As in China, in 2014, authorities in Brazil significantly increased investigations and enforcement actions. Brazilian headlines recently have been dominated by the corruption scandal involving Petrobras (Brazil’s state-run, U.S.-listed energy company) and numerous Brazilian politicians and companies. The Petrobras case centers on the alleged granting of large contracts by certain senior Petrobras managers to Brazilian companies at inflated costs in exchange for "commissions" later transferred to political parties, politicians and others. The Brazilian federal police are investigating the allegations, and the scandal will be a test of the strength and independence of the Brazilian judicative, as well as the first chance to enforce the 2013 Brazilian Anti-Corruption Act. Highlighting the risks of multijurisdictional matters, the U.S. Department of Justice also is investigating the allegations, demonstrating the challenges companies face as various regulators exert increasingly broad jurisdiction to conduct anti-corruption and related investigations.
The Petrobras situation highlights the fact that Brazilian entities increasingly are subject to scrutiny by external regulators, including U.S. authorities, even when alleged corruption involves mostly local Brazilian entities. To avoid serious disruptions and significant penalties in 2015 and beyond, Brazilian companies must adapt their business, risk-management and compliance practices to satisfy the heightened local and international anti-corruption standards and investigations associated with the increasingly globalized world. The Marubeni settlement (discussed here) highlights the broad jurisdictional reach of the FCPA.
DOJ and Other US Investigations
In March 2014, Marubeni pleaded guilty to one count of conspiring to violate the FCPA’s anti-bribery provisions and seven counts of violating the FCPA’s anti-bribery provisions by using third-party consultants to funnel bribes to high-ranking Indonesian government officials. While the company’s stock did not trade on a U.S. stock exchange, the evidence turned on the fact that it made payments through its employees to a consultant’s U.S. bank account knowing that a portion would be used for bribes. Knowingly making payments for illicit purposes, such as bribery, through third parties in the United States was sufficient to sustain a FCPA violation, even for an unregistered, foreign corporate entity.
Implications for 2015
The Petrobras situation demonstrates that Brazilian companies must adapt their business, risk-management and compliance practices to the new reality of global enforcement in order to avoid potentially serious consequences. With this in mind, companies, regardless of their ties to the United States, should have an effective internal compliance program to govern their activities and be prepared for any investigation, including by U.S. or other non-Brazilian regulators. Compliance programs should address local and international concerns and take into consideration, at a minimum:
- enhanced codes of conduct and related anti-corruption/government procurement policies and procedures;
- targeted education of employees regarding relevant anti-corruption laws and how to respond to high-risk situations;
- effective recordkeeping procedures and regular compliance audits of high-risk subsidiaries;
- effective internal reporting and investigative procedures to follow up on any indication of improper conduct;
- effective controls over monetary transfers, cash accounts and other disbursements; and
- thorough and meaningful due diligence on third-party business partners, including consultants, intermediaries and agents.