The European Lawyer

Argentina Corporate/Commercial

4 Feb 2012

International Fraud and Asset Tracing - Argentina

Editors: Estudio Durrieu Abogados - Roberto Durrieu (Jr) and Andrés O´Farrell

1.  INTRODUCTION
While the world had its eyes on Enron and WorldCom, Argentina was facing problems of its own. In December 2002, federal authorities announced a criminal investigation into allegations of fraud and breach of fiduciary duty, involving the board of directors of the Banco General de Negocios, an Argentine based multinational financial services firm. It was soon disclosed that nearly US$200 million had been diverted to off-shore bank accounts and related corporations, leading to one of the most catastrophic bank failures in South American history.
Since then, government agencies have been striving to recover and maintain an environment of fair dealing. Legislation was spawned overnight and a new regulatory infrastructure was established for corporate governance practices, inspired by principles of integrity, accounting transparency and investor protection.
Domestic efforts were echoed and amplified at an international level, as Argentina approved on June 2006 the United Nations Convention Against Private Bribery, which promotes the integrity and transparency of private entities, both in their commercial practices among businesses as well as in the contractual relations with the state. In addition, new government agencies were created to regulate specific areas of corporate activity. Among these new regulatory bodies, the Financial Information Unit (Unidad de Información Financiera) is responsible for outlining and enforcing the anti-money laundering policy, which weighs heavily upon private entities and their commercial activity.
The financial crisis of 2002 also had a tremendously sobering effect on the investing public, which has slowly learned not to fall for high return, no-risk investment promises. Instead, people have become increasingly aware of potential red flags in financial ventures and are gradually migrating towards more reliable and secure alternatives, even if less lucrative in the short term.
Thus, in a market that now holds transparency and accountability as two of its most precious commodities, internal investigations have been steadily on the rise and there is much evidence to suggest that this trend will continue during the years to come. In fact, companies no longer dread the public disclosure of internal fraud, for they have come to realise that an active prosecution of white-collar crime can actually boost corporate reputation, as it sends a positive message to employees, customers, government authorities and the general public.
We hope, then, that these few pages will serve as a brief introduction to the main issues when conducting internal investigations from an Argentine perspective.

1.1 Local statutory framework: possible crimes concerning corporate fraud

It is worth mentioning in first place that section 75 paragraph 22 of the National Constitution establishes that international treaties ratified by our country shall have a higher hierarchy than national laws.
Therefore, from June 2006 – when our National Congress ratified the Convention by Law 26.097 – Argentina agreed to comply with the guidelines imposed by this supranational instrument that, we insist, is already part of our regulatory framework.
Our legislator, among other measures, shall categorise new crimes related to subject-matter.
By way of example, it is worth pointing out that article 21 of the Convention requires each state party to consider as criminal offences: ‘The promise, directly or indirectly, of an undue advantage to any person who directs or works, in any capacity, for a private sector entity, for the person himself or herself or for another person, in order that he or she, in breach of his or her duties, act or refrain from acting’.
In this context, it is probable that most of the following crimes that may be present in a fraudulent activity shall have to be adapted to the spirit of the Convention: insider trading or anything relating to the company’s confidential information; (act 24.766 and section 156 of the Criminal Code); Defrauding and Fraud (section 172 of the Criminal Code); Extortion or Blackmail (section 168 and 169 of the Criminal Code); Subversive Fraud (section 174 of the Criminal Code); Fraudulent and Negligent Bankruptcy (section 176 and 177 of the Criminal Code); Fraudulent Insolvency (section 179 of the Criminal Code); Collusion with Creditors (section 180 of the Criminal Code); and manipulation of financial statements and balances (section 300), among others.
Apart from the aforementioned, our country has adopted several regulatory measures regarding corporate governance practices, also in accordance with the Convention. These include, among others: provisions of the Corporations Law No 19.550 regulating directors’ activity; resolutions issued by the ‘Inspección General de Justicia (IGJ)’ (Corporations Control Bureau); Law 17.811 which regulates the public offering of securities; Decree 677/2001 relating to transparency in financial activity; and resolutions issued by the ‘Comisión Nacional de Valores (CNV)’ (National Securities Commission) and the ‘Superintendencia de Seguros de la Nación’ (National Superintendency of Insurance).

1.2  Confidentiality of Corporate Information (Law 24,766)
This law was passed on 3 April 1997. It is an expansion of the legal description of the crime enumerated in both law 24,766 and section 156 of the Penal Code, which both protect the same legal interest.
These specific crimes imply the violation of the duty of confidentiality, that is to say, the act of disclosing or releasing a secret known on account of one’s office, employment, skill or profession.
The law sets forth the possibility of avoiding the disclosure to third parties of information that is under the control of an individual, provided that certain requirements are satisfied. That is to say, such information in direct relation to commercial trade, corporate management or regular course of business shall not be disclosed to third parties by persons who have access to said information on account of their position or profession. In a few words, it is the expansion of the crime enumerated in section 156 of the Penal Code which protects any person, company or institution with information which shall be neither disclosed nor released to third parties by virtue of its importance regarding the activity of the company.
In accordance with section 12 of the abovementioned law, any person who commits the infringement described shall be subject to the pertaining liability pursuant to the Penal Code and other pertinent rules for the violation of secrets.

2. MANAGING THE INTERNAL INVESTIGATION
Evidence gathering is a critical step in any internal investigation, especially when it is meant to support a civil lawsuit or criminal charges against the alleged wrongdoers. Therefore, it is not only important that the investigation actually reveals the specific irregularities and identifies those accountable, but also that these findings are ultimately usable in a court of law. Indeed, the exclusionary rule is deeply rooted in the Argentine legal tradition, as our magistrates have long held that all evidence obtained by searches and seizures in violation of the Constitution is inadmissible in court (Daray, Carlos Angel [1994] and Rayford, Reginald R. [1986], Corte Suprema de Justicia de la Nación).
Thus, in a context in which the slightest mistake can result in the wrongdoer getting off the hook on a technicality, it is always recommended that internal investigations be conducted in association with the company’s legal counsel (either internal or external), so as to ensure full compliance with all constitutional and statutory constraints on evidence gathering. 

2.1 Retrieval of documents
2.1.1 Hard copy documents
Even if there are no statutes that govern this specific issue, there are certain considerations that an employer must take into account when searching through employee workstations, desks and filing cabinets, in connection with an investigation into work-related misconduct.
As a general recommendation, it is always advisable for every company to have a clear, written policy on the matter, so as to let employees know from the very beginning of their engagement that their work areas may be subject to search. Ideally, such a provision should be contemplated in each individual contract governing the employer-employee relationship, which could eventually serve as proof of the worker’s consent.
Company specifics aside, there is no federal or state prohibition against an employer searching through the employee’s workspace. In fact, it is generally understood that all records or files made by an employee within the scope of his or her duties, are the sole and exclusive property of the employer.
There are, however, certain exceptions to this general rule. For instance, the Criminal Court of Appeals of the City of Buenos Aires held that, even if the employer has a reasonable  suspicion of work-related improprieties, it is unlawful to search an employee’s locker, since the worker has a justifiable expectation of privacy regarding the objects securely stored in it (Callejas, Marta H. [2005], CNCrimCorrecc, Sala I). Thus, the search of these locked spaces is subject to the restraints of section 18 of the Argentine Constitution, and must therefore be conducted pursuant to a warrant or a constitutionally valid substitute.
The grounds necessary to undertake such inspections are set forth in the Argentine Code of Criminal Procedure (Law 25434). In this sense, section 224 establishes that a search warrant may be issued whenever there is probable cause to believe that items related to the investigation of a crime will be found within a certain premise.
 
2.1.2 Electronic documents
By and large, there is no substantial difference between going through the electronic documents stored within the employee’s computer and searching through his desk, office or filing cabinets. As stated above, the employer is – generally speaking – free to do so.
The situation is quite different, however, when it comes to reviewing employee emails. Indeed, most courts have extended the constitutional protection of private correspondence to encompass all communications made via electronic mail (Ilic, Dragoslav [2007], CNCrimCorreccFed, Sala II). Therefore, employers have a much more limited scope of action that varies according to the nature of the claim.
Argentine labour courts have held that personal email accounts are always private and can never be accessed without a court order, since personal material should always be considered to fall outside the scope of the investigation. Corporate emails, on the other hand, can be retrieved by the employer, albeit with certain precautions to ensure that the employee’s right to privacy is protected to the greatest possible extent. For instance, in Viloria v Aseguradora de Créditos y Garantías S.A. [2007], the Court of Appeals in Labour Matters ruled that emails produced by the employer were admissible evidence of disclosure of confidential information to a direct competitor. In reaching this conclusion, the court gave special weight to the fact that the employer retrieved the said emails on the basis of a serious suspicion, taking care that only those messages addressed to a specific competitor were opened.
Criminal courts have an entirely different approach altogether, since the statutory parameters governing evidentiary discretion are far stricter when it comes to ascribing criminal guilt. In this sense, it has been held that the employer can never access the worker’s email, even if it is a corporate account (Redruello, Fabián L. [2005], CNCrimCorrecc Sala IV). Further still, criminal courts give little or no consideration to the company policy on the use of corporate email accounts, for it is said that the worker can never validly waive his constitutional right to privacy (Callejas, Marta H. [2005], CNCrimCorrecc, Sala I).
In the light of prevailing case law, and even if there are no precedents on this specific subject, an important conclusion can be drawn regarding the use of monitoring software on employee email accounts. Indeed, if the retrieval of employee emails is only valid when selective and based upon a specific suspicion of wrongdoing, a random or generalised eavesdropping procedure would most likely be seen as an excessive – and therefore illegal – intrusion into the worker’s privacy. Thus, evidence obtained through the installing of monitoring software would most likely be ruled as inadmissible in a civil or criminal complaint. 

2.2 Obtaining oral evidence from employees
Conducting an admission-seeking interview with a suspected perpetrator of fraud is no easy task. In fact, it is a job for which most are not qualified, as it requires great sensibility, sharpness, a strong character and keen analytical ability. Still, potential rewards far exceed these difficulties, for obtaining an admission could make all the difference between a successful prosecution and a damages claim against the company.
Of course, there is no one way to conduct an interview of this nature. In the end, it will all depend on each individual interviewer, his personal skills, methods of choice and past experience in the matter. However, there are certain legal issues that must be taken into account in order to avoid the perpetrator getting off the hook on a technicality and, most importantly, exposing the company to potential civil liability and other claims.
It is important to highlight that the considerations set forth are only applicable to private interrogations, that is, to those interviews conducted by the employer or by those professionals appointed to that effect. Questioning by law enforcement and other non-police government officials is governed by a specific set of rules and principles.
As a first and general observation, it is necessary to understand that the employee can never be compelled to appear for questioning, let alone to answer all of the questions presented. In this sense, the constitutional privilege against self-incrimination that protects a defendant in judicial proceedings (section 18 of the Argentine Constitution) is also applicable to private investigations. In the same way, the employee may refuse to be interviewed without the presence of legal counsel. 
However, in conducting private interrogations, the legality of covertly recording such interviews is the matter that has provoked the most debate. Our criminal courts generally admit this possibility, on the grounds that the mere assumption by the defendant that the conversation cannot be used against him in criminal proceedings does not itself make it unfair to receive the recordings into evidence (P., D.O. and others [1999], CNCasaciónPenal, Sala IV). In this sense, it is argued that evidence gathering by a citizen is subject to less formalities than those imposed upon government authorities, in that the latter does not require a warrant in order to commence an investigation, nor is he compelled to inform the suspect of his constitutional rights Menechino, María I. [2003], CNCrimCorreccFed, Sala de feria).
Nonetheless, some courts have held that a conviction cannot rest exclusively upon a surreptitious recording. Instead, it can only be taken as indicative evidence and, as such, be accompanied by further proof of the alleged wrongdoing (Wowe, Carlos [1998], CNCasaciónPenal Sala IV).

3. PRIVILEGE
Confidentiality is essential in most internal investigations. Indeed, information leakages can have potentially devastating effects, whether they reach the investing public, a government agency or even a direct competitor. Therefore, it is imperative to have a thorough discussion with all foreign counsel retained for the purpose of the investigation, in order to establish clear and comprehensive ground rules in matters of discretion and confidentiality requirements.
With regard to legal counsel, internal investigations are always protected under the attorney-client privilege pursuant to section 6(f) of the Exercise of the Legal Profession Act (Law 23187). So broad is the scope of this statutory privilege that our courts have held that it encompasses not only the matter explicitly entrusted to the attorney by his client, but any other information – regardless of its nature – he may come across during the scope of his duties (S.,C.L. and others v Buenos Aires Bar Association [2005], CNContenciosoadmFed, Sala III). Moreover, an attorney can never be called to testify in court regarding his professional intervention in an internal investigation (Cabaña Blanca S.A. [2007], CNPenalEconómico, Sala B).
Accountants, computer experts, private investigators and even company employees are also bound by a similar duty of confidentiality. In fact, section 156 of the Argentine Criminal Code imposes a punishment of imprisonment from six months to three years upon anyone who reveals without justification a secret accessed by reason of his employment, rank, position or profession. However, there is a significant difference from the obligations imposed upon legal counsel, in that the abovementioned individuals may be subpoenaed to testify in civil, criminal or regulatory proceedings as to the specifics of the internal investigation in question.

4.  DISCLOSURE FROM THIRD PARTIES
Prior to the commencement of judicial proceedings, our statutory system does not empower individuals to require unaffiliated persons or private entities to disclose information or documents relevant to their claim, nor to compel sworn testimony. At this particular stage of the investigation, potential litigants can only rely on the voluntary cooperation of third parties, which is not governed by any specific duty of confidentiality or discretion.

5.  STEPS TO PRESERVE ASSETS/DOCUMENTS
5.1  Protection of assets
In civil litigation, the petitioner may file for different precautionary measures to preserve the defendant’s property, so that it will be available to satisfy any claim that is eventually upheld by the court.
In this sense, the complainant may seek an attachment on the defendant’s assets, pursuant to section 209 of the Argentine Code of Civil and Commercial Procedure. This injunction falls upon a specific asset, which is thereby affected until the result of the claim. Should the defendant have no assets registered to his name, the complainant can alternatively move for a general inhibition (section 228 of the Argentine Code of Civil and Commercial Procedure) that, as opposed to an attachment, is a global freezing injunction which prohibits the defendant from dealing with any future assets he may acquire, or removing them from the jurisdiction in question.
The party seeking an interim injunction must file an application at court, supported by written evidence of all allegations made in it. In making the application, the petitioner must make full and frank disclosure of all relevant material facts of which the court should be made aware.
Precautionary measures are always adopted ex parte, since it is assumed that prior notice could lead the defendant to frustrate the purpose of the injunction. Accordingly, in applying for such measures, the applicant must always demonstrate both the necessity and urgency of his petition and give a cross-undertaking in damages. This is a promise to assume full liability and compensate the defendant for any losses caused by the injunction, should it later result that it was unduly granted (section 199 of the Argentine Code of Civil and Commercial Procedure).
In criminal proceedings, the acting judge must order the attachment on the defendant’s assets upon issuing his formal indictment, as a way to ensure the results of a subsequent civil litigation (section 516 of the Argentine Code of Criminal Procedure). Indeed, if this injunction is issued as a way to ensure the enforcement of an eventual civil litigation, the indictment is a necessary step as an indicator of probable guilt.
Exceptionally, a preventive attachment may be ordered prior to the indictment, provided that there is a real risk that the defendant will deal with his assets in a way that will affect the enforcement of a future judgment. It is up to the petitioner to allege and demonstrate the existence of such a risk. Indeed, in Quijano Guesalaga [1996] and Boyd [2000], the Federal Court of Appeals in Criminal Matters of the City of Buenos Aires revoked a preventive attachment, on the grounds that the plaintiff did not fully demonstrate the alleged risk in the delay of such measure, nor did he prove that the defendant had engaged in any activity that might suggest an intention to evade or obstruct the enforcement of a future judgment.

5.2  Protection of relevant documents
The Argentine Code of Civil and Commercial Procedure also provides for the preservation of documents, as it allows the complainant to file for the seizure of all records relevant to his claim (section 221). As in any precautionary measure, our courts have held that the petitioner must allege and prove the risk of such documents being altered or destroyed while in the hands of the defendant (Vicente Robles S.A. v Dirección Nacional de Vialidad [1996], CNConnciosoadmFed, Sala I).
In criminal proceedings, as a result of the constitutional privilege against self-incrimination (article 18 of the National Constitution), the defendant can never be required to produce documents, records or any other kind of evidence of a potentially incriminating nature. In contrast, relevant documents held by the defendant must be obtained through a search warrant. As explained above, a search warrant may be issued provided that there is enough evidence to suggest that elements related to the crime in question may be found within the defendant’s premises, pursuant to section 224 of the Argentine Code of Criminal Procedure.

6.  CIVIL AND CRIMINAL PROCEEDINGS
Upon conclusion of the internal investigation, the company may pursue a civil suit in order to recover financial loss and obtain compensation for damages.
It is also possible to simultaneously file a criminal complaint regarding the same basic facts. In this case, should the defendant be found guilty of the criminal charges brought against him, he may not challenge the facts nor his responsibility in the civil proceeding (section 1102 of the Argentine Civil Code). In this sense, it is sometimes recommended to file a criminal complaint prior to the civil action. Indeed, with a criminal conviction at hand, the civil suit is only a matter of fixing the amount of the compensation.
In a civil suit, the grounds upon which the claim is filed may vary, depending on the nature of the relationship that was affected by the fraud. Besides, the grounds for a civil action are much broader than those required for a criminal complaint. Therefore, making a reference to each case would exceed the scope of this chapter. However, the grounds for a civil claim may include: violation of a confidentiality agreement (Law 24.766); violation of fiduciary duties imposed upon the employee (Law 20,744, section 85); breach of fiduciary duty by corporate officers (Law 19.550); breach of contract and claim for damages (section 1109 of the Civil Code).
These are just some of the specific examples that may be encountered, but the grounds for a claim will vary according to the specific regulation governing the company in question.

7.  ARGENTINE LEGAL FRAMEWORK
As a guide to better understanding this chapter, we consider it necessary to include here some of the sections of the Argentine Penal Code and the text of Law 24,766:

Argentine Penal Code
Chapter III – UNCOVERING OR DISCLOSING SECRETS
Section 156
Any person who on account of his rank, position, employment, profession or trade has been acquainted with a secret whose disclosure can cause damage to another, and discloses it without justification, shall be punished with fine from 1,500 to 90,000 pesos (amount fixed in accordance with Law 24,286) and special disqualification from six months to three years.
Chapter III – EXTORTION
Section 168
Any person who by intimidation or by pretending to have public authority or a false order from such public authority, forces another to deliver, send, deposit or place at his disposal or at the disposal of a third party, any movables, money or any document which may have legal effect, shall be punished with imprisonment from five to ten years.
The same punishment shall be applied to those who, by the same means or by violence, force another to sign or destroy any document evidencing an obligation or a claim.

Section 169
Any person who, by means of threatening imputations against the honour of another person, or by revealing the secrets of another person, commits any of the acts enumerated in the foregoing section, shall be punished with imprisonment from three years to eight years.(…)

Chapter IV – FRAUD AND OTHER DECEITS
Section 172
Any person who defrauds another by use of false name, position or title, or by the pretence of false influence or by abuse of  confidence, or by pretending imaginary wealth, credit, commission, enterprise or negotiation or by any other kind of artifice or deceit, shall be punished with imprisonment from one month to six years.

Section 174
Imprisonment from two to six years shall be imposed upon:
1. Any person who, in order to procure an illegal profit on his own account or on account of third parties, to the detriment of an insurer or a lender who has executed a bottomry, burns or destroys any insured property or any insured ship, or any ship which cargo or freight are insured, or on which such a bottomry has been made.
2. Any person who, by taking advantage of the needs, passions or inexperience of a minor, or an incapable person, whether or not declared so judicially, makes him sign a document, which may cause any legal effect to the detriment of such minor, incapable person or another, even when the act is void according to the Civil Law.
3. Any person who, by use of false measures or weights, defrauds another person.
4. The employer or contractor of any work or the vendor of any building materials who commits, in the performance of the work or in delivering the materials, any fraudulent act which may jeopardise the security of any person, property or the state.
5. Any person who causes fraud to the detriment of any public administration.
6. Any person who maliciously hampers the ordinary course of business of a commercial, industrial, agricultural or mineral establishment or exploitation, or prepared to the rendering of services; or any person who destroys, damages, causes to disappear, hides or fraudulently diminishes the value of raw material, products of any nature, machines, equipment or other capital goods (Incorporated by Law 25,602).
Under subsections 4, 5 and 6 of section 174, where the culprit is a public official, he shall be also punished with special disqualification for life.

Chapter V – Bankruptcy and other punishable debts
Section 176
Any merchant declared in bankruptcy that, to the detriment of his creditors, commits any of the following acts, shall be punished with imprisonment from two to six years and special disqualification from three to ten years:
1.  simulating or supposing debts, dispositions, expenses or losses;
2.  any unexplained transfer or absence of any property he should have had, or any withholding or concealment of any property that would have become a part of the bankrupt estate; or
3.  granting undue advantages to any creditor.

Section 177
Any merchant who causes his own bankruptcy to the detriment of his creditors by making excessive expenses in relation to his capital or the number of persons in his family, ruinous speculations, gambling, or by abandoning his business or committing any act of clear negligence or imprudence, shall be punished as negligent bankrupt with imprisonment from one month to one year and special disqualification from two to five years.(…)

Section 179
Any debtor, not a merchant and under a bankruptcy proceeding regulated by the civil code, who in order to defraud its creditors would have perpetrated any of the acts provided under section 176 shall be punished with imprisonment from one to four years.
Any person who, during the course of a process or after a condemnatory sentence, maliciously destroys, disables, damages, hides or causes goods of his property to disappear, or fraudulently reduces their value, totally or partially, avoiding the compliance with the corresponding civil obligations, shall be punished with imprisonment from six months to three years.

Section 180
Any creditor who consents to any composition, arrangement or any compromise or settlement arrived in Court, conniving with the debtor or a third party, by means of which he has agreed to any special advantage in return for his acceptance of such composition, arrangement or compromise or settlement arrived in Court, shall be punished with imprisonment from one month to one year.
The same punishment shall be imposed upon any debtor or director, manager or administrator of a corporation, cooperative or any legal entity, in bankruptcy or under the process of reorganisation who is a party to such composition, arrangement or compromise and settlement arrived in Court.

Chapter V – FRAUD IN COMMERCE AND INDUSTRY
Section 300
Imprisonment from six months to two years shall be imposed on:
1. any person who causes the price of any good, bonds or securities to rise or drop, by means of false news, fictitious negotiations or by connivance or coalition among the principal holders of any such good or product, with the purpose of selling it only for a fixed price;
2. any person who, disguising or concealing true facts or circumstances, or affirmatively stating or suggesting untrue facts or circumstances, offers government bonds, securities or shares of any corporation or legal entity;
3. any incorporator, director, manager, liquidator or receiver of any corporation or cooperative or any other partnership who publishes, certifies or approves an untrue or incomplete balance sheet, profit and loss statement, or their respective reports, minutes, annual reports, or informs the meeting of members distorting the truth or with reticence regarding facts which are important for the appreciation of the economic situation of the company, regardless of the purpose he had to inform it. (…)

Confidentiality of Corporate Information (Law 24,766-Official Gazette 12/30/96)
1.  Natural or legal persons may avoid the disclosure to third parties of information under their control or the acquisition of information by third parties lacking consent in a way contrary to fair commercial practices, provided that the information meets the following conditions:
 a)  It shall be secret, that is to say, unknown or non-accessible to persons belonging to the fields    in which such kind of information is usually used, either partially or as a whole.
 b)  It shall have a commercial value for being secret; and
 c)  Reasonable measures shall have been adopted in relation to the secrecy of the information by    the persons who legally control it.
The following events shall be deemed contrary to fair commercial practices: the non-performance of contracts, the abuse of confidence, the instigation to commit crimes or infringements, the acquisition of non-disclosed information by third parties aware or not, due to gross negligence, of the fact that the acquisition implied such practices.
2.  This law shall be applied to the information contained in documents, electronic or magnetic means, optic discs, microfilms, films or other similar elements.
3.  Any person who on account of his job, employment, office, position, profession or business relationship has access to information meeting the conditions enumerated in section 1 and who has been warned about the confidentiality thereof, shall refrain from using it and from disclosing it with insufficient cause or in the event of lack of the consent of the person who controls such information or of the authorised user.
12.  Any person who commits any infringement mentioned in this law as to confidentiality shall be subject to the pertaining liability pursuant to the Penal Code and other pertinent rules for the violation of secrets, notwithstanding the criminal liability incurred due to the nature of the crime.
13.  The officials of the intervening entities shall deserve the pertaining actions pursuant to the application of the previous section, plus the punishment of removal and fine.