I. Corporate liability deriving from criminal activity
1. Nature of the liability (criminal, administrative) and basis (crimes committed by directors or representatives, in the interest of or for the advantage of the company)
The enactment of Law No. 20,393 (the “Law” or the “Act” or the “Statute”), published in the Official Gazette on December 2, 2009, and which “establishes criminal liability for legal entities arising from certain felonies of money laundering, terrorism financing and bribery,” as its name denotes, established corporate criminal liability for legal entities.
Article 3 of the Law sets forth the necessary concurrent requirements for criminal liability to exist for legal entities as follows:
- That one or more of the felonies set out in Article 1 of the Act be committed (see 2) below), and not any other
- That such felonies are perpetrated in the legal entity’s direct and immediate interest or benefit
An exception exists in the Law regarding the legal entity’s liability, in connection to the aforementioned benefit. Pursuant to the last subsection of Article 3 — and despite the commission of the felonies addressed by the Law — legal entities shall not be criminally liable whenever the offense has been perpetrated by individuals and the felony has been committed in the sole benefit of said individual, or in the sole benefit of third parties.
3. That the felony is committed by the legal entity’s owners, controllers, parties in charge, main executive officers, representatives, or by whoever carries out management and monitoring duties
Article 3, Subsection Second, adds that under the same requirements, legal entities will also be liable for felonies perpetrated by individuals who are under direct control or monitoring from any of the abovementioned parties.
Naturally, the sense of the term “direct” will be further defined by legal doctrine and case law.
4. That the commission of the felony is a consequence of the legal entity’s failure to comply with its control and monitoring duties
It is worth highlighting that all of the above are joint requirements. If any one of them is not met, then no felony and no criminal liability for the legal entity exists.
2. Types of crimes/administrative offenses from which, according to the legislature, corporate liability may arise
Just as the Law’s heading and name state, and pursuant to Article 1 of the Law, this legal body established the criminal liability of legal entities, but only limited to the four types of criminal offenses detailed therein, which are the following:
- The felony of money laundering contained in Article 27 of Law No. 19,913
- The felony of financing terrorism, established by Article 8 of Law No. 18,314
- The felony of active bribery described by Article 250 of the Criminal Code and the felony of active bribery of a foreign public officer, described by Article 251 bis of the Criminal Code
- The felony of receiving stolen goods described by Article 456 bis A of the Criminal Code
(All of the above shall be referenced hereinafter, indistinctly, as the “Article 1 Felonies”).
In other words, the criminal liability of legal entities for other conducts that are considered felonies under our criminal legal system is not established by the referred law. In this sense, the opinion of several house representatives who, while discussing the bill, promoted a significant broadening of the Statute’s scope of application did not prevail.
3. Identification of companies and entities to which liability may apply
Regarding the issue of what legal entities fall under the scope of the Statute, Article 2 of Law No. 20.393 clearly states that said law shall apply to legal entities governed by Private Law as well as to state-owned companies.
In other words, the statute’s scope of application is very broad.
4. Corporate liability for crimes committed abroad by its representatives or subsidiaries
The Law does not expressly refer to the effects on corporate liability of crimes committed abroad by representatives or subsidiaries. Therefore, it is likely that Chilean courts would require at least the part of the action or of its results to be connected with Chile in order to trigger the application of the Law.
5. Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)
The core matter in this regard is that Article 18 of the Law provides that, in case of a mutually consented or voluntary transformation, merger, absorption, split off or dissolution of the legal entity responsible for one or more of the felonies established by law, the liability arising from the felonies perpetrated before the occurrence of any of the referred acts shall be transmitted to the legal entity (or entities) resulting from same.
The law mandates the regulation of this issue on a case-by-case basis, depending on the applied punishment.
II. Applicable sanctions
1. Types of sanctions applicable to the company
Article 8 states that one or more of the following penalties can be applied to legal entities:
- Dissolution of the legal entity or cancelation of its legal capacity — This penalty applies neither to state-owned companies nor to legal entities governed by Private Law that provide public utility services which — upon interruption thereof — could cause considerable and serious social or economic consequences or damages to the community.
- Temporary or permanent prohibition to execute acts and agreements with state institutions — Article 10 sets forth a scale that ranges from two to three years in its minimum degree; three years and one day to four years in its intermediate degree; and four years and one day to five years in its maximum degree, with the maximum penalty in this scale being the permanent prohibition to execute and/or enter into acts and agreements with state entities and authorities. The definitive ruling shall be notified by the Court to the Public Purchases and Contracts Directorate.
- Partial or complete loss of fiscal benefits, together with the complete prohibition to receive said benefits during a specific period — This issue is addressed by Article 11 of the Statute.
- Fines for the Treasury’s benefit — Article 12 sets forth a scale with minimum and maximum fines, from 200 to 2,000 monthly tax units (UTM; please note that 1 UTM equals approximately USD 70 at the current exchange rate) in its minimum degree; 2,001 to 10,000 monthly tax units in its intermediate degree; and from 10,001 to 20,000 monthly tax units in its maximum degree. The law allows for these fines to be paid in installments (which in no case whatsoever may be paid during a period that exceeds 24 months), when the amount of the fines may put the penalized legal entity’s continuity of trade at risk, or when social interest justifies it. The definitive ruling in this regard shall be notified by the court to the Treasury, the authority that shall be entrusted with collecting the corresponding fine.
- Ancillary Penalties — The law establishes that the following ancillary penalties may be applied in addition to those previously detailed herein: publication of an abstract of the ruling in the Official Gazette, or in another newspaper that is published nationwide; confiscation of any products derived from the crime, as well as confiscation of other assets, objects, documents and instruments pertaining to same; and, finally, in those cases in which the felony involved making an investment that exceeded the legal entity’s income, the deposit of a sum equivalent to such investment in an account held by the Treasury.
2. Interim measures, cease and desist orders, bans and confiscatory measures
In principle, the Act does not contemplate such measures. Still, in the context of a potential criminal investigation against a corporation, parties affected by the felony, which have filed their criminal complaints as victims, may ask the Criminal Court for such measures pursuant to general rules of the Criminal Code of Proceeding.
3. Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime
No specific provision of Chilean law addresses the liability of directors and managers for not having adopted the prevention model set by Law 20,393. However, there is basis to sustain that directors of the company who did not adopt a Law 20,393 model are liable vis-à-vis the company and must refund the economic damages suffered by the company.
III. Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions
1. Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)
It is crucial to highlight that the application of the Crime Prevention model set forth by the Statute is voluntary.
The legal entity that chooses to apply the system set by the law shall be protected from any prospective legal criminal liability.
Law 20,393 contemplates as an extenuating circumstance that the legal entity carry out effective measures intended to prevent the repetition of the same kind of investigated crimes, before the criminal trial has begun.
2. Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)
Besides any other document or internal regulation forming part of the compliance company’s system, such as codes of ethics or inner policies, Law 20,393 requires that the detailed crime prevention model established by said Law must be implemented in order to be exempt from criminal liability.
Indeed, Article 4 of the Statute sets forth a minimum legal standard for a prevention model, which shall, at the very least, contain the following elements:
- Appointment of a Prevention Supervisor
- Who appoints the prevention supervisor — The legal entity’s “chief management authority,” whether its Board of Directors, a managing partner, a manager, a main executive officer, an administrator, a liquidator, its representatives or its owners or partners, as applicable to the respective legal entity’s form of management
- Prevention supervisor’s term of office — The supervisor so appointed by the legal entity’s management shall hold its post for a term of up to three years, renewable for terms of the same span of time.
- Independence — Article 4, 1), b) expressly sets forth that the prevention supervisor shall be independent from the legal entity’s management, as well as of its owners, partners, shareholders or controllers.
- Exception to this independence — In any case, the prevention supervisor is allowed to exercise internal auditing or controller tasks.
- Another exception to the independence requirement is that, in all legal entities that have an annual income that does not exceed 100,000 Unidades de Fomento (approximately USD 100,000 at the current exchange rate), the owner, partner or the controlling shareholder may personally exercise the tasks of the prevention supervisor. As evidenced by the debate that took place in Congress, this was a privilege granted in favor of small and medium-sized companies, owing to the substantial costs that the prevention system might entail for such companies.
- Means and powers of the prevention supervisor
Pursuant to Article 4, 2), the legal entity’s management shall vest the prevention supervisor with sufficient means and powers for performing its duties. The following are listed as the minimum means and powers in this regard:
- The material resources and means necessary to allow the prevention supervisor to adequately organize its tasks, taking into account the legal entity’s size and economic capacities
- Direct access before the legal entity’s management — through adequate means — for the purpose of opportunely providing information in connection to the measures and plans implemented while performing its tasks, as well as for accounting for its functions and reporting, at least on a semi-annual basis
- Establishment of a crime prevention system
This system shall be established by the prevention supervisor, jointly with the legal entity’s management, and it shall include the following minimum requirements:
- Identification of the entity’s activities or processes, whether regular or sporadic, within the context of which the risk of the felonies mentioned in Article 1 being perpetrated is either created or increased
- Establishment of specific protocols, rules and procedures that allow the individuals who take part in specific activities and processes to program and execute tasks or labors in a manner that prevents the perpetration of crimes
- Identification of the management and audit procedures of financial resources that allow the entity to prevent their use in the crimes described by the Law
- Existence of internal administrative penalties, as well as of other procedures to report and prosecute the financial liability of the parties that breach the crime prevention system
- Interaction with the Labor Law
Article 4, 3) d), Subsection Second of the Statute sets forth that obligations, prohibitions and internal penalties shall be detailed in the regulations issued by the legal entity for said purposes and shall be communicated to all workers. Said internal regulation shall be explicitly included in the corresponding work contracts of all of the legal entity’s workers, employees and service suppliers, including the members of its upper management.
Consequently, in the event that the legal prevention model is instated, it shall be necessary to modify both the Internal Regulation and the work contracts.
- Monitoring and Certification of the crime prevention system
- Monitoring — Together with the legal entity’s management, the prevention supervisor shall set forth the methods for the effective enforcement of the crime prevention model and to monitor said model, so as to detect and correct its flaws, as well as to adequately update such model in accordance with any change of circumstances undergone by the legal entity.
- Certification — The law sets forth that legal entities may obtain certification acknowledging the instatement of their crime prevention model. Such a certificate shall evidence that the aforementioned model complies with all of the requirements set forth in numbers 1, 2 and 3 of Article 4 of the Law. Per the provisions of Article 4, 4), b), paragraph 1, compliance certificates shall be issued taking into account the legal entity’s situation, size, line of business, income level and complexity.
Pursuant to the provision set forth by Article 4, 4), b), Subsection Second, certificates may be issued by external auditing firms, by risk rating companies or other entities registered before the Superintendence of Securities and Insurance, which are suitable to perform such task, as per the applicable regulations set forth by the supervising authority.
- Importance of the certification duty — Article 4, 4) letter c) stresses the importance that the Law has bestowed upon the certification duty, setting forth that the persons which participate in certification activities are subject to the most rigorous applicable provisions of criminal law, identical to that of public officials.
3. Monitoring: independent person or body to control/supervise, with the purpose of verifying the correct application of the “model”; mode of operation of such person or body
See answer above referring to prevention Supervisor.
IV. Judicial proceedings to determine corporate liability
1. Court competent to decide the liability of and penalties applicable to the company
The Criminal Court competent to decide the company’s liability is the same Criminal Court competent to decide the personal liability of the individual charged with the crime. In the event that the criminal system seeks autonomous corporate criminal liability (for example, in case the responsible individuals have not been determined in the criminal investigation), the Criminal Court with jurisdiction over the domicile of the corporation will be competent.
The Criminal Court applies to the entity the same procedural rules applicable to the Individual.
2. Possibility of the application of interim measures
See above answer to II. 2).
Please note that in Chile, Criminal Courts are normally rather reluctant to grant interim measures.
3. Plea bargains and related effects on the corporate liability
The Act contemplates a form of plea bargain, namely a summarized proceeding (procedimiento abreviado), which will be applicable in case the sanctions sought by the Public Prosecutor (indistinctively, District Attorney) are not on the level of the most severe punishments established by the law. This alternative will imply a recognition of the facts of the indictment by the corporation and thus will normally end in a conviction sentence; still, the incentive for such recognition is that the Criminal Court will not be able to impose sanctions graver than those proposed by the Public Prosecutor.
The Act also contemplates the possibility of applying a pre-trial alternative termination solution to the criminal investigation, which goes by the name of conditional suspension of the procedure. According to Article 25, the conditional suspension of the procedure can be decreed, provided that no prior convictions exist and that no other conditional suspensions of the procedure are in effect involving the accused legal entity.
Some of the conditions that may be imposed for this suspension —which cannot be established for a period of less than six months nor for a period that exceeds three years — are the following: (i) to pay a specific amount in favor of the Treasury; (ii) to provide a specific community service; (iii) to periodically inform its financial status before an institution to be specified for these purposes; (iv) to implement a program to render the organizational, management and monitoring model set out by Article 4 of the Statute effective; and (v) any other condition that may be appropriate in light of the circumstances of the specific case and which is duly proposed and justified by the District Attorney’s Office.
4. Imposition of sanctions against the company
See answer to II. 1) above.
5. Permanence of corporate liability if the crime is extinguished
Section 5 of the Law sets forth the independent criminal liability of the legal entity, one of the Law’s most important and debated issues. This means that in some cases, such liability may be declared separately and independently of the liability of individuals.
Indeed, the Law provides that in light of the abovementioned requirements set forth by Article 3, the independent criminal liability of the legal entity shall continue to exist, independently from that of the individuals, in the following situations:
- That the individual criminal liability has expired or been discharged, as per the provisions of number 1 and 6 of Article 93 of the Criminal Code (death and statute of limitations applicable to the criminal action)
- That in the criminal proceedings conducted against the individual representatives of the company, the temporary dismissal of charges against the defendant(s) is decided by the Court, on the grounds detailed in letters B and C of Article 252 of the Criminal Procedures Code (contempt of court, insanity)
- Additionally, the last subsection of Article 5 establishes the independent liability of the legal entity when the occurrence of one of the felonies described by Article 1 of the Law is proven, together with the requirements set forth by Article 3, but the involvement of one or more individual perpetrators is not, as long as it is irrefutably proven that the crime must have necessarily been committed within the scope of the powers and tasks inherent to the duties of the persons detailed in Article 3, paragraph 1.
V. Corporate liability in multinational groups
1. Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company
As with the regulations in other jurisdictions, in setting out the requirements on which company liability is based, Law 20,393 focuses its attention on single entities without providing any specific regulation for when the criminal offenses therein included are committed in the context of a corporate group.
In other words, as of today, no provision of law clarifies if and upon which particular conditions, if any, a parent company may be held criminally liable in relation to offenses committed by any of the local company’s top management or individuals subjected to top management’s supervision and control.
This being said, and absent any specific provisions on the matter, only in the express guidelines set forth in Law 20,393 can a lawful solution of the issue be found.
For this purpose, given a group of companies, in order to affirm the criminal liability of the parent company:
- All and each of the requirements set forth in Law 20,393 as the basis of corporate liability must exist and be verified with specific reference to the parent company.
- Such verification must be concretely performed on a case-by-case basis, and not inferred through abstract generalizations.
2. Basis of liability and applicable sanctions
See answer V.1) and also answer to I.1) above.
VI. Significant case law concerning corporate liability arising from crimes and draft laws under discussion
1. Significant case law, if any
In recent years, the Public Prosecutor Office has increased enforceability of the Law, thereby leading to numerous entities being prosecuted. In some cases, some entities have avoided trial by alternatives implying significant payments, such as in the Ceresita case. Ceresita had to pay USD 2.5 million in mitigation measures to compensate neighbors of one of its plants (whose permits had been obtained through bribes).
In addition, during the last two years, at least two legal entities have been convicted (Sociedad Aridos Maggi Ltda. and Empresa Constructora Pehuenche).
Just a few months ago, on 3 October 2016, Corpesca was indicted for infringement of Law 20,393. Interestingly, this company had already implemented a crime prevention model that, in appearance, aligned with the said Law. However, the Public Prosecutor’s accusation was based upon the argument that the (implemented) model had just been implemented in a superficial or cosmetic manner, whereas the law requires a fully operational model that serves to create a compliance culture within the company.
We expect many more prosecutions and convictions of legal entities in the near future.
2. Proposed or contemplated new legislation
Some law bills point toward adding other offenses to the four current base offenses of the law. We cannot assure whether these bills will become law in the near future.