Argentina: Corruption In Argentina Tried Under U.S. Law

New cases of corruption that occurred in Argentina were investigated and sanctioned under U.S. law.

On February 4 and 29, 2016, the Securities Exchange Commission ("SEC") and the Department of Justice ("DOJ") of the United States of America, respectively, decided in cases linked with corruption events in Argentina. Those investigated were punished with fines in accordance with U.S. law, including the 1977 Foreign Corrupt Practices Act ("FCPA").

The extraterritorial scope of the U.S. laws applied in these cases once again demonstrates that companies operating in Argentina should develop and adapt their anti-corruption programs in accordance with the requirements of foreign standards that may be applicable to their affiliated companies.

The case investigated by the SEC in the administrative proceedings conducted against the President and COO of an airline company led to a cease-and-desist order.

The case was initiated against a Chilean citizen who, at the time of the facts under investigation, was COO of a company whose headquarters were located in Santiago de Chile which provided passenger and cargo airline services throughout Latin America ("Airline Company"). According to the results of the administrative proceedings, during 2006 and 2007 the Airline Company's officer authorized the payment of consulting services in Argentina for the sum of US$ 1.15 million. The payment was made to an account in the consultant's name in the State of Virginia under a so-called consultancy agreement for the provision of services to the subsidiary of the Airline Company in Argentina ("Argentine Subsidiary"). The services were never rendered. In addition, such payment was incorrectly recorded in the books of an indirect subsidiary of the Airline Company, incorporated in Delaware and without connection to the business of the Argentine Subsidiary, thus eluding the company's internal accounting controls.

As a result of the proceedings it was established that the payments were linked with the intervention of the consultant in the conflict between the Argentine Subsidiary and its employees concerning wages and working conditions. The goal was to pay union officials for their unions to reduce the claimed amount of increase in wages and desist their claim to implement the rule according to which the employees had to comply with a single function within the company.

On February 4, 2016 the SEC issued an order so that the officer of the Airline Company ceased to breach the rules applicable to the accounting records and internal controls. He was required to certify compliance with the new code of conduct, anti-corruption guide and other internal policies adopted by the company. In addition, the SEC imposed a civil penalty of US$ 75,000 on the Airline Company's officer.

Another case of corruption in Argentina involved a medical equipment supply company based in Miami ("Supplier"), a subsidiary of a U.S. company, owned by another company from Tokyo, Japan. The research carried out by the Court of the District of New Jersey under the FCPA rules in relation to the events in Argentina resulted in a deferred prosecution agreement executed by the U.S. Court for the District of New Jersey, the DOJ, the Supplier and the U.S. company, dated February 29, 2016. The Supplier agreed to pay a criminal fine of US$ 22.8 million and to maintain compliance with certain anti-corruption measures.

As arises from the agreement, from 2006 to 2011 the Supplier made improper payments of US$ 3 million. These payments were made to doctors in hospitals and governmental clinics in Argentina and other Latin American countries by payments in cash, bank transfers, medical training, personal expenses, equipment that was free or brought significant discounts and other values. The Supplier admitted bribing public employees of hospitals and providers of health services in Central and South America with the purpose of obtaining business and selling their products. Executives and employees of the Supplier linked such payments to the profitability of the company and kept a record of the sales associated with them in a shared document.

The facts investigated in this case have a significant relationship with the practices that may affect health service providers when they make their decisions.

When the authorities consider that a potential effect on the impartiality when purchasing equipment and prescribing medicine or medical treatments might exist, benefit schemes offered to doctors and managers of public hospitals may be investigated. This is particularly the case when such practices may impact on the costs and quality of health services.

The cases summarized here are the latest two examples of acts of corruption that occurred in Argentina which were judged and punished by foreign authorities under foreign legislation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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