While the Argentine business community is no stranger to transnational corruption investigations, the companies historically involved in those investigations have been local subsidiaries of major U.S. or European corporations (IBM and Siemens are the most prominent examples). As a result of such investigations, local subsidiaries of foreign companies have dutifully implemented their global compliance programs in their Argentine operations in much the same way they do in other jurisdictions around the world. By comparison, local Argentine companies, even those with substantial international operations and varying levels of connectivity to the U.S. or European markets, have paid relatively little attention to the development of compliance programs. However, recent events both within and outside of Argentina have started to change this approach as a small but growing number of Argentine companies have begun to realize that the implementation of a robust corporate compliance program is a business imperative for companies that wish to compete in the global marketplace.
WHAT IS DRIVING THE ARGENTINE COMPLIANCE REVOLUTION?
There are a number of drivers that have begun to fuel the emerging Argentine Compliance Revolution. First, despite a substantial amount of speculation surrounding the Trump Administration, it appears that the U.S. Department of Justice (DOJ) shows no sign of slowing down its focus on combating transnational corruption and other cross-border criminal activities (including money laundering, wire fraud, tax fraud, among others). The Fraud Section within the DOJ's Criminal Division, which has primary responsibility for investigating criminal violations of the U.S. Foreign Corruption Practices Act (FCPA), is staffed with dozens of highly skilled and professional prosecutors who are far removed from the political whims of the White House. Our firm represents clients in numerous DOJ investigations and we have noticed no change in the level of activity in the early days of the Trump Administration. As a result, it is reasonable to expect that the U.S. will continue to enforce the FCPA and other criminal statutes with international reach at least as aggressively going forward as before Trump was elected.
While U.S. enforcement continues to be aggressive, it is no longer just U.S. authorities that are pushing the transnational anti-corruption agenda. Many countries in Latin America have, within the last several years, passed and implemented new anti-corruption regimes that are patterned after the FCPA or the U.K. Bribery Act (e.g., Brazil, Mexico, Colombia) and which impose, for the first time, potential criminal sanctions on corporations. The potential for corporate criminal liability for violations of anti-corruption laws is, by itself, a revolution in many jurisdictions in which criminal sanctions historically could only be imposed upon individuals.
Armed with new laws and supported by public discontent against corruption, local judges and prosecutors across the region have initiated an unprecedented number of investigations - the best example of which is Operacao Lava Jato in Brazil. While much has been written about the scope and intensity of the Lava Jato investigations, and the corresponding impact on Brazilian politics, relatively little has been written regarding the impact that the investigations have had on corporate compliance programs both within Brazil and across Latin America. While many attribute the new focus on compliance to the enormous criminal penalties imposed upon the likes of Odebrecht and Braskem arising from Lava Jato, this is only part of the story. With state-owned enterprises, such as Petrobras, driving the compliance agenda forward, the full panoply of Brazilian companies have begun to design and implement corporate compliance programs for the first time in their histories. Many of these companies, by virtue of their size or their exclusive domestic focus, never had considered the need to implement compliance programs. Nevertheless, recent events in Brazil have made such companies realize that the adoption of a compliance program is not only good for the intrinsic benefit of operating transparently, but also that it is now a necessity if they wish to continue doing business with Petrobras or other similarly situated Brazilian companies.
These factors, together with ongoing investigations into the Kirchner administration and an anti-corruption bent to the Macri administration, have ushered in a new era of focus on compliance issues in Argentina. Indeed, anti- corruption issues have taken on extraordinary prominence as the Argentine Congress continues to debate pending legislation that would impose criminal liability on Argentine companies for violations of the local criminal code, including for acts relating to transnational corruption. While the bill has undergone recent changes, it is nearly certain to become law in the near term. Indeed, one of the fundamental aspects of the bill that is unlikely to change is that the existence of an effective compliance program will be treated as a mitigating factor in the determination of applicable sanctions against companies who will, for the first time in Argentine history, face criminal liability as a result of acts undertaken by the company's board, management, employees or other third parties acting on behalf of the company.
WHAT SHOULD ARGENTINE COMPANIES BE CONSIDERING?
The anticipation surrounding passage of the new law has already started to generate substantial interest in the Argentine market as well as anxiety across the business community as local stakeholders have begun to consider how best to protect Argentine business interests in the new paradigm. Given that the best protection under the new law (and under existing U.S., Brazilian and other laws) will be the implementation of a credible corporate compliance program, the compliance revolution in Argentina is still at its early stages, but is gaining speed and traction with each day.
So, what should Argentine companies be doing today in order to prepare themselves for the compliance revolution?
Broadly speaking, Argentine companies can be divided into two distinct categories: local subsidiaries of foreign companies or companies that are organized and based in Argentina. With respect to local subsidiaries, most companies are likely to have implemented some form of the global compliance standard prescribed by their home offices in the U.S., Europe or elsewhere. For these companies, it is tantalizing to assume that their compliance programs will provide sufficient protection from prosecution under the new Argentine law as well as the laws in the jurisdiction of its headquarters. However, the process by which most major U.S. and European corporations push out their compliance programs internationally should give compliance officers reason to question whether their programs are sufficiently tailored to local operations in order to withstand regulatory scrutiny.
To the extent that global compliance programs have been "localized" to the Argentine market simply by translating training presentations into Spanish or merely by converting the reporting thresholds of gifts/ hospitality from U.S. dollars to an Argentine Peso equivalent, that is not enough to prepare for the imminent compliance revolution in Argentina. Although the current draft legislation does not prescribe specific elements of an adequate compliance program, the bill does include language that provides insight into what the local regulatory expectations are likely to be under the new law. For example, Article 30 of the most recent draft bill sets forth the fundamental principles that compliance programs must be: (i) risk-based; and (ii) tailored to a company's size and local business activity; in order to (iii) prevent, detect, correct and disclose any misconduct prohibited by the new law. While it is difficult to anticipate how the new law will be enforced in Argentina, the basic elements underlying the new law should serve as a "wake-up call" to local compliance officers that their programs will need to be sufficiently tailored to their local business risks in order to be adequate for purposes of the new legislation. This reality should cause compliance officers to take a fresh look at their local risk assessments and consider whether they are sufficiently tailored or whether there is a need to consider enhancements designed to mitigate compliance risks that are unique or particularly prominent in Argentina.
For local companies that are organized and based in Argentina, strong anecdotal evidence suggests that there is a small but growing number of companies that have dedicated the necessary time and resources to designing a compliance program that meets international best practices. Whether local companies are concerned about the new Argentine law or because they anticipate attracting investment or strategic partners from other jurisdictions who will expect a compliance program, or because companies are rightfully concerned about exposure to cross-border investigations by U.S. authorities, the time to start thinking about the development of a compliance program is now. For board members and senior management unaccustomed to thinking about compliance, this can be a daunting task. Below we outline some initial steps for stakeholders to consider as they begin to consider how best to respond to the Argentine compliance revolution.
CREATING A COMPLIANCE FRAMEWORK
The most important first step for a local company is to develop a consensus among senior leadership that the company will commit itself to operating transparently and on the basis of an established set of standards to be embodied in compliance policies and procedures. This commitment could manifest itself in a variety of ways, including through a formal board resolution that delegates responsibility for designing the compliance program to a board committee or to an executive with a senior managerial role and allocates a reasonable budget toward the design and implementation of a program.
Once the company has formalized its commitment to developing a program, those responsible for its design will need to decide how to organize the compliance department and how to staff it with experienced professionals. These decisions will depend largely on the size and structure of each company. However, the most fundamental principle is that the Chief Compliance Officer should have an independent reporting line to the company's board of directors such that she or he has the ability, without fear of reprisal, to report any compliance issues up the chain, including any concerns regarding the conduct of senior management.
Following the formation of the compliance department, there are a multitude of issues that should be considered in the development and implementation of the program. Below is an initial checklist for Argentine companies as they consider how best to implement a compliance program that is both risk-based and tailored to the business risks of their organization.
- Establish a culture of compliance by enhancing or implementing an appropriate "tone at the top" by the company's senior leadership and middle management;
- Conduct an initial compliance risk assessment to understand and categorize the compliance risks facing the company;
- Prepare and implement a Code of Conduct, together with initial and annual employee certifications regarding compliance with the Code of Conduct;
- With input from relevant business leaders, prepare and implement new compliance policies and procedures. Depending on the compliance profile of a particular company, such policies and procedures may include:
- Anti-Corruption Policy and Procedures;
- Due Diligence Requirements for prospective employees and third party agents, consultants and intermediaries;
- Anti-Money Laundering Policy and Procedures, if/where appropriate;
- Gifts and Entertainment Policy and Approval Procedures (including policies regarding charitable and political donations and sponsorships);
- Conflicts of Interest Policy and Approval Procedures;
- Finance Policies and Procedures (including policies to assure that the company's books and records accurately reflect transactions and disposition of assets and that internal controls are sufficient to assure management's control, authority and responsibility over company assets).
- Implement a third party, independent ethics/whistleblower hotline (including a policy prohibiting retaliation against whistleblowers);
- Communicate the new compliance policies and procedures to company personnel through a thoughtful and appropriate roll-out of the new program;
- Train employees and appropriate third parties, including through live training sessions for higher risk employees/third parties as well as through online annual training sessions;
- Implement internal procedures for ongoing monitoring/auditing/testing of the compliance program; and
- Conduct annual, independent assessments of the effectiveness of the compliance program.
While it is understandable that senior management may be intimidated by the prospect of developing and implementing a compliance program, it is important to understand that not all of the items above must be accomplished simultaneously; rather, the development of a compliance program should be a deliberate and iterative process that ensures appropriate buy-in across all levels of the organization. Company leaders should take comfort in knowing that there are other local companies who have already taken the lead in developing programs tailored to meet local expectations and, as a result, there is knowledge locally that can be leveraged during the process. In addition to such local expertise, companies should understand that there are outside experts, including in the U.S., who have substantial experience in Argentina assisting companies in designing compliance programs that are tailored to local businesses and consistent with both local expectations and international best practices.
The Argentine Compliance Revolution has already begun. Within the next five years, all Argentine companies are likely to have implemented corporate compliance programs. As more companies implement such programs, they will demand that their business partners, locally and abroad, have equally robust compliance procedures, thereby reinforcing the business imperative for each company to implement its own program. It is better for local companies to join the revolution now than to look back and wish they had joined the other forces at the outset.