PHASE 3 REPORT ON IMPLEMENTING THE OECD ANTI-BRIBERY CONVENTION IN ARGENTINA

December 2014

This Phase 3 Report on Argentina by the OECD Working Group on Bribery evaluates and makes recommendations on Argentina’s implementation of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and the 2009 Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions. It was adopted by the Working Group on 11 December 2014.

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

TABLE OF CONTENTS

EXECUTIVE SUMMARY ............................................................................................................................. 5

A. INTRODUCTION ................................................................................................................................. 7

1. The On-Site Visit .................................................................................................................................. 7 2. Summary of the Monitoring Steps Leading to Phase 3 ........................................................................ 8 3. Outline of the Report ............................................................................................................................ 8 4. Economic Background.......................................................................................................................... 8 5. Cases Involving Bribery of Foreign Public Officials ........................................................................... 8 (a) Terminated Foreign Bribery Cases ................................................................................................ 9 (b) On-Going Foreign Bribery Cases ................................................................................................ 11

B. IMPLEMENTATION AND APPLICATION BY ARGENTINA OF THE CONVENTION AND THE 2009 RECOMMENDATIONS ................................................................................................... 13

1. Foreign Bribery Offence ..................................................................................................................... 13 (a) Definition of Foreign Public Official ........................................................................................... 14 (b) Undue Pecuniary or Other Advantage/Improper Advantage ....................................................... 14 (c) Coverage of Acts or Omissions outside the Official’s Authorised Competence ......................... 14 (d) General Defences and Exceptions ................................................................................................ 15 (e) Jurisdiction to Prosecute Foreign Bribery .................................................................................... 15 (i) Territorial Jurisdiction over Natural Persons ......................................................................... 16 (ii) Nationality Jurisdiction over Natural Persons ....................................................................... 17 2. Responsibility of Legal Persons ......................................................................................................... 17 3. Sanctions ............................................................................................................................................. 19 (a) Sanctions against Natural Persons for Foreign Bribery ............................................................... 19 (b) Sanctions against Legal Persons for Foreign Bribery .................................................................. 20 4. Confiscation of the Bribe and the Proceeds of Bribery ...................................................................... 20 5. Investigation and Prosecution of the Foreign Bribery Offence .......................................................... 21 (a) Procedure for Foreign Bribery Investigations .............................................................................. 22 (i) Law Enforcement Bodies ...................................................................................................... 22 (ii) Opening Foreign Bribery Investigations ............................................................................... 23 (iii) Terminating Investigations and Prosecutions, Including Settlements ................................... 24 (b) Specific Foreign Bribery and Related Enforcement Actions ....................................................... 25 (c) Statutes of Limitation and Delays in Criminal Proceedings ........................................................ 26 (d) Resources and Specialisation ....................................................................................................... 30 (e) Judicial Vacancies and Surrogate Judges ..................................................................................... 31 (f) Article 5 of the Convention .......................................................................................................... 33 (i) Executive Contact with Law Enforcement about Specific Cases .......................................... 33 (ii) Disciplinary Processes of Judges and Prosecutors ................................................................ 35 (g) Investigative Techniques.............................................................................................................. 37 6. Money Laundering.............................................................................................................................. 38 (a) Money Laundering Offence ......................................................................................................... 38 (i) Elements of the Money Laundering Offence ......................................................................... 38 (ii) Enforcement of the Money Laundering Offence ................................................................... 40 (b) Prevention, Detection, and Suspicious Transaction Reporting .................................................... 40 (c) Sharing Information with Law Enforcement Authorities ............................................................ 42 7. Accounting Requirements, External Audit, Corporate Compliance and Ethics Programmes ............ 43 (a) Accounting Standards .................................................................................................................. 43 (b) False Accounting Offence ............................................................................................................ 44 (c) External Auditing ......................................................................................................................... 45 (i) Entities Subject to External Audits and External Auditing Standards ................................... 45

(ii) Auditor Independence and Qualifications, and Quality Control of Audits ........................... 47 (iii) Reporting Obligations of External Auditors .......................................................................... 48 (d) Corporate Compliance, Internal Controls and Ethics Programmes ............................................. 48 8. Tax Measures for Combating Bribery ................................................................................................ 49 (a) Tax Deduction of Bribes .............................................................................................................. 49 (b) Detection and Reporting of Bribe Payments ................................................................................ 51 (c) Providing Tax Information to Domestic and Foreign Law Enforcement Authorities ................. 51 9. International Co-operation .................................................................................................................. 52 (a) Mutual Legal Assistance .............................................................................................................. 52 (i) Treaty and Legislative Framework for MLA ........................................................................ 52 (ii) Dual Criminality and Other Preconditions for MLA ............................................................. 53 (iii) MLA in Practice .................................................................................................................... 54 (b) Extradition .................................................................................................................................... 55 (i) Treaty and Legislative Framework for Extradition ............................................................... 55 (ii) Extradition of Argentine Nationals ........................................................................................ 55 (iii) Delay in Extradition............................................................................................................... 56 (c) Denial of Co-operation Due to “Essential Public Interests” ........................................................ 56 10. Public Awareness and the Reporting of Foreign Bribery ................................................................... 57 (a) Awareness of the Convention and the Offence of Foreign Bribery ............................................. 57 (b) Reporting Suspected Acts of Foreign Bribery ............................................................................. 58 (c) Whistleblowing and Whistleblower Protection ........................................................................... 60 11. Public Advantages .............................................................................................................................. 61 (a) Public Procurement ...................................................................................................................... 61 (b) Official Development Assistance ................................................................................................. 61 (c) Export Credits .............................................................................................................................. 61

C. RECOMMENDATIONS AND ISSUES FOR FOLLOW-UP ........................................................... 62

ANNEX 1 WORKING GROUP PHASE 2 RECOMMENDATIONS TO ARGENTINA AND THEIR IMPLEMENTATION ....................................................................................................................... 69

ANNEX 2 PARTICIPANTS AT THE ON-SITE VISIT ........................................................................ 73

ANNEX 3 LIST OF ABBREVIATIONS AND ACRONYMS .............................................................. 74

ANNEX 4 EXCERPTS OF RELEVANT LEGISLATION .................................................................... 76

Penal Code ................................................................................................................................................. 76 Criminal Procedure Code ........................................................................................................................... 78 Executive Decree 1162/2000 on Reporting ............................................................................................... 78

EXECUTIVE SUMMARY

The Phase 3 report on Argentina by the OECD Working Group on Bribery evaluates and makes recommendations to Argentina on its implementation of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and related instruments. The report considers country-specific (vertical) issues arising from changes in Argentina’s legislative and institutional framework, as well as progress made since Argentina’s Phase 2 evaluation in June 2008. The report also focuses on key Group-wide (horizontal) issues, particularly enforcement. The report concludes that Argentina is seriously non-compliant with key articles the Convention. Moreover, judges and prosecutors in charge of actual foreign bribery cases did not attend the on-site visit. The Working Group therefore could not fully assess Argentina’s foreign bribery enforcement efforts. Argentina is accordingly required to undergo a supplemental Phase 3bis evaluation by the end of 2016. The Working Group will also conduct a high-level mission to Argentina in early 2016.

The Working Group is gravely concerned about Argentina’s commitment to fight foreign bribery and how little progress Argentina has made since previous evaluations. Argentina has not implemented the Working Group’s longstanding Recommendations since 2001 to introduce corporate liability for foreign bribery, provide nationality jurisdiction to prosecute this crime, and rectify several shortcomings in its foreign bribery offence. Systemic deficiencies in Argentina’s criminal justice system identified in Phase 2 persist. Widespread delays in economic crime cases continue to plague the criminal justice system. Judicial investigations were opened in several of the ten foreign bribery allegations concerning Argentine individuals and companies. However, these investigations have progressed very slowly. In several instances, Argentine authorities did not proactively investigate or seek the co-operation of foreign authorities.

The Working Group is also concerned about judicial independence and Argentina’s ability to detect and report foreign bribery. As in Phase 2, there have been examples of executive contact with judges and prosecutors in specific cases, and the use of disciplinary processes to pressure judges and prosecutors. The number of judicial vacancies and surrogate judges remains extraordinarily high. Argentine law enforcement authorities have not reacted promptly to foreign bribery allegations reported in the media. Inconsistent and convoluted rules hinder and delay the reporting of crime by public officials. Few Argentine companies have anti-foreign bribery measures beyond limited codes of ethics. Argentina has not adopted appropriate measures to protect whistleblowers in both the public and private sectors from discriminatory or disciplinary action. The government has not made sufficient efforts to raise awareness of the foreign bribery offence.

The Working Group acknowledges some efforts made by Argentina. Just before the adoption of this report, a new Criminal Procedure Code was enacted though it has yet to be implemented or evaluated by the Working Group. Steps have been taken to amend the Penal Code and Income Tax Law. The timeframe for completion is uncertain, however. Specialised prosecutorial units were recently created to support investigative judges and prosecutors in economic crime cases and asset recovery. The courts recently decided to establish a group of experts to support corruption cases. Further specialisation and additional resources would nevertheless be beneficial. Improvements have been made to the reporting of suspicious money laundering transactions and with the adoption of IFRS and ISA, especially for listed companies.

The report and its recommendations reflect findings of experts from Spain and the Slovak Republic and were adopted by the Working Group on 12 December 2014. The report is based on legislation and other materials provided by Argentina, and research conducted by the evaluation team. It is also based on information obtained by the evaluation team during its on-site visit to Buenos Aires on 10-12 June 2014, during which the team met with representatives of Argentina’s public and private sectors, legislature, judiciary, civil society, and media. Within six months and one year of the Working Group’s approval of

this report, Argentina will make an oral follow-up report on its implementation of certain recommendations. It will further submit a written report on the implementation of all recommendations within two years. The written report will form part of Argentina’s Phase 3bis evaluation.

A. INTRODUCTION

1. The On-Site Visit

1. On 10-12 June 2014, an evaluation team from the OECD Working Group on Bribery in International Business Transactions (Working Group) visited Buenos Aires as part of the Phase 3 evaluation of Argentina’s implementation of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Convention); 2009 Recommendation for Further Combating the Bribery of Foreign Public Officials in International Business Transactions (2009 Anti- Bribery Recommendation); and 2009 Recommendation of the Council on Tax Measures for Further Combating the Bribery of Foreign Public Officials in International Business Transactions (2009 Tax Recommendation).

2. The evaluation team was composed of lead examiners (Spain and Slovak Republic) and the OECD Secretariat.1 Before the on-site visit, Argentina responded to the Phase 3 Questionnaire and supplementary questions, and provided relevant legislation and documents. The evaluation team also referred to publicly available information. During the on-site visit, the evaluation team met representatives of the Argentine public and private sectors, judiciary, parliamentarians, civil society, and media. (See Annex 2 for a list of participants.) Argentine officials absented themselves from panels with the private sector, civil society, lawyers and academics.2 The evaluation team expresses its appreciation to all participants for their openness during the discussions and to Argentina for its co-operation throughout the evaluation.

3. The evaluation team requested but unfortunately did not meet prosecutors and investigative judges who conducted actual foreign bribery cases. On repeated occasions before the on-site visit, the evaluation team requested a meeting with these prosecutors and judges. The Argentine authorities stated that they invited these officials to the on-site visit well in advance and sent subsequent reminders, but none of them could attend because of professional and personal commitments. Instead, Argentina was represented by several prosecutors, trial judges and a single investigative judge who had experience in cases of economic crime but not foreign bribery. As explained below at p. 25, the absence of prosecutors and investigative judges involved in actual foreign bribery cases prevented the evaluation team from assessing Argentina’s efforts in investigating and prosecuting actual foreign bribery cases. It also precluded the Working Group from exploring how the legislative and systemic criminal justice issues identified in this report impacted actual foreign bribery cases. Accordingly, the evaluation team was unable to fully assess Argentina’s implementation of the Convention.

1 Spain was represented by Mr. Juan B. Delgado Cánovas, Senior Judge, Spanish General Council of the Judiciary; and Mr. Manuel Toledano Torres, Chief, Area of Normalization and Accounting Technique, Accounting and Auditing Institute, Subdirection General for Normalization and Accounting Technique. Slovak Republic was represented by Mr. Vladimír Turan, Prosecutor, Head of Section, Fight against Organised Crime, Terrorism and International Crime, Office of the Special Prosecutor, General Prosecutor’s Office. Dr. Barbora Bowers, Advisor, International Public Law Department, Ministry of Justice attended the on-site visit and assisted in the preparation of this report. Ms. Alexandra Kapišovská, General State Advisor, International Law Department, Ministry of Justice, took part in the Working Group meeting to discuss and adopt this report. The OECD Secretariat was represented by Mr. William Loo, Ms. Leah Ambler and Ms. Sophie Wernert, Anti-Corruption Division, Directorate for Financial and Enterprise Affairs. 2 See paragraph 26 of the Phase 3 Procedure, which provides that an evaluated country may attend, but

should not intervene, in non-government panels.

2. Summary of the Monitoring Steps Leading to Phase 3

4. The Working Group previously evaluated Argentina in Phase 1 (September 2001), Phase 2 (June 2008) and the Phase 2 Written Follow-Up Report (September 2010). As of September 2010, Argentina had fully implemented 10 out of 29 Phase 2 Recommendations (see Annex 1 at p. 69). The Phase 2 Report (paras. 277-278) contemplated supplementary Phase 1bis and Phase 2bis evaluations of matters that caused serious concern to the Working Group, namely the absence of corporate liability and nationality jurisdiction, as well as institutional reforms and severe shortcomings in criminal procedure. As explained in this report, these major deficiencies remain largely unrectified, but the Working Group has yet to consider whether to conduct supplementary evaluations.

3. Outline of the Report

5. This report is structured as follows. Part B examines Argentina’s efforts to implement and enforce the Convention and the 2009 Recommendations, having regard to Group-wide and country- specific issues. Particular attention is paid to enforcement efforts and results, and weaknesses identified in previous evaluations. Part C sets out the Working Group’s recommendations and issues for follow-up.

4. Economic Background

6. Argentina is a G20 member and the third largest economy in Latin America. In 2013, it was the 21st largest economy among the 41 Working Group members. It ranked 29th and 30th in exports and imports of merchandise and services in the Working Group. The main export destinations were Brazil (21%), China (7%), US (5%), Chile (5%), and Venezuela (3%). Agricultural products and animal feed were by far the most significant exports. Argentina is one of the founding members of the Mercosur free trade agreement that consists of five other South American countries. In 2013, Argentina had the 32nd largest outward stock of foreign direct investment among Working Group members.3

5. Cases Involving Bribery of Foreign Public Officials

7. Since Argentina became a Party to the Convention in 2001, ten allegations of Argentine individuals or companies bribing foreign officials have surfaced. Three of the allegations are under investigation. An investigation into one allegation was not opened because of a lack of information. Investigations into two allegations ended without charges. A seventh allegation was determined not to involve foreign bribery but other offences after an investigation. Two allegations that potentially involve foreign bribery were reported after the on-site visit; at the time of this report, it remains unconfirmed whether these cases involve foreign bribery. The tenth allegation surfaced days before this report was adopted. Case names in this report are anonymised at Argentina’s request.

8. Of substantial concern is that the evaluation team could not meet the Argentine prosecutors and investigative judges who investigated these allegations. The discussion of the cases in this report is thus based on information in media reports, Argentina’s questionnaire responses, and discussions with the international co-operation department of the Ministry of Foreign Affairs and Worship (MFA). Officials from the Ministry of Justice and Human Rights and the Public Prosecutor’s Office also took part in the discussion, but they did not have direct knowledge about the investigations in question. The evaluation team also received a written summary with voluminous annexes about one case from an investigative judge

3 Source: International Monetary Fund World Economic Outlook Database (April 2014); World Trade Organisation; UNCTADStat; Instituto Nacional de Estadística y Censos (13 February 2014), “Argentine Foreign Trade Statistics”. GDP at current prices.

at the end of the on-site visit. The delay in providing the material and the judge’s absence from the on-site visit precluded a meaningful discussion of the case during the visit. As further explained at p. 25, the available information raised many issues about several of the foreign bribery cases which regrettably could not be discussed and clarified with the prosecutors and judges who were responsible for the investigations.

(a) Terminated Foreign Bribery Cases

9. Case #1 – River Dredging: The Comisión Administradora del Río de la Plata (CARP) was created by treaty between Argentina and Uruguay in 1973. Its purpose is to regulate and manage issues regarding the river Rio de la Plata and which involve these two countries. The Commission consists of government officials from Argentina and Uruguay. According to media reports,4 CARP had contracted a Uruguayan Company R to dredge a canal in the Rio de la Plata area since 1991. As the contract neared its expiration in 2012, an Argentine CARP member allegedly offered a Uruguayan CARP member a bribe on behalf of Company R to facilitate the contract’s renewal. The bribe was allegedly offered in Buenos Aires. The allegations triggered a diplomatic row between the two countries.

10. At the on-site visit, Argentine government officials – not the investigative judge or prosecutor in the case – stated that the investigation of the alleged bribe-payer had been terminated in May 2014 because of a lack of co-operation from Uruguay. Argentina had opened an investigation in May 2012 after receiving complaints from two Parliamentarians. Four MLA requests were sent to Uruguay, two of which were refused. A further MLA request to a third country seeking the testimony of the Uruguayan CARP member was denied because the official claimed diplomatic immunity.

11. A media report5 – but not Argentina’s questionnaire responses – described an earlier attempt to terminate the investigation. The investigative judge reportedly closed the case in December 2012 partly because of the principle of double jeopardy due to an on-going investigation in Uruguay. This seems unusual, since the Uruguayan investigation appeared to target Company R and not the alleged Argentine bribe-payer. After reviewing a draft of this report, Argentine officials stated that the principle of non bis in idem in Argentina applies to investigations. Unfortunately, the evaluation team was unable to discuss this and other issues with the investigative judge and the prosecutor in the case as they did not attend the on- site visit. The decision to close the case was eventually overturned by the Federal Court of Appeals.

12. Case #2 – Power Project (Philippines): According to media reports,6 Argentine Company M allegedly paid a USD 2 million bribe to the Philippine Secretary of Justice to win a USD 470 million power complex contract. The bribe was allegedly paid through an intermediary J. The money transited through bank accounts in Switzerland, Hong Kong, and the Cayman Islands. The intermediary J later stated publicly that he had paid the Secretary of Justice USD 2 million to avoid having to testify against a former president in a corruption inquiry. In other words, the payment was not a bribe on behalf of Company M. The Secretary of Justice was later charged with extortion in 2007.

4 El Observador (5 May 2012); Ambito Financiero (12 May 2012); La Nación (25 July 2012); MercoPress (7 August 2012); El Observador (7 August 2012); Siglo21 (10 August 2012); El Observador (29 December 2013); Complaint of Graciela Ocaña and Manuel Garrido (12 June 2014); La Nación (11 July 2014). 5 Punta del Este News (15 December 2012). 6 Philippine Center for Investigative Journalism (2-3 April 2001); Philippine Star (16 January 2003); La Nación (15 January 2003); Philippine Center for Investigative Journalism (2 July 2005); GMA News (10 January 2007); GMA News (7 July 2009); Philippine Center for Investigative Journalism (17 April 2008); GMA News (8 January 2007); Inquirer (14 January 2014).

13. The Phase 2 Report (paras. 16-17 and 104) noted substantial delay in the opening of an investigation in Argentina. The allegation surfaced in the Philippine media in 2002 and then in the Argentine media in 2003. No action was taken by the Argentine authorities until June 2005, when the Working Group informed Argentina of the allegations. The MFA then passed the information to the Argentine law enforcement authorities who opened proceedings in May 2006.

14. The Argentine investigative judge initially attempted to terminate the case before the investigation was completed. The investigative judge sent an MLA request to the Philippines on 8 August 2007 for information about a contract and records of legal proceedings. Separately, Argentina requested bank information from Switzerland but the request was denied because of an insufficient connection between the proceedings and the evidence sought. After not receiving a reply from the Philippines, the judge closed the case on 11 November 2009. The Federal Court of Appeals reversed this decision because the Philippine MLA request was still outstanding and ordered the judge to seek tax information. The Court also noted that certain investigative steps (e.g. an analysis of Company M’s accounting information) should have been taken before closing the investigation.7

15. The investigation was then reopened and terminated again after some further delay. In June 2011, the Philippines responded to Argentina’s MLA request. Argentina sent a supplemental request in July 2011. On an unspecified date, the Philippines informed Argentina that the case did not involve bribery to obtain a contract. The Argentine authorities then terminated their investigation on 17 October 2012.

16. Case #3 – Undeclared Cash (Venezuela): According to media reports,8 W is a dual Venezuelan- US citizen. On 4 August 2007, he arrived in Argentina from Venezuela on a private flight hired by Argentine and Venezuelan officials with USD 800 000 in a suitcase which he did not declare as required. In mid-August 2007, Argentine Parliamentarians filed a criminal complaint alleging transnational bribery and money laundering. This case is included in this report because of the initial suggestions that foreign bribery had been involved, even though W was ultimately charged only with smuggling. The case is also relevant to the discussion of a number of issues in the report, namely the opening of foreign bribery investigations (p. 23), executive contact with law enforcement about specific cases (p. 33) and disciplinary processes of judges and prosecutors (p. 35).

17. Case #4 – Gas Plant (Bolivia): According to media reports,9 Argentine Company C formed a joint venture with a Bolivian Company U. The joint venture then signed a USD 86.3 million contract with the Bolivian state-owned energy company YPFP in July 2008 to build a natural gas processing plant in Bolivia. In January 2009, the joint venture received the first USD 4.5 million instalment under the project. Days later, a Company U executive was killed and robbed of USD 450 000 as he was about to meet family members of R, the head of YPFP. The incident sparked speculation that the executive was delivering a bribe to R. In January 2012, R was convicted of corruption and sentenced to 12 years’ imprisonment. M, an Argentine national who is Company C’s owner and president, was convicted in in absentia in Bolivia and sentenced to six years.

7 Investigative decision to terminate case no. 9421/2006 dated 17 October 2012, p. 2.

8 Clarín (9 August 2007); Parliamentario.com (17 August 2007); Clarín (14 December 2007); St. Petersburg

Times (17 December 2007); Clarín (1 January 2008).

9 Latin Petroleum Magazine (1 April 2009); Jornada (1 May 2009); Daily Express (28 January 2012); La Razón (27 January 2012); Latin American Herald Tribune (12 February 2009); Latin American Herald Tribune (14 February 2009); Business News Americas (2 April 2009); Achacachi Post (19 May 2010); EJU (23 July 2009); Hidrocarburosbolivia.com (23 July 2009); El Deber (23 April 2010); La Patria (11 May 2010); La Razón (18 June 2010); Daily Express (28 January 2012); Associated Press (27 January 2012); Los Andes (28 January 2012).