On May 24th, the CEO of BH Compliance was a guest on the program “Más que números” on Radio Infinita, talking with Catalina Edwards and Patricio Eskenazi about the new law on Economic Crimes and how it will modify the Law of Criminal Liability for Legal Entities.
VIDEO: Más que números 24 de mayo del 2023 (infinita.cl)
Here is the interview:
Catalina Edwards (CE): They call it the law against white-collar crimes, but it’s actually an expansion of the existing law that extends criminal liability for economic and environmental offenses. What are the implications? We asked Susana Sierra, CEO of BH Compliance and former president of Chile Transparente.
Susana Sierra (SS): Hello, thank you very much, good morning.
CE: What are the main changes in this expansion of the law?
SS: More than 200 offenses are included, many of which already existed, most of them actually. But the penalties are changed, some offenses that were previously only subject to fines can now result in imprisonment. And one of the innovations of this project or this law, which is already almost ready, is that all the offenses included in this law are also incorporated into the law of corporate criminal liability. Therefore, today, and it’s important to provide some background since 2019, there is the law of criminal liability for legal entities, which states that companies are responsible for offenses committed by their employees if they did nothing to prevent them.
Patricio Eskenazi (PE): Susana, so the company is held responsible, not just the executive or in addition to the executive?
SS: In addition to the executive. What this means is that responsibility escalates. To give a simple example, if bribery is committed, if a public official is paid and that benefits the company, for instance, the company obtains a permit or wins a bid, etc. Also, within this law, there is bribery between private parties. If a company pays another company to secure a bid and the company did nothing to prevent it, the company is also responsible. Why? Because they say that the company would practically prefer to turn a blind eye and tell the executive, “I won’t look, here are your goals, get this permit and achieve these targets,” and therefore, that escalates the responsibility to the company.
PE: Susana, so the company is responsible to the extent that the offense may not have actually been committed, but rather if the company did not take all the necessary actions such as policies and control procedures to prevent it, right?
SS: Exactly, it means that the company did nothing to prevent it, and that’s when this concept of Compliance emerged in Chile. Nowadays, most companies, especially large ones, have it, where they start having policies, procedures.
CE: Susana Sierra, I wanted to ask you about the international experience with these types of regulations applied abroad. How effective are these increased economic sanctions, not only in terms of deprivation of liberty but also economically, in reducing these types of offenses?
SS: Well, the most important thing to prevent these types of crimes is for companies to implement measures to prevent them. However, with regards to this new law that includes many offenses, the concept changes slightly. The company must do everything possible to prevent crimes that fall within its scope and where there are actual risks of committing them. It has caused a lot of uproar because people wonder how they can prevent over 200 offenses. But many of these offenses already existed before, for example, insider trading, which already applied to some companies. Now, the law also includes corporate criminal liability, which means that it can extend to the company itself.
PE: So, this is prevented by having policies and allocating efforts on the part of the company to control and prevent these occurrences, right? Is that also what BH Compliance certifies?
SS: Exactly, it means that the company is doing everything possible to prevent these occurrences, which translates into specific policies and procedures. For example, policies regarding cash transactions, supplier hiring, supplier payments, human resources, and sales. This is what Compliance entails, where all areas have controls in place to prevent these types of crimes. Therefore, for companies that were already doing something, this new law shouldn’t bring many changes. What it should do is make companies carefully assess if there are new risks that apply to them. Beyond that, they should enhance and improve their Compliance programs, which is not just a Chilean invention but an international matter.
CE: Susana, I wanted to ask you about the information that is or isn’t available today, criminal and civil information that effectively allows companies to perform cross-checks and carry out proper Compliance. Is there currently available information for companies in this regard?
SS: Nowadays, there is information available, although one shouldn’t simply focus on each individual offense in the law. My recommendation to companies is to first identify where they have risks that, if not prevented, can lead to benefits. There is a catalog provided by this new law, but if we break it down into different modules, there is a large one for economic offenses. These are offenses that already existed in the law on corporate criminal liability, including bribery, private sector corruption, embezzlement, and incompatible negotiations, among others. Then there are other offenses that were already covered by the law on anonymous societies, such as providing false information to the market and insider trading. There is also a significant module on environmental offenses, which become economic offenses if committed by a company, encompassing fishing, water, mining, hunting laws, and more. Finally, there is another section on computer crimes, which includes cybersecurity issues, as well as labor offenses like manslaughter and culpable injuries, meaning that the company did nothing to prevent accidents to its employees.
PE: Susana, I want to ask you about corruption between private entities or private bribery because I understand that this is relatively new, and many people think that what private entities do is their own problem. If there is deceit between one company and another or corrupt acts between employees of different companies, it shouldn’t concern others. However, I understand that the law does penalize these situations. Please explain the rationale and how this corruption between private entities works.
SS: I love the question, thank you very much because there is indeed a lot of misunderstanding about this. Since 2018, Chile has incorporated the offense of private bribery. This means that if a company pays a bribe to secure a contract or gain an advantage over another supplier, that company benefits from it. Consequently, it falls under the law on corporate criminal liability. It’s not only the person who paid the bribe, which we often imagine as a briefcase full of money like in the movies. These bribes can take the form of gifts, trips, invitations, and they are often not tangible. It’s not a briefcase of money flying everywhere; nowadays, it can even be in the form of cryptocurrencies. But if that company paid to secure the contract, that company is the one benefiting. And what happens when that company benefits? If the company did nothing to prevent it, if the company didn’t have clear policies on gifts, cash transactions, donations, travel payments, etc., that company could even face dissolution, which is the maximum penalty. Why do I love the question? I work a lot with entrepreneurs, and sometimes they tell me that the company asked them to do it, that it was a corrupt person from the other company who worked in the purchasing department and asked for something in exchange for getting the contract. Well, that company is harming itself. The company receiving the bribe, so to speak, could say, “Hey, I got harmed because an employee committed fraud and accepted a payment from the other company.” The one benefiting is the one paying, and that’s why I take this opportunity to send a message to all companies, please never pay to secure a contract, never pay a counterpart, even if you use the excuse that the other party is bigger, that they asked me to do it. Because if the company benefits from it, there are now private bribery offenses, and the responsibility will not only fall on the person who committed the crime but will extend to the company.
PE: Susana Sierra, also when we talk about corporate criminal liability, this means that it can result in imprisonment, right?
SS: When we talk about companies, the company itself doesn’t go to jail, but that’s why there are different penalties. The maximum penalty for corporate criminal liability is the dissolution of the legal entity, which is like the death penalty, so to speak. However, there are other penalties, which haven’t been applied much in practice, such as the prohibition to contract with the State, the loss of fiscal benefits, in addition to just fines. This new law incorporates harsher penalties or much higher fines. Therefore, it is important for companies to take preventive measures.
I have always said that behavior shouldn’t change just because a law is passed. Indeed, the risks for a company are the same before and after the law. As a social organism, part of its governance and its own strategy, one of its main focuses should be compliance, doing everything to prevent wrongdoing and doing things right. Compliance, to me, has always been more than just complying with the law; it’s about how things are done. Sometimes, in Chile, we struggle a bit to see that aspect, to measure the “how.” We are overly focused on the final result, on the bottom line, on meeting targets. How many times in board meetings, executives receive congratulations for achieving sales targets or reducing expenses? Few ask, “Well, how did you get there?” When things go wrong, the “how” is questioned, what we did, what failed, why it was done, and the executive has to answer all the questions. This “how” is rarely asked.
PE: Susana Sierra is the CEO of BH Compliance and former president of Chile Transparente. I want to ask you about another offense that is also rarely discussed, which is mismanagement, when an executive does not do what they should do to benefit the company but rather seems to be benefiting themselves. How does it work?
CE: Unfortunately, we don’t have much time left, Susana. If you could share a brief answer.
SS: Let me quickly explain what mismanagement is. It is when an executive of a company takes advantage of the power they hold within the company to obtain a benefit that harms the company but benefits themselves. We have become familiar with this offense, for example, in the case of Frei, where the brother of the former president used the power conferred by the president for his own benefit. In the corporate context, it is interesting to see how this happens because minority shareholders can also take action against majority shareholders, saying, for instance, “Hey, the directors representing the controlling shareholder did something that benefited the controller but harmed us as minority shareholders.” So, it’s important because this offense will be heard more and more. Although it has existed since 2018, at that time, I wrote a column called “Mismanagement rises from all the dishes” because, effectively, when a bribe is committed, it falls under mismanagement. Then, minority shareholders could accuse the general manager or even the shareholders of the board could accuse the general manager, for example, as the person who committed the offense of mismanagement by doing something that harmed the company. In other words, any offense committed within a company, I believe the mismanagement charge could also be used against the person who committed the offense.
But it’s crucial to have it clear that it is something that exists today, where some cases have emerged, although not all have been widely publicized, of minority shareholders going against majority shareholders for making decisions that favor some shareholders over others.
CE: Very interesting, Susana Sierra, CEO of BH Compliance. We will definitely invite you for another opportunity.
SS: Well, thank you very much. And thank you for inviting me because these are topics that are rarely discussed and it’s important to have them clear. Because many also say that with this law, it is now a crime. No, the majority was already a crime before, so it’s good now to see how they are implemented, how they are worked on, and how everything possible is done to prevent them.
