From ‘box-ticking’ corporate compliance to a more thorough approach: a New Economic and Environmental Crimes Law is enacted in Chile
Market Insight 08 September 2023 08 September 2023
Corporate & Advisory - Regulatory Risk
On August 17, 2023, Law No. 21,595, which systematizes economic crimes and creates new criminal offences against the environment (hereinafter also the “New Economic and Environmental Crimes Law” or the “Law”), was published in the Chilean Official Gazette.
Responding to the recent need to update the country’s regulatory framework on corporate risk and compliance, corporate social responsibility and sustainability matters, this new law sees the light after approximately 3 years of discussion. (1)
“There is a general feeling in the population that there are two types of justice in our country: one for the rich and one for the poor. With this law we will have a more solid system that will help us have a fairer Chile and start the much needed recovery of trust in our country."
President Gabriel Boric (2)
Even though the main objective of the Law was to modify various legal statutes in order to expand the criminal liability of legal entities, and regulate the exercise of legal action against crimes that pose a threat to the ‘socioeconomic order’, it has in practice innovated in a series of additional matters.
In general terms, it has:
- Systematized crimes linked to business/economic activities under four broad categories, which from now on will be jointly referred to as ‘Economic Crimes’;
- Created new criminal legal figures, most importantly through the addition of a new chapter relating to ‘attacks’/offences perpetrated against the environment;
- Taking into account the current public sentiment that ‘white collar crimes’ tend to go unpunished, or are punished very ‘lightly’, the Law has established new rules to determine the penalties associated to them. From now on, when an Economic Crime has a theoretical, potential penalty of imprisonment, it will be more likely for the accused to actually serve time in prison; and,
- Exponentially increased the basic crimes for which legal entities are to be criminally liable, modified certain criteria used to attribute criminal liability to them, and also increased the legal requirements that must be met by internal Crime Prevention Models/Protocols (hereinafter also the "CPM").
Below we will review these changes in more detail.
I. Systematization of Economic Crimes
Based around the new concept of ‘Economic Crimes’ the Law has created a new legal statute to be applied to those crimes and offences (either already existent or newly created) that affect the socioeconomic order and the environment. From now on, existing crimes will also receive the additional qualification of ‘Economic Crimes’ if they also can be included in one of the following categories:
- Crimes that, under all circumstance and by all means, are considered to be of an ‘economic’ nature (First Category). Here we find those that threaten the stock market, the financial sector and/or market competition (crime of collusion, stock market crimes, delivery of false information to the Financial Authorities, concealment of information from the Competition Authorities, amongst others). (3)
- Crimes that are committed while exercising a company role or position or for the benefit of a company or legal entity (Second Category). (4)
- Crimes committed by public officials, in which an internal member of a company has also intervened or has resulted in a benefit to said company (i.e. forgery of a public instrument, bribery of a public official, tax fraud, etc.) (Third Category). (5) As mentioned, the aforementioned categories 2 and 3 consist on offences already regulated in Chilean Criminal Code and other legislation (computer crimes, crimes against the life and health of people, environmental crimes, intellectual property crimes, for example), which, under certain circumstances, will be considered ‘Economic Crimes’ as well, i.e. when committed by, or with the involvement of, representatives of a company or for the benefit of the same. If such a link exists, the offence will also be considered an Economic Crime.
- In general, all crimes related to the management of the proceeds of an Economic Crime (Fourth Category), that is money laundering, fencing (“receptación”), among others. (6 & 7)
The main reasoning behind the creation of these new categories is the need to establish a differentiated system of penalty determination in relation to them.
In that sense, the Law restricts the possibility of those accused of committing an Economic Crime of opting for ‘alternative’ criminal sentences (generally served outside of penitentiary facilities), in order to promote the effective enforcement of custodial sentences. (8) Thus, for Economic Crimes with greater penalties, the option of probation (“libertad vigilada”) is eliminated, and the requirements needed to proceed with other types of alterative sentences are increased.
Additionally, the Law incorporates a system of "day-fines" (“días-multa”), by which the amount to be paid by the convicted person will be determined by multiplying his/her average liquid daily income by the number of days of the sentence (9) (vs. ‘fixed amount fines’). The Law also includes the new penalty of ‘confiscation of profits’ (“comiso de ganancias”) (10, 11 & 12) to be applied additionally to all Economic Crimes.
II. Modification of current crimes and introduction of new crimes/offences against the environment
Even though the New Economic and Environmental Crimes Law amends a number of existing criminal offences, such as the figures of fraud, corruption between private individuals, incompatible negotiation, market abuse, insider trading, among others, its other great novelty comes with the inclusion of new offences against the environment. (13)
Considering the extension and depth of the new environmental crimes that have now been included in the Chilean legislation, it is possible to say that a progressive system of environmental criminal liability, with broad application to both individuals and legal entities, has been put in place. (14) These changes will be of special relevance for companies that execute or develop projects, or that are currently regulated by an environmental management instrument (“instrumento de gestión ambiental”). (15)
Among these new environmental crimes, some punish specific behaviours (for example, concealment and/or presentation of false information in the process of environmental evaluation of a project, obstruction of control or audit by the Environmental Authorities (16), among others) while others aim to protect certain ecosystems and areas (v.gr. crime of water extraction in areas of water scarcity, damage to national parks or reserves, amongst others). (17)
These new criminal figures carry penalties ranging from 61 days to 5 years of imprisonment for crimes ‘of mere danger’ (“delitos de peligro”, that is, those were the punishable conduct relates to the generation of a risk or ‘danger’, regardless if an actual damage or loss was produced in the end), and up to 10 years of imprisonment in case of effective environmental damage or loss. Additionally, mandatory fines ranging from 120 UTM (approx. USD$ 9,500) to 120,000 UTM (approx. USD$ 9,530,000) have been established. (18)
III. Amendments to Law No. 20,393, relating to Criminal Liability of Legal Entities
The Law also introduces numerous changes to Law No. 20,393 on Criminal Liability of Legal Entities (hereinafter, the "LCLLE"). The LCLLE was enacted in 2009 and established the possibility for legal entities (mainly private companies) to be criminally liable for certain, specific, crimes committed by their representatives or managing officers in their favour. (19) Nevertheless, said legal entities could be exempt of responding if they had CPMs in place. Regardless of this first effort, it became apparent in the coming years that this basic framework was not enough, and, thus, the Law included the following changes:
- The catalogue of basic offences that generate criminal liability for legal entities is substantially expanded. (20) In fact, the Law established that, regardless of their size, legal entities and their representatives and managing officers now could, potentially, be liable for more than 200 crimes, even if these do not meet the requirements to be considered Economic Crimes.
- The application of the LCLLE is also now extended to include a broader scope of legal entities (21) (legal entities created under private law, public law entities, State owned companies, universities, political parties, and religious entities, among others), which were not all affected before by the original version of the LCLLE.
- Bases on which to attribute criminal liability to a legal entity are also broadened. It now will be enough if: /i/ the offense is committed by someone within the company, or a third party who carries out services for it, with or without its representation; and, /ii/ its perpetration is favoured or facilitated by the lack of an adequate CPM within the entity. (22) For criminal liability to be established, it will not be necessary now for the offence to be carried out in the interest or benefit of the legal entity.
- In case of a faulty or insufficient implementation of a CPM, courts now may also impose the subjection to a ‘Supervisor’. (23) Once in place, the Supervisor may issue mandatory instructions to the entity and impose conditions for the implementation of the internal CPM, which, if not complied with, may, in the most serious cases, lead to the replacement of the internal management bodies or the appointment of a temporary administrator.
- Finally, for CPMs to operate as effective exemptions from liability for legal entities and their managing officers and representatives, they now must include additional requirements like: (i) secure reporting channels; (ii) employee training; and (iii) periodic evaluations of the CPM by independent third parties. (24)
The mentioned changes are a clear illustration of the paradigm shift that has occurred, from a very formalistic, ‘box ticking’ approach to compliance, to a practical approach, where the CPM must be seen as a ‘living’ instrument that must be constantly tested and adapted to the changing reality of each company/legal entity. Taking into consideration the creation of the new category of Economic Crimes, company officials and representatives will now, potentially, be more exposed to criminal liability when operating in their positions, and thus must be very well versed and trained in the internal protocols to be put in place by their employer/principal.
“This new Law drastically increases the risks associated to the position of company director. Any decision that could potentially be related to the new behaviours regulated in it must be duly supported and documented. Additionally, for the purpose of ensuring proper risk mitigation and internal compliance, the roles of Compliance Officer and Board Secretary will now gain further importance.”
Franco Acchiardo, Managing Partner, Clyde & Co Chile
The Law entered into force on August 17 of this year and will be applied to all acts and omissions perpetrated from that day on. (25) Exceptionally, it may be applied to acts occurring before, but only in cases where the provisions of the Law are more favourable to the accused than those included in the legislation in place when the criminal acts or omissions were carried out. (26) Exceptionally, the application of certain sections of the Law has been deferred to later dates. (27) Most importantly, the amendments to the LCLLE will be enforceable as of September 1st, 2024; these gives companies and legal entities roughly a year to implement or update their CPMs.
Considering the length and breadth of these recent changes, a specialized approach and a deep understanding of their legal implications is needed in order to properly address them. Clients must analyse their core business in detail, identifying the main risks associated and their areas of exposure, and adapt their internal CPM accordingly. With our experience and knowledge in compliance, litigation and corporate governance matters, Clyde & Co holds a strategic position to help with this.
3 Article 1 of the New Economic and Environmental Crimes Law
4 Article 2 of the New Economic and Environmental Crimes Law
5 Article 3 of the New Economic and Environmental Crimes Law
6 Article 4 of the New Economic and Environmental Crimes Law
7 It is important to note that categories 2, 3 and 4 will not be applicable to crimes committed in favour of small companies (“micro empresas” and “pequeñas empresas”). The treatment of crimes committed in favour of smaller companies is specially regulated under Article 2 of the already existent Law No. 20,416 that regulates small businesses. In addition, if a company is part of a larger corporate group, the whole income of the same will be considered when determining the application of the mentioned new categories.
8 Articles 19 to 26 of the New Economic and Environmental Crimes Law
9 Articles 10, 27 to 29 of the New Economic and Environmental Crimes Law
10 Title III of the New Economic and Environmental Crimes Law
11 Confiscation is an institution by which the State legitimately recovers all property that has been obtained illegally or in violation of the law, as well as the instruments that have been used to commit the crime or misdemeanour. This is a legal confiscation with the aim of re-establishing the rule of law as well as resuming the state of affairs before the crime or offence has been committed.
13 Mainly through the addition of Paragraph XIII ‘Offences against the Environment’ to Title Six of Book Two of the Chilean Criminal Code (new articles 305 to 312).
16 New Article 37 bis of Law N° 20.417, which regulates the country’s Environmental Assessment Authority, amongst other things
17 New Article 310 of the Chilean Criminal Code
18 New Article 310 ter of the Chilean Criminal Code
20 Article 50 N° 1 of the New Economic and Environmental Crimes Law
21 Article 50 N° 2 of the New Economic and Environmental Crimes Law
22 Article 50 N° 3 of the New Economic and Environmental Crimes Law
23 Article 50 N° 12 of the New Economic and Environmental Crimes Law
24 Article 50 N° 4 of the New Economic and Environmental Crimes Law
25 Article 60 of the New Economic and Environmental Crimes Law
26 Article 66 of the New Economic and Environmental Crimes Law
27 /i/ Until a new law coordinating the concurrence of the different penalties to be applied to the crime of collusion is enacted, legal entities will not be criminally liable for it; /ii/ the amendments to the LCLLE shall come into force on the first day of the 13th month after the publication of the Law, that is, September 1st, 2024; and, /iii/ the application of certain new penalties will be subject to the issuance of a special regulation, which shall occur within one year from the date of publication of the Law in the Official Gazette.