Chile Legal Update – Economic Crimes Law Overview
Chilean Congress approved a bill earlier this year to expand criminal liability for economic and environmental crimes. It was published into law on August 17, 2023, and is the largest reform that the penal code has undergone since its enactment over 100 years ago.
The initiative is part of the anti-abuse agenda, which punishes collusion, insider trading and corruption. It will allow for the tougher prosecution of “white-collar” crimes. The new law adds over 200 new criminal offenses, toughens the penalties for economic crimes, and expands the criminal liability to natural persons.
The new law should be a top priority for foreign companies with subsidiaries in Chile. The new legislation means that for the first-time, corporate executives and directors can be personally liable for a wide range of misconduct. Additionally, the law will hold corporations accountable through a wider range of sanctions.
Ax Legal has provided a general overview of the new Economic Crimes Law to help foreign companies who are operating in Chile to understand how it will affect them.
CATEGORIES OF ECONOMIC CRIMES
The law creates a catalog of economic crimes, structured in 4 categories, with different legal consequences. The four categories of offenses are summarized as follows:
First Category: Offenses that, under any circumstances, will be considered as Economic Crimes.
Examples of Offences – Commercial bribery; insider trading, the fraudulent sale of stock; collusion; stock exchange offenses; offense of providing false information to the Financial Market Commission; offense of abuse of majority position by the board of directors; falsification of balance sheets.
Second Category: 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.
Examples of Offences – Infringement of intellectual property, fraud; threats; tax and customs fraud; environmental damage; IT offenses; murder and injury; fraudulent alteration of public instruments; etc.
Third Category: Offences committed by officers and directors of a company – as perpetrator or accomplice – when the conduct gives rise to a benefit for the company:
Examples of Offences – Bribery; tax fraud; breach of confidence offenses; unlawful enrichment.
Fourth Category: Embezzlement and Money Laundering Offenses
Examples of Offences – All offenses that relate to goods derived from an Economic Crime of any of the other categories, or when the embezzlement or laundering was perpetrated in the exercise of a position or function of the company, or for the benefit (of any nature) of a company.
LIABILITY FOR COMPANIES
The Economic Crimes Law significantly expands the list of crimes for which companies can be found liable. Under the new law, companies are liable for offences that are perpetrated by officers, employees, directors, or third parties of the company, in the absence of an effective compliance program. It is important to note that the law does not require for the company obtain any benefit because of the misconduct.
This is extremely important for foreign companies operating in Chile since they do not always have complete oversight of their subsidiaries day-to-day activities. Many foreign companies have limited in-country staff which means that many employees and contractors do not have direct supervision. This gap in supervision can create opportunities for employees and contractors to potentially commit offences without the knowledge of management teams.
THE CRIME PREVENTION MODEL
The Crime Prevention Model takes on special relevance considering that a legal entity may be exempted from liability if it has implemented a model that complies with the requirements established in the Law. Furthermore, the crime prevention model must be adjusted according to companies’ specific circumstances including corporate purpose, size, resource available, etc.
At a minimum, for companies to be exempt from liability, the crime prevention model must include:
- Risk Assessment: Companies need to conduct risk assessments to identify the 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: Companies are required to implement written policies and procedures designed to prevent and detect criminal conduct. The company’s internal regulations must be made known to all company employees and incorporated into employment contracts. In addition, the law emphasizes the importance of implementing reporting mechanisms such as anonymous hotlines and establishing a process for disciplining misconduct.
- Compliance Officer: The law also discusses the importance of appointing someone 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.
- On–going 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 and making improvements as needed.
WHEN IS THE LAW IN EFFCT?
With respect to legal entities, the amendments to Law 20,393 on Criminal Liability will only be effective as from September 1, 2024, unlike natural persons, for whom the law has already entered into force.
In relation to the imposition of criminal liability for the commission of the crime of collusion by legal persons, it is subject to a series of penalties, sanctions, and measures that the legislator must dictate for its applicability.
MICRO AND SMALL COMPANIES:
The law excludes micro and small companies from some penalties and consequences that may arise from economic crimes.
Micro and small companies are defined by the following:
- Micro companies: those whose annual income does not exceed 2,400 UF in a calendar year. (USD$ 97,240)
- Small companies: those whose annual income is greater than 2400 UF and less than 25,000 UF in a calendar year. (USD $97,240 & USD $1,013,300)
- If the company is part of a business group, to determine whether it qualifies as a micro or small company, the income of the group must be added together, and the same limits as above must be applied.
The recently approved Economic Crimes Law will have implications for foreign companies operating in Chile. The new legislation means that for the first-time, corporate executives and directors can be personally liable for a wide range of misconduct. Additionally, the law will hold corporations accountable through a wider range of sanctions.
It will be important that companies take the following steps –
- Companies should first evaluate if they are over the threshold for being considered a micro or small business according to guidelines set by the new law.
- Companies should review their corporate compliance programs and determine if they meet the requirements set out in the new law. There should also be a review of business specific risks to determine if additional changes are needed to the compliance program.
- They should review third parties who are providing services to the company to ensure they are properly vetted and are conducting themselves according to the Economic Crimes Law. Service Agreement should be updated that outline the third parties responsiblities to adhere to strict policies on the subject.
- It is important for foreign companies to put in place a crime prevention model that meets the requirements of the new law. This should be made available to every employee and all employment agreements should be updated accordingly.
- Companies need to train personnel, senior executives, managers, and directors on proper conduct. Depending on the company and circumstances, an independent third party to conduct periodic reviews of the model should be retained.
- It is essential for companies to have an effective and living crime prevention model, i.e. models that reflect the various activities of the company and the risks that are associated, and that these are managed by independent specialists who can provide training and update the crime prevention model on an on-going basis.
Ax Legal is an advisory firm that works with foreign companies in Latin America. Our team of legal and commercial advisors have a distinguished track record of helping foreign technology and services companies to grow and operate in Latin America. Over the years, we have worked with starts up, mid-size businesses, and publicly listed companies. The one common factor that connects are clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.
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