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Argentina’s Quiet (Giant) Step Against Corruption

Reading Time: 3 minutesA proposed law in Argentina could mark the latest in Latin America’s historic crackdown on corruption.
Reading Time: 3 minutes

With anti-corruption efforts making noise throughout the hemisphere, Argentina is quietly on the brink of a major victory. A draft bill that would change the way the country prosecutes malfeasance seems like a simple fix. But if passed, the legislation could have a major effect on the way businesses treat – and crackdown on – corruption within their ranks.

Argentina’s legal system currently makes it impossible to punish businesses for corruption that occurs on their watch because only those individuals who actually break the law can be prosecuted; a man or woman who offers a bribe may be investigated, for example, but the business they work for will not face any consequences.

The new bill, set for consideration by Congress in the coming months, would change that dynamic. The legislation would seek to incentivize corporations to crackdown on corruption themselves by expanding liability to cover businesses as a whole. Businesses that profit from bribes – even if corporate leadership is not involved – would be legally responsible and open to prosecution. Importantly, in an effort to encourage businesses to limit and prevent corruption on their own terms, corporations would be able to avoid sanctions against them if they can show that they have mechanisms in place designed to prevent corruption.

Experience from other countries that have implemented this type of system suggests that the threat of significant sanctions can have a meaningful impact on corporate governance, especially when those sanctions can be avoided if businesses actively seek to root out corruption internally. Businesses can be compelled to mitigate future legal problems by creating a transparent, ethical corporate culture and governing system.

If the law is approved, Argentina will join countries in the region that have authorized courts (as in Chile and Peru) or administrative bodies (as in Brazil and Colombia) to pursue and punish corruption taking place in businesses generally, and not just by individuals working on their behalf.

The push for this type of reform has come in large part from the Organization for Economic Cooperation and Development (OECD), a group of the world’s developed economies. The systemic nature of public-private corruption in the region, a clear lack of effectiveness in penal systems focused solely on individual responsibility, and an evident lack of interest from a significant portion of the local market in preventing crime and cooperating with investigations have all lead the OECD to focus on the issue. Argentina is currently one of the only parties to the OECD’s anti-bribery convention that does not sanction firms for corruption.

The proposed law takes into account the experiences of neighboring countries to define the types of policies businesses can undertake that can be considered “adequate measures” against corruption. At the same time, the project looks to encourage businesses to cooperate with corruption investigations by offering a reduction in fines and the suspension of prosecutions in exchange for information and transparency regarding criminal acts. This is particularly important, given the scant tradition of collaboration in criminal investigations in Argentina and the lack of mutual trust that has characterized public-private sector relations in the recent past.

Finally, the new system would seek to level the playing field between national companies and the subsidiaries of multinational enterprises, which are obliged to fulfill similar rules in their countries of origin but often adapt their anti-corruption measures to local realities. In many cases, this means “leveling down” to national competitors.

There is no doubt that, if passed, the new system will help create a better business environment for all actors in the market, fomenting a culture of sustainable transparency and integrity. The onus is now on Argentina’s lawmakers to act.

Basch and Jorge are lawyers with Governance Latam and researchers at the Center for Anti-Corruption Studies at the University of San Andrés in Buenos Aires.

Tags: Argentina, corruption
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