Punitive damages for the non-property damage derived from the crime of corruption: Constitutional and efficient?

Daños punitivos para el daño no patrimonial derivado del delito de corrupción: ¿constitucional y eficiente?

Esta obra está bajo una Licencia Creative Commons Atribución-NoComercial 4.0 Internacional.

On September 21, 2020, the ad hoc prosecutor’s office of the famous LavaJato case identified more than $394,400.00 US dollars as patrimonial damage to the State in the main process where the irregularities of the Interoceánica Sur highway, sections 2 and 3, are being investigated. What the Attorney General’s Office did, in a manner compatible with the doctrinal and jurisprudential criteria currently prevailing in Peru, is to use punitive damages to punish the alleged violation of the right to the image of the Peruvian State. We consider this to be of great academic interest or even from a public policy perspective, not only because of its economic and social implications but also because it is a relatively virgin topic.

The relationship between punitive damages and other systems such as administrative and criminal law has received little attention in the civil and economic literature (Sustein & Schkade, 1997, p. 57). Specifically, we have not found any work that addresses the problem concerning civil liability for non-pecuniary damages derived from criminal proceedings for corruption offenses.

The use of punitive damages for these cases, as is obvious, is intended to punish the perpetrators; but also, to deter them from committing acts of corruption in the future. In this brief essay, we will address the problem of the use of punitive damages to sanction non-pecuniary damages, especially those derived from crimes of corruption, where the State is the victim. As we will see, in this case, it is not possible to achieve an adequate balance, since the reparation of non-pecuniary damages in these circumstances ends up being redundant and arbitrary, which has constitutional and economic implications.

The research has the following structure: first, we will briefly discuss the functions of civil liability, noting that there is no consensus on a single function, but there is usually a consensus on its use for sanction and deterrence, beyond the mere repair of damages. Then, we will deal with the assimilation of liability for non-pecuniary damage to punitive damages that have operated not only in international but also in Peruvian doctrine. This assimilation is justified, to a large extent, by the difficulty in determining non-pecuniary damages and the supposed need to have an extra tool to reinforce, precisely, the dissuasive and punitive function that it has. Thirdly, we will address the issue of the use of punitive damages in civil proceedings arising from corruption offenses. We will see that, at first, no distinction was made between types of damages - pecuniary or non-pecuniary - but then - since the approval of the criteria - it has become the norm and has been applied to the most relevant cases. Finally, we will analyze this policy, explaining the reasons why this type of reparation -assimilated to the concept of punitive damages- turns out to be unconstitutional and at odds with economic efficiency.

There is no consensus on what are all the functions that a civil liability system should fulfill, although we must admit that there is agreement on the main functions. There is also an arduous debate as to which of these functions should be prioritized.

For his part, Monateri, Pier & Schkade (1998, pp. 1927), conceives the three main functions of civil liability the compensatory function, the punitive function and the preventive function. It is worth saying, briefly, that this function arises in Anglo-Saxon Law because of punitive damages, through which - in certain cases - compensations higher than those necessary to compensate the damages suffered by the victims are granted. However, this function is alien to our legal tradition, since in our system the calculation of compensation is always made based on the damage caused. This is not diminished by how compensation for extra-patrimonial damages is calculated, although in these cases -certainly- the judge has greater discretion.

Notwithstanding the foregoing, we must point out that it does not seem convenient to qualify the punitive function autonomously. This is because, even in common law, the figure of punitive damages seeks to generate a greater disincentive rather than to punish. Punitive damages are not awarded in all cases but, on the contrary, only in those situations where there is a special desire to discourage. In this way, in any case, the alleged sanction is a means to an end, namely, the greater disincentive of certain conducts. Consequently, we believe that rather than qualifying it as an autonomous function, it should be recognized as a means that contributes to deterrence.

Fernández (2001, pp. 393-445) has classified the functions of civil liability from a dyadic “or micro-systemic” perspective and a systemic “or macro-systemic” perspective. Thus, from the dyadic perspective, he points out that civil liability fulfills a satisfactory, equivalence, and distributive function, while from the systemic perspective it would fulfill a function of incentivizing or discouraging activities and a preventive function.

On the other hand, Calabresi, in formulating his theory on accidents and describing the costs derived from those events, distinguishes - as we explain in detail below - primary costs (derived directly from the accident and which can be reduced through general, specific, or mixed prevention), secondary costs (sums of money to be paid as compensation to those who suffered damages, which can be reduced through fractionation and the Social Diffusion of Risk Theory) and tertiary costs (those derived from setting in motion the legal apparatus so that, among others, the victims can enforce their rights and obtain the compensation due, which can be reduced in various ways) (Trazegnies, 2005, p. 88). The purpose of a tort liability system is to prioritize these costs and implement measures aimed at their reduction.

In principle, non-pecuniary damages follow a scheme like pecuniary damages; however, given the difficulty of calculating them, some authors have emphasized their “punitive” function, arguing that these damages should be used to show social reproach for conduct and to deter its occurrence in the future. In this way, non-pecuniary damages are assimilated into punitive damages (Sustein & Schkade, 1997, p.57).

For authors such as Massino Franzoni (1999):

[...] the tendency to assimilate non-pecuniary damage with non-pecuniary damage results in the fact that its pre-eminent function is actually to punish the person responsible for the antisociality of the act, satisfying the victim, at the same time. (pp. 68-87)

For his part, Diez-Picasso (1999) pointed out that:

Nor can the idea of a sanction be found in the rules that fulfill a compensatory function, unless by sanction is understood, in a very generic way, the attachment to the behavior of certain consequences that may be unfavorable for someone. The rules on civil liability cannot go beyond the economic scope of the damage effectively produced and cannot come into operation if the damage has not existed, no matter how reproachable the conduct of the defendant or accused may have been. (p. 46)

In the Peruvian case, we see that both positions have also been accepted, but the consideration of moral damages as punitive damages has prevailed. According to Morales Godo (2009):

[...] we think that if there are extra-monetary ways to compensate the victim of a personal injury, good time; but this is not an obstacle to dispense with reparation in pecuniary terms, understanding it as a way to produce a compensatory satisfaction to the victim. (p. 466)

The same criterion has been shared by Liñán, Morales Hervías, Fernández Cruz and Fernando de Trazegnies. So, we can say that there is a certain consensus that -in general- the reparation of moral damages fulfills the justiciary function (satisfaction of the victim), but also a social function, which is associated with the punishment of the act. But why punish the act? As we have seen, the aim is to punish an act not only for the sake of justice, but also to discourage it, and this, in turn, is associated with the economic function of civil liability.

From this perspective, moral damages fulfill a dissuasive function of conduct that we consider especially reprehensible, with which the mere economic compensation of the damage would not be enough -as pointed out by Diez-Picasso-, but it is necessary to go beyond it, by sanctioning the offender.

For this reason, it is not surprising that, in the case of liability derived from the crime, moral damages have been used in Peru as a form of economic sanction.

Initially, no distinction was made as to the type of damage - pecuniary or non-pecuniary - but it was imposed jointly¹.

The Manual of criteria for the determination of the amount of civil reparation in corruption crimes (Ministerio de Justicia y Derechos Humanos, 2018), has begun to distinguish non-pecuniary damages from pecuniary damages, for corruption cases. As can be inferred from the STC of the Transitory Criminal Court Cassation No. 189-2019 Lima Norte, the State is considered a victim of non-pecuniary damages, in cases derived from the corruption of public officials.

In these cases, it is formally considered that the image of the State has been damaged, but -in reality- what is applied are punitive damages, which do not depend on the value of the damage, but on the seriousness of the crime and independent criteria of the non-pecuniary damage. Thus, the reparation has a form of calculation that is associated with deterrence, considering the following criteria:

a) The seriousness of the wrongful act: Associated with the nature of the legal interests affected and the importance of the duties breached.

b) The circumstances of the commission of the unlawful conduct: The place, context, and manner of the commission of the unlawful act shall be considered.

c) The advantage obtained by the responsible parties: The degree of advantage obtained will be a factor to be considered, the greater the advantage, the greater the amount of compensation.

d) The level of public dissemination of the unlawful act: This refers to the transcendence and social extension or public knowledge of the unlawful conduct.

e) The affectation or social impact of the illicit act: The influence on the living conditions of the population.

f) The nature and functional role of the harmed public entity: Following the previous criterion, the public function of the state entity within which the unlawful act was committed must be identified.

g) The scope of competence of the aggrieved public entity: It is essential to consider whether the aggrieved public institution has a local, regional, or national scope.

h) The position or position of public officials: Consider the hierarchy of the position held by the public official.

As can be seen, being associated with the illicit benefit (seriousness of the crime), the non-pecuniary damage serves specifically to discourage its realization in the future, while at the same time it can satisfy - in the case of damage to the State - the population. We see, however, some problems associated with the consideration of the disincentive as a justification for non-pecuniary damages.

These criteria, as mentioned in the introduction, have been used in cases of major relevance, such as the LavaJato mega-corruption case. Concerning the compensation claim, the attorney general’s office postulates the amount:

i) For the crime of collusion (Fact 1): USD 403’354,688.35, for pecuniary damage and S/ 1,292’476,500.00, for non-pecuniary damage.

j) For the crime of money laundering (Fact 2): USD

60’436,772.00 for non-pecuniary damage; and

k) For the crime of money laundering (Fact 3): S/. 545’484,102.30 for non-patrimonial damage, the corresponding legal interests should be considered in all cases.

As can be seen, in recent cases, starting with the Manual of Criteria, pecuniary damage has begun to be separated from non-pecuniary damage, which has been applied with a punitive criterion, with the aim of deterrence. However, as can also be seen, these damages have been imposed or requested in conjunction with prison sentences, which leads us to think that there is redundancy or over-penalization that may lead to a level of deterrence above the optimum or create inadequate incentives for other actors -including the State- that could be in a better position to reduce the costs of corruption in the future.

We can conclude that one way to approach the same point is through the “rule of the hand”, linked to the concept of “cheapest cost avoider”. Who is the most economically able to avoid collusion in bidding processes? Certainly, the State.

From the economic point of view, public policies must respond to rational criteria and be aimed at reducing social costs. Opening the door to punitive damages for non-pecuniary damage creates an incentive for populism. This, in turn, gives rise to the problems already pointed out in the previous sections: arbitrariness, inconsistency, and excessive penalization.

Punitive damages have serious issues that result in their unconstitutionality and ineffectiveness, especially when they arise from a criminal proceeding, since. As we have mentioned before, punitive damages must meet the same criteria as criminal law; however, despite the existence of these criteria for determining the amount of civil compensation in crimes of corruption, these are far from effective damage. but it is only limited to the characteristics of each case. The “damage to the image of the State” is criticized, it would be arbitrary to apply this last concept as a basis for civil compensation since it is the same that can efficiently avoid crimes such as collusion in bidding processes. We repeat the fact that the State he oversees designs which processes he intervenes, processes in which there is room for the practice of collusion.

Moreover, after practices like this, the State is rewarded by situations where it receives economic compensation because of damage to the image of the State because it would not make sense to change the processes, improve efficiency that prevents crimes such as collusion or push transparency much further. There would be no incentives for the State itself to apply these changes, it is more convenient for these events to occur.

We do not conclude the fact that the State not only does not assume the consequences of events that are in its control but even financially compensates itself for the damage suffered. Public policies must respond to rational criteria and be aimed at reducing social costs, we are facing a scenario where the instigator of these “mega crimes” is not punished, which gives way to the sanctions no longer being applied based on objectives and begin to apply based on a matter of populism, where public opinion is valued more.

http://www.revistarfjpuce.edu.ec/index.php/rfj/article/view/464/258 (pdf)