New Anti-corruption Law

The new Anti-corruption Law (Federal Law 12,846/2013), which entered into force in January 2014, introduces criminal, civil and administrative liability for companies and individuals that corrupt or bribe public officials.

However, when it comes to blacklisting, the new law expressly sets out that, along with specific anti-corruption penalties, public authorities may also impose on companies the penalties provided under the Public Procurement Act (Federal Law 8,666/1993); thus, the rules regarding blacklisting provided in this act will also apply.

Blacklisting

Blacklisting is one of the most severe penalties that the government can impose on companies under the legal framework of Brazilian procurement and government agreements.

The penalty allows public authorities to blacklist companies that either perform illegal acts in public procurement proceedings or partially or completely default on their performance of public agreements, thereby preventing them from participating in public procurement proceedings and entering into government agreements for a certain period.

Public Procurement Act

In addition to warnings and fines, the Public Procurement Act provides for the possibility of temporarily suspending blacklisted companies from participating in future public procurement proceedings.

Public authorities must keep blacklists in an ineligible and suspended companies register, which must be duly updated and publicly available.

The penalty of blacklisting is enforceable not only under the Public Procurement Act, but also under several other laws, including the Improbity Law, the Election Law and the Competition Law. Thus, because penalties under the Public Procurement Act may be combined with penalties set forth in laws regulating different matters, there is concern that the principle of double jeopardy might be violated. The Federal Constitution prohibits companies or individuals from being punished twice for the same act and, as several laws contain penalties for the same illegal acts, public authorities must bear in mind that companies cannot be charged twice.

Blacklisting under the Public Procurement Act has also raised further controversial discussions in judicial and administrative courts.

One issue relates to the extent of the penalty's effects in relation to which authorities at which levels of government must abide by the penalty. While Brazilian courts have not provided a unified view on the effects of blacklisting arising from the Public Procurement Act, in several recent Federal Court of Audits and Superior Court of Justice cases, companies that partially or completely defaulted on their responsibilities while executing government agreements were prohibited from supplying services to all authorities at all levels of government (ie, federal, state and municipal).(1)

Another issue relates to the effects of blacklisting on agreements already executed and being performed by the blacklisted company. The attorney general recently enacted an internal regulation(2) setting forth that the blacklisting penalty has ex nunc effects, which means that it prevents companies from participating in future public procurement proceedings and government agreements. In addition, the regulation states that when blacklisted companies have government agreements in force, public authorities must analyse whether such agreements should be immediately terminated on a case-by-case basis.

One issue relating to the blacklisting provision within the Public Procurement Act has become less controversial since the enactment of the Anti-corruption Law: the possibility of lifting the corporate veil of blacklisted companies and extending the effects of the penalty to managers and shareholders. This matter has a history of controversial court rulings.(3) Administrative and judicial courts have focused on whether companies belonging to the same economic group should be affected and have considered, for example, whether shareholders responsible for the illegal acts tried to trick authorities by disguising the company's corporate name and address.

The new Anti-corruption Law resolved this issue by expressly allowing a company's corporate veil to be lifted whenever shareholders and partners use the company to mask illegal practices. However, one aspect of this issue remains unsettled – that is, whether blacklisting should affect other companies that belong to the same economic group as the blacklisted company, not only the individual shareholders and managers.

Comment

The extent of the penalty's effect and the possibility of lifting a company's corporate veil are not the only issues regarding blacklisting. The legal arguments adopted by courts and their opinions on the effects of blacklisting under the Public Procurement Act vary, making it difficult to predict what will happen in future.

Regardless of whether the penalty is imposed as a result of administrative or judicial proceedings, the principles of prior defence, proportionality, reasonability and double jeopardy will always apply.

It is hoped that the new Anti-corruption Law will be used as an incentive to settle these issues, instead of as a catalyst to reinvent the blacklisting concept.

Claudia Elena Bonelli, Ana Cândida de Mello Carvalho or Marjorie Iacoponi 

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.