This article first appeared in Revista Capital on April 15, 2019.
The Prolesur case, in which the former Minister of Education Gerardo Varela is implicated, brings to the blackboard the crime of disloyal administration applied to the legal personality. A figure that brings us a world to break down and understand, since it was recently introduced last November 20 with the modification to the Penal Code, through law 21.121. It seems that the scope of the regulation is not entirely clear, since it has generated concern in the markets in the face of an eventual sanction that could even cause the cancellation of the legal personality of an entity.
In simple terms, unfair administration occurs when someone who is in charge of someone else’s assets commits an action – or omission – contrary to the interests of the owner, abusively exercising powers to dispose of them for his benefit.
As my Spanish friend and great influencer of the law of criminal liability of legal persons, Adán Nieto said, unfair administration is the “sauce of all dishes” in Europe, because it is very difficult to prove crimes of an economic nature. Beyond that, it is necessary that in Chile, given the short time that this law has been in force, clarify its scope and, of course, how to prevent the crime.
Be careful, because the traitor can be part of the team. If an administrator or senior manager has a great business opportunity for the entity in which he/she works but derives it to take advantage of another company in which he/she has economic interests, there is a crime. Or if the executive uses company assets for his benefits, such as paying for hotel nights and personal meals with the company card, he is harming the company. If we take it to reality, it fits perfectly as an example when Patricio Contesse (SQM case), in one of his declarations stated that he used part of the company’s resources – 10 million dollars – to finance politics. A sort of “petty cash” on which only he decided what to do with the money, without the authorization of the rest of the board of directors.
In this case, the company is the injured party. However, there are others in which it could be benefited and that is precisely why it is necessary to take timely protection. To be more graphic, if a business group makes a decision that benefits the holding or parent company to the detriment of one of its companies that has different minority shareholders, there is a crime. Here the minority shareholders of that company would be the injured parties. With the criminalization of the offense of unfair administration, these investors now have a tool in case they are affected.
It is for this reason that I emphasize that companies will have to make an effort to make transparent and measure the processes around decision making and establish criteria to avoid misunderstandings that could lead to suspicions or accusations. If a procedure is always the same, and if it is registered or regulated, there should be no complications, but it could be detrimental if it is not established beforehand.
Companies that manage other people’s assets, such as AFPs and stockbrokers, are the most exposed if we talk about unfair administration since it occurs when, for example, they leave aside more profitable investments and intentionally allocate their clients’ funds to less profitable companies. It is different when an AFP makes an investment and assumes risks; that is part of the business.
Now, if an illegal action benefits the company itself, the Law of Criminal Liability of Legal Entities comes into play, which indicates that if the company did nothing to protect itself, it will be sanctioned.
For this type of risk, the common factor is generally conflicts of interest. These cannot be eliminated but must be managed. Transparency and regular disclosures are essential for this. That could be a good first step if we talk about prevention.
By Susana Sierra