/ New Law on Economic Crimes, criminal liability for the acts of others?

August 7, 2023

The Law that has just been enacted changes, makes it more flexible and, at the same time, raises the standard for companies to be exempted from criminal liability.

Luis Fuentes
Senior Associate

The recent enactment of the new Economic Crimes Law will imply a series of changes at the corporate governance level. One of the main ones is the impact and challenge that the change in the requirements for the attribution of criminal liability to legal entities will generate for companies, especially because companies may be prosecuted and criminally punished for acts of third parties outside the organizations.

The criminal liability of a company in local jurisdiction has its origin in Law No. 20,393, which exclusively comprised three crimes. Although this number has increased, the new law is ambitious in this area and expands the catalog to more than two hundred offenses. This is a remarkable change in the approach to this matter.

Regarding the requirements for the attribution of liability, Article 3 of Law No. 20,393, in force to date, establishes that for legal entities to be eligible for criminal prosecution, only three copulative requirements must be met:

1. that the crime has been committed by an administrator, manager or dependent with management powers in the company;
2. that the criminal act has been committed for the benefit of the company;
3. that the company has failed in its management and supervision duties.

The new Law changes, makes more flexible and, at the same time, raises the standard for companies to be exempted from criminal liability. The requirement of the economic benefit or profit of the company is removed and, likewise, the lack of supervision and control is transformed by raising the standard of the Prevention Models. Thus, it provides that companies will be eligible for criminal conviction, provided that the following conditions are met copulatively:

1. That the crime has been committed by a person within the company or third parties who provide services, with or without representation, for the company. That is to say, it does not only include officers and employees regardlessof whether they have management powers in the company but the law extends liability to third parties outside the company, including consultants, advisors, suppliers, to mention a few cases. This is a material change as it broadens the universe of individuals that may entail the criminal liability of a company. And also, in operational terms, it forces companies to raise the standards and protocols for the engagement of external services, the award of contracts or bids, among others.
2. That the perpetration of the crime has been favored by the lack of effective implementation of an adequateprevention model. Here it is essential to point out that the Law expressly establishes the elements for a model to be reasonably considered adequate, taking into special consideration, among other aspects, the line of business, size and resources of the company.

In addition to the actions involved in the development and implementation of Crime Prevention Models (identification of risks, establishment of protocols, designation of persons in charge of identifying and managing them, among others), the duty to periodically evaluate both the internal protocols and the mechanism for their improvement is enshrined in the law. This is possibly one of the most important challenges, especially because of the risk that companies may be criminally charged not only for the actions of their employees, but also for the actions of third parties who, with or without representation, carry out activities related to them.

As a counterbalance, the Law establishes that the existence of an effective prevention model will serve as an exemption from liability, an issue not regulated in the current legislation and which, in fact, has led to doctrinal discussion. Thus, the new prevention model will be characterized by its effectiveness, which implies the existence of a demanding internal control that manages to avoid the commission of crimes.

In short, the modification of the requirements for attributing criminal liability to legal entities, together with the increase in the types of crimes for which they can be prosecuted and the increase in the number of individuals liable to give rise to the liability of legal entities, will force companies to periodically review and update their Crime Prevention Models and, in particular, to review their regular operating processes, especially when contracting with third parties; all concurrent challenges that have been enshrined with the stroke of a pen and that in case of non-compliance, will eventually cause the criminal liability of the companies.

View the Economic Crime Law.