1. What are some notable forms of corruption specific to Brazil?
In day-to-day operations, companies in Brazil are most likely to encounter requests for bribes in three areas: obtaining licenses and permits, paying taxes and interacting with customs. Dealing with Brazil’s sometimes inefficient bureaucracy to acquire licenses and permits can be particularly frustrating. Brazil’s tax system is considered one of the most complex and burdensome in the world. Currently, Brazilian authorities are investigating several multinational companies, including Ford, Santander and Mitsubishi, for allegedly avoiding taxes through bribery schemes. In the customs area – businesses report that exports are often subject to high and unpredictable taxes, and importing goods requires navigating a maze of paperwork and forms.
The TRACE Matrix, which measures business bribery risk, ranks Brazil 149th out of 197 countries and gives an overall high risk score of 69 – citing intensive interaction with government, a high expectation of bribes and a high regulatory burden as three factors contributing to Brazil’s low ranking.
Price fixing, combined with bribery, has become a high-profile issue in Brazil. Brazil’s state-owned oil and gas company, Petroleo Brasileiro S.A. (Petrobras), is at the center of a price-fixing and bribery scheme – in which companies allegedly overcharge Petrobras by approximately three per cent in contracts, and then split the overage between Petrobras executives, Brazilian politicians and political parties. The state-controlled electric utility company, Centrais Eletricas Brasileiras SA (Eletrobras), is also alleged to have been involved in a price-fixing and bribery scheme related to the construction of a nuclear power plant and three dam projects.
2. How are foreign businesses affected by these risks?
Burdensome, challenging regulatory schemes may lead companies to make facilitation payments to avoid regulations or to encourage officials to perform tasks they are already required to perform. Facilitation payments are prohibited in Brazil, and are not permitted under the foreign anti-bribery laws of many countries.
Companies that do not engage in price fixing will frequently end up valuing contracts higher or lower than they would if price fixing were not part of the competitive environment. Those companies engaging in price fixing expose themselves to liability under a variety of laws, including anti-trust laws.
3. Which foreign business sectors are most vulnerable to corruption?
The World Bank Enterprise Survey for 2009, which surveyed business owners and managers on obstacles faced by the private sector, found that almost 70 per cent of firms thought corruption was a “major constraint” to doing business in Brazil. Almost 33 per cent of respondents stated that they were expected to give gifts to secure government contracts.
In addition, the construction and pharmaceutical industries face a higher risk of corruption. Some of Brazil’s top construction companies have been implicated in the Petrobras scandal, alleged to have paid Brazilian officials to obtain contracts with the state-owned company. Companies in the construction industry also allegedly paid bribes to win construction contracts connected to the 2014 FIFA World Cup and the 2016 Olympics.
Brazil has the 8th-largest pharmaceutical market in the world. In 2013, the net sales of Brazilian pharmaceutical companies totaled $26.5 billion and pharmaceutical imports reached USD $7.4 billion. The industry is subject to high taxes, registration requirements and import regulations. In 2012, Eli Lilly agreed to pay more than USD $29 million to settle charges brought by U.S. authorities under the U.S. Foreign Corrupt Practices Act (FCPA), for allegedly allowing its distributor to bribe government officials to secure sales of the company’s products.
4. How can foreign companies reduce their risks and exposure to corrupt business practices?
Under international anti-bribery laws, companies can be liable for wrongdoing committed by third parties. Foreign companies should conduct thorough due diligence to ensure that their business partners operating in Brazil are reputable. TRACE Certified companies, which have completed a rigorous due-diligence process based on international standards, are trained on anti-bribery compliance and continuously monitored against international sanctions and enforcement watch lists.
5. What does Brazil offer in terms of anti-bribery compliance support?
The Brazilian government maintains a computerized information system called Siscomex to facilitate customs clearance, as well as reduce the amount of import-related paperwork. Brazil has also created a Transparency Portal, which publishes information ranging from companies debarred from government contracts to federal agency expenditures. Organizations such as TRACE, Transparency International and the Business Anti-Corruption Portal also provide companies with access to resources on anti-bribery compliance. Companies may also refer to TRACEpublic, the first global register of beneficial ownership information, which allows companies to share and search for beneficial ownership information at no cost. The database supports the efforts of companies seeking to conduct business ethically.
6. Anything else that foreign businesses should know?
Brazil is an exciting market for foreign companies. The country is the 7th -largest economy in the world, with a GDP of USD $2.3 trillion in 2013 and opportunities for growth in a number of sectors. With an anti-bribery compliance strategy in place, foreign companies can successfully enter the Brazilian market prepared for the corruption risks.
This Q&A article was originally produced for ExportWise.ca, Export Development Canada’s online magazine.