30/11/2018 ’s compliance quake - News - LACCA

Argentina’s compliance quake

Friday, 30 November 2018 (10 hours ago) • Christina Mckeon Frutuoso

Credit: iStock.com/Vladimirs

As Argentina’s latest scandal shows no signs of abating, LACCA takes a look at what the investigation means for the country’s compliance landscape and how companies and their GCs can best prepare themselves for the road ahead.

Four years on from the start of Brazil’s massive corruption investigation, dubbed Operação Lava Jato (), Argentina has become the latest Latin American country to be rocked by allegations of wide-reaching among former government officials and businesses. The so-called Notebooks scandal came to light in August when local newspaper La Nación obtained eight notebooks that were written and collected by the chauffeur of Roberto Baratta, an official of the Ministry of Federal Planning, Public Investment and Services during the presidencies of Néstor Kirchner and Cristina Fernández de Kirchner, which detailed illicit bribe payments made to public officials. Both former Presidents have been implicated in the notebooks, as well as public officials and contractors across multiple industries including construction and energy. In the latest development, shares in steel pipe-maker Tenaris fell by up to 9.3% on Wednesday after Argentine federal judge Claudio Bonadio – who is heading the investigation – indicted its chairman Paolo Rocca as part of the Notebooks case. Bonadio charged Rocca after he testified that one of his company’s executives paid an undisclosed amount of cash to government officials in monthly instalments from 2009 to 2012.

While no mirror image, Argentina’s Notebooks scandal and Brazil’s Lava Jato share some similarities and a feeling of déjà vu hangs in the air, with many in the legal http://laccanet.com/news/article/2246/lacca/argentinas-compliance-quake/ 1/7 30/11/2018 Argentina’s compliance quake - News - LACCA community convinced the case has the potential to be as broad as Lava Jato. “There is a real general repudiation to all forms of corruption, and citizens in both countries are not willing to accept corruption anymore,” says Patricia Jones, associate general counsel at Avaya, who adds that, although the Notebooks scandal is in its relative infancy compared to Brazil’s investigation, she is confident that “public opinion – demonstrated across countless demonstrations and social media posts – will force the prosecutors to continue with investigations.”

Not all lawyers are worried about Argentina becoming the next Brazil, however. While both investigations allege a corruption and bribery network in the area of public construction, Argentine retail company Grupo de Narváez’s GC, Diego Zaffore, believes the different inceptions of these two investigations could mean they have different outcomes, and the scope of Lava Jato’s implication might be hard to match. “In the Lava Jato investigation, it was the bribe-paying company [Odebrecht] that revealed the payments it had made; so courts obtained evidence of the bribery of government officers who belonged to many – if not all – political parties both in office at the time and in Brazil’s recent history,” Zaffore explains. Lava Jato has dragged governments from across the region into the investigation, whereas the Notebooks scandal is likely to be remain localised in its impact. “In the case of the Notebooks scandal, the leak has come from the government side, so the scandal revealed the [alleged] payments received only by one administration, the Kirchner government. Whether or not prior governments were also involved in the same modus operandi too, this has not surfaced in the investigation, and it is unlikely to,” he says.

Positive steps

Whether or not the case in Argentina has the potential to be as broad as that of Lava Jato, the political forces at play in Argentina should take heed of what their Brazilian counterparts have learnt over recent years. “In the case of Car Wash, the political forces underestimated the investigation and its scope until it was too late and public opinion got a taste for the matter – now Lava Jato has its own life and is owned by Brazilian citizens,” says one Brazilian GC who wishes to remain anonymous. “In Argentina, there is no tradition of fighting corruption like there is now in Brazil, but time will tell how independent the investigators are and how brave the judges are willing to be,” he says.

Argentina has certainly taken some positive steps recently. Similar to Brazil’s plea- bargaining and Clean Company Act, the country passed its own corporate criminal liability law last year, which expands the scope of misconduct to target transnational

http://laccanet.com/news/article/2246/lacca/argentinas-compliance-quake/ 2/7 30/11/2018 Argentina’s compliance quake - News - LACCA bribery and holds local companies and multinationals liable for misconduct for the first time. For many in the local legal community, therefore, the new investigation is evidence that the new laws are beginning to bear fruit.

“I think that in the Notebooks case, we are witnessing the beginning of a new era in terms of agreements between defenders, prosecutors and criminal judges,” says Estudio Beccar Varela partner Manuel Beccar Varela. “In the past, this did not happen easily because there were no risks of concrete imprisonment, nor any benefit to pursue negotiations, given that there was no law that legally framed these scenarios.”

In fact, changes to Argentina’s legal landscape in recent years, such as the introduction of a plea-bargaining law, are considered by many in the legal community as one of the most important factors contributing to the success of corruption investigations. “Plea bargains are essential, in the short-term, for obtaining evidence and confessions that otherwise would have never been obtained or required great effort to acquire,” says Mariela Inés Melhem, partner at Mitrani Caballero Ruiz Moreno. “Without it, it is likely that the Notebooks case would have never been uncovered in its depth nor would it have moved as quick as it has.”

The Ley de Arrepentido of 2016 is being applied across a large scale for the first time as part of the Notebooks case. Marval O’Farrell partner Pedro Serrano Espelta describes the legislation as a “proven essential legal tool” for corruption investigations in Argentina; echoing Melhem’s views, he adds: “there would probably not be a Notebooks case without this possibility to reach agreements with cooperating defendants.”

The implementation of these laws has helped bring certain individuals to justice. Carlos Wagner, who led the Argentine Construction Chamber, is reported to have disclosed corrupt practices surrounding public work contracts to investigators, while the owner of railway vehicle manufacturer, Gabriel Romero, confessed to paying US$600,000 for a presidential decree that extended Emepa’s concession for a commercial waterway as a result of entering into plea-bargains with local authorities. Former President Cristina Kirchner, who was in power at the time of the concession, has denied the charges of her involvement.

The struggle continues

The relatively new plea-bargaining law is by no means perfect. Aside from questions related to the confidentiality and secrecy of the agreements (as many of them have been made public), Argentina’s legal community has also raised concerns over their http://laccanet.com/news/article/2246/lacca/argentinas-compliance-quake/ 3/7 30/11/2018 Argentina’s compliance quake - News - LACCA effectiveness. “The law attempts to strike a balance between the need to punish crime and provide incentives to facilitate investigations and convictions, but more leeway should have been given to prosecutors and judges to reduce sanctions,” says Melham. The law’s lack of flexibility granted to public prosecutors to negotiate with collaborators is considered to some extend a hindrance to justice being fully served. “The reduction in sanctions offered as a benefit are meagre, reduced only to one-third of the minimum,” Melham adds.

Others see the problem not with the plea bargains themselves, but with the punishment given to those found guilty of corruption. “The problem is that the penalties for punishing corruption in Argentina are very low – up to six years – and as such, there is little risk of consequential punishments that merit repentance to avoid them,” says Beccar Varela. More severe punishments could be a more effective deterrent needed to demonstrate a true crackdown on misconduct by the state, but change, although inevitable, is happening slowly. “While discussions regarding a new harsher and more comprehensive criminal code are being had . . . it is uncertain when this bill will be presented to congress,” Beccar Varela adds.

Collecting evidence to support the claims made within the notebooks is also an obstacle that needs addressing. For example, Bonadio has ruled he has no evidence to file charges against the chair of energy company Pampa Energia, Marcelo Mindlin, who was allegedly implicated in Baratta’s notebooks. Still, despite the questionable pace of investigations, Marval O’Farrell partner Gustavo Morales Oliver explains why people should not be so quick to complain. “It is common to hear complaints that anti- corruption investigations in Argentina should bring better results in terms of asset recovery and actual imprisonment for those who are convicted, but the Notebooks case is showing, at least so far, a step forward in the fight against corruption in Argentina,” he says. The fact that this is the first case of this magnitude to be investigated also demonstrates why this case will go down in history. “[The Notebooks scandal] shows that these kinds of cases can be triggered by the most unexpected of things, like handwritten notebooks of a chauffeur of a public official which no one knew existed and no one expected would end up in the hands of the authorities,” Morales Oliver adds.

It is important to note that the federal courts are still carrying out investigations on corruption incidents that came to light as early as the 1990s. Comparatively speaking, therefore, the Notebooks case has progressed at rapid speed according to Beccar Varela. “We are already witnessing oral trials related to [alleged] acts of corruption by

http://laccanet.com/news/article/2246/lacca/argentinas-compliance-quake/ 4/7 30/11/2018 Argentina’s compliance quake - News - LACCA the last government and this is really advanced all things considered, which is rather unprecedented,” he says.

Corporate spotlight

The full impact of the investigation is yet to be seen, but as plea bargain agreements continue to effectively bring about more confessions – and more leads for prosecutors to follow – companies and their executives continue to make headlines for their role as bribe-givers. But it is important to remember the positive role companies themselves can take amid this corruption clout. “Corruption has two sides and, as the saying goes: it takes two to tango,” says Avaya’s Jones. “If the private sector starts demanding a fair and transparent contracting process, it will definitely promote new and clean investment.”

A more collaborative approach by companies could help rectify the deep-rooted problem of corruption too. Geraldine Zolkwer, Argentine compliance counsel at cosmetics company Avon, highlights Transparency International’s “Collective Action” tool, which allows companies to work together with their competitors and stakeholders to level the playing field. “The aim is to create a business environment where corruption is no longer accepted, and integrity prevails among all actors,” Zolkwer says. “This tool can be especially useful when competitors do not have the same resources, like multinationals compared to local companies.”

This collaborative approach would promote greater transparency and ethical practices, as well as improve the local business landscape. The Notebooks scandal has brought to light a corruption network at play in Argentina, the breadth of which has not yet been fully uncovered; so even companies not under investigation could find themselves compromised. “You have to deal with the sense of belonging,” explains Shin Jae Kim, compliance and investigations partner at Brazilian firm TozziniFreire Advogados, referring to the effects a national investigation can have on any company. “One scandal shapes an organisation’s reputation, and also the reputation of other companies who have ever held contracts with the government in question.”

Ensuring transparency at companies that do find themselves under investigation is paramount. “To find out what really has happened [in cases of alleged misconduct], it’s better that companies take dynamic action, and one way to undergo this is an independent investigation instead of an internal investigation. This demonstrates a company’s willingness to be transparent and impartial,” Kim says.

http://laccanet.com/news/article/2246/lacca/argentinas-compliance-quake/ 5/7 30/11/2018 Argentina’s compliance quake - News - LACCA Agents of change

Whether or not a company is under investigation, accused, guilty or completely innocent, there are steps all in-house can be taking to ensure their company has the greatest possible ethical and compliance standards. Perhaps the most obvious, but often overlooked, first step – especially for local companies – is the compliance programme. “It’s not just a case of ticking boxes; you have to give life to a compliance programme,” Jae Kim explains, adding that all employees, stakeholders and third parties, should be aware of the company’s compliance framework, policies and codes of conduct and that these should be regularly monitored and tested. “It’s now time to assess whether the programmes actually have all the features to meet the authorities’ expectations – there’s no point creating a compliance programme if it doesn’t have all the required elements.”

Local GCs should see themselves as agents of change and can play an effective role in helping to instil a culture of ethics and compliance within their organisations, as Avaya’s Jones explains. “This can be accomplished not only through introducing and reinforcing an internal compliance programme, but by being closer to the business leaders, understanding their challenges and providing solutions to their challenges, which in turn promotes transparent business activity in Argentina,” she says.

Being aware of exactly where your company’s money is being spent is also crucial to mitigating risks of corruption. “It has come to light [in the Notebooks investigations] that large volumes of money were paid to companies that have no assets or business history,” says Grupo de Narváez’s Zaffore, who urges in-house counsel to remain vigilant when it comes to their business’s transactions. “Legal teams should try to identify final beneficiaries of entities receiving payments, such as suppliers or providers – today, an easy internet search gives you a good idea of whether a contract, invoice or payment is being made to a ‘phantom’ or ‘nominee’ company.” TozziniFreire’s Kim suggest having criteria for third-party selection to avoid hiring high-risk parties.

As confessions continue to surface through plea-bargain agreements, the extent of the corruption network documented in the eight notebooks is almost certainly likely to widen the investigation. But with greater enforcement of Argentina’s anticorruption laws comes greater responsibility, and local counsel can play a leading role in the anti-corruption overhaul that comes in the wake of any large-scale investigation. Brazil is well underway in its compliance revamp; now it is Argentina’s turn. “It is a critical moment for Argentina right now, and there’s big opportunity for the country to start changing

http://laccanet.com/news/article/2246/lacca/argentinas-compliance-quake/ 6/7 30/11/2018 Argentina’s compliance quake - News - LACCA mindsets, practices and move towards a better business environment,” says one Argentine GC. “Will the country thrive? Only time will tell.”

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