Class actions under Argentine law: evolution, present status and perspectives

Latin American
Regional Forum
Newsletter of the International Bar Association Legal Practice Division
Vol 2 no 2 october 2009

Save the date:
3–8 October 2010
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• More than 150 working sessions covering all areas of practice relevant to
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• Registration fee which entitles you to attend as many working sessions throughout
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Latin american regional forum NEWSLETTER october 2009 3
International Bar Association
10th Floor, 1 Stephen Street
London W1T 1AT, United Kingdom
Tel: +44 (0)20 7691 6868
Fax: +44 (0)20 7691 6564
www.ibanet.org
© International Bar Association 2009.
All rights reserved. No part of this publication may be reproduced or
transmitted in any form or by any means, or stored in any retrieval
system of any nature without the prior permission of the copyright
holder. Application for permission should be made to the Head of
Publications at the IBA address.
Contributions to this publication are always welcome and
should be sent to the editor at the address on page 6.
In this issue
From the Co-Chairs 4
Obituary: Rogelio de la Guardia 5
Forum officers 6
IBA Annual Conference – Madrid,
4–9 October 2009: Our forum’s sessions 7
Conference reports
Mergers Acquisitions in Latin America:
trends and challenges
18–20 March 2009, Bogotá, Colombia 9
Chile-Colombia-Peru lawyers meeting
7–8 May 2009, Lima, Peru 10
Feature articles
Managing FCPA issues in an international era:
trends, challenges and implications arising from
global anticorruption enforcement actions 11
Revisiting the SAPI – a corporate entity
whose time has come 18
Competition law enforcement in Brazil
and the fight against cartels 20
Control of economic concentration
in MA transactions in Uruguay 22
Class actions under Argentine law:
evolution, present status and perspectives 26
Chilean provisions for close out netting of
‘connected obligations’ in relation to derivative
transactions entered into by Chilean banks 30
Brazilian oil and gas sector trends 32
Recent changes to Brazilian corporate law and
accounting rules and their effects on taxation 34
Uruguay’s Personal Data Protection Act 37
The abuse of dominant position in Argentina 39
This newsletter is intended to provide general
information regarding recent developments in the
Latin American Region. The views expressed in this
publication are those of the contributors, and not
necessarily those of the International Bar Association.
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International Bar Association Legal Practice Division4
from the co-chairs
A
lthough the world financial crisis
started to manifest itself in 2007
in the countries of its origin, it was
only in the last year that its effects
have reached even the furthest and strongest
economies and industries including those of
our region.
Despite the great difficulties faced,
businesses have adapted accordingly with the
changes. Legal practitioners have adjusted
their practices to meet the new needs of clients
that are now more focused on restructuring
projects with lower budgets. Bearing in mind
that crisis not only means difficulties but also
presents opportunities to show creativity and
the capacity to transform, we would like to
encourage our members to explore other
markets and offer innovative alternatives.
This invitation implies that members have
to be more informed as to the trends of
the practice and this is why this year’s IBA
Annual Conference in Madrid will be a very
enriching experience. Madrid promises to be
an exciting venue for the conference not only
because of its beauty and cultural value, but
also because it offers a unique opportunity
for Latin American Regional Forum (LAF)
members to network with Latin America’s
major commercial partners and contacts.
This, in the current climate, is essential to
overcome the challenges imposed by the
world economic crisis.
We extend an invitation to all LAF
members, and especially to new members
to whom we give a warm welcome, and
encourage active participation in the panels
sponsored or co-sponsored by the LAF. The
Forum’s events are: a workshop on Iberian
investments and disinvestments in the
Region; Banking in Spain and Latin America;
Real estate; Special aspects of MA deals;
Concessions in the utility and infrastructure
sector; and Fighting corruption and best
practices in the mining sector.
In August it was Costa Rica’s turn to host
the IBA/ICC Arbitration in Latin America
CAFTA, FTAs, BITs and Commercial
Arbitration Involving States Conference,
which was followed by an Arbitration
Conference in the Dominican Republic. In
addition some recent conferences undertaken
by the LAF include: the 2nd Annual US Latin
American Tax Planning Strategies Conference
in conjunction with ABA and IFA, a Trilateral
Meeting among Colombian, Chilean and
Peruvian attorneys which took place in Lima
last May which strengthened the relationships
and networking among law firms from
countries with continuous crossed-investments
and transactions, a Mergers and Acquisition
Conference held in Bogotá last March and
a Global Investments in Real Estate held in
Miami in February.
The forthcoming events, to which all
Forum members are invited, are: the regional
conference that will be held in Santiago,
Chile in March 2010, a conference on
intellectual property that will take place in
Mexico and other conferences in diverse
topics such as law firm management.
Finally, we believe that the positive growth
trend of the LAF is the result of the legal
practitioners’ interest to more actively
participate on the building of regional
identity and directly intervene on the course
of our region. For these reasons, we invite you
to become a member of the LAF and help
construct our Forum’s future.
Jaime Herrera
Posse, Herrera Ruiz,
Bogotá
jaime.herrera@
phrlegal.com
Daniel del Rio
Bashman Ringe y
Correa, Mexico DF
daniel.delrio@
bashman.com.mx
A difficult year with
upcoming opportunities

obituary
T
he IBA has suffered the sudden loss of Rogelio de la Guardia, who passed away
at the end of June.
Rogelio, a very enthusiastic member of the Latin American Regional Forum,
was its Chair from 2003–4. He formed part of the generation of Latin lawyers
who, over the last 15 years, had been most supportive in promoting the IBA throughout
the Latin American region – resulting in the creation of the Latin American Forum itself.
Rogelio undertook the enormous task of organising, with great success, the 5th Regional
Conference that took place in Panama City in March 2004.
He also worked with Jack Batievsky, (who died in December 2002), in the organisation
of the Cuzco Regional Conference.
A very good friend to many of us at the IBA, Rogelio was a leading corporate tax lawyer
in Panama at the law firm Arias Fabrega Fabrega. Under his leadership and afterwards,
Rogelio put a lot of effort in the development and proliferation of the successful activities
of the IBA throughout the region, including the Taxes Committee.
Rogelio was a very loving husband and father. Married to Debbie, the couple had
two children of whom he was very proud . He enjoyed all outdoor activities, as well as
travelling and learning about different cultures. He also enjoyed fine food and was a very
good chef.
We shall miss Rogelio and we are thankful for having the opportunity of knowing and
sharing moments with this wonderful human being.
Remembering
Rogelio de la Guardia
Daniel del Rio
Bashman Ringe y Correa, Mexico DF
daniel.delrio@bashman.com.mx

forum officers
Forum officers
Co-Chairs
Daniel del Rio
Basham Ringe y Correa SC
Mexico City, Mexico
Tel: +52 55 5261 0400
daniel.delrio@basham.com.mx
Jaime Herrera
Posse Herrera Ruiz
Carrera 7 No 71-52, Tower A, Floor 5
Bogotá, Colombia
Tel: +57 1 312 3172 Fax: +57 1 325 7313
jaime.herrera@phrlegal.com
Senior Vice Chair
Claudio Undurraga
Prieto y Cia
Avenida El Golf 40, piso 13,
Las Condes, Santiago, Chile
Tel: +56 (2) 280 5012 Fax: +56 (2) 280 5001
cundurraga@prieto.cl
Vice-Chairs
María Teresa Quiñones
Rodrigo Elias Medrano Abogados
Av San Felipe 758, Lima 11, Peru
Tel: +51 1 619 1935 Fax: +51 1 619 1919
mtquinones@estudiorodrigo.com
Eduardo Sanguinetti
Sanguinetti Fodere Bragard
Ituzaingó 1377 pisos 3, 4 y 5, Edificio Constitución
Plaza Matriz, Montevideo, Uruguay, CP 1000
Tel: +598 (2) 915 01 01 Fax: +598 (2) 915 01 01
esanguinetti@sfb.com.uy
Secretary
Lisandro Allende
Brons Salas
Maipú 1210 5ºPiso (C1006ACT)
Buenos Aires, Argentina
Tel: +54 (11) 4891 2716 Fax: +54 (11) 4311 0399
lallende@brons.com.ar
Website Officer
Eugenio Hurtado Segovia
Capin Calderon Ramirez y Gutierrez-Azpe SC
Galileo 55, 1st floor, Col Polanco, 11560
Mexico City, Mexico
Tel: +52 (55) 5280 9193 Fax: +52 (55) 5281 0851
eugenio.hurtado@ccrga.com
Newsletter Editor
Pablo Iacobelli
Carey y Cia Ltda
Miraflores 222, piso 24
Santiago, Chile
Tel: +56 (2) 365 7321 Fax: +56 (2) 633 1980
piacobelli@carey.cl
Membership Officers
Florencia Heredia
Holt Abogados
Av Santa Fe 1592 piso 4°
Buenos Aires, Argentina
Tel: +54 11 5235 0200 Fax: +54 11 5235 0235
fheredia@holtlegal.com.ar
Marcela Hughes
Hughes Hughes Abogados
25 de mayo 455, 2º piso, 11000
Montevideo Uruguay
Tel: +598 2 916 0988 Fax: +598 2 916 1003
mhughes@hughes.com.uy
Ricardo Veirano
Veirano Advogados
Av das Nações Unidas, 12.995 - 18o. Andar
04578-000 São Paulo, Brasil
Tel: +55 11 5503 3719 Fax: +55 11 5505 3990
ricardo.veirano@veirano.com.br
Young Lawyers Liaison Officer
Arturo H Banegas Masiá
Palacios, Ortega y Asociados
Calle Guaicaipuro, Torre Forum, Piso 6
Urb El Rosal, Caracas 1060
Venezuela
Tel: +58 (212) 951 3333 Fax: +58 (212) 951 2851
abanegas@palaciosortega.com
LPD Administrator
Kelly Savage
kelly.savage@int-bar.org

IBA Annual Conference – Madrid, 4–9 October 2009: Our forum’s sessions
4–9 October 2009
I n t e r n a t i o n a l B a r A s s o c i a t i o n C o n f e r e n c e
Latin American Regional Forum
Council Liaison Officers
Daniel Del Rio Basham Ringe y Correa SC, Mexico City, Mexico
Moira Huggard-Caine TozziniFreire Advogados, São Paulo, Brazil
Co-Chairs
Daniel Del Rio
Jaime Herrera Posse Herrera Ruiz Abogados, Bogotá, Colombia
Investing in bricks. Is real estate still a good investment? How is the financial crisis affecting
the real estate market and the emergence of new opportunities?
Joint session with the Real Estate Section.
The old paradigm that the value of real estate never drops has been destroyed. The bubble created by the
construction of more homes than real demand, relying on heavy indebtedness and massive purchase of land, has
led to the bankruptcy of construction companies in Spain and other European countries. The horizon looks gloomy;
however, the winds of change in the real estate business are blowing. The panel will focus on topics such as
refinancing of debt of heavily indebted companies; the participation of banks in the real estate sector; the transfer
of liabilities from construction companies to individuals as a mean to diversify risks; comparisons of different real
estate scenarios in the framework of the credit crunch; the role of governments; the management of the crisis up to a
recovery time; acquisition opportunities; the unclearness of the question of capital availability; and the new real estate
opportunities in housing and tourist projects in different parts of the world such as India, Brazil, Mexico, Panama and
Russia.
The analysis will be carried out by key players in the Spanish real estate industry as well as by attorneys with expertise
in their particular jurisdictions.
MONDAY 1000 – 1300
Bogotá/Caracas, 2nd Floor, Right
Workshop on Iberian investments and disinvestments in Latin America: lessons to learn
Iberian investment, and more specifically Spanish investment in Latin America, has been very intense in the last
decades. This panel will focus on the most common problems and challenges that companies have faced when
disembarking in Latin America and how they have dealt with them. Furthermore, because many cases finally ended
in a disinvestment, the panel will also explore the reasons for such a decision, whether it was voluntary, government-
oriented or government-imposed, and the most relevant issues that arise in the disinvestment process. General
counsel of Spanish companies will also share their major concerns when facing legal problems in Latin America and
how they have been affected by the changes in legal, institutional and political trends in Latin America.
TUESDAY 1000 – 1300
Brussels, 4th Floor, Left
A LUNCH will be held for conference delegates.
Velada Hotel
Transport will depart from the Palacio Municipal de Congresos at 1300.
Price: €50 (€43.10 + €6.90 Spanish VAT @ 16%)
TUESDAY 1300 – 1500

IBA Annual Conference – Madrid, 4–9 October 2009: Our forum’s sessions
Special aspects of MA deals in Latin America
Joint session with the Corporate and MA Law Committee.
The Latin American market has always shown peculiarities in its deal-making, mainly due to the diversity of cultures
and economic significance of its players in the various jurisdictions, where the largest and most sophisticated deals go
along with very small but still extremely complex solutions. Although MA deals in Latin America traditionally implied
the landing of foreign companies in that jurisdiction, the situation later changed and we saw the participation of Latin
American companies interacting within the region without the intervention of those traditional out-of-region players.
But now some of the Latin American companies are taking the lead in some deals and are participating in some of
the largest bids around the world. It is, therefore, important to keep an eye on these new actions and strategies,
to see how those players are participating in their new role. A team of experienced panellists will shed light on the
latest transactions and bids, and will refer to some of the solutions found for them, commenting on their individual
experiences and personal cases in a very interactive session where the audience will be invited to participate and
comment as well.
TUESDAY 1500 – 1800
Auditorium, Lower Level -4
Developing international best practice regulatory models for the international mining industry
Joint session with the African Regional Forum, the Mining Law Committee and the Public Law Committee.
Mining is a high-risk, capital-intensive industry, in which security and continuity of tenure are said to rank immediately
after geology in assessing the viability of new mining projects. In the developing world, high levels of administrative
discretion, coupled with an outbreak of resource nationalism during the recently ended commodity boom, potentially
undermine these principles. A multidisciplinary panel examines how a best practice regulatory model can be developed
for the international mining industry which promotes objective decision-making and secure rather than precarious
tenure.
TUESDAY 1500 – 1800
Santo Domingo, Lower Level -2, Right
Banking in Spain and Latin America: market, new deals and legal structures, and the impact of
insolvencies and restructurings
Joint session with the Banking Law Committee.
The following will be discussed:
• where do banks stand in the current credit market – the market picture;
• the new deals and legal structures used by banks’ renegotiations and restructurings;
• two credit scenarios – avoiding the bankruptcy and recovering the bankrupt company;
• sources of support – central banks, bank regulators, state-owned banks, state agencies, and international financial
organisations; and
• different markets and realities – real estate, corporate (big/small), public entities, local/international financings,
acquisition financing and project financing.
WEDNESDAY 1000 – 1300
Novotel C, The Novotel Hotel
Corporate and outside counsels initiatives for fighting corruption in Latin America
Joint session with the Anti-Corruption Committee and the Corporate Counsel Forum.
In this session, senior in-house counsel of major international companies will present recent corporate programmes
and industry trends in fighting corruption; senior partners of major law firms in Latin America will comment on recent
international client demands for corporate accountability and legal compliance work; and experts will discuss possible
initiatives for upholding the Rule of Law, fighting corruption and demanding high ethical standards from legal service
providers.
THURSDAY 1000 – 1300
Toronto, Lower Level -4
Concessions of public works and services: a critical analysis of contracts and their
consequences
Concessions of public works or services are not always exempt from problems of a diverse nature. The panel will
analyse real cases of concession works that have faced serious difficulties through contractual deficiencies, the causes
of these deficiencies, as well as the ways of solving them. Additionally, the panel will discuss the causes by which
certain concessions have totally failed, and the subsequent effects of such failures.
THURSDAY 1000 – 1300
Madrid, 1st Floor, Left

conference reports
T
he Mergers and acquisitions
conference on Latin American trends
and challenges was held in Bogotá,
Colombia on 18–20 March 2009 and
was presented by the IBA Latin American
Regional Forum and the IBA Corporate and
MA Law Committee of the IBA Legal Practice
Division. More than 200 delegates attended
the conference and had the opportunity of
participating in a variety of interesting panels
and meet colleagues at the social events held
on some of the most attractive spots of Bogotá.
After an opening speech by the Conference
Co-Chairs Jaime Herrera and Carlos Umaña,
the first day of the conference started with
a half-day panel on ‘The financial crisis and
MA: lessons learnt in Latin America and
elsewhere’, in which its speakers analysed how
the present financial crisis has affected MA
transactions. Using an interesting case study
involving a Latin American company acquiring
companies in the region, panellists discussed
matters such as heads of terms, memorandums
of understanding, letters of intent, structure of
the transaction, financing agreements, among
others, and also clauses that are particularly
relevant during crisis time, such as MAC clauses.
After lunch, there was a panel on
relevant issues regarding ‘Antitrust and
Free Competition’ in the region. The main
conclusion that came out of the presentations
given by panellists from several of the Latin
American jurisdictions were that: i) merger
control is growing in the region; ii) antitrust
enforcement is erratic in most Latin American
jurisdictions; and iii) the interpretation of the
law by the authorities is sometimes ambiguous.
There was no consensus on whether there
is a convergence or a divergence on the way
antitrust laws are enforced but there was a
consensus on the need to further study the
potential effects of the global economic crisis
in the way antitrust law should be enforced.
This session was followed by the ‘Due
Diligence and limitation of liability in MA
transactions: “hot” items and various caveats’
session in which the panellists examined the
scope of liability by sellers and purchasers
in MA transactions, applicable statute of
limitation on liability, hidden effects and others,
together with a case study that allowed the
speakers to recognise relevant matters in these
transactions, such as post-closing issues, analysis
of purchase agreements and the limits of legal
liability under these agreements or contracts.
The third and final day of the conference was
initiated with a session on ‘Labour issues affecting
MA transactions’ in which issues like labour
substitution, collective labour agreements and the
application of labour conventions were discussed.
This was followed up by ‘The Pandora box of
taxes’ session in which anomalous types of taxes
that may affect and surprise MA transactions
were recognised. During the afternoon in the
‘Post-acquisition litigation’ session a series of
outstanding experts from the US, Chile, France
and Mexico, debated on the most frequent
current issues arising after some deals are cut
or just as a consequence of such deals failing
to close. A quick but ample review on typical
reps and warranties provisions, due diligence
reports, viewpoints of interpretation, disclose
of confidential information, etc, showed the
audience that there are very common concerns
widely spread no matter what jurisdiction the deal
takes place in. As one of the co chairs indicated,
in a panel like that, it is expected that there
would be more questions than answers, which
always help, of course. The day finished with a
‘Roundtable of chief legal officers (CLOs) with
jurisdiction in Latin America’ in which CLOs of
relevant multinational companies that operate
in the region addressed matters regarding legal
counselling in the region, criteria that a CLO
should apply when selecting counselling on
MA transactions and common issues between
CLOs and their outside counsel when elaborate
transactions occur.
Sessions were combined with some social
events. The first day of the conference, the
sponsors and the Host Committee offered a
cocktail reception in El Chicó Museum, an 18th
century colonial house located in the heart
of Bogotá. The second day ended with a visit
and cocktail at the Gold Museum and a dinner
offered by the Host Committee in the Jockey
Club of Bogotá. Finally, delegates will likely never
forget the closing dinner party at Andrés Carne
de Res, a unique place and probably one of the
IBA’s most memorable closing events in years.
Pablo Iacobelli
Carey y Cia, Santiago
piacobelli@carey.cl
Mergers Acquisitions in Latin
America: trends and challenges
18–20 March 2009, Bogotá, Colombia

conference reports
with a keynote speaker presentation on
the geopolitical and economic framework
of the three countries made by Mr Roque
Benavides. The next day, five panels analysed
the business perspectives, in the short and
medium term, for mining and energy,
infrastructure and utilities, banking, retail,
industry, and free trade agreements.
Panellists were of the highest level, including
representatives of industries from all three
countries, high officers of the industry and
trade associations, as well as authorities from
the governments and foreign service. In the
presentation on Peru’s FTAs and foreign
commerce perspectives of the Peruvian Vice-
Minister of Foreign Commerce and Tourism,
Mr Eduardo Ferreyros, made special reference
to the importance of discussing these matters
with representatives from the most important
law firms of three Andean countries, since
lawyers are active players in the economic
relations among our countries.
Delegates also had the opportunity of
networking at social events which included a
dinner at Casa Hacienda Moreya, in the heart
of Lima, and a closing cocktail at Museo Larco.
The delegates expressed their high satisfaction
with the content and the level of the speakers,
as well as with the social activities programmed
for this trilateral meeting.
María Teresa
Quiñones
Rodrigo Elias
Medrano Abogados,
Lima
mtquinones@
estudiorodrigo.com
Chile-Colombia-Peru lawyers
meeting, 7–8 May 2009,
Lima, Peru
G
iven the successful precedents
of the Chile-Argentina, and
Argentina-Brazil meetings held in
2005 and 2006, respectively, this
year the LAF scheduled a trilateral meeting
among Chilean, Colombian and Peruvian
lawyers, which took place last May, in Lima,
Peru. The organisation of this event was
entrusted to representatives from all three
countries participating.
From the 52 registered delegates that
participated in the meeting, nine were from
Colombia, 12 from Chile, and 31 from Peru.
It is noteworthy that almost all relevant firms
from those countries were present.
Considering that this kind of activity is
aimed at strengthening the relationships and
networking among law firms from countries
with continuous crossed-investments and
transactions, the first day programme provided
time for visiting local firms. In addition, a list
of contacts and data from all IBA members in
Lima was circulated to registered delegates,
with the intention to facilitate the arrangement
of appointments with them. Likewise,
information relating to foreign registered
participants was circulated to Peruvian local
firms that registered to the event.
The programme’s content was quite
ambitious, starting in the evening of 7 May,

feature ARTICLES
Introduction
The past several years have witnessed an
explosion of Foreign Corrupt Practices
Act (FCPA) enforcement actions brought
by the Department of Justice (DOJ) and
the Securities and Exchange Commission
(SEC). This trend is continuing unabated as
aggressive US enforcement is coupled with
enhanced international cooperation arising
from heightened international anti-bribery
standards and active parallel investigations
in foreign jurisdictions.1
As a result, US
companies doing business abroad now face
the greatest level of government resources to
combat bribery since the passage of the FCPA
more than 30 years ago.
Among the formidable challenges facing
US companies doing business abroad
is determining whether their business
operations have properly addressed
corruption risks. The question is no longer
whether, but how, a US company, in the
form of subsidiaries, branch offices or third
party distributors, manages the FCPA risks
engendered by its business operations.
Increased FCPA enforcement has
significant consequences for US companies
and their officers and directors. A
substantial percentage of recent deferred
prosecution agreements (‘DPA’) involve
violations of the FCPA. Many of these DPAs
have resulted in the use of an independent
monitor with wide latitude to review
business operations and report its findings
to the government.2
The rise in FCPA
cases has also resulted in unprecedented
corporate fines,3
and increased prosecution
of individual corporate executives with
attendant terms of imprisonment.4
The purpose of this overview is to identify
key provisions of the FCPA and specific
strategies to manage the FCPA risks associated
with recent FCPA enforcement trends.
The FCPA’s anti-bribery provisions
The FCPA criminalises the bribery of
a foreign official to secure business. In
particular, the FCPA prohibits the payment,
offer or authorisation of payment of money
or anything of value to a foreign official for
purposes of influencing any act or decision or
securing an improper advantage to obtain or
retain business. See 15 USC § § 78dd-1–3.
The FCPA’s anti-bribery provisions apply
to: (1) ‘issuers’ (any company, and its agents,
with a class of securities registered with the
SEC or required to file reports with the SEC)
(2) ‘domestic concerns’ (any company, and
its agents, with a principal place of business
in the US or organised under US law and any
other US citizen or resident alien); and (3)
‘other persons’ (foreign persons acting within
US territory).
Business leaders surely recognise that
the FCPA prohibits the suitcase of cash
going to a foreign ministry official to
secure a government contract. Yet, it may
surprise many business executives to learn
that the FCPA more broadly applies to an
almost limitless, far less culpable, set of
circumstances involving administrative and
regulatory matters. To protect against FCPA
liability, business leaders should have a firm
understanding of the recent enforcement
trends involving the following elements of the
FCPA: ‘foreign official,’ ‘anything of value,’
and ‘obtain or retain business’ and ‘any acts
within the territory of the United States.’
Foreign official
Under the FCPA, a foreign official does not
have to be an elected official or even someone
appointed to a government ministry or
agency. Individuals can be deemed ‘foreign
officials’ even though they are not considered
foreign officials under local law.
The FCPA’s definition of a public official
is very broad. It includes ‘any officer or
Managing FCPA issues in an
international era: trends, challenges
and implications arising from global
anticorruption enforcement actions
Jonathan N
Rosen
Shook Hardy Bacon,
LLP, Washington DC
jrosen@shb.com
Luis A Perez
Shook Hardy Bacon,
LLP, Miami
lperez@shb.com

feature ARTICLES
employee of a foreign government or any
department agency, or instrumentality
thereof… or any person acting in an
official capacity for or on behalf of any
such government or department, agency
or instrumentality… ’ 15 USC § § 78dd-1(f)
(1) et seq. In other words, a person may
also qualify as a public official by virtue of
his employment with an ‘instrumentality’
of government – a term which is neither
defined by the FCPA itself or its legislative
history. Once a foreign company is deemed
an instrumentality of a foreign government,
every employee of that company is a ‘foreign
official’ under the FCPA.
As a general matter, businesses must audit
their internal operations for any interaction
with the host governments and/or state-
owned or state-controlled enterprises (SOE).
An entity may become an ‘instrumentality’
when the government holds the majority
of the enterprise’s subscribed capital,
controls the majority of votes attaching
to shares issued by the enterprise or can
appoint a majority of the members of the
enterprise’s administrative or managerial
body or supervisory board. An entity may
also be deemed a state instrumentality if that
entity performs a ‘public function.’ A public
function may be inferred from preferential
subsidies or other privileges which show that
the entity is not functioning on a normal
commercial basis.
Dangers involving work with SOE
employees particularly exist for
pharmaceutical and medical device
companies who make payments to doctors
employed by state-owned hospitals. In
June 2008, after voluntarily disclosing and
cooperating with government investigators,
AGA entered into a three-year deferred
prosecution agreement with the DOJ and
agreed to pay a $2 million criminal penalty
in connection with improper payments made
by AGA’s Chinese distributor to physicians
employed by Chinese government owned
or controlled hospitals. See DOJ News
Release, No 08-491 (3 June 2008). Diagnostic
Products Corporation agreed to settle an
FCPA enforcement action in connection
with improper payments to physicians
and laboratory personnel employed by
government-owned hospitals in China. See
DOJ News Release, No 05-282 (20 May 2005)
and SEC Litigation Release No 51724 (20
May 2005). In another case, the SEC filed a
settled civil injunctive action against Monty
Fu, the founder and past chairman of Syncor
International Corporation, in connection
with improper payments made to doctors
in state-owned hospitals in Taiwan. See SEC
Litigation Release No 20310 (28 September
2007). As these cases illustrate, any company
doing business in China must determine
whether it is doing business with an SOE. See
United States v SSI International Far East Ltd,
No 3:06-cr-00398 (D Ore 2006) (defendant
company enters into DPA with DOJ for
payments made to managers of government-
owned steel mill in China).
A similar issue can arise where a company
conducts business with someone who has both
private and public duties. In that case, the
company should:
• document that its contractual relationship
with the individual is based on that
individual’s private capacity;
• confirm that there is a bona fide need for
the services being provided;
• confirm that any payment under the
contract is commensurate with fair market
value; and
• document that the services were in fact
provided.
Given the broad definition of ‘foreign
official,’ every company should inquire
whether its business partners are employed
by an SOE or otherwise perform any public
duties for a foreign country.
Anything of value
FCPA liability does not simply require a
suitcase filled with cash. While undefined
by the FCPA and its legislative history,
‘anything of value’ has been broadly
construed to include political contributions,
entertainment, travel, meals and lodging.
It even includes intangible benefits, such
as the enhanced prestige associated with a
charitable contribution.
What qualifies as ‘anything of value’ is
malleable. FCPA liability is not triggered by
some objective, threshold amount received
by the foreign official. What determines
whether ‘anything of value’ has been offered
or conferred is the personal valuation of the
receiving official. For example, an ostensibly
routine business trip to the United States
to visit a factory may become the trip of a
lifetime to the foreign official if Las Vegas and
Disneyworld are also on the itinerary.
The outer reaches of ‘anything of value’
are highlighted in an enforcement action
involving a charitable donation. In the matter of
Schering-Plough Corp, File No 3-11517 (9 June

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2004), the US government took the position
that a donation to a bona fide charitable
organisation established to restore castles and
other historic sites violated the FCPA. In that
case, a Polish subsidiary made payments to a
foundation whose founder became director
of a government health fund. The donations
constituted a thing of value to the official
because they were subjectively valued by
the official and provided him an intangible
benefit of enhanced prestige. The Schering-
Plough case shows that even payments to bona
fide charities that do not pass directly or
indirectly to a government official may violate
the FCPA.
More routine expenses, like travel and
lodging expenditures, may also violate the
FCPA. On 21 December 2007, the SEC and
DOJ filed and settled charges against Lucent
Technologies, Inc, which spent over $10
million in travel, lodging, entertainment and
related expenses for approximately 1,000
employees of a Chinese SOE from which
Lucent was seeking business. See DOJ News
Release, No 07-1028 and SEC Litigation
Release, No 20414 (21 December 2007).
The trips were primarily for sightseeing
and leisure rather than business purposes
and resulted in expenses being recorded as
‘factory inspections’ in locations where no
factory existed. Id.
The FCPA contains an affirmative defence
for expenditures relating to the ‘promotion,
demonstration, or explanation of products or
services’ or the ‘execution or performance
of a contract.’ 15 USC § § 78dd-1(c)(2).
However, a company must show that the
expenses are ‘reasonable’ and ‘bona fide’ and
‘directly related’ to a business purpose.
The Schering-Plough and Lucent cases
alert business leaders to the fact that FCPA
enforcement will subject a wide variety of
business practices to review. To avail itself
of an affirmative defence with respect to
business expenditures, companies must
ensure some control over the expenditure of
funds to ensure that they relate to a legitimate
business purpose.
Obtain or retain business
A common misperception of the FCPA is that
improper payments must relate to securing
government contracts. In fact, the FCPA is
more broadly focused on payments that result
in an improper advantage over competitors,
regardless of whether a government contract
is, in fact, in play. As a result, business leaders
must know the administrative and regulatory
practices of the foreign countries in which
they do business.
United States v Kay, 359 D3d 738 (5th
Cir 2004) was the seminal decision which
clarified the breadth of the FCPA’s obtain
or retain element. In Kay, the Court held
that payments to lower corporate taxes
and custom duties could violate the FCPA.
In other words, the FCPA is not limited to
securing government contracts.
Since the Kay decision, there have been
several FCPA enforcement matters involving
improper payments to obtain various
foreign government licences, permits and
certifications. In July 2007, for example,
Delta Pine Land Company agreed to settle
an FCPA enforcement action for making
approximately $43,000 in improper payments
between 2001–2006 to officials of the Turkish
Ministry of Agricultural and Rural Affairs in
order to obtain various governmental reports
and certifications needed to conduct its
business in Turkey. See SEC Litigation Release
No 20214 (26 July 2007). In February 2007,
the Dow Chemical Company agreed to settle
FCPA charges that it made approximately
$200,000 in improper payments and gifts
to officials in India who had discretionary
authority in registering and inspecting
company product for sale in India. See SEC
Litigation Release No 20000 (13 February
2007). In January 2005, Monsanto Company
settled an FCPA enforcement action for its
payment to a foreign environmental official
in an effort to repeal certain environmental
regulations. See SEC Litigation Release No
50978 (6 January 2005).
Business executives must be aware of the
FCPA risks associated with routine business
activities such as exporting products into
a foreign market. The following is a list of
relevant questions:
• Does local law require the licence, permit
or certification?
• Is the company relying on a third party
to obtain the various licences, permits or
certifications? If so, has there been due
diligence to ensure compliance by that
third party with the FCPA?
• Who is interacting with the foreign
official to obtain the licence, permit
or certification? Are there any unusual
reimbursement requests by that employee?
• Is the payment being made to the licensing
agency or to the individual official? Is there
an invoice and supporting documentation
from the licensing agency?

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Any acts within the territory of the United
States
In 1998, several amendments empowered
the Foreign Corrupt Practices Act to assert
jurisdiction over foreign businesses and
nationals. As a result, a foreign business or
individual is subject to the Foreign Corrupt
Practices Act if they cause, directly or through
another, an act to further a corrupt payment
to take place inside of the US.
Recently, the government has aggressively
pursued FCPA liability against foreign persons
and entities for their incidental use of US
bank accounts involving prohibited payments.
In the Siemens and Halliburton/KBR cases, for
example, the government charged foreign
subsidiaries with FCPA violations based,
in part, on US dollar-based wire transfers
between foreign bank accounts which cleared
through correspondent accounts in the
United States. The government made similar
jurisdictional claims in a forfeiture action
relating to Singapore funds associated with
the Siemens case. See DOJ News Release, No
09-020 (9 January 2009).
The jurisdictional claims in the Siemens and
Halliburton/KBR cases reflect an expansive
interpretation of the territorial nexus required
to prosecute non-US persons under the FCPA.
In particular, notwithstanding the absence of
more traditional jurisdictional facts, including
US-based telephone calls, meetings or
money transfers, the government may claim
jurisdiction to prosecute foreign nationals or
entities for FCPA liability based on a far more
fleeting connection to US territory.
Improper payments by third parties
Another area of aggressive FCPA enforcement
concerns improper payments by third
parties. Business leaders cannot shield their
companies and themselves from FCPA liability
by relying on foreign subsidiaries, agents and
business partners. The FCPA has a very broad
third party payment provision, which includes
the making or authorisation of improper
payments indirectly through third parties
while ‘knowing’ that all or a portion of such
money or thing of value will be passed on to
any foreign official. See 15 USC § § 78dd-1(a)
(3) et seq.
As a result, business executives must know
how their products or services reach their
end users in each foreign market. Does the
business rely on any third parties, eg, foreign
distributors or some other agent, to assist in
securing business? If so, business leaders must
ensure that a vetting process is in place to
protect against the FCPA violations of these
third party intermediaries.
The knowledge standard
The government will impute knowledge to
business leaders even if they do not have
actual knowledge of an improper payment
by a third party intermediary. In particular,
the government will pursue FCPA liability if
it finds ‘willful blindness’ to any ‘red flags’
that should reasonably alert a company’s
management to a ‘high probability’ of an
FCPA violation.
The government will likely construe a
breakdown in internal controls as an effort
to adopt a ‘head in the sand’ approach to
FCPA compliance. In an enforcement action
against York International, several improper
payments were made by a foreign subsidiary
to third-party agents under circumstances
that demonstrated that the company failed
to conduct adequate due diligence to assure
itself that payments were not being passed to
SOE officials. See DOJ News Release, No 07-
783 (1 October 2007).
In the Halliburton case, the SEC charged
the company, in part, with a civil violation of
the FCPA’s anti-bribery provisions without
alleging that Halliburton had any knowledge
of the bribe payments at issue. Halliburton’s
liability was premised on its failure to conduct
sufficient due diligence of the foreign agent
who, while working on behalf of Halliburton’s
joint venture, had made the prohibited bribe
payments. See Complaint, SEC v Halliburton
Co and KBR, Inc Civ Action No 4:09-399 (SD
Tex) (11 February 2009) at 31.
Vicarious liability
The following enforcement actions highlight
the broad application of the FCPA’s third
party payment provision, including liability
for foreign subsidiaries, distributors and
sales agents:
• On 31 October 2007, Ingersoll-Rand
entered into a three year DPA with the
DOJ based on improper payments made by
Ingersoll-Rand’s Italian and Irish wholly-
owned subsidiaries foreign subsidiaries to
the Iraqi government in connection with
contracts under the United Nations Oil for
Food programme. See SEC v Ingersoll-Rand
Company Ltd (No 07-cv-1955) (DDC 2007).
• On 3 December 2004, DOJ entered into
a DPA with GE Invision, Inc for FCPA

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violations arising from improper payments
made by its distributors in China to foreign
officials to secure the sale of airport security
screening machines. See DOJ News Release,
No 04-780 (6 December 2004).
Due diligence and red flags
While a comprehensive review of due
diligence is beyond the scope of this overview,
it is imperative that business leaders conduct
a risk assessment based on an informed
understanding of that company’s business
strategy entering a foreign market. Third
parties should be vetted according to the
following two general criteria: (1) the nature
and frequency of an intermediary’s contact
with a foreign official; and (2) the amount
and type of an intermediary’s compensation.
Particular attention should be paid to
intermediaries, like sales staff, who are paid
on a purely commission basis.
Given that resources are limited, business
leaders may employ a tiered approach to
distinguish between high-risk and low-risk
intermediaries. At a minimum, however,
business leaders should consider whether:
• a business justification exists for entering
into the relationship with the intermediary;
• a history of corruption exists in the country
in question;
• the intermediary is a government official, is
related to a government official, works for
a company owned in part by a government
official or is recommended by a government
official;
• a fair market valuation exists for any service
to be performed by an intermediary;
• the intermediary requests excessively high
commissions, unusual discounts, mid
stream, up-front or cash payments;
• the intermediary objects to anticorruption
standards and representations, audit rights,
and termination rights in the contract;
• the intermediary is not competent
to perform the requested service, eg,
the intermediary lacks the necessary
qualifications or resources;
• there is a lack of transparency in accounting
and expense records or the intermediary
has requested that the company prepare
false invoices or any other type of false
documents;
• the intermediary refuses to disclose owners,
partners or principals;
• the intermediary uses shell or holding
companies that obscure ownership without
credible explanation; and
• there are press reports of improprieties
concerning the intermediary.
FCPA’s expansive books and records
provisions
Another area of aggressive FCPA enforcement
involves the FCPA’s books and records
provisions. These provisions reinforce the
government’s expectations that companies
will implement compliance programmes and
auditing procedures to deter and identify
FCPA violations in their overseas operations.
The FCPA requires that issuers ‘make and
keep books, records, and accounts, which, in
reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets
of the issuer.’ See 15 USC § 78m(b)(2)(A).
The FCPA also requires that issuers ‘devise
and maintain a system of internal controls
sufficient to provide reasonable assurances
that transactions are executed in accordance
with management’s general or specific
authorisation.’ Ibid at § 78m(b)(2)(B)(i).
The purpose of these provisions is to
ensure that shareholders receive an accurate
assessment of the company’s expenditures by
preventing the accounting fraud associated
with improper payments. A company
facing an FCPA enforcement action may,
therefore, also be sued in a civil action under
securities law by shareholders claiming to
have purchased their shares at an inflated
price and in derivative actions brought
by shareholders to recover for alleged
wrongdoing by officers and directors.
The FCPA’s book and records provisions
only apply to issuers and require no proof of a
US territorial nexus. Given the expansive reach
of the FCPA accounting provisions, business
leaders should recognise the increased risks of
a parent company for the accounting practices
of its foreign subsidiaries.
Strict liability
A US parent is liable for the accounting fraud
of its foreign subsidiary whether or not the
parent has knowledge of the accounting
fraud. There is no scienter requirement nor is
there a materiality requirement.
For example, in its settlement with the
government, Siemens acknowledged that
it violated the FCPA’s book and records
provisions when it incorporated the books
and records of several of its subsidiaries that
participated in the United Nations Oil for
Food Programme into its own books and

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records. The subsidiaries falsely characterised
kick-back payments to the Iraqi government
as ‘commissions’ on their books and records,
which were later entered into the books and
records of the parent.
The mere consolidation of a subsidiary’s
bogus entries into a parent’s own books
and records is sufficient to establish FCPA
liability. Dow Chemical Co settled a civil
action with the SEC for allegedly violating
the FCPA’s books and records and internal
control provisions. See SEC Litigation
Release No 20000 (13 February 2007). Dow
consented to pay a $325,000 civil penalty in
connection with improper payments by one
of its foreign subsidiaries to public officials
in India. The improper payments were
made through third party intermediaries
of the foreign subsidiary and without the
knowledge of the US parent.
Increased risks of parent company for
foreign subsidiary’s books and records and
internal controls
The following high profile FCPA enforcement
actions underscore the government’s leverage
to demand exorbitant fines from a US parent
for a breakdown in its financial and audit
controls over a foreign subsidiary:
• On 30 October 2007, Ingersoll-Rand
settled an SEC books and records
enforcement action by agreeing to pay
disgorgement of profits of $1,710,034
plus pre-judgment interest of $560,953,
and a further civil penalty of $1,950,000
in connection with improper payments
by foreign subsidiaries to an Iraqi public
official. See SEC Litigation Release No
20353 (31 October 2007);
• On 1 October 2007, York International
settled an SEC books and records
enforcement action by agreeing to the
disgorgement of $8,949,132 in profits, plus
$1,083,478 in interest, and a $2,000,000
civil penalty in connection with improper
payments made to an Iraqi public official
by an intermediary of a foreign subsidiary.
See SEC Litigation Release No 20319 (1
October 2007); and
• On 26 April 2007, Baker Hughes settled
an enforcement action with the SEC
and DOJ by agreeing to pay a record
$44.1 million in connection with alleged
bribery payments by its foreign operations
in Kazakhstan, Nigeria, Indonesia,
Uzbekistan, Russia and Angola. The SEC
complaint alleged FCPA violations under
circumstances that reflected a failure to
implement sufficient internal controls to
determine whether the payments were for
legitimate services, whether the payments
would be shared with government officials
or whether these payments would be
accurately recorded in Baker Hughes’
books and records. See DOJ News Release,
No 07-296 (26 April 2007) and SEC v Baker
Hughes, 07-cv-1408 (SD TX 007).
Each instance signifies the government’s
aggressive enforcement of the FCPA based
on questionable accounting practices in
the foreign operations of issuers subject to
the FCPA. In each case, the inadequacy of
the issuer’s internal controls provided the
government with an aggravating circumstance
to enhance the penalties.
Importance of internal auditors
The expansive reach of the FCPA accounting
provisions presents formidable challenges
to businesses with non-US operations. While
the varied elements of an FCPA compliance
regime are beyond the scope of this overview,
business leaders must ensure that internal
auditors are trained to identify the forensic
evidence necessary to establish an FCPA
violation in its foreign operations.
The role of compliance cannot be limited
to training for management or third party
intermediaries. Nor can it be limited to periodic
independent audits by outside counsel and
auditors. The day-to-day gatekeepers overseeing
a company’s expenditures must also be trained
in FCPA compliance.
To be more than a ‘paper programme,’
FCPA compliance must focus on identifying
the ‘at-risk’ expenditures which could
finance an improper payment. Towards
that end, internal auditors should establish
accounting controls for such items as
charitable contributions, gifts and cash
expenditures. Back-up documents must be
retained along with strong cash controls to
minimise the presence and access to cash
accounts. Financial personnel must maintain
regular account reconciliations for petty cash.
Moreover, transaction process controls should
also identify the ‘who, what and why’ of any
gift or cash expenditure.
Financial and audit personnel should
closely review the bona fides for any
expense booked as a consulting, licensing
or promotional payment to an intermediary.
Personnel in business operations should look
for the following red flags:

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• payment requested in cash or to a numbered
account or the account of a third party;
• payment requested in a country other than
the intermediary’s country of residence
or the territory of the sales activity, and
especially, if it is a country with little
banking transparency;
• payment requested in advance or
partial-payment immediately prior to a
procurement decision;
• reimbursement requests for extraordinary,
ill-defined or last minute expenses;
• payment request lacks supporting
documentation; and
• payment request is excessive in light of past
payments for similar services.
Conclusion
In today’s global marketplace, business
leaders face a Herculean task of managing
the FCPA risks in their foreign business
operations. Notwithstanding this challenge,
the government expects that a corporation
will conduct the appropriate due diligence
and implement the necessary internal controls
to identify and remedy the danger of FCPA
violations. Given the dramatic increase in
FCPA enforcement against both companies
and senior corporate executives, business
leaders must educate themselves and their
employees on the industry-specific FCPA risks
attendant to their non-US business operations.
Notes
1 The global investigations involving Siemens AG and Azko
Nobel are illustrative. In December, 2008, Siemens, a
German company, and three of its subsidiaries pleaded
guilty to FCPA violations brought by DOJ and SEC. See
DOJ News Release, No 08-1105 and SEC Litigation
Release, No 20829 (15 December 2008). In its press
release, DOJ acknowledged the assistance of the Munich
Public Prosecutor’s Office, which also brought charges
involving corrupt payments to foreign officials against
Siemens. Id. As a result, the Siemens case is the first ever
simultaneous resolution of domestic and foreign
anticorruption charges. In settling its FCPA enforcement
action against Azko Nobel, the government acknowledged
the cooperation from the Dutch Public Prosecutor and
even gave credit for fines to be paid by Azko Nobel to the
Dutch authorities in a separate settlement agreement. See
DOJ News Release, No 07-1024 (20 December 2007).
2 For example, as part of settlement agreements with the
SEC and DOJ, the following companies have all agreed to
the appointment of monitors or consultants to companies
to ensure FCPA compliance: Siemens, Halliburton/KBR,
AG, Ingersoll-Rand, York International, Paradigm BV,
Baker Hughes, Vetco International, Schnitzer Steel,
Statoil, ABB, Diagnostic Products Corporation, DPC
(Tianjin) Ltd, InVision, Micrus, Monsanto, and Titan.
3 Siemens agreed to pay $800 million in combined civil and
criminal penalties to settle its case with the government.
On 11 February 2008, Halliburton/KBR agreed to pay
$579 million in combined criminal and civil penalties to
settle its case with the government. In 2007, three
subsidiaries of Vetco International agreed to pay $26
million, while Chevron agreed to pay $27 million to
various enforcement bodies, in addition to a $3 million
civil penalty.
4 The recent increase in charges brought against
individuals has generally followed settlements with
cooperative corporations. The disclosures to the
government which are attendant a corporation’s
cooperation make it far easier for the government to
prepare a case against a corporate executive. Thus,
Syncor and its subsidiary settled FCPA charges with the
government in 2002 while the government thereafter
filed charges against Syncor’s former chairman, Monty
Fu (see SEC v Fu, No 1:07-cv-01735 (DDC September
2007)). In addition, on 16 October 2006, Schnitzer Steel
agreed to a DPA with the government which thereafter
filed charges against the former chairman and CEO of
Schnitzer Steel (see SEC v Philip, No 07-cv-1836 (D Ore
13 December 2007). On 24 September 2008, an Alcatel
executive, Christian Sapsizian, was sentenced to 30
months in jail in prison after pleading guilty to an FCPA
violation arising out of 2.5 million in payments made to
a Costa Rican official in order to obtain
telecommunication contracts.

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A
s Mexico and the rest of the world
come to grips with the global
financial crisis, it has become
abundantly clear that efficient
corporate organisation and management is a
matter of life or death. With financing sources
increasingly hard to come by and credit
committees insisting on greater transparency
from borrowers, companies that can respond
quickly to changes in the market place and
that have embraced improved corporate
governance practices will be more likely to
attract the capital needed for future growth.
In recognising the need for flexible corporate
structures and greater transparency, in 2005
Mexico enacted the Securities Market Law
(Ley del Mercado de Valores) in which it created
a new corporate entity, the investment
promotion corporation (sociedad anonima
promotora de inversion) which is better known
by the Spanish acronym ‘SAPI’.
What is a SAPI?
A SAPI is a Mexican stock company organised
as a ‘sociedad anonima’ that voluntarily submits
to the rules set out in the Securities Market
Law. A SAPI has several distinguishable
features from that of a traditional sociedad
anonima. First SAPIs provide a greater level
of protection to minority shareholders
than a traditional sociedad anonima. The
shareholders of a SAPI may enter into a
shareholders agreement wherein the parties
may establish share transfer restrictions,
the rights of exiting shareholders, and, the
rules and procedures for the repurchase of
shares. In addition, the shareholder may
enter into non-compete agreement to protect
their investments in the event of a hostile
takeover as well as voting agreements. Under
the General Corporations Law (Ley General
de Sociedades Mercantiles), the shareholders
of a sociedad anonima are prohibited from
entering into these types of agreements.
These features of the SAPI allow for
greater flexibility in establishing the capital
structure of the company and allow minority
shareholders greater protection for their
investments. By providing clear rules for
exiting a SAPI, private equity investors will be
encouraged to participate in SAPIs as they will
have the liberty to negotiate exit terms with
the other shareholders.
Another attractive feature of the SAPI is
the possibility of adopting management and
surveillance provisions similar to those of
publicly listed companies (eg, establishing
best corporate practices, executive and
audit committees to assist the board of
directors’ surveillance functions, having an
independent external auditor examine the
financial statements). To serve as a basis
for the implementation of the company’s
corporate governance practices, the company
may adopt a charter of Best Charter of Best
Corporate Practices (Codigo de Mejores Practicas
Societarias) as well as an Ethics Charter (Codigo
de Etica). By adopting such governance
provisions at formation, a SAPI has the added
advantage of being able to convert itself
into a publicly traded company either as a
sociedad anonima bursatil (SAB) or as a sociedad
anonima promotora de inversion bursatil (SAPIB)
without having to undergo the costly and
time consuming process of implementing the
Mexican Stock Exchange (Bolsa Mexicana de
Valores) corporate governance requirements
that are otherwise not required under the
General Corporations Law. In this sense, the
SAPI has the ability to adapt to the changing
needs of the shareholders pursuant to the
growth of its business.
Given the SAPI’s greater transparency
and flexibility it is considered to be the
preferable corporate entity for private equity
transactions and mergers and acquisition
deals. As the global market continues to
change forcing businesses to become more
efficient the SAPI provides shareholders with
Revisiting the SAPI – a
corporate entity whose
time has come
Mariana Romero
Casillas
Chadbourne Parke,
SC, Mexico DF
mromero@
chadbourne.com

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a more agile corporate structure for meeting
these changes and satisfying the transparency
requirements of equity investors and lenders.
Common misconceptions regarding SAPIs
As a relatively new corporate entity, there
are a number of common misconceptions
that have developed concerning SAPIs which
require clarification.
First, SAPI are not subject to the
supervision and reporting requirements
of the Mexican securities regulator, the
National Banking and Securities Commission
(CNBV). It is commonly assumed that since
the Securities Market Law established the
legal framework for the SAPI and corporate
governance practices are required the SAPI
is subject to CNBV supervision. This is not
correct. SAPI are non-public companies and
are not subject to inspections or supervision
by the CNBV.
A second commonly held belief is that
SAPI’s are subject to an unfavourable tax
regime. A SAPI is subject to the same tax
regime applicable to any other corporation
established in Mexico.
Much of the hesitation to embrace the
SAPI stems from the failure of many investors
to understand the advantages provided
by a SAPI. Many investors do not fully
appreciate the benefits of implementing exit
mechanisms such as ‘tag-along’ and ‘drag-
along’ procedures for minority shareholders
nor the desirability of having methods for
resolving voting deadlocks.
There is also a widely held belief that
corporate governance is only for public
companies and that it is more of a burden
than a benefit. While this may be true in
the short-term, the benefits of corporate
governance in the form of attracting
investors, access to capital and improved
overall performance outweigh the pain of
implementing such practices.
At its essence, a SAPI can be described as a
traditional corporation with additional benefits.
Conclusion
Mexico continues to present many
opportunities for both foreign and domestic
investors and the SAPI is an excellent
corporate entity for conducting business in
a challenging business climate. As a result of
tightening credit markets and the demand
for greater vigilance of corporate activities by
investors, the SAPI addresses these concerns by
requiring a greater degree of transparency and
governance. It is anticipated that private equity
funds will play an increasingly important role
in financing business ventures in the current
environment where ‘cash is king.’ Due to the
SAPI’s greater flexibility and the protection of
minority shareholders, the use of a SAPI as an
investment vehicle meshes well with the short
to medium term exit strategies employed by
most private equity funds.

feature ARTICLES
investigative powers are some examples
of Brazil’s current legal framework on
competition enforcement.
SDE is the authority in charge for
investigating and initiating the administrative
proceeding that will analyse if the conduct of
defendants may be deemed as violation to the
Competition Act.6
SDE has powers to conduct
the prosecution and can, for instance, with
judicial authorisation, conduct seek and
seizure procedures, to obtain direct evidence
such as objects, papers of any nature,
commercial books, computers and files from
the company or individual.7
Besides, SDE
may request information from authorities
and third parties, request hearings and, in
general, seek for evidence of the conduct by
any means admitted by law.
By the end of the investigation, SDE will
issue a report where it concludes its work
and suggests CADE condemn the parties or,
alternatively, it will decide the withdrawal of
the accusations, case in which CADE shall
confirm SDE’s decision.8
In cases of cartel, CADE may condemn the
involved companies into fines from one to
30 per cent of their gross revenue in the year
before the initiation of the administrative
proceeding.9
The company’s executives directly
or indirectly involved in the conduct may be
fined from ten to 50 per cent of the fine applied
to the company.10
There are other penalties
that may be applied, such as, for example,
prohibition to deal with financial entities and
to pay fiscal debts in installments, as well as
prohibition to participate in bid promoted by
the government for at least five years.11
Although the Competition Act has been
in existence for the past 15 years, cartel
prosecution only increased in the last five
years. Fines applied to cartels reached
22.5 per cent of the gross revenue of some
companies involved in the cartel in the sand
extraction market.12
As mentioned above,
fines applied by CADE in the last 15 years
already exceeded R$500 million, considering
that in one only case CADE fines that totalised
R$345 million.
T
he prosecution of cartels in Brazil
gained an extraordinary attention
in the last few years. Brazilian
and foreign companies and also
their officers have already been subject to
investigations and penalties in Brazil for cartel
practices. Fines applied by the Administrative
Council of Economic Defence (CADE) in
cartel cases have already totalised more than
US$250 million in the last years and many
individuals have already been condemned.
According to the Secretariat of Economic
Law (SDE), from the Ministry of Justice,
cartel is an explicit or implicit agreement
among competitors mainly to fix prices or
production quotas, client or market allocation.1
Cartel agreements involve the main aspects
of competition, which are price, quantity,
quality and market.2
Through this agreement,
competition among companies is significantly
limited and even eliminated in order to increase
profit through a monopolistic price. According
to estimates of the Organisation for Economic
Cooperation and Development (OECD), cartels
raise prices in ten to 20 per cent of the price
practiced in a competitive market.
The Brazilian Competition Act3
provides
that every act that may cause the limitation of
free competition, the domination of a given
market, an arbitrary increase of profit or the
abuse of dominance, may be considered as
a violation to the economic order.4
Among
the conducts that are subject to penalties,
there are: (i) to fix or practice, in agreement
with a competitor, prices and sales conditions
or services; (ii) to obtain or influence
the adoption of a uniform or concerted
commercial conduct among competitors, and
(iii) to allocate market or clients or suppliers.5
All conducts must be able to lessen
competition. Thus, the analysis and decision
on whether a certain practice constitutes the
formation of a cartel (or restrictive practice)
shall be determined on a case-by-case basis.
The Brazilian Competition Act and its
enforcement have improved in many aspects
since its enactment in 1994. The new
merger guidelines, the leniency (amnesty)
programme and the establishment of stronger
Competition law
enforcement in Brazil and
the fight against cartels
Ricardo Inglez
de Souza
Demarest e Almeida,
São Paulo
rsouza@
demarest.com.br

feature ARTICLES
In 2008, the administrative proceedings
involving cartel accusations reached 13.5 per
cent of the total of administrative proceedings
analysed by SDE.
Type of conduct analysed by SDE at
administrative proceedings in 2008
Source: SDE’s management report 2008
In the private security company’s cartel,13
CADE condemned the companies to a total
amount of fines equivalent to, approximately,
R$38 million. The trade associations and
unions involved in the case were each fined
in an amount of R$160,000. The individuals
involved in the conduct were fined by amounts
that totalised approximately R$4.5 million.
Another important case judged by CADE
is the crushed stone cartel.14
In this case,
the fines reached 20 per cent of the gross
revenues of some of the involved companies.
The trade associations were condemned
to more severe fines, which reached
approximately R$300,000.
Although these figures may not be
considered very high if compared to the
billionaire fines applied in the US and by
the Commission in Europe, they show a new
paradigm in Brazil and they tend to grow in
the near future. Currently, there are more
than 200 cartel cases under investigation by
SDE and being judged by CADE.
The problems for the involved parties
in a cartel case are not limited to the
administrative field. Besides being fined
by CADE, cartel is also a crime penalised
with a two to five-year imprisonment or a
pecuniary fine.15

As a result from the crushed stone cartel,
for instance, a Public Prosecutor in Brazil
accused 17 officers of the involved companies.
According to estimates from SDE, the
number of individuals that face or already
faced criminal prosecution is significant
and exceeds 100. For instance, during
2008 approximately 50 individuals were
preventively or temporarily imprisoned.
Besides those penalties, there is also civil
responsibility of companies and individuals,
which could be subject to damage actions for
the illicit conducts.
Finally, Brazilian authorities (CADE and
SDE) have expressly affirmed that their top
priority is the fight against cartel in Brazil.
Once a company is involved in an antitrust
violation in Brazil, there are only a few ways
out. One alternative is to try an agreement
with the authority to avoid or minimise the
legal consequences – leniency.16
Another
alternative, in case the leniency agreement
is not feasible or interesting, would be to
negotiate an agreement of commitment to
cease the practice.17
Besides the restrictions
inherent to those instruments, none of
them guarantees total immunity, at least civil
liability will always remain.
Obviously, the best idea for companies and
administrators is to invest in the prevention
of any competitive violation. The best
instrument to guarantee this is an efficient
compliance programme. A compliance
programme educates companies, entities and
administrators about the concepts and limits
imposed by the Competition Act, besides
giving practical orientation for daily tasks.
The number of companies with an effective
compliance programme in competition
laws is increasing, however it is still far from
ideal. Currently, only one entity had its
compliance programme approved by SDE,18
the Brazilian Association of Importers of
Popular Products (ABIPP).
Although the competition law enforcement
became rigid in a relatively short period
of time, the prosecution of cartels gained
a multi-millionaire dimension. Besides,
such dimension is not only pecuniary and
involves also criminal liability for individuals
(including foreign citizens). In the current
global economic scenario, it is likely that
some companies try to save costs and take
some fast track trails within the marketplace.
It is important to bear in mind that Brazil
is not a safe place for those not in full
compliance with competition rules.
Discriminatory and/
or exclusionary
practices: 19.2%
Cartel:
13.5%
Price abuse: 63.5%
Predation:
3.8%

feature ARTICLES
Notes
1 Information available at SDE’s website at www.mj.gov.br/
sde/data/Pages/MJ9F537202ITEMIDDEB1A9D4FCE
04052A5D948E2F2FA2BD5PTBRIE.htm (last accessed on
22 May 2009).
2 See C Salomão Filho, Direito concorrencial – as condutas. 1st
ed 2nd tir. São Paulo: Malheiros, 2007, p 262.
3 Law No 8,884, of 11 June 1994 (Competition Act).
4 See Article 20, of Law No 8,884/94.
5 See Article 21,items I, II e III, of Law No 8,884/94.
6 See Article 32 and following of Law No 8,884/94.
7 See Article 35-A, of Law No 8,884/94.
9 See Article 23, item I, of Law No 8,884/94.
10 See Article 23, item II, of Law No 8,884/94.
12 See Administrative Proceeding No 08012.000283/2006-66
(Defendants: Sociedade dos Mineradores do Rio Jacuí –
SMARJA and others).
(Defendants: Associação das Empresas de Vigilância do
Rio Grande do Sul – ASSEVIRGS and others).
(Defendants: Sindicato da Indústria de Mineração de
Pedra Britada do Estado de São Paulo and others).
15 See Law No 8,137, of 27 December 1990.
16 See Article 35-B, of Law No 8,884/94.
18 It is not mandatory to have the compliance programme
certificate by SDE.
Control of economic
concentration in MA
transactions in Uruguay
Héctor Ferreira
Hughes Hughes,
Montevideo
hferreira@
hughes.com.uy
Uruguayan antitrust law
Until 1999, Uruguayan law had just a general
antitrust rule embodied in the Uruguayan
Constitution (Section 50), according to which
government should control commercial and
industrial antitrust behaviours. This rule was
extremely general and its application was
difficult without statutory law.
Between 1999 and 2001 Uruguay
introduced in its legislation three Acts1
that directly faced the issue of whether or
not certain events should be avoided in
a healthy market, passing not a general
antitrust law but several statutory rules
which were, at that point, revolutionary for
the Uruguayan legal system.
Finally, on 30 July 2007, Uruguayan
Congress passed Act 18.159 (hereinafter the
‘Act’) which embodies, in only one statute,
the general rules regarding Antitrust Law.
Notwithstanding the foregoing, the essence
of the old system survived although improved
by the Act which is wider in its scope and in
the issues covered.
As the Act sets forth in Section 1, its
purpose is to promote the welfare of
consumers ‘by means of the promotion and
defence of competition, the stimulation of
economic efficiency, freedom and equal
access conditions of companies and products
to markets’.
The Act also laid down in its Section 2, the
general principle of free competition stating
that ‘all markets are subject to the principles
and rules of free competition’ with the
exception of the ‘limitations set by law due to
reasons of general interest’.
As a corollary of this general principle,
the Act forbids certain practices which could
affect competition.
The second paragraph of Section 2 deems
as forbidden practices: ‘the abuse of a
dominant position, as well as all practices,
behaviours or recommendations, either
individual or coordinated, which have as
effect or purpose to restrict, limit, hinder,
distort or obstruct the current or future
competition in the relevant market’.
In this context, one of the biggest
innovations of the Act was the creation
of a government control mechanism in
MA transactions, which intends to avoid
economic concentrations that can lead to
antitrust behaviours. This kind of control had
been in existence in the United States since
the Sherman Act of 1890 and in different
countries of Latin America as well as, recently,
in Europe. However, given both the lack of
antitrust regulation Uruguay had for most
of its history and the existing international
patterns, some kind of government control in
MA transactions was deemed necessary and
ultimately created in 2007.

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This brief article purports not to raise the
issue of the government control in itself, since
it is blatant in the Act, but to contextualise it
in the MA practice and to briefly explore
the effects of not complying with the Act.
Section 9 of the Act refers to a special
event in which economic concentration can
lead to a ‘Monopoly in Fact’, ie, just one
company emerges, in the relevant market,
after the transaction. In this case, different
rules will apply. This article will not discuss
this special case.
Brief analysis of the US control mechanism
of economic concentration
In the United States there is a long tradition
in terms of Antitrust Law, but currently most
mergers are reviewed under Section 7 of the
Clayton Act. The scope of the section that
was originally restricted to stock acquisitions
covers also after 1950 asset acquisitions.
Moreover, after 1950 amendment,
the referred section made clear that the
statute applied to horizontal, vertical and
conglomerate mergers. As Gavil, Kovacik
and Baker stated, the distinguishing
characteristic of the anti-merger prohibitions
of the Clayton Act is its objection to mergers
that ‘may substantially lessen competition’.
The word ‘may’ also furnishes basis for
challenging mergers before they can lead to
actual anticompetitive effects, which means
that they can be challenged even before they
are consummated.
The other relevant statutory reference
is the Hart-Scott-Rodino Antitrust
Improvements Act passed in 1976, which
created a system of pre-merger notification.
Mergers today typically are challenged
upon their announcement, before any
possible adverse competitive effects can
occur. Before 1976, it was more common for
mergers and acquisitions to be challenged
only after consummation. Hence, merger
review in hindsight typically remedies an
insoluble problem, because it requires
a court decision that has to deal with an
already closed transaction.2
The idea of ‘structural presumption’
is a traditional solution which predicts
anticompetitive effects based on significant
increases in market concentration. This
presumption, which is the subject of the
Brown Shoe case,3
can be conceived as a
legal device for making predictions about
the competitive effects of mergers in an
environment of uncertainty.4
The US Court ruling in Philadelphia
National Bank5
set forth a legal
presumption of anticompetitive effect from
a horizontal merger that would increase
market concentration.
As a consequence, the Legislative, in order
to avoid harmful concentration, changed
the antitrust review of mergers from an ex
post review of their actual effects, to an ex
ante review of their probable future effects.
Antitrust Law’s focus on future effects was
enhanced by the pre-merger notification
requirements enacted in 1976.
Another crucial step in merger analysis
was the Justice Department’s 1982 Merger
Guidelines, which adopted the structural
presumption from Philadelphia National
Bank and other relevant Supreme Court
precedents, but also reaffirmed the idea
that the structural presumption can be
rebutted by considering factors that might
contribute or frustrate the anticompetitive
effects of mergers.6
The merger guidelines were written as a
guide to the exercise of the prosecutorial
activity, but they have also influenced merger
judicial analysis. It intends to reduce the
uncertainty associated with enforcement of
the antitrust laws. The mechanical application
of certain standards may avoid misleading
answers companies may have.7
Two recent horizontal merger cases
ruled by the US Court of Appeal for the
DC Circuit, ie, Baker Hughes (1990)8
and
Heinz (2001),9
reaffirmed that the structural
presumption remains being the controlling
precedent. While Baker Hughes emphasises
how that presumption can be rebutted, Heinz
heightened its importance when market
concentration is too high.10
Regarding some of Uruguayan neighbours,
in a brief overview, both Brazil and Argentina
followed the US system. Argentina struck
down Act 22.262 and passed Act 25.156 which
not only tried to avoid abuse of dominant
position but also to control economic
concentration when it can affect competition,
by requiring pre-merger authorisations. Brazil
has also followed the US system before (Acts
4137/62 and 8884/1994) asking for pre-
merger authorisations.11
Brief analysis of the European model
The European system, originally, did not
control economic concentrations and just
antitrust behaviours. The general rule in
the Treaty of Rome of 1957 was to admit the

feature ARTICLES
dominant position, as something natural, and
just to punish the abuse of such position.
After World War II, Europe had to face
and compete with American firms and to do
so, it created firstly an economy of scale and
then, once obtained, a mechanism to control
the monopolies.
The European model is more linked to the
so called ‘National Champion’, which means
that the countries foster the development
of one important company in a certain
field and, ultimately, this champion will be
the one prepared to confront the global
market. According to Professor Martinez
Blanco the supporters of the theory of the
‘National Champion’ have maintained that
the countries in Europe had been living,
knowingly, without pre-merger authorisations
for more than 20 years. Once Europe
developed ‘strong players’ to perform in
the global market, then they chose a stricter
interpretation of the Treaty of Rome and set
pre-MA authorisations.12
The control of economic concentrations
was regulated by Decision EC 139/2004
according to which the European Union
tried to control concentrations that could
substantially lessen competition in the
Market.
Uruguayan control mechanism
The Uruguayan Congress largely discussed
which of the two models regarding MA
authorisations/notifications applied in
the world (ex ante or ex post), fit better in
the Uruguayan characteristics. There were
supporters of both sides and no one could
overcome the other’s position. In light of
this dichotomy, the solution was neither that
the control should be made ex ante nor ex
post. A hybrid solution emerged from the
discussion of the bill since it is neither a
typical pre-merger authorisation nor an ex
post facto resolution. The Uruguayan Act
called for a ‘notification’ that must be made
in certain specific cases.
According to the Act there is an obligation
of notifying the Commission of Promotion
and Defence of Competition (the ‘Agency’)
of acts of economic concentration, like
mergers and acquisitions, ten days before
such acts are executed by companies,
provided that such acts fulfill any of the
following requirements:
(i) When as a consequence of the
transaction, concentration becomes
equal or above 50 per cent of the
relevant market.
(ii) When the gross annual invoicing in
Uruguayan territory of the participants
in the transaction is equal or above,
approximately, US$62,000,000 in any of
the last three financial years.
Notwithstanding, Section 8 provides four
exceptions in which there is no obligation
of notifying, even when some of the above
referred conditions occur. They are the
following: (a) the acquisition of companies
in which the buyer already had at least 50
per cent of its shares; (b) the acquisition of
bonds, debentures, obligations, any other
security issued by the company, or shares with
no voting rights; (c) the acquisition of only
one company by only one foreign company
which previously did not possess assets or
shares of other companies in the country; and
(d) acquisitions of companies, bankrupted
or not, which have not registered any activity
within the country in the previous year.
Consequently, Uruguay approved a
particular ex ante notification which is
neither a pre-MA authorisation nor an
ex post proceeding that cannot jeopardise
the MA transaction, in itself, since
no authorisation is expected after the
notification. Even though it is an ex ante
notification, the control that can eventually
occur, will be an analysis of the effects (ex
post) of the concentration (which is not
deemed as illegal in itself).
A pure ex ante mechanism has been
seen by some part of the lawmakers as
something inconvenient for a small country
like Uruguay. An ex ante mechanism would
conspire against the possibilities of Uruguay
to obtain foreign investments since the
necessity of a pre-MA authorisation, which
can take time, would discourage investors.
On the other hand, it was deemed by the
majority of the Uruguayan lawmakers that the
efficiency of an ex post notification would be
very slim, since when the notification is made
the whole transaction is finished.13
Challenging the transaction, after
consummation, creates uncertainty for
the merged entity and its employees for a
substantial period of time. On the other
hand, reviewing it with the benefits of
hindsight, in theory permits courts to judge
mergers based upon their actual effects.14
Furthermore, Professor Cabanellas stated
that an ex post mechanism can create huge
costs, uncertainty and generally it is not
possible to remedy the antitrust effects of the
concentration once it was performed.15

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In light of the referred above, the
Uruguayan Act introduced a solution which is
hybrid and has two prongs:
a) It is not a typical pre-merger
authorisation, because the merger or
the acquisition does not depend on the
government authorisation;
b) It is not an ex post authorisation because
the notification does not request an
authorisation that can affect the merger
or the acquisition.
The Act created an ex ante notification, which
must be made ten days before the transaction,
but the government is not intending to
approve it before closing. The idea of the
notification is just that the government
will be aware of the concentration and
can wait and see if due to the merger or
the acquisition antitrust behaviours are
performed. In this case the situation will
be considered under the same rules as any
other case regulated by the Uruguayan Law.
The notification was referred to by one
lawmaker as a ‘yellow light’.
Consequences of not complying with the
notification
If the companies, which are being part of
an MA transaction that triggers Section 7,
do not notify the agency within the ten-day
period granted by law, the transaction will
not be void or voidable. It will be completely
enforceable.16
However, the agency can impose
administrative sanctions to the companies
that have not, in a timely manner, complied
with the notification.
Finally, in order to avoid the referred
sanctions, Uruguayan Law (Section 19 of
the Decree 404/2007) allows the filing of
a preliminary proceeding by which the
companies that are planning an MA, which
can be covered by Section 7, can ask the
agency whether or not they need to perform
the notification.
Notes
1 Act 17.188 passed on 8 September 1999; Sections 13, 14
and 15 of Act 17.243 passed on 29 June 2000 and Sections
157 and 158 of Act 17.296 passed on 21 February 2001.
2 Andrew I Gavil, William E Kovacic and Jonathan B Baker,
Antitrust Law In Perspective: Cases, Concepts And Problems In
Competition Policy (2002).
3 Brown Shoe Co v United States, 370 US 294, 82 S.Ct. 1502,
8LEd2d 510, (1962).
4 Gavil, supra note 2.
5 Philadelphia Nat Bank v United States, 374 US 321, 83 SCt
1715, 10 LEd 2d 915 (1963).
6 General Dynamics Corp v United States, 415 US 486, 94 SCt
1186, 39 LEd 2d 530 (1974).
7 US Department of Justice and the Federal Trade
Commission, Horizontal Merger Guidelines (Revised 1997).
8 Baker Hughes Inc v United States, 908 F 2d 981, 285 US App
DC 222 (DC Cir 1990).
9 FTC v HJ Heinz Co, 246 F 3d 708, 345 US App DC 364 (DC
Cir 2001).
10 Andrew I Gavil, supra note 2.
11 Jaime Berdaguer, Estudios Sobre Defensa De La
Competencia y Relaciones De Consumo (2008).
12 Camilo Martinez Blanco, Manual De Derecho De La
Competencia (2007).
13 Ibid.
14 Andrew I Gavil, supra note 2.
15 Guillermo Cabanellas De Las Cuevas, Derecho
Antimonopolico Y De Defensa De La Competencia (1983).
16 Jaime Berdaguer, supra note 11.

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Introduction
The initiative of the Argentine Supreme
Court of Justice as it passed judgment in re
Halabi, Ernesto v Poder Ejecutivo Nacional –
ley 25.873, decreto 1563/04 s/ amparo ley
16.986 (Halabi) dated 24 February 2009, is of
great significance for Argentine law and for
the development of class actions regarding
individual homogeneous interests.
This judgment represents the culmination
of a period of debate between the courts on
collective rights that were included in the
Argentine Constitution in 1994, and on the
collective claims to enforce them.
The above considerations express what
Argentine courts have long held: ‘where
there is right, there is a legal remedy’. This
is so because the Argentine Constitution
rights exist and protect individuals per se,
irrespective of the existence of laws that
regulate them.
As we will further analyse, the Supreme
Court did not just rule mere statements. On
the contrary, given the lack of regulations
by the Argentine Congress, it set forth the
basic guidelines for the procedure that will
guide courts and individuals in the group
claims filed to enforce collective rights
regarding homogeneous individual interests
or, as the Supreme Court stated, ‘rights
or in rem rights derived from harm to the
environment and to competition, rights of
users and consumers, as well as the rights of
those discriminated against’.
This article analyses the evolution of
collective actions, the highlights of the
judgment as it creates a new procedure
within our law, its inclusion in the legislation
of certain Latin American countries, and
finally we share some perspectives and
our opinion on what should be the main
takeaways of this ruling.
Certain definitions necessary for
our analysis
As the United States Supreme Court held in
Supreme Tribe of Ben Hur v Cable,1
a class action
is a procedural untraditional tool that enables
a person to represent a group of individuals
affected by the infringement, or a threat of
infringement, of a right, provided that the
subject matter ‘be of common or general
interest to such a big number of people that
it makes it impossible to bring all of them
before the court’.
This action, given the nature of the rights
at stake, implies that the judgment on a
given case that sustained the plaintiff’s claim,
benefits not only him but also all those who
share certain circumstances that serve as
requirements for the case to proceed. Hence,
the judgment will be enforceable against the
defendant by those who, despite not having
been parties to the trial, share the same legal
or factual standing with the plaintiff. This new
procedure aims to achieve celerity, procedural
economy and access to courts, providing
effective court protection to rights.2
Amendments to the Argentine
Constitution in 1994: its Article 43,
and the background of Halabi
‘Any person shall file a prompt and
summary proceeding regarding
constitutional guarantees, provided there
is no other legal remedy, against any act
or omission of the public authorities or
individuals which currently or imminently
may damage, limit, modify or threaten
rights and guarantees recognised by this
Constitution, treaties or laws, with open
arbitrariness or illegality. In such case, the
judge may declare that the act or omission is
based on an unconstitutional rule.
Class actions under Argentine
law: evolution, present status
and perspectives
‘Where there is right there is a legal remedy to enforce it, since constitutional rights
exist and protect individuals just for being included in the Constitution and irrespective
of its supplementary laws, whose limitations cannot make up an obstacle towards
its effective validity’
Juan Pablo
De Luca
Rattagan Macchiavello
Arocena Peña
Robirosa Abogados,
Buenos Aires
jpdl@rmlex.com
Patricio Abal
Rattagan Macchiavello
Arocena Peña
Robirosa Abogados,
Buenos Aires
pa@rmlex.com

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This summary proceeding against any form
of discrimination and about rights protecting
the environment, competition, users and
consumers, as well as about rights of general
public interest, shall be filed by the damaged
party, the ombudsman and the associations
which foster such ends registered according
to a law determining their requirements
and organization forms…’ (Argentine
Constitution, Article 43; emphasis added).
The protection of three categories of rights
grants the standing to sue and these are: (i)
individual; (ii) collective; and (iii) individual
homogeneous rights. Of these categories, two
already had legal means established for their
defense before Halabi.
Individual rights are protected by the
traditional injunctive relief measure (Acción
de Amparo) that was also a creation of the
Supreme Court in the leading cases Siri 3
and
Kot 4
and was later adopted by law No 16.896.
Collective rights (ie, rights for the
protection of goods that belong to the
community as a whole, goods that are
indivisible and do not admit exclusion),
were also already recognised by the courts
and the legal commentators previous to
Halabi. The defence of these rights can be
led by the Ombudsman (Defensor del Pueblo
de la Nación), consumer associations or the
individual. For the claim to proceed, it has to
fulfill two requirements: its object has to be
the protection of a collective good, and it has
to be focused on the collective effects despite
the individual damages that might have
emerged from the infringement.
As for individual homogeneous rights,
Consumer Defence Law No 24.240 (as
modified by Law No 26.631), had already
admitted the protection of the rights declared
in such body of law through collective actions.
Despite the abovementioned, this law
could not fill the legislative void because it
did not establish any substantial provisions
for this type of proceedings. Although it did
provide more elements for the protection
of these rights, it left without mention basic
procedural issues and without clearing the
uncertainties for the potential affected
individuals and for the judges as interpreters
and the ones in charge of enforcing the law.
Halabi and the establishment of class
actions in the Republic of Argentina
Fortunately the Supreme Court intervened;
it held from the outset that group rights
are fully operational, that it is a judge’s
duty to guarantee their effectiveness when
they are infringed and the right to access
the courts by the right’s holder is severely
restricted, and that, as was said, where there
is a right there is an adequate legal remedy.
Therefore, with the ruling in Halabi the
Court granted full operational effectiveness
to Article 43 of the Constitution.
Apart from such an important initiative,
Halabi was the first case in which the Supreme
Court declared a law to be unconstitutional
erga omnes (‘against all’) reinforcing in that
way the ‘equal under the law’ principle stated
in Article 16 of the Constitution. The Court
fulfilled in that way its mandate to be the
head of the branch of government in charge
of restoring the validity of the Constitution
once it has been infringed. The head of the
judicial branch did not violate the principle of
separation of powers with this ruling; in fact
it strengthened the Constitution by acting
according to the purpose of such body of
law and that is: to do what the Constitution
orders or allows.5
We shall now highlight the relevant
features of this creation of the Supreme
Court, features that, as was mentioned,
shall not only serve as guidelines for the
judges and the parties in a case but also for
lawmakers when drafting the law for the
regulation of these proceedings.
Regarding standing to sue, the Court said
it is ‘perfectly acceptable’ for an individual
affected, the Ombudsman or certain
associations to file a collective claim on behalf
of the class.
It was stated that it is of the essence for
this kind of proceedings to have a unique
or complex deed causing damages to a
substantial plurality of individual rights.
Furthermore, the claim has to be focused in
the common effects, not in the individual
ones; hence, the existence of a cause or
controversy is related to the homogeneous
elements that the plurality of individuals have
by being affected by a single deed.
Moreover, this type of action was created to
prevent situations were the right to access the
courts is restricted given the lack of economic
incentives caused by the high costs of legal
fees and of evidence gathering.
The collective action shall also proceed
in those situations in which matters
related to issues, such as the environment,
consumption, health or damages to groups
that have traditionally been neglected,
become more relevant. This is because
under certain circumstances the nature

Class actions under Argentine law: evolution, present status and perspectives

Class actions under Argentine law: evolution, present status and perspectives

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