Corporate compliance regulation in Chile
Business operating in Chile are bound to the provisions of Law No. 20 393 regarding the criminal liability of corporations for money laundering, terrorist financing, domestic and foreign bribery, embezzlement, fraudulent management, bribery among private people and willful receiving of stolen goods offences. Corporate compliance.
This particular piece of legislation was adopted on the initiative of the Executive branch on 16 March 2009 by virtue of a series of conventions signed by the State of Chile and recommendations of international organizations, especially the OECD. The scope of this law applies to both private and state-owned companies.
When is a company criminally liable?
Whenever the controlling owners, officers, principal executives, representatives or administrators or related legal persons have committed the crimes specified in the law and this would have brought a direct or indirect benefit to the company. Additionally, this situation must have occurred due to a lack of direction or supervision by the company.
Offences covered by the provisions of the law
The offences covered are as follows:
- Money laundering – also covered by Law No. 19 913, Section 27.
- Terrorism financing, as referred to in Law No. 18 314, Section 8.
- Incompatible negotiations, as per the Chilean Criminal Code (CP), Section 240.
- Fishing Act-related offences.
- Bribery of a national or foreign public officer – as per CP Sections 250 and 251bis, respectively. In this case, it is also considered an offence when relatives are involved in order to commit it.
- Bribery between private individuals, i.e. an employee obtaining a financial gain by having a company awarded a contract, according to the provisions of CP Sections 287bis and 287ter.
- Willful receiving of stolen goods offences – as per CP Section 456bis A.
- Embezzlement, as in CP Section 470 No. 1.
- Fraudulent management of third party’s assets (CP Section 470 No. 11)
Sanctions for the company
Sanctions contemplated include fines, prohibitions, loss of tax benefits, dissolution or cancellation of the company or the legal entity involved.
- As for the dissolution or cancelation, it does not apply to state-owned companies or to those private-owned that provide services of public utility that could cause serious social harm.
- Banning sanctions: temporary or lifetime prohibition to contract with state agencies, from 2 to 5 years.
- Loss of benefits: perpetual and total loss of tax benefits, as well as temporary. This includes the prohibition of being a supplier for the State, the loss of licenses, subsidies or any other benefit received from the State, including contracting with companies where the State is a majority shareholder.
- Fines to fiscal benefit between 400 and 300,000 UTM.
- Confiscation, not only of the proceeds of crime but also of money and goods that compensate for illegally obtained profits. If the crime comprised an investment, the legal entity is obligated to pay the State the same amount.
If the legal representative is charged for these offences, the company will be forced to appoint a new one and if it does not do so, the Court shall appoint one.
In addition to the sanctions indicated, an excerpt of the conviction will be ordered to be published at the expense of the company and the confiscation of property related to the crime. In crimes involving the investment of resources in excess of the income generated by the legal person, the payment of the investment made will be imposed as an accessory penalty.
Jurisprudence has established that the duties of supervision and direction are considered to have been fulfilled if before the commission of the offence, the company adopted and implemented a model of organization, administration or supervision to prevent these offences – a corporate compliance program. Among the most famous cases is the case of Universidad del Mar case, which through of a bribe it obtained accreditation to get access to educational-related credits.
Determination of penalty
The rules for determining the penalty take into account the amounts involved in the commission of the offence, the size and nature of the legal entity, its economic capacity, the degree to which it is subject to legal regulations, the extent of the harm caused, and the seriousness of the social consequences in the case of State enterprises.
Aspects of the Court procedure
Courts with jurisdiction on criminal matters are competent to rule. The investigation is carried out through the legal representative of the company, who will cease if it is charged by the commission of the act that gives rise to corporate criminal liability.
The applicable procedure will relate to the penalties requested by the prosecutor, and it may be a simplified or abbreviated procedure if needed. The principle of timeliness (the power of prosecutors not to initiate the investigation) does not apply.
There is autonomous legal liability even when individual criminal liability is past its statute of limitations, in accordance with CP Section 93, paragraphs 1 and 6. On the other hand, if the company is transformed, merged, absorbed, divided or dissolved, the responsibility will also be transferred to the resulting legal person.
Ways to avoid liability being applied to the company.
All companies, no matter their size, must take measures to prevent the occurrence of these offences. How can the company be shielded from these risks? The company must exercise its managerial and supervisory duties.
These will be considered fulfilled when the legal person has adopted and implemented models of organization, administration and supervision to prevent this type of offences through a prevention officer, who must be autonomous from the administration of the company – an obligation from which legal persons whose annual income is less than 100,000 UF are exempt, in such a situation said officer may be the controlling partner or shareholder. The model being promoted by the government is ISO 19600, which implies the implementation of a compliance program.
Companies will be able to obtain certificates accrediting the adoption and implementation of their criminal prevention models through external auditing companies. The CMF (the Chilean banking overseeing agency) has a list of companies that can grant certificates: https://tinyurl.com/y28fw4k8
The minimum contents of a compliance system
Although it is not mandatory to have a management system implemented according to ISO 19600, in a company’s crime prevention system one would expect to see at least the following contents:
- To have a risk matrix. The activities or processes where the commission of the crimes could take place must be recognizable.
- To appoint a compliance officer. This compliance officer may serve for up to 3 years and be re-elected. The company’s Board of Directors must appoint him.
- Have a compliance policy and corporate compliance culture.
- To train workers on the matter.
- To prepare documents for external collaborators to sign, in which they are obliged to take measures to prevent these crimes within their organizations.
- To create protocols for gifts, donations, etc.
- To create a complaint channel.
- To deliver the resources needed to implement the system
- To create sanctions for those involved in the commission of crimes.
- To audit the system.
- To evaluate the degree of effectiveness of the system and to improve the system according to the findings that are made.