Notes on the new Penal Code

The new Penal Code brings some innovations such as, for example, an increase in prison sentences from 30 years to 40 years; the accumulation of sentences up to 60 years in prison which, in practice, is practically equivalent to life imprisonment. In addition, it contains more than seventy (70) new criminal offenses: femicide, genocide, digital crimes, pyramid schemes, contract killing, harassment, cyberbullying, identity theft, criminal liability of companies (fines, closure of premises, legal dissolution if they facilitate or commit crimes), unauthorized financial intermediation, among others.

Regarding fraud, it is now subdivided into basic, aggravated, real estate, double sale of off-plan properties, collective, pyramid, computer, and fraud against the State. Regarding administrative corruption, it must be indicated that it toughens sanctions and disqualifies those convicted from holding public office; it contemplates penalties and fines for corruption, which are calculated based on the amount involved. Influence peddling is typified as an autonomous figure.

Regarding the statute of limitations, the period is extended for sexual crimes against minors and penalties are toughened in cases of domestic violence. For those considered serious, the limitation periods are extended and others are imprescriptible. Drastic punishments are also established for the intellectual authors of crimes and offenses.

Likewise, gender-based, psychological, and economic violence (2-5 years) and physical violence (5-10 years) are provided for, and financial control, intimidation, and verbal abuse are criminalized. Penalties are classified as serious, less serious, and minor. Serious penalties range from 10 to 40 years in prison, less serious ones range from 15 days to 10 years in prison, and for minor offenses, prison is not applied, but rather arrest for up to 15 days and fines; in other words, for minor offenses such as traffic disputes and noise disturbances, fines and community service are assigned, and for crimes and felonies, prison is provided.

Likewise, the suspension of licenses or the prohibition of approaching certain places is contemplated, which are restrictive sanctions of rights in case of contraventions. They are considered minor offenses in this new legal instrument. The intrinsic nature of the penalty assigned by law (if it exceeds 10 years) is what defines the process to be followed. This Penal Code has copied much from France, as well as from Spain, Colombia, Chile, and Costa Rica.

Criminal liability of legal entities

Companies are liable for the acts or omissions of their representatives or subordinates when they are a consequence of the company’s failure to fulfill its duties of direction, control, and supervision. The company may be convicted, even if the employee who committed the act is not identified. It is sufficient to demonstrate that the act was carried out by the person who held the direction, representation, or management of the company at that time.

On the other hand, the company commits its liability not only for willful misconduct, but also for recklessness, negligence, or lack of care. The company’s liability does not exclude the personal liability of the director, manager, or administrator involved. They may be held jointly and severally liable.

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However, the company does not compromise its liability if it demonstrates it had an effective compliance program and that it was manipulated by an infiltrator or subordinate in such a way that it was not possible to detect. In these cases, the company is not liable, although it may be held against the employee or offender. The company is also not liable if the infringement was committed exclusively to its detriment and without any benefit to the entity, or if it repaired the damage in the event of a private action.

Mitigating factors include measures taken by companies to implement an effective, measurable, and updated compliance program before the event; if they had a partially effective program and adopted measures after the event; if they voluntarily repaired the damage or reported the facts to the authority before knowing they were under investigation, or if they cooperated with the authorities by providing evidence and identifying those responsible.

Mandatory regulatory compliance

The compliance program entails a clear policy for all bodies, representatives, and employees; express identification of areas of criminal risk; appropriate control measures to prevent infractions; continuous training programs on human rights and prevention; a body with autonomous powers to supervise the program; financial or accounting procedures that prevent illicit payments or operations; a protocol for action in the face of risks; an anonymous reporting channel with whistleblower protection; internal investigation procedures; periodic review of the model and document traceability.

The criminal prevention officer covers all criminal risks related to the company’s activity: corruption, fraud, tax, environmental, labor, technological, and customs crimes, document forgery, among others. In micro, small, and medium-sized enterprises, the management body itself may assume the functions of the compliance officer. Micro, small, and medium-sized enterprises have a scaled and proportional regime.

In this sense, dissolving the company, merging it, or transferring its assets does not extinguish the criminal liability acquired. The risks vary by sector, as each has a different nuance of exposure. It is a mistake to think that this is only applicable to banks or obligated entities. Also, appointing an officer without real autonomy, as well as not having evidence of the controls, even if they exist. Likewise, it is a mistake to have a whistleblowing channel without a follow-up protocol.

For very serious infractions, fines are provided for companies that could reach an amount of up to 1,500 public sector minimum wages, as well as legal dissolution and other complementary penalties. For serious infractions, fines ranging from 50 to 500 public sector minimum wages.

Complementary penalties may include temporary closure for up to 3 years or permanent closure of establishments, as well as the confiscation of assets and income resulting from the infringement, permanent or temporary disqualification from participating in public tenders and contracts; revocation of licenses, permits, and concessions, and disqualification from raising funds from the public in the financial, stock market, or commercial sectors. In case of recidivism, the maximum corresponding fine is applied automatically.

Economic crimes with an impact on the business sector

Simple bankruptcy (art. 248) applies to commercial companies, individual limited liability companies, or merchants whose recklessness or negligence leads to a state of bankruptcy or substantially affects their economic activity.

Presidents, administrators, managers, and responsible officials who organize a cessation of payments incur simple or fraudulent bankruptcy depending on whether they acted with intent or recklessness.

Only fortuitous bankruptcy caused by unforeseen and unavoidable circumstances exempts from criminal liability.

On another note, collective fraud (art. 239) is that incurred by anyone who, acting as a director, real or supposed, of a company, appeals to the public to obtain funds or securities. The penalties range from 5 to 10 years.

Regarding pyramid schemes (art. 240-242), penalties ranging from 5 to 20 years are contemplated depending on the modality. Intermediaries and promoters of pyramid schemes are considered accomplices with penalties ranging from 3 to 5 years.

Unauthorized financial intermediation (art. 243) is provided for those who collect funds from the public to lend them to third parties. But when they do so without authorization from the Monetary and Financial Administration or the Superintendency of Securities Markets, the penalty is 5 to 10 years in prison and a fine of 500 to 1,000 public sector minimum wages. This provision also applies to Fintech operators, cooperatives, and any entity that performs banking functions without a license.

Likewise, illegal agreements between merchants, producers, and industrialists to reduce production or fix prices are punishable by 2-3 years in prison. The regulation is explicit in the case of companies, and liability falls upon the managers, administrators, and directors.

Influence peddling (active and passive) (arts. 293-294) indicates that an individual who takes advantage of a personal relationship with public officials to obtain benefits in exchange for compensation incurs in influence peddling, with penalties of 5-10 years in prison. It is a new provision in the Penal Code.

Conflict of interest for former regulators (art. 298) Explains that the head of a regulatory body who leaves a position and takes a role in a company that was under their supervision before one year has passed incurs a conflict of interest. The penalty is 2-3 years.

Compliance

The code redefines the standard of corporate governance by imposing a new model of responsibility for companies. It emphasizes how commercial establishments should be directed, supervised, and managed.

The truth is that the rules of the corporate game have been modified, as a code of ethics or internal regulations are no longer enough; a rigorous duty of direction, control, and supervision is required. Compliance has become a business management model. Risks must be identified in a timely manner and controls implemented to prevent damage.

Companies must now demonstrate that they acted with diligence to avoid liability. This novel standard reaches all areas of management: preventing corruption, fraud, money laundering, sexual or workplace harassment, among other similar issues.

Article 12 contemplates commission by omission for those who do not assume their responsibility in cases where they are required to intervene, and Article 121 points to harassment and intimidation, incorporating behaviors that can occur in the workplace. Prevention plays a very important role in terms of liability, which forces companies to design new organization and governance schemes. Thus, leadership and corporate responsibility must be redefined in light of this new legal instrument.

Conclusion

The company is no longer a shield and is now a legal entity that can be prosecuted, fined, shut down, and dissolved. The executive cannot claim ignorance, and liability for failure to supervise reaches them, even if they did not personally commit the illicit act. The compliance program is not merely decorative and is now an essential regulatory matter with 11 minimum elements, the absence of which can determine a conviction.