Severe sanctions and broad list of corporate crimes for companies operating in Chile.

BY JEFFREY LEHTMAN,
MARGARITA R. SÁNCHEZ
AND MARIA E. LAPETINA

On August 17, 2023, Chile enacted Law No. 21.595, commonly referred to as the “Economic Crimes Law.” The Economic Crimes Law was borne from a moment of social unrest in Chile, during which the overriding perception was that those who committed white collar offenses were not adequately penalized. Following three years of deliberation in Congress, President Gabriel Boric signed the law on August 7, 2023, and the law was officially published on August 17, 2023.

In sum, the Economic Crimes Law seeks to: (1) consolidate and systematize conduct outlined in various Chilean legal codes and laws under the umbrella of economic crimes; (2) ensure adequate punishment of individuals who perpetrate economic crimes and engage in other misconduct; (3) modify the Corporate Criminal Liability Law and enlarge the list of crimes for which corporations can be held responsible; and (4) underscore the importance of implementing an effective corporate compliance program, which can serve to alleviate or mitigate a corporation’s liability.

This is a significant piece of new legislation in Chile and of critical importance to those operating in Chile, including U.S. and foreign investors. Historically, Chile has been successful in attracting foreign investors. It enjoys the second highest GDP in Latin America, and compared to its neighbors in the region, it enjoys more legal and political stability and less corruption, all of which are factors that have driven foreign investment in the country.1 This new law promises to bolster the Chilean legal framework further, which may encourage foreign investors. Foreign investors looking to invest in the country, however, would be wise to familiarize themselves with this transformative legislation, which has profound impacts for companies operating in the country and their executives.

For the first time in Chile, corporate executives and directors could be held liable for a wide range of misconduct. Additionally, the law greatly expands the conduct for which corporations can be held accountable, and the sanctions applied to corporations now include the possible imposition of a monitor. These are notable changes, particularly for companies operating or investing in Chile, and it presents a unique and opportune moment for companies to review their compliance programs and internal control environments to ensure that they meet the new regulatory standards.

Overview of the Economic Crimes Law

The new Economic Crimes Law categorizes various crimes and other causes of action included in Chilean regulations into four separate categories:

Category 1 – Offenses that, under any circumstance, are considered Economic Crimes: this category includes crimes relating to insider trading, the fraudulent sale of stock, using false information in the securities market, conflicts of interest, commercial bribery, and fraud, among others.

Category 2 – Offenses that will be considered economic crimes to the extent that (i) they are committed by an employee, officer, or director of a company; or (ii) they are committed for the economic or other benefit of a company: this category includes crimes relating to breach of environmental regulations, violations of political campaign financing laws, tax crimes, and infringement of intellectual property, among others.

Category 3 – Offenses committed by officers and directors of a company – as perpetrator or accomplice – when the conduct gives rise to a benefit for the company: this category includes crimes relating to bribery, tax fraud, breach of confidence offenses, and unlawful enrichment.

Category 4 – Embezzlement and Money Laundering Offenses.

As a general matter, the law seeks to impose more severe sanctions for violations of these laws. To that end, in addition to categorizing various offenses, the Economic Crimes Law sets out a new formula for calculating an individual’s punishment. Under the Economic Crimes Law, those found liable of committing the crimes captured by the law could be subject to imprisonment, fines, or the forfeiture of assets. The Economic Crimes Law also outlines aggravating and mitigating factors that may be considered when determining the final sentence. Importantly, the aggravating and mitigating factors considered under the Economic Crimes Law differ from those applied in other contexts and pursuant to other laws and legal regimes.

A Broad List of Crimes for Which Companies Can Be Liable 

Perhaps one of the most significant modifications resulting from the enactment of the Economic Crimes Law relates to corporate criminal liability. The Economic Crimes Law modifies Chile’s Corporate Criminal Liability Law and significantly expands the list of crimes for which companies can be found liable. Under the new law, companies can be liable for the various economic crimes and breaches included in Categories 1 through 4 described above, if the conduct was perpetrated in the normal course of business by officers, employees, directors, or third parties of the company in the absence of an effective compliance program. Notably, the law does not require that the company obtain any benefit as a result of the misconduct.

Monitorship Requirements and Components of an Effective Compliance Program

With respect to penalties that could be imposed on companies, the Economic Crimes Law contemplates, for the first time under Chilean law, the imposition of a monitor for companies found liable for violations of these laws. This is a significant and potentially costly development for companies, as the Economic Crimes Law requires the company to bear the costs relating to the monitor.

Importantly, the Economic Crimes Law relieves a corporation of liability if the corporation has effectively implemented a corporate compliance program. Under the Economic Crimes Law, a corporate compliance program is effective when it is commensurate with the company’s size and responsive to the company’s business profile.

The law outlines various components of an effective compliance program:

• Risk Assessments: The Economic Crimes Law encourages companies to conduct risk assessments to identify the companies’ areas of risk. This is an important step in determining the best approach for developing a compliance program responsive to the company’s profile.
• Policies and Procedures: The Economic Crimes Law also requires that companies implement written policies and procedures designed to prevent and detect criminal conduct, including the conduct outlined in the Economic Crimes Laws. Policies and procedures should be shared with employees, and a requirement to adhere to the policies should be included in the employment agreements. In addition, the law emphasizes the importance of implementing anonymous hotlines or other reporting mechanisms and of establishing a process for disciplining misconduct.
• Compliance Officer: The law also discusses the importance of appointing one or several employees to oversee the compliance program. The officer should enjoy independence, should have adequate resources, should have a direct reporting line to the company’s executive management team, and should be empowered to act.
• Ongoing Monitoring: Finally, the law provides that companies should retain independent third parties to audit and monitor the compliance program to ensure that it is operating as intended.

To allow companies time to respond to this new regime of corporate criminal liability, the portion of the Economic Crimes Law relating to corporate liability will become effective in August 2024. During the course of the next twelve months, companies operating in Chile will have the opportunity to review and enhance their corporate compliance programs to address the longer list of crimes for which they could be found liable and to ensure that their programs meet the standards set forth in the law. Companies that fail to implement this type of compliance program may find themselves at higher risk of corporate liability, which now carries severe and costly consequences.

Impact on Chile’s Investment Climate

Chile has been an attractive spot for foreign investment, and the enactment of this new law may prove to attract additional investment. Chile’s success in attracting foreign investment is attributable, in large part, to its stable legal remine, relatively low corruption, and the number of existing laws aimed at combatting corruption. In this regard, compared to other countries in Latin America and the Caribbean, Chile has been able to mitigate public corruption within the country, which is often an important factor when foreign investment is being considered.

The enactment of the Economic Crimes Law seeks to further combat corruption, in addition to a number of other crimes and related misconduct, and further contributes to a comprehensive and stable legal framework in Chile. As a result, the Economic Crimes Law may ultimately serve to contribute to an economic climate that attracts additional foreign investment.

Those investing in Chile, however, should become familiar with the new Economic Crimes Law and should, in particular, make sure that the companies in which they are investing have taken appropriate steps to build and develop a compliance program that meets Chilean legal standards. Among other components, investors should ensure that companies in the country are appropriately vetting and reviewing third parties to avoid potential liability created by reliance on third parties. Ensuring compliance program effectiveness will become increasingly important to protect investments in Chile.

Key Takeaways:

The implications of this new law are significant and far-reaching and demonstrate a new focus on prosecuting economic crimes for both individuals and corporations. In light of this development:

• Senior executives and corporate directors could, for the first time in Chile, be held criminally liable for engaging in misconduct in the scope of their employment. For this reason, executives should evaluate their current roles to determine whether it is necessary or prudent to implement additional controls and processes.
• Corporations should take this moment to review their corporate compliance programs and determine whether enhancements are required to ensure that the program meets the requirements set forth in the Economic Crimes Law.
• Because the new law creates liability for third parties retained by companies, companies should also take steps to ensure that third parties have been properly vetted and are familiar with the company’s expectations regarding the conduct outlined in the Economic Crimes Law.
• Foreign investors should protect their investments in Chile by, among other steps, ensuring that companies in which they are investing have implemented or are implementing comprehensive compliance programs that include, among other components, a third-party management system.

Jeffrey Lehtman is a Member of Miller & Chevalier Chartered, where his practice focuses on assisting clients with internal and government investigations, regulatory compliance, and complex cross-border litigation and arbitration.

Margarita R. Sánchez is the International Arbitration Practice Lead at Miller & Chevalier, where she is a Member and focuses her practice on global anti-corruption, corporate investigations, and cross-border disputes.

Maria Lapetina is Counsel in the International Department of Miller & Chevalier Chartered. Her practice focuses on advising clients on internal and government investigations, complex cross-border litigation, and regulatory compliance.

Florencia Fuentealba contributed to this article. She is a visiting law clerk in Miller & Chevalier’s International department, where she works with attorneys who advise clients on anti-bribery and anti-money laundering (AML) investigations and compliance.

This article is based on an overview by Miller & Chevalier. Republished with permission.

 

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