Chile remains the second most transparent country in Latin America, only surpassed by Uruguay, according to the 2018 Corruption Perceptions Index reported by Transparency International. Still, Chile has dropped six positions in the last four years. The fall of Chile in the corruption index occurs amid numerous huge corruption scandals and investigations. In recent years, several cases of corruption, especially of misappropriation of public funds, have affected Chile, generating a feeling among public opinion that the existing control mechanisms or punishments are not sufficient. Cases such as SQM, Penta and Caval have received broad coverage by the media and corruptions scandals have lately stained the reputation of institutions admired and respected by the Chilean people such as its army (Milicogate) and police (Pacogate).
Nonetheless, during the last years, Chile has made huge efforts to strengthen its anti-corruption legal system. In this regard, it is important to remark that Chile was the first Latin American country to establish corporate criminal liability for the commission of offences of bribery, money laundering and terrorism financing, under Law 20,393/2009. To date, numerous companies have been prosecuted and some have been sanctioned (e.g., Ceresita, Salmones Colbún). Illegal acts for which legal entities may be held criminally liable have increased considerably. In 2016, the felony of receiving stolen goods was incorporated to the catalogue of conducts for which a legal entity can be held criminally liable. In 2018, four new crimes were included: incompatible negotiation, misappropriation, unfair administration and commercial bribery. Lately, in 2019, four new crimes related to illegal fishing were included. A bill recently introduced to Congress to criminalise offences against the environment, which will include criminal liability for legal entities, has been discussed. However, the most recent development in this matter was the enactment in November 2018 of Law 21,121, which introduced major amendments to Chilean criminal law on crimes against corruption. This law considerably strengthens the Chilean legislation in the fight against corruption by increasing the punishment of certain existing crimes and incorporating new criminal offences to Chilean legislation, among others. This law represents a considerable step forward in the fight against corruption in Chile. The granting of the status of felony to several offences, coupled with the introduction of new criminal offences and the broadening of criminal liability for legal entities, should foster deterrence of bribery offences. Moreover, the law increases the likelihood of being detected for failure to comply with anti-corruption laws, and the consequences for such infringements, for both individuals and corporate entities involved.
II DOMESTIC BRIBERY: LEGAL FRAMEWORK
Bribery in Chile is considered a criminal offence, sanctioned with imprisonment and fines. Public officers, private individuals, and legal entities can be held criminally liable for corruption crimes.
Only public officials can be subject to administrative liability. According to Law 18,575, public officials should act with administrative probity, which consists of having irreproachable public conduct and a loyal and honest performance of his duty, with pre-eminence of the general interest over the personal one. This law considers a contravention to the administrative probity principle the request or acceptance of advantages or privileges of any nature either for themselves or for third parties. The violation of this principle may eventually lead to the removal of the public official from office.
In addition, any individual affected by a bribe can bring a civil action against the individuals involved in it, to obtain the reparation for all damage caused by the wrongdoing.
i Corporate criminal liability
In December 2009, Law 20,393 was enacted to establish corporate criminal liability for certain crimes, including bribery of Chilean and foreign public officials, money laundering and terrorism financing. The enactment of this law was influenced by Chile's accession to the Organisation for Economic Co-operation and Development (OECD), which requires parties to 'take such measures as may be necessary, in accordance with its legal principles, to establish liability of legal persons for the bribery of a foreign public official', under its Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
Under Article 1 of Law 20,393, corporate criminal liability is only limited to the following crimes:
- money laundering;2
- financing terrorism;3
- active bribery;4
- active bribery of a foreign public official;5
- receiving stolen goods;6
- incompatible negotiation;7
- commercial bribery;8
- unlawful administration;10 and
- illegal fishing.11
Legal entities may be held responsible for these offences when (1) the offences are committed directly and immediately in their interest or for their benefit; (2) the offences are committed by their owners, controllers, responsible officers, principal executives officers, representatives or those conducting activities of administration and supervision; and (3) provided that the commission of the offences results from the breach of the legal entity's direction and supervisory functions.
The burden of proof falls on the Public Prosecutor, who must prove each of these requirements for corporate criminal liability to exist. In this regard, the law sets forth that legal entities would not be responsible if the individual has committed the offence exclusively in his advantage or in favour of a third party. In addition, the law considers that the functions of direction and supervision have been met if, before the commission of the offence, the legal entity adopted and implemented an organisation, administration and supervision model to prevent the commission of these offences.
ii Bribery of domestic officials offences
Chilean Criminal Code has provided for bribery of public officials since its first enactment in 1874.12 The provision has been modified in several occasions. In November 2018, Law 21,121 substantially broadened the scope of sanction of this crime.
This offence can be committed by both public officials, who solicit, receive or consent to receive a bribe, and by private individuals, who offer, pay or consent to pay a bribe to a public official. The offence encompasses bribes of an economic nature or any kind, and it can be for the public official benefit, or a third party's benefit.
The Criminal Code contains a general or basic provision against passive bribery that punishes the public official who solicits, receives or consents to receive a gift of any kind, for his, her or for a third party's benefit, to which he or she has no right.13 It also contains four aggravated circumstances of passive bribery: (1) bribery to execute a proper due act of office for which no rights are contemplated;14 (2) bribery to omit or for having omitted a proper due act of office, or to perform or for having performed an act in violation of the duties of his or her office;15 (3) bribery to exercise influence on another public employee in order to obtain from it a decision that may generate a benefit for an interested third party;16 and (4) to execute a criminal offence committed while carrying out his or her job.17
In addition, the Criminal Code contains a provision against active bribery that sanctions the private individual who offers, pays or consents to pay a bribe to a public official, to perform or to incur in any of the above-mentioned actions or omissions.18
Sanctions for bribery include up to 10 years' imprisonment and fines of up to four times the benefit offered, paid or accepted. The seriousness of the sanction will depend on the type of action requested of the public official, and the degree to which the offence is executed. Sanctions can also include temporal or permanent prohibition from holding public office.
iii Definition of domestic public official
Article 260 of the Chilean Criminal Code contains a broad definition of 'public official' for criminal purposes. It defines a public official as anyone who holds a position or a public duty, either in the central administration or in semi-public, municipal, autonomous institutions or companies or in organisms created by the state or that depend from the state, even if they are not appointed by the Head of the Republic and even if they do not receive a remuneration from the state.
Therefore, the definition is very broad and covers numerous employees who are not subject to administrative laws.
iv Gifts, gratuities, travel, meals and entertainment
Chilean law does not establish quantitative or qualitative limitations on gifts, gratuities and hospitality expenses. However, according to the general bribery provisions of Article 248 of the Chilean Criminal Code, any type of gift, gratuity, entertainment or invitation could potentially be considered as a bribe.
Law 18,575 considers as a breach to the public probity principle that every public official has to abide by, the request or acceptance of gifts, advantages or privileges of whichever nature either for themselves or for third parties. However, the law exempt official and protocol gifts as well as those gifts authorised by custom as a courtesy and polite expression.
Therefore, whether a gift, gratuity or hospitality expense should be considered bribery will need to be determined on a case-by-case basis, taking into account all the facts and circumstances surrounding the case.
v Commercial bribery offences
Commercial bribery offences were recently incorporated in November 2018 to Law 21,121. Before that, commercial bribery was not a crime in Chile.
Articles 287 bis and 287 ter of the Criminal Code establish sanctions for private individuals and employees or agents who request or receive an economic benefit or another advantage to favour or for having favoured a certain party over another party for the execution of a contract with up to three years' imprisonment. The Law also punishes individuals who consent to the act of giving the employee or agent an economic benefit or another advantage with penalties of up to 540 days' imprisonment. In both cases, the crime also entails a fine of double the benefit requested or accepted, and up to US$35,000 approximately, if the benefit is of a different nature.
We strongly believe that this new offence will likely serve as a basis for numerous criminal investigations and prosecutions.
vi Political contributions by foreign citizens or companies
Political contributions in Chile were profusely regulated in 2016 after several criminal investigations regarding irregular political financing (e.g., Caso Penta, Caso Corpesca and Caso SQM).
Law 19,884, as amended by Law 20,900 of 2016, sets forth that only individuals can make political contributions. Under Law 20,900, legal entities, both foreign and Chilean, cannot make political contributions. Besides, the law sets forth certain thresholds of the contributions that can be made, which depends on the authority being elected.
Foreign individuals domiciled abroad cannot make political contributions. Only foreigners who are legally authorised to vote in Chile can make political contributions.
III ENFORCEMENT: DOMESTIC BRIBERY
The enforcement of domestic bribery by the Public Prosecutor's Office has been very strong during the past years against both individuals and companies. There have been numerous cases of domestic bribery prosecuted, some of them arriving at conviction of the accused individuals. Some of the main cases have been related to illegal political financing (e.g., Penta, SQM, Corpesca) and, admittedly, though initially prosecuted for bribery and tax offences, in several procedures the convictions of individuals obtained by the Public Prosecutor's Office have been for tax evasion, rather than bribery.
In addition, there are several former high-ranked military personnel under criminal investigation for corruption offences, some of them for bribery. In this regard, Mr Juan Miguel Fuente-Alba, former commander-in-chief of the Chilean army, was detained for six months before he was released on bail. Mr Fuentealba is being investigated for numerous corruption offences.
The oral trial for a huge corruption case, Caso Basura, regarding the municipality of Maipú began in August 2019. There are eight defendants in the Maipú side of Caso Basura, among them, the former mayor of this commune, Christian Vittori, to whom the Prosecutor's Office imputes crimes of bribery, fraud to the treasury and money laundering, and thus, is asking for a penalty of 13 years of imprisonment. Regarding the bribery offence, according to the prosecution, between 2009 and 2011, during two bidding processes for collection and disposal of household waste, former council member Christian Vittori and other mayors agreed with the KDM to carry out actions to favour this company, in exchange for payment of approximately US$201,000. The oral trial is expected to last six months.
Furthermore, there have been numerous companies sanctioned or for which investigations and criminal trials have been suspended upon their fulfillment of certain conditions, mainly payments or donations of certain amounts. Some are discussed below.
This case was suspended with conditions. In the framework of a bribery investigation directed against the director of buildings of the municipality of Recoleta, Industrias Ceresita SA was indicted for bribery, under Law 20,393. On 30 April 2013, an agreement was reached with the Prosecutor's Office. The company had to compensate the residents of the Recoleta neighbourhood by building parks and infrastructure for an amount that exceeds US$2.5 million. Ceresita withdrew a plant from the municipality of Recoleta, complying with all environmental regulations, demolishing all the facilities of the plant, carrying out cleaning and decontamination work, and obtaining an environmental study that insures against any health risk to the population. Likewise, it donated 6,000 square metres corresponding to the property's site to the Chilean Treasury, to transform it into a tree, sports and social park for the benefit of the community of Recoleta. This park had to be equipped with multiple pitches, pedestrian walks, trails, playgrounds, stationary sports implementation, grass, flowers, lighting, etc. Ceresita also equipped all the public health offices of the commune of Recoleta with equipment for respiratory diseases and painted the facades of the houses of the affected sector. The company agreed to design and implement a crime prevention model of Law 20,393 and certify it.
Two companies were convicted in bribery investigations. The Criminal Court of Guarantee of Talca issued a sentence against two companies for their criminal responsibility as legal entities, under Law 20,393. Salmones Colbún LTDA and Sociedad Agrícolas Mecanizado LTDA were convicted and fined approximately US$35,000 and the loss of 40 per cent of the tax benefits.
IV FOREIGN BRIBERY: LEGAL FRAMEWORK
i Criminal liability
Article 251 bis of the Chilean Criminal Code, as recently amended by Law 21,121, sets forth the provision against bribery of foreign officials. The criminal offence is committed by whoever, for the purpose of obtaining or maintaining for itself or for a third party any business or advantage in the field of any international transactions or of an economic activity performed abroad, offers, promises, gives or consents to give to a foreign public official an economic benefit or a benefit of another nature to this or a third party (1) due to the position of the official; or (2) to omit or execute, or for having omitted or executed, an act proper to his or her position or in violation of the duties of his or her position.
ii Definition of foreign public official
Article 251 ter of the Criminal Code contains the definition of 'foreign official'. It defines foreign officials as persons who (1) hold a parliamentary, administrative or judicial position in a foreign state, whether appointed or elected; (2) perform public duties or functions for a foreign state, whether in a public entity or a state-owned company; or (3) are officials or agents of a public international organisation.
iii Gifts, gratuities, travel, meals and entertainment
Chilean criminal law does not provide guidance on gifts, hospitality and entertainment for the benefit of foreign public officials.
Sanctions can include up to 10 years' imprisonment; seven to 10 years' debarment from holding public office; and a fine of between two and four times the benefit offered.
Defences may be raised upon the lack of intent to bribe or the fact that the benefit corresponds to an official or protocol donation, or to a gift of low economic value authorised by convention as a manifestation of courtesy.
Finally, from the legal entity's perspective, having implemented a crime prevention model that fulfils the requirements of Law 20,393 may result in complete exemption from criminal liability for the entity.
vi Plea bargaining
In Chile, a criminal proceeding may be suspended though a conditional suspension of the procedure (similar to a pretrial probation), if the indicted individual or entity accepts to comply with certain conditions (i.e., to be subject to the control of the Prosecutor's Office for certain amount of time, to pay an amount of money to the victim of the offence). To be eligible for a conditional suspension of the procedure, the offence must not be sanctioned with a penalty of over three years of imprisonment in the case of individuals and, in the case of legal entities, they cannot be reoffenders. As the penalties for bribery have considerably increased lately, it is unlikely that individuals will benefit from this kind of suspension in future cases.
In Chile, there is an 'abbreviated procedure', which is to some extent similar to a plea bargaining, in which the accused individual or entity enters into a negotiation with the Public Prosecutor, accepting the facts of the Prosecutor's accusation and the facts gathered in the investigation, and thus receives a reduced sanction.
V ASSOCIATED OFFENCES: FINANCIAL Record-keeping AND MONEY LAUNDERING
i Financial record-keeping laws and regulations
Chile lacks a section on financial record-keeping offences similar to the one in the FCPA. In Chile, the provisions of the Commercial Code,19 the Tax Code20 and the Law of Corporations21 require the maintenance of accurate and complete corporate books and records. Similar to other jurisdictions, publicly traded or listed companies are also subject to laws regarding periodic financial reporting and disclosure, and avoidance of self-dealing and insider trading. Financial institutions are subject to additional laws regarding their fiduciary duties toward the parties whose assets they hold.
ii Money laundering laws and regulations
Anti-money laundering provisions area contained in Law 19,913 of 2003. This law sets forth criminal offences that are sanctioned with five to 15 years of imprisonment and fines of up to approximately US$14 million.
The Law also created an independent public entity, the Financial Intelligence Unit (UAF), to prevent and avoid the use of the financial system and other sectors of economic activity for money laundering.
The UAF has the function of requesting, verifying and examining the information of several institutions subject to Law 19,913, and to send such records to the criminal prosecutor when there are indications that money laundering has been committed.
Law 19,913 applies to a wide range of institutions, including banks and financial institutions; factoring companies; leasing companies; securitisation companies; exchange houses; stock exchanges; insurance companies; casinos and racetracks; customs agents; property brokers and notaries.
The UAF has the power to give binding instructions to the entities subject to Law 19,913 for adequate compliance with the established obligations to prevent money laundering offences.
Exclusively the criminal prosecutor prosecutes the anti-money laundering criminal offences. The UAF is obliged to give the prosecutor any indicia of money laundering.
The criminal prosecutor can also request the UAF to provide information in its possession that is necessary for money laundering investigations.
The UAF can also impose administrative sanctions for violations of Law 19,913 or its instructions.
VI ENFORCEMENT: FOREIGN BRIBERY AND ASSOCIATED OFFENCES
There have been just a few cases regarding foreign bribery.
In Asfaltos Chilenos, the company Asfaltos Chilenos SA was prosecuted for violations of Law 20,393 in connection with bribes paid in Bolivia. In 2010, Asfaltos Chilenos SA granted a power of attorney to a Bolivian citizen to offer its products in Bolivia. This woman appeared before the Bolivian Highway Agency and offered asphalt for the preparation of the roads, but also offered a public officer a percentage of the profit for each ton of the product purchased. The woman was arrested and convicted for bribery in Bolivia. However, it was unclear what the role of the Chilean company had been. Although the investigation could not determine whether Asfaltos Chilenos SA had been directly related to the bribery attempt, it determined that the company did not have the control mechanisms to prevent this situation from happening. The prosecution reached a conditional suspension of the procedure and the following conditions were imposed on the company so that it could avoid a criminal trial: (1) the company was obliged to implement a crime prevention model pursuant to Law 20,393; and (2) to donate computer equipment worth approximately US$16,000 to an educational institution.
In Serlog or Fragata, an individual was effectively sanctioned with an imprisonment penalty as well as a fine for bribing an adviser of the Attaché of the Ministry of Defence of the Embassy of Korea in Chile, in exchange for being introduced to Korean companies that were seeking contracts from the Chilean military and to act as representatives of those Korean companies, accordingly.22
VII INTERNATIONAL ORGANISATIONS AND AGREEMENTS
Chile is a member of the Organisation for Economic Co-operation and Development (OECD), the United Nations and the Organization of American States. Chile is a signatory to the OECD Anti-Bribery Convention, the United Nations Convention against Corruption (UNCAC) and the Inter-American Convention against Corruption.
VIII LEGISLATIVE DEVELOPMENTS
The most relevant legislative development is the enactment in November 2018 of Law 21,121 which:
- sets a new criminal sanction to punish certain types of corruption offences, consisting of the absolute, permanent and temporary debarment from holding positions, jobs, trades or professions in companies that contract with government agencies or companies or with companies or associations in which the state has a majority participation; or in companies that participate in concessions granted by the state or which purpose is the provision of public utility services;
- incorporated new legal figures of corruption offences in the private sphere;
- modified the bribery offence by substantially expanding the scope of sanctions and also reformulated the criminal offence of bribery to foreign public officials, established in Article 251 bis of the Chilean Criminal Code, and increased the penalties of this crime;
- introduced amendments to corporate criminal liability law (Law 20,393). First, it incorporated new criminal offences for which legal persons may be held criminally liable, incorporating into the catalogue of offences established in Law No. 20,393 the offences of incompatible negotiation by directors or managers of a corporation, bribery between private parties, misappropriation and unfair administration. Second, the Law broadened sanctions that include debarment from contracting with any state agencies, including state-owned companies and majority state-owned companies or associations, and from awarding any state concession. Third, fines increased to up US$24 million approximately. Fourth, the concept of confiscation was extended to encompass all gains obtained through the commission of the offence. Fifth, the Law included the dissolution of the infringing company, if the company has been convicted, within the previous five years, for the same offence and there is no mitigating circumstance. Sixth, the Law set forth that if the legal representative of a company under investigation is formalised in an investigation for the same punishable act by which the criminal responsibility of the legal entity is investigated, its representation will cease. In this case, the court will order a new representative to be appointed within a certain period of time, and if the appointed representative does not make the appointed nomination, the court will appoint a professional to represent it.
IX OTHER LAWS AFFECTING THE RESPONSE TO CORRUPTION
We are expecting that amendments to the Chilean Data Privacy Act will aid, to some extent, the fight against corruption.
As mentioned, Law 20,393 sets forth an exemption of a corporate liability in case the company adopted and implemented, before the commission of the offence, a compliance programme to prevent its commission. This law provides for an exemption of criminal liability since it assumes that the functions of direction and supervision have been met.
Law 20,393 sets forth the minimum legal standard of a prevention model for the exemption of corporate liability to apply, which includes (1) the appointment of a prevention supervisor with sufficient means, powers and independence for performing its duties; (2) the establishment of a crime prevention system that identifies the entity's risks of the offences been committed, establishes specific protocols, rules and procedures to prevent the commission of said offences, identifies procedures for administrating and auditing the financial resources of the entity, and includes internal administrative sanctions, as well as procedures for reporting the wrongdoing; and (3) the establishment of methods for the effective application of the prevention model and its supervision, so as to detect and correct its failures and to update it according to the change of circumstances of the legal entity.
The Public Prosecutor has been very clear that the pure formal implementation of a crime prevention model by itself is not enough to determine that the direction and supervision obligations of the company have been satisfied. In this regard, there are actual precedents in Chile, for instance, Corpesca and SQM, in cases of bribery, were indicted regardless of having crime prevention systems, as their systems were deemed by the Prosecutor to be merely perfunctory and not implemented to a high standard. Therefore, a merely formal prevention model will not exempt a company from criminal corporate liability. Accordingly, the prevention model must be effective and properly implemented (i.e., the prevention model must be tailor-made to the company and the activities it carries out, and must be an integral part of the business structure and operations).23
XI OUTLOOK AND CONCLUSIONS
Regardless of the fact that there remains much to be done, Chile has implemented some strong measures in the fight against corruption. As previously mentioned, Laws 20,393 and 21,121 are clear examples of these efforts. Furthermore, it is interesting to remark that in undergoing criminal cases, cosmetic crime prevention models have not been accepted by the Public Prosecutor's Office as effective defences to exclude the investigated companies from criminal liability.
In the near future, we can only expect further regulation and stronger enforcement of bribery and corruption offences from the Public Prosecutor's Office.
In this regard, companies that have not already implemented a crime prevention system should not delay doing so any longer.
Finally, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also known as TPP-11, though facing material opposition from some political parties, NGOs and pressure groups, advances in the Chilean Congress. TPP-11 has a chapter establishing commitments on anti-corruption efforts.
1 Sebastián Doren and Juan Ignacio Donoso are senior associates at Baker McKenzie.
2 Article 27 of Law No. 19,913.
3 Article 8 of Law No. 18,314.
4 Article 250 of the Criminal Code.
5 Article 251 bis of the Criminal Code.
6 Article 456 bis A of the Criminal Code.
7 Article 240 of the Criminal Code.
8 Articles 287 bis and 287 ter of the Criminal Code.
9 Article 470 No. 1 of the Criminal Code.
10 Article 470 No. 11 of the Criminal Code.
11 Articles 136, 139, 139 bis and 139 ter of Law 18,892.
13 Article 248 Section 1 of the Criminal Code.
14 Article 248 Section 2 of the Criminal Code.
15 Article 248 bis Section 1 of the Criminal Code.
16 Article 248 Section 2 of the Criminal Code.
17 Article 249 of the Criminal Code.
18 Article 250 of the Criminal Code.
19 Commercial Code, Article 25 and 31.
20 Tax Code, Article 35.
21 Law 18,046, Article 73.
23 Practical Guide Good Investigation Practices Criminal Liability of Legal Persons, http://www.fiscaliadechile.cl/Fiscalia/archivo?id=24164&pid=190&tid=1&d=1, accessed August 22, 2019.