such as banks, financial institutions, trustees and brokers). Unquestionably, at present, the so-called businessman has more legal obligations than he used to have before.

In the last few years, there have been significant changes in Latin American legislation, specifically administrative and criminal legislation, to bring aboard the prevention and control of corporate fraud. Some of these modifications have even challenged the historically accepted principle that criminal liability only attaches to individuals, and have extended that punitive liability to legal entities under certain circumstances.

In this sense, it is useful to point out that historically, in most Latin American countries, legal entities were neither subject to criminal trial nor to criminal punishment; that is to say a corporation was not allowed to be criminally accused for a criminal offence. However, in recent years new offences have been enacted where entities can also be held liable under certain circumstances, specifically whenever the offence has been committed in the name of, with the collaboration of, or to the benefit of a legal entity. In these cases, such legal entity may be subject to fines, loss of certain benefits, cancellation of registration, and so on. Examples of these new crimes that provide criminal liability to corporations are business and economic crimes, tax crimes, exchange offences, and anti-money laundering and counter-terrorism financing offences.

In the administrative-criminal scope, most Latin American countries have been enhancing and creating new State offices focused, directly or indirectly, on the prevention and control of fraud and corruption. The action of these government offices, such as the Superintendence of Corporations, the National Security Commission, the Central Bank, the Anti-corruption office and the Financial Information Unit, has moved to more regulation and enforcement to prevent corporate fraud and business crimes. In this field, new laws and regulations have been enacted with respect to economic crimes.

One of the most important differences between the criminal legal framework in Latin American countries (such as Argentina, Chile, Uruguay) and most Western European countries and the US, is that in Latin America there are not structured legal mechanisms offered to companies in order to disclose violations in exchange for lesser penalties. Of course there are some particular exceptions for this general rule: for instance, in Argentina, the Criminal Tax Procedure (section 16 of Law # 24.769) allows the payment of tax debt (plus interests and fines) in exchange for immunities in favour of the alleged offender.

At least in Argentina, probably the most remarkable news of 2012 is related to the recent criminal laws enacted by the National Congress, which have direct impact over economic and business activity. In this respect, Law 26,733, sets forth among other provisions that insider trading and non-authorised financial intermediation have now become criminal offences and could be punished with between one and four years of imprisonment (see article 306 of the Argentine Penal Code). These new law also penalises the conduct of "private bribery", by specifically punishing the employees or officers of financial institutions that receive money or other economic benefits as a condition to performing hold lending or financial operations (article 311, Argentine Penal Code). Also, the Congress recently enacted law 26,734 that modifies article 41 of the Penal Code adding as an aggravating factor (increases twice the minimum and maximum) when any of the offences under the Code is committed in order to "terrorise" the population (note the subjectivity and elasticity of the concept used by the legislator; given that the modifications were introduced in the general part of the Code, a wrong interpretation made by a judge of any conduct could characterise it as a terrorist one and therefore aggravate any punishment), or compel national authorities or a foreign government or agents of an international organisation to do an act or refrain from so doing.

In conclusion, it could be said that Latin American countries are moving toward the standardisation and internationalisation of their legislation through the adaptation of their domestic anti-fraud legislation to international standards – as well as recognising that international cooperation between countries is critical since corporate fraud is a crime that can go beyond borders.