It is certainly not fresh news that there is a global trend in lawmakers outside the U.S. creating or strengthening existing compliance statutes. While lawmakers have become more active, there has also been an increase in D&O insurance claims involving enforcement actions related to compliance statutes, such as the U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act (UKBA). On Jan. 29, 2014, the Brazilian Clean Companies Act (CCA) went into effect, continuing the global trend of tough anti-corruption statutes.
Brazil is the world’s sixth largest economy and the largest economy in South America. Corruption is a significant issue in Brazil, as it represents an annual cost of US$18.4 billion to the country, according to a study done by the Federation of Industries of the State of Sao Paulo. Brazil ranks 69 out of 175 countries based on the 2014 Corruption Perception Index, published by Transparency International. (The U.S. is 17, the UK is 14 and Mexico is 103.) Brazil’s adoption of the CCA is an acknowledgement that Brazil needs to address corruption in order to encourage further foreign investment.
The CCA is an aggressive law with a broad reach. It shares several features of established anti-corruption legislation. While similar to the FCPA and the UKBA, it has its own particularities. The CCA imposes strict civil and administrative liability on corporate entities doing business in Brazil for corruption or bribery of Brazilian or foreign public officials. It also imposes liability based on fraud in connection with public tenders and bid rigging. The CCA applies broadly to corporations, partnerships and proprietorships, as well as other for-profit and non-profit entities. The CCA provides for monetary fines ranging from 0.1% to 20.0% of a company’s annual gross revenue.
Although effective since Jan. 29, 2014, Brazil just recently published regulations interpreting the CCA. On March 18, 2015, Brazilian President Dilma Rousseff issued a presidential decree regulating the CCA, partially addressing certain interpretations, such as the administrative procedure for imposing the corporate liability and assessment of fines, evaluation of compliance programs and leniency agreements. While further clarifications of the CCA may be issued by federal, state and municipal authorities that share concurrent authority to enforce the CCA, the issuance of the decree is an essential development for companies conducting business in Brazil or that are otherwise subject to Brazilian law.
Multinational corporations already subject to the FCPA or UKBA that are seeking compliance with CCA must make several adjustments to current programs to comply with the unique challenges of the Brazilian law. The regulation outlines 16 guidelines on how a company’s compliance program will be assessed. One of the guidelines is a requirement to perform third-party due diligence and monitoring on distributors, suppliers, agents, consultants and other possible target companies. Another guideline is the development of safe and widely-disseminated reporting channels and protection for whistleblowers. While similar to the requirements of the FCPA and the UKBA, these concepts could represent cultural issues with Brazilian affiliates and employees.
With these requirements and other clarifications provided by the federal regulation, Brazilian federal authorities have significant power to enforce the CCA. Companies with Brazilian operations or doing business in Brazil will have to expeditiously develop or strengthen their compliance programs in response to these new requirements.