What Chile's new law on economic and environmental crimes means for legal entities

With Chile’s law 21,595 on economic crimes and attacks against the environment taking effect, companies are obliged to increase their standards of ethics and compliance with models for preventing illicit acts.

The new legal framework, which introduced amendments to law 20,393 on the criminal liability of legal entities in September, increases the number of criminal offenses and sentences in matters related to banking, the stock market and others.

For the first time, prison sentences or other restrictions on liberty and large fines are considered, even if the crimes have been committed by a third party.

To learn more about this matter and its implications for mining, BNamericas speaks with Jorge Castillo, executive director of the mining arbitration and mediation center CAMMIN, which is linked to the Chilean chamber of mines.

BNamericas: How complex is the law on economic and environmental crimes for companies in Chile?

Castillo: The criminal procedural reform introduced in 2010 affected everything related to work accidents, whether serious or fatal, since before direct compensation agreements could be reached with the affected families, but then the public prosecutor's office entered as a new actor to investigate accidents, identify criminal liability, submit formalizations at its discretion and go to the guarantee court [a criminal court] to establish reparation agreements.

In the new law, the public prosecutor's office has a more important role, since it complements law 20,393, which regulates the criminal liability of legal entities, and we've gone from having 20 or so crimes to more than 200 that are distributed among different legal bodies, such as customs, tax, banking, general laws, etc. 

BNamericas: What are the aspects that mining companies should pay more attention to?

Castillo: With the incorporation of compliance regulations, several crimes will be important. In terms of occupational health, we have DFL No. 1 [a decree with the force of law] from the health ministry, which refers to workers' health certificates.

Previously, when a health certificate was tampered with, there was an administrative sanction that affected the individual, but now the sanction will be direct and have a criminal connotation for the legal entity.

Another important rule is related to article 490 of the penal code on quasi-crimes of homicide in cases of serious damage to the health or integrity of the worker, which, through the application of compliance regulations, the public prosecutor's office may consider them a crime and hold the legal entity criminally liable.

BNamericas: In other words, even if the falsification of a medical certificate has been committed by a worker, will the legal entity be the one to assume all legal responsibility?

Castillo: Yes, the employer. Ultimately, the person responsible for the crime will be the guarantor that this does not happen. Therefore, it is essential that every legal entity implements good crime prevention models, which must be dynamic, manageable and reportable. In addition, they must contain the signature of a person responsible for crime prevention, managed at board level and reviewed by an independent third party.

In the mining industry, this model must be a living system coupled with all protocols and processes. It’s important that it’s known by everyone, so that in any case the exercise of compliance can be accredited and the legal entity can be exempt from criminal liability before the labor authority or fines from Sernageomin and the criminal connotation can be eliminated. The crime prevention model will be the only tool that can constitute an exemption from criminal liability.

BNamericas: Will liability for crimes always fall on legal entities and not on individuals?

Castillo: Although it’s the individuals who commit the crimes, the legal entity will be punished. Previously, it was thought that those potentially responsible were those who made decisions in the company, such as the CEO or the board of directors. However, the law went further and established that a person who has a supervisory or resource manager role can be the one who compromises the legal entity.

For example, in the Penta case, it was the intermediate bodies that committed the crimes and the board of directors excused itself by saying that these people had acted on their own behalf and that was why they had been dismissed from the company. However, despite the fact that the operations had been carried out by the intermediate bodies that had administrative powers, their actions were for the benefit of the company. These situations are intended to be prevented, that is, even if it is the intermediate bodies that commit crimes, the legal entity will be fully responsible.

Today, compliance officers must be able to train to the highest standards. The standard is complex because it brings an extension of responsibility to third parties. It will no longer be enough to gaze at one's own navel, but it will be key to be concerned about the actions of third parties. The crime could even be committed by a supplier who may perform an act to benefit the legal entity. In these cases, criminal liability will also fall on the party that received the benefit. There is an extrapolation of liability.

BNamericas: What types of penalties or sentences exist?

Castillo: The public prosecutor's office will determine the specific nature of the crime, but the highest penalties could be the cancellation of the legal entity or the imposition of fines amounting to 10,000 UTA [annual tax units, currently at 796,000 pesos or US$853, so approximately US$8.5mn].

Offences may be published in the commercial register or the official gazette, and companies may be identified as perpetrators of the offences, which could affect their reputation. This is an important factor in the business world that could lead to the loss of share value in the company.

BNamericas: How can crimes be distinguished from cases such as business failure or errors in the administration of assets?

Castillo: I don't believe there is an exaggerated criminalization of the business world, as the Public Prosecutor's Office must analyze the elements to determine whether a crime occurred, and legal entities can demonstrate whether they had a crime prevention model in place and exercise their rights to defend themselves against charges. 

BNamericas: The law mentions the figure of a compliance supervisor with the authority to intervene and issue instructions within companies in case a crime is identified. 

Castillo: I believe mining companies won't see this individual, as knowing their high standards, they must all be preparing or updating their crime prevention models and transforming their compliance officers into responsible subjects. 

BNamericas: How severe are the penalties related to environmental crimes in cases like pollution, illegal water extraction, or other impacts that may arise from mining projects? 

Castillo: Prosecutors from the Public Prosecutor's Office are already preparing for environmental issues, but they will have collaborative entities like the State Defense Council. Unlike other cases, environmental crimes do not use the logic of determining that the act benefited the company; rather, the benefit to the company will be seen in the lack of management or the omission of resources to care for the environment. 

Configuring environmental crimes won't be easy, although the penal types, such as extracting water without authorization or discharging polluting chemicals into surface or groundwater, will be clearer. It will be necessary to refine the regulations and environmental techniques to define what constitutes damage and a crime in cases where there is a valid environmental qualification resolution.

I have seen cases where climate change caused thawing that led to the collapse of containment pools, with sediments diverting into tributaries. In those cases, they would not necessarily be classified as dumping crimes.

BNamericas: What motivated legislators to enact this law?

Castillo: It was considered that the country needed to raise the standards of conduct for legal entities, which began with the tax area, then incorporated white-collar economic crimes, and finally included related crimes such as those against the environment. This way, crimes like bribery, unfair administration, and the management of assets were strengthened.

This places a strong emphasis on mining tenders, for example, as they will not be as free and it will not be easy to declare them void or redirect assets. If a third party believes that a crime occurred in the diversion of assets in a tender, that can be investigated, and it will not affect the procurement or finance managers, but rather the legal entity.