How Argentina reached a turning point for corporate accountability and compliance in 2024

In 2024, Argentina experienced a pivotal moment in corporate law enforcement with the first significant application of its Corporate Criminal Liability Law No. 27,401, enacted in 2018. This law holds private entities accountable for a range of offenses, including bribery, illicit enrichment, and falsification of financial records. Argentina’s first major enforcement action under the law not only exposed systemic failures within the company involved, but also raised broader questions about corporate governance and compliance in Argentina as a whole. This landmark case represents a turning point in the country’s fight against corporate corruption. For compliance lawyers and professionals, the case also signals new challenges and opportunities in a rapidly evolving legal landscape.

The case overview

The case began with a self-disclosure in 2018 following an internal compliance investigation triggered by a due diligence review, when its parent company was seeking to sell its Argentine subsidiary. During this review, significant irregularities were uncovered, particularly concerning financial transactions linked to bribery and other illicit activities involving public officials. Choosing transparency over concealment, the company reported these findings to the authorities, leveraging the self-disclosure provisions in the law.

This decision to self-report was not only a legal maneuver but also a strategic one, reflecting the complexities that arise during cross-border transactions involving jurisdictions with robust anti-corruption laws. It highlights the importance of thorough due diligence and the potential fallout from inadequate corporate governance.

Despite this proactive step, judicial scrutiny revealed critical breaks in the company´s internal controls and governance. These failures enabled the misconduct, which went undetected for years. A federal court in Buenos Aires took decisive action, arresting eight directors implicated in the scandal. While these directors were later released on bail, the legal proceedings continue, underscoring the complexities of financial crime cases in Argentina.

The investigation

The investigation conducted in this case, led by a Buenos Aires federal court, revealed systemic governance failures that allowed these activities to occur. Federal agents conducted over 50 raids across Argentina, collecting evidence and arresting individuals suspected of orchestrating and facilitating the misconduct. Key points in the investigation included:

• Board of directors member declarations: Arrested directors were subject to extensive questioning to determine their roles in approving or neglecting to prevent the illicit activities. These declarations shed light on the internal dynamics and decision-making processes that enabled corruption.
  
  
• Forensic audits: Financial audits uncovered falsified records and misrepresentations that had been used to conceal the flow of funds involved in the bribery schemes.
  
  
• Judicial challenges: The investigation highlighted the challenges of prosecuting corporate crime, including the need for international cooperation to trace funds and the complex interplay between corporate accountability and individual culpability.

While the directors were released on bail pending trial, the evidence against them, provided largely by the company's self-disclosure, raised critical questions about the efficacy of its internal controls: What has been done to prevent misconduct? What was the role of the senior leadership? Did they have regular audits or whistleblower reports? Why did this not come through before? Neither the authorities, nor us, can answer these questions.

Despite the self-disclosure, the judiciary reportedly viewed the company’s governance and compliance failures as significant contributors to the crimes. This skepticism underscores that merely having a compliance program is insufficient; it must be effectively operationalized to prevent misconduct.

To avoid similar scrutiny, companies must ensure that their compliance programs are not only well-designed, but also actively enforced.

What did we learn from this case?

The case serves as a critical moment for Argentina’s corporate landscape, offering several lessons for businesses, compliance professionals, and regulators:

• Self-disclosure isn’t a shield: While company´s decision to self-report the misconduct was worthy, the judiciary emphasized that the company’s failure to prevent these activities for years weakened its credibility. Self-disclosure is valuable but must be accompanied by proactive governance reforms.
  
  
• Corporate governance matters: The case illustrated how lapses in oversight at senior levels can have far-reaching legal and reputational consequences. Directors’ failure to act or their complicity in the misconduct intensified the impact of the scandal.
  
  
• Integrity programs are of the essence: The absence or ineffectiveness of compliance mechanisms not only facilitated the wrongdoing, but also undermined the company’s ability to mitigate penalties effectively.
  
  
• Regulatory oversight is increasing: The case signaled a shift in Argentina’s regulatory environment, with authorities demonstrating their willingness to enforce anti-corruption laws rigorously, which is also supported by our new administration.

A pivotal moment

This case has had a ripple effect across Argentina’s business community. It has heightened awareness of corporate accountability and the risks of neglecting compliance. Companies in sensitive sectors, particularly those dealing with public contracts, are likely under increased scrutiny. The case serves as a powerful reminder that self-reporting, while commendable, is no substitute for strong governance.

This case has reinforced the critical role of compliance lawyers in safeguarding businesses against reputational and legal risks.

The case represents both a cautionary tale and a call to action for lawyers in Argentina. The increased enforcement of the law underscores the need for legal expertise in designing and maintaining effective compliance programs. This case demonstrates that mere formalities are insufficient; compliance mechanisms that are robust, proactive, and adaptive to evolving risks are encouraged.

As the regulatory landscape shifts, compliance lawyers are increasingly vital in helping businesses navigate complex legal frameworks. The demand for services related to compliance program development, risk assessment, and legal audits is expected to grow. Additionally, crisis management expertise – advising companies on how to respond to internal fraud or regulatory inquiries – has never appeared more crucial.