Chile’s white collar crime bill boosts appetite for D&O coverage

The new law, which expands liability for economic crimes and introduces new environmental offences, has prompted reviews of board membership, D&O coverage and crime prevention models.

The passing of a bill to modify Chile’s Criminal System, which not only expands criminal liability for economic crimes but also introduces the category of ‘crimes against the environment’, is expected to have widespread consequences for businesses.

The majority of provisions affecting companies in the new ‘white collar crime bill’ – which was published on 17 August 2023 – will take effect from 1 September 2024, but businesses are already taking preventive measures against its likely impact.

These include increased appetite for obtaining D&O insurance coverage and reviews of existing D&O policies to establish what risks will be covered in relation to the new law.

The bill has also raised concerns about companies’ existing crime prevention models, with a majority of firms already re-visiting models, with a view to adjusting or re-drafting them ahead of 1 September 2024.

Crime prevention models will need to be reviewed and updated periodically going forward and will need to be submitted to independent auditors for approval.

After 1 September, we expect to see an increase in filings against companies and their boards or management, invoking the new laws, and a corresponding increase in loss notifications to D&O insurers.

The preponderance of labour-intensive industries in Chile, such as mining, agriculture and fishing, is likely to result in the law being increasingly invoked in accident claims against companies – for both civil and criminal liability – where employees are alleging that directors and officers have failed to address problems in working conditions.

Company board members are consequently re-considering their roles, reflecting on the increased exposure to litigation when the new law comes into force.

We expect to see an increase in remuneration for board members to recognise this increased risk. We also anticipate a move away from company owners and their family members sitting on boards, towards the appointment of more professional independent directors.

A number of other Latin American countries will be watching the outcome of the bill’s implementation closely, with countries like Colombia, Peru and Ecuador considering whether to use the Chilean law as a model for their own legislation in future.