There is no overarching regulation of the investigations and proceedings dealing with the regulation and punishment of companies but there is a multiplicity of proceedings and ad hoc configurations for each enforcement agency. An immediate consequence of this is the frequent duplication of inquiries and sanctions from agencies of the same or a broadly similar nature.
In Chile, infringements defined as ‘crimes’ by law are dealt by the Public Prosecutor’s Office, the agency that handles with investigation and prosecution before criminal courts. As a principle, legal liability is strictly individual and is not applicable to collective structures such as companies, but to natural persons who have participated in the infringement. Nonetheless, an exception to this societas delinquere non potest principle was introduced in 2009 with the enactment of Law No. 20,393, which established for the first time in Chile the criminal liability of legal persons for – at present – a limited number of crimes (bribery, money laundering and the financing of terrorism).
Alternatively, a heterogeneous range of non-criminal infringements can be found in different laws that entrust enforcement to diverse special agencies. In this group, it is relatively common for the respective agency to be entitled not only to investigate, but also to impose sanctions. In contrast with criminal procedures, the civil agencies are also generally entitled to prosecute and sanction legal persons as well as individuals. Such entities are usually designated as superintendencies and form part of the government (unlike the Public Prosecutor’s Office, which is an autonomous entity that does not depend from the government).
Among the most relevant active agencies in recent years we can mention the Superintendency of Securities and Insurance, the Internal Revenue Service in taxation issues, the National Economic Prosecutor, along with the Free Competition Court in antitrust matters and, most recently, the Environment Agency and the environmental courts, which have been fully operative since 2013.
All these agencies are subject to different statutes and proceedings when it comes to investigating and sanctioning infringements to the laws of the areas where they have authority and they also have different investigation powers.
In recent years there has been a trend to broaden special powers available to some of these agencies, as their powers have been insufficient in certain cases and are limited when compared to those available to the Public Prosecutor’s Office. This was the case, for example, when special powers were granted in 2009 by means of Law No. 20,361 to the National Economic Prosecutor, which has the authority, upon court approval, to execute dawn raids, seize goods, and wiretap conversations.
There is also a bill that is currently being discussed in Congress that restructures the Superintendency of Securities and Insurance and foresees new and broader investigation powers, similar to those available to the National Economic Prosecutor, including the ability to request that bank secrecy is lifted.
Prosecution of crimes in Chile is, in general, not influenced by political agendas or domestic priorities. This is mainly due to the fact that, as already mentioned, the Public Prosecutor’s Office is an autonomous entity that is independent of the government. Furthermore, the National Prosecutor is elected by the executive, legislative and judicial branches of the state. Agencies in charge of civil enforcement have different levels of relationship with the government, but as they have less autonomy than the Public Prosecutor’s Office, they are more vulnerable to political influence. This has led, for example, to a public discussion about the convenience of granting more autonomy to the Chilean tax authority, which has been very active over the last year in connection with the prosecution of alleged tax fraud in connection with several prominent cases of irregular funding of political campaigns.
An interesting phenomenon in connection with investigations of corporate conduct is the assumption that – particularly in certain areas – for the system to be more efficient, suspects must collaborate with agencies and find a quick remedy to the generated conflict. Evidently, as there is no legal obligation to actively collaborate, this is only relevant when the suspects have incentives to collaborate such as exemptions or at least mitigation of sanctions. Instruments such as leniency programmes, self-reporting and implementation of internal compliance programmes may be seen as forms of cooperation with the authorities with underlying incentives.
The system developing from the new laws has also allowed the emergence of a broad scope for the development of efficient rights and possible judicial defences.
Individuals that are targets of prosecution by the administrative authorities or the Public Prosecutor have many options, not only to prove their innocence, but also to find an agreed solution to the conflict.
No clear guidelines exist as to the approach that corporations should take in response to illegal or criminal behaviour. There are only a few special regulations in some areas establishing certain reporting duties.2
As a result, it cannot be stated that as a general rule corporations are compelled to report activities that may be prosecutable by state agencies. Nevertheless, the judicial and legal systems are gradually providing incentives to encourage self-reporting as part of internal corporate policies. The incentives basically consist in an exemption from liabilities or leniency regarding sanctions.
One example of regulations that contain incentives to encourage self-reporting can be found in Law No. 20,393, which establishes criminal liability of legal entities. According to such law, self-reporting may constitute a mitigating circumstance in the event it is performed by the legal representatives of the company before prosecution is initiated. The law also allows the Public Prosecutor to enter into deferred prosecution agreements with legal entities, where the prosecution is suspended and eventually dropped if the defendant agrees to submit itself to certain conditions, such as, for example, the payment of a certain sum of money or to provide a particular service to the community.
In the field of antitrust enforcement Chilean law3 considers leniency mechanisms in cases of collusion, by means of which the party coming forward can apply for a reduction and even an exemption of sanctions when certain conditions are met, such as immediate cessation of the illegal conduct and the submission of reliable and useful information that can be used by the National Economic Prosecutor’s Office as sufficient proof to file a claim before the Free Competition Courts. A total exemption from the fine is only available to the first involved party submitting its application for leniency.
The National Economic Prosecutor performs the assessment of leniency mechanisms in accordance with a procedure outlined in the Internal Guide on the Benefits of Immunity and Reduction of Fines in Collusion Cases, enacted in October 2009, which limits the authority’s discretion when assessing any proposals for leniency.4
In environmental matters, applicable legislation also establishes benefits to encourage self-reporting, consisting in the reduction or exemption of applicable fines, subject to certain conditions, among them to propose and fulfil a programme to mitigate or eliminate the environmental adverse effects of the activities of the business that are in violation of environmental regulations. The Environment Agency issued a practical guide regarding self-reporting in 2013.
Other agencies (for example the Customs and Tax Authorities) have encouraged and issued special rules for self-reporting in certain circumstances. In connection with administrative securities enforcement proceedings, a new bill that is currently being discussed in Congress also contains provisions establishing incentives on self-reporting, including leniency agreements.
ii Internal investigations
Despite the development of internal investigations in terms of enforcement and judicial practice in recent years, the practice has not become widespread in Chile. The lack of legal culture in this area and the absence of precedents as to the confidentiality of findings, as well as whether they are covered by professional privilege, have led in several cases to agencies and prosecutors seizing documents produced within the scope of internal investigations. Although there is no doubt that when conducted by outside legal counsel internal investigations should be in fact protected by privilege, it is not unusual for companies to conduct investigations internally rather than seeking assistance from outside counsel. In the absence of clear legal rules, it is arguable whether privilege covers the activities of other internal personnel, such as auditors or compliance officials. Until case law clarifies the extent of privilege, internal investigations should perhaps better be conducted by lawyers – preferably third parties – to guarantee the confidentiality of the investigation and its findings.
Within the scope of these investigations, statements from the individuals directly involved are usually essential; however, it is important to stress that these statements must be given on a voluntary basis by the persons involved, as they are not obliged to cooperate or submit evidence. Therefore, any participation in interviews or handing over of information must be done freely; and with the understanding that the investigation is for the benefit of the company, not for the personal defence of the individuals being interviewed or providing the information, unless the lawyer also assumes the personal defence of this person. In order to avoid future conflicts of interest it should be made clear that all the information that the interviewee may provide will belong to the client (the company) and will be privileged for its exclusive benefit.
The witness may request professional legal assistance at any moment, otherwise the investigation may be invalidated.
The gathering of publicly accessible documents belonging to a company must be differentiated from documents that fall under the control or possession of a company’s employee. This is particularly the case when documents or files are stored in individuals’ email accounts or computers assigned to them in the normal course of business. At least in principle, emails or documents contained within databases – even when the hard drives belong to the company – may not be accessed by the company or its counsel without the individual’s consent. Furthermore, it is possible that accessing such documents without the holder’s consent may expose investigators to criminal liability.
Finally, companies need not share or submit the results of internal investigations to the state agencies, especially when the investigation has been conducted by outside counsel and is privileged; however, the provision of such records may justify the mitigation of an eventual sanction, especially in the context of Law No. 20.393, which recognises the amelioration of possible sanctions if the company under scrutiny improves its internal systems and compliance rules.
In the absence of almost any legal regulation, whistle-blowing is so far not a relevant issue in Chilean legal practice. Of course, it is not uncommon that in the context of enforcement actions and especially of criminal prosecution, individuals that are targets of investigations may decide to cooperate with the enforcement agency or the prosecutor in order to obtain more lenient treatment of their cases. The Criminal Procedural Law allows prosecutors to enter into agreements with the defendants in criminal cases, where these agreements are normally approved by the relevant criminal court. However, rather than a specific policy promoting whistle-blowing as part of the enforcement activity against corporations, this is a general statute applicable to, in principle, all criminal cases of any nature. In fact, the only limitation on these settlements is determined by law for cases where the possible sanction on the defendant exceeds five years in prison in the case of conviction.
There are no legal provisions, at least for the private sector, to protect whistle-blowers from retaliation, so the response of a company confronted with whistle-blowing from an employee will depend on its internal policies. However, since in recent years, at least in large – particularly multinational – companies, the implementation of compliance programmes has been increasingly growing, it has become more common for companies to have specific whistle-blowing policies.
In the public sector, Law No. 20,205 introduced certain provisions aiming to protect whistle-blowers that hold a public office when reporting crimes or administrative infringements to the competent authorities. However, these provisions are very limited as they only refer to public officers5 and only consider the suspension of the ability to apply certain disciplinary measures against such persons for a period of up to 90 days after the investigation initiated by the report of the whistle-blower has ended. The whistle-blower may request that his or her identity and the information that he or she provides are kept confidential.
i Corporate liability
Corporations are generally only liable for their acts within the civil and administrative spheres. Exceptionally, they are also criminally liable when they are involved in specific acts.
The civil liability of legal entities arising from acts committed by their employees is fully recognised in civil legislation.6 In order to enforce the aforementioned, the following conditions must be fulfilled:
- a in the course of committing an illegal act, harm has been inflicted on a third party;
- b there is a direct cause and effect relation between the individual’s behaviour and the damage; and
- c such damage is attributable to the negligence or intent of the agent.
The damage committed by the agent is attributable to the organisation of which he or she is an employee if the harm might have been prevented by the organisation had it carried out the expected level of diligence; the specific ‘degree’ of diligence that would release the organisation from liability is a matter of judicial interpretation, but there is a good chance that proper implementation of mechanisms to prevent illegal acts may lead to exemption from liability.
The administrative system of liability of legal entities is simpler. Given that the regulation specifically applies to corporations, they may be held liable. Thus, companies are subject to the sanctions that the legislation provides without requiring discussion on how the acts of the employees compromise the liability of the respective legal entities.
In connection with criminal liability, since Law No. 20,393 on Criminal Liability of Legal Entities entered into force back in 2010, companies can be held criminally liable in connection with certain illegal acts committed by their agents. Hence, corporations may be investigated by the Public Prosecutor and be criminally sanctioned provided that:
- a such illegal conducts consist of certain specific crimes defined by law;
- b they are carried out by owners, controllers, representatives, key officers or any person conducting managing or supervising functions in such company or by individuals working under the direct supervision of any of the aforementioned persons;
- c these acts have been performed for the direct benefit or interests of the company; and
- d the behaviour of the agents or representatives occurred because of a defect or failure in the company’s mechanisms of control and supervision.
In connection with the first mentioned criteria, in the Chilean legal system criminal liability of legal entities is restricted only to certain offences committed by their agents. As a consequence, the possibility of enforcing this kind of liability is currently rather limited, but there have been and still are some attempts to broaden the scope of the offences that allow a company to be held criminally liable.
The first of the offences that may trigger the criminal liability of legal entities is bribery. Under Chilean law any individual is punishable for bribery when offering or consenting to offer higher fees than those to which public officials are entitled according to their position or an economic benefit to a public official in consideration for (1) performing or for having performed an action to which they are obliged to pursuant to their duties; (2) not performing or not having performed or performing or having performed an action infringing their duties; or (3) for committing certain corruption crimes. Bribery of an international foreign official may also trigger criminal liability of a legal entity when committed by one of its agents. Commercial bribery is not a crime under Chilean law, although there is currently a bill being discussed in Congress that aims to change this situation.
The second crime that may trigger the criminal liability of a legal entity is money laundering. In the case of money laundering, the individual to be sanctioned is the person who (1) in any way, hides or conceals the illicit origin of specific goods, knowing that they come, directly or indirectly, from the commission of other specific offences,7 or (2) acquires, owns or uses the aforementioned goods for the purpose of profit, being aware, on their receipt, of their illicit origin.
The third and last offence is financing of terrorism; Chilean law punishes those who, by any means, directly or indirectly, request, collect or supply funds for the purpose of committing terrorist offences.
The fact that these offences must have occurred due to a failure or defect in the control or supervisory mechanisms in order for companies to incur liability is steering them towards effective systems of self-regulation. These are developed through prevention programmes provided in Article 4 of the aforementioned law; the major significance of these programmes is that, even though their implementation is not mandatory, their existence and certification by the Superintendency of Securities and Insurance reduces the possibility of companies’ criminal liability through a presumption of diligence, which works in their favour.
There appears to be no reason why companies and individuals cannot be defended by the same lawyer. Any conflicts of interest should be resolved under the rules provided by the Bar Code of Ethics (if the lawyers are members of the bar) or by the criminal judge pursuant to Article 105 of the Criminal Procedure Code.
The usual sanction against a company is a monetary fine. All administrative procedures provide a financial penalty to be applied against legal entities. The fines that may be imposed have gradually increased in the case of all regulations, and the trend has also been adopted by state agencies such as the Superintendency of Securities and Insurance and the Environment Agency, which now allow higher fines than ever before.
Companies that require certain licences to operate or must be registered with certain supervisory bodies may also lose their licence or be deregistered (for example, banking licence). However, this kind of sanction has only been applied on very few occasions and in cases of very serious violations to sectorial regulations.
Although a fine is the usual sanction for companies, the recent legislative changes dealing with criminal liability of legal entities have allowed the emergence of new sanctions. Law No. 20,393 provides that companies may be punished with the following penalties:
- a dissolution of the legal entity or cancellation of their legal status;
- b a temporary or permanent ban on entering into contracts with state entities;
- c total or partial loss of tax benefits or absolute ban on receiving these for a certain period;
- d monetary fines; and
- e secondary penalties as described in Article 13:
• publication of details of the sentence in the Official Gazette or any other means of national circulation, at the expense of the company;
• seizure of the product and all goods, effects, objects, documents and instruments involved in the commission of the crime; and
• whenever an offence involves investment of resources by the legal entity of an amount higher than the income it generates, imposition of a further penalty of an amount equivalent to the investment, to be paid to the State Treasury.
iii Compliance programmes
As previously described, the undertaking of compliance programmes is encouraged by Law No. 20,393 (and is unique to it), for the purpose of not only being exempt from liability, but also to mitigate it. The existence of these prevention models or programmes is a factor that may release the company from its liability. For these purposes, the law sets forth certain parameters that these compliance programmes should include. The companies have the possibility to have their compliance programmes be certified by accreditation entities registered before the Superintendency of Securities and Insurance.
Furthermore, if a company did not have a compliance programme in place at the time a criminal investigation against it has started and it sets up efficient compliance mechanisms before the beginning of a trial to prevent the further commission of some of the offences that led to the liability, such action may constitute a mitigating circumstance.
iv Prosecution of individuals
Liability may be attributed (1) solely to natural persons, (2) solely to legal entities, or (3) jointly to both; it is not necessary to prosecute the natural person directly involved in the commission of the offence in order to impose liability on the company. There is no special provision dealing with the possibility of the same lawyers representing the legal entities and the natural persons involved, and joint representation is common, except when the defence strategies are incompatible; the Bar Code of Ethics and the Criminal Procedure Code are closely followed.
To establish criminal liability of companies, the criteria previously described must be met. On this basis, decisions made concerning the defence of individuals and the same company may present complex problems to be resolved according to the strategic planning of the company and the interests of the individuals.
Should there be a divergence of interests, defences will be incompatible; the Criminal Procedure Code even confers authority on the court to determine this incompatibility and request assignment of new defence counsel. However, there is nothing preventing defences being coordinated or planned in the case of common interests or even preventing the company from paying the lawyers’ fees of the individuals being prosecuted.
It is clear that there are circumstances in which this analysis may be hindered. For example, if the company cooperates with an investigation undertaken by the relevant state agencies, in cases where one member of the company is being investigated, the company can neither oblige them nor force them to cooperate. Conversely, taking measures against whistle-blowers may be inconvenient for the company and not recommended in terms of eventual liability arising from labour law, for example. It may also damage the defence strategy of the company itself.
i Extraterritorial jurisdiction
The rules on criminal liability of corporate entities – as the vast majority of the criminal laws in Chile – are governed by the principle of territoriality (i.e., they are only applicable when the offences were committed in Chile). This principle has certain exceptions in Article 6 of the Organic Code of Courts, but all of them refer to individuals. However, since Chilean courts have jurisdiction in cases of bribery of a foreign public official committed abroad by a Chilean national or a foreign national with residence in Chile, if the bribe was committed in the interest of or for the benefit of the legal entity, criminal liability of the latter may also be pursued in Chile.
In any case, to date there are no relevant precedents where a conduct committed abroad has led to enforcement by Chilean agencies.
ii International cooperation
The Attorney General and the courts, through direct requests as well as international pleas, are in permanent contact with foreign agencies for the purposes of international cooperation. This action is enshrined through various direct cooperation agreements among prosecuting entities as well as international treaties. Cooperation is not only common in criminal prosecution but also between some state agencies such as the Superintendency of Securities and Insurance in securities enforcement procedures and the National Economic Prosecutor in the context of antitrust regulations.
Chile has entered into many bilateral and multilateral extradition treaties. Extradition procedures regularly apply in Chile, which are carried out with the intervention of the Supreme Court.
For an extradition request to be granted, in general, the crime needs to be punishable in both countries, and the prosecution in the requesting country must only be relating to the crime for which extradition is granted. The sanction for the crimes for which extradition is requested must exceed one year.
iii Local law considerations
When a crime leads to the application of diverse rules of prosecution, practice says that the domestic authorities must apply domestic law; for those in charge of the prosecution, domestic law is mandatory, it being understood that international treaties signed by the country make them part of the domestic legislation. These treaties have been approved by the domestic legislators provided that said treaties comply with the Constitution. Therefore, the special rules regarding confidentiality, banking secrecy, admissible evidence, etc., will govern the matter in Chile.
V YEAR IN REVIEW
The past year has been particularly marked by cases related to irregular funding of political campaigns, which have led to several tax fraud investigations as well as, in certain cases, to the prosecution of alleged bribery. Many companies (some of them listed) were involved in these cases as they contribute to political campaigns by other means than those explicitly contemplated by law, in what seems to have been an extended practice in Chile over the past years. So far only one of these cases has ended in the context of abbreviated proceedings after negotiations with the Public Prosecutor’s Office.
As a result of the impact of these cases, important amendments have been introduced to the system of financing of political activity, whereby contributions by companies have been prohibited. There are also other laws currently being discussed in Congress, which aim to add more transparency to political activity and also to toughen up regulations and penalties on corruption.
In April 2016 one of the most prominent alleged securities and banking regulations violation cases – the La Polar case – came to an end after more than four years. After an initial request of 12 years’ imprisonment for the former general manager and president of the board of directors of the company, the Public Prosecutor settled the case in an abbreviated proceeding with a suspended sentence, whereby the accused did not had to serve time in jail.
In the context of cartel investigations, one of the most important developments was the criminal trial in the collusion case known as Caso Farmacias. The case ended with fines on the administrative front, but there was an intense discussion as to whether such conducts also could be criminally prosecuted because there is no clear legal criminal provision on such topic. The Public Prosecutor tried to enforce a very old felony established in the Criminal Code regarding price fixing, which had never been used before, but which was ‘rediscovered’ after crime penalties for collusion were abolished in 2003. All of the accused suspects were acquitted. This, together with the appearance of new collusion cases, has led to new legislation that is currently being discussed in Congress which aims to restore collusion as a crime and not only as an administrative infringement.
Another collusion case that was made public last year, involving important players in the tissue paper industry, is currently facing trial before the competition courts.
VI CONCLUSIONS AND OUTLOOK
Over the past years, and particularly the last decade, Chile’s legislation on enforcement of illegal conducts has been undergoing a continuous and profound reformation process. This process has included the incorporation of new crimes as well as the updating of existing felonies, adjusting Chile’s legislation to international best practices, particularly in the area of anti-corruption and money laundering. We can highlight, for example, the inclusion of a crime of bribery related to foreign public officials and the approval of the law that establishes the criminal responsibility of legal entities.
In addition, various enforcement agencies have been restructured and in general given more investigative powers.
All these changes and the number and size of cases that have emerged over the past few years have had an important impact and are leading to a change in Chile’s legal culture, from a reactive to a proactive approach.
In particular, the improvement of the description of offences sanctioned under the Criminal Code and the inclusion of new prohibitions, together with the entry into force of the Law on Criminal Liability of Legal Entities, has had an important impact on the perception of the relevance of compliance in companies, particularly in such entities engaged in activities where there is a potential risk of these kinds of conduct.
However, due to the novelty of the law, there have not been many cases to date where anti-corruption laws have been enforced against legal entities. So far, no relevant case has faced a real trial (there are only some cases that ended in abbreviated proceedings or deferred prosecution agreements) nor have compliance programmes implemented by companies, which may exempt companies from liability if they are adequate, been tested in such context. Over the coming years, when more cases arise it will be interesting to follow the outcome of such trials and the capability of the public prosecutors to verify the suitability of compliance programmes, as they have no experience in such matters.
Furthermore, new significant legal changes, which may affect the enforcement of corporate conduct, are under way and expected to enter into force soon. To name a few of these amendments, we can mention the restructuring of the Superintendency of Securities and Insurance, which will change its legal form completely from a superintendency managed by one person to a collective commission and also strengthen its investigative powers.
On June 2015, as a reaction to some high-profile alleged corruption cases (particularly cases involving irregular funding of political campaigns), a bill was presented for discussion in Congress, proposing important amendments to anti-corruption regulation, including the increase of penalties for bribery and other corruption crimes, amendments to provisions related to bribery of foreign governmental officials, following recent recommendations issued by the OECD, and the regulation and punishment of commercial bribery, which so far is not considered a crime under Chilean law.
A new law, which sanctions collusion as a crime and not only as an administrative infringement, is also expected to be enacted in the near future.
1 Jorge Bofill and Daniel Praetorius are founding partners of Bofill Escobar Abogados. This chapter has been prepared on the basis of the Chile chapter included in the 2011 edition of The International Investigations Review, which acknowledges Miguel Chaves as co-author.
2 For example, in the context of money laundering, certain individuals are obliged to give notice to the authorities; however, this obligation does not apply to events occurring inside the company, but rather those performed by third parties.
3 Under Chilean law collusion is not considered a crime and can only be enforced by the National Economic Prosecutor. However, new legislation sanctioning collusion as a crime – consequently allowing such situations to be prosecuted by the Public Prosecutor’s Office – is expected to be passed in the near future.
4 A new draft version of this guide was published for public consultation in October 2015 but has not yet entered into force. New regulations on this matter are currently being discussed in Congress.
5 And not all public officers but only those subject to the Estatuto Administrativo and the Estatuto Administrativo para Funcionarios Municipales.
6 Article 2314 et seq. of the Civil Code, particularly Article 2320.
7 The list of offences that can give rise to money laundering includes, among others, drug trafficking, bribery, use of confidential information, securities and banking frauds. Recently this list has been increased with offences such as fraud, misappropriation, certain cases of tax fraud and piracy of intellectual property. As this increases the possibilities of application of the money laundering law, indirectly this may also lead to a greater exposure of companies to be criminally liable, as money laundering is one of the felonies that can lead to criminal liability of legal entities.