Headlines of Brazil’s push to fight corruption are everywhere. The Petrobras scandal involves contracts worth billions of dollars, and prosecutors have uncovered a U.S. connection. The public is outraged and has called for President Dilma Rousseff’s impeachment, as the speaker of Brazil’s lower house of Congress and a former president of Brazil face recently filed corruption charges. In light of this cascading wave of corruption enforcement, companies operating in Brazil would be wise to scrutinize the adequacy of their compliance programs there and beyond. Fortunately, recent regulations further implementing Brazil’s Clean Company Act provide guidance that will help them move forward with confidence.
Efforts to Fight Corruption
Some of the more significant headlines related to Brazil’s recent anticorruption push include the following:In March, Brazil’s Supreme Court approved an investigation of 54 high-ranking officials, including former President Fernando Collor de Mello, current Senate Leader Renan Calheiros, and the leader of the lower house Eduardo Cunha. All three are allegedly involved in the Petrobras scandal. Now, federal authorities have charged Collar and Cunha with corruption-related crimes, and charged former federal deputy Solange Almeida with helping Cunha collect bribes. In July, prosecutors opened a probe into another former president, Luiz Inacio Lula da Silva, focused on whether Lula improperly helped construction giant Oderbrecht win billion-dollar deals in South America and Africa. This follows the arrest of Oderbrecht’s CEO in connection with the Petrobras scandal. In early August, it surfaced that prosecutors had charged Jorge Zelada, the former head of Petrobras’ international division, and Hsin Chi Su, the chief executive of the Taiwanese shipping firm TMT, for allegedly favoring Houston-based Vantage Drilling in a bid with Petrobras. Su and others allegedly paid $31 million in bribes to Zelada, other ex-Petrobras officials, and Brazil’s PMDB political party. In an SEC filing, Vantage Drilling disclosed it had voluntarily informed the DOJ and SEC of the issues. In late August, prosecutors in the Vantage Drilling case alleged that Su and Hamylton Padilha, who worked as a third-party agent for Vantage Drilling, met in New York in November 2008 to discuss the bribery scheme. This allegation is the first in the Petrobras scandal to include a connection to the U.S. Also in late August, demonstrators took to the streets of several Brazilian cities and called for President Rousseff’s impeachment. Some even called for a military takeover of the government. It appears the discontent for the widespread corruption plaguing the country and its economy sparked the protests.
The Petrobras matter is far reaching, and more charges against high-ranking officials are likely to come. It is equally likely that more Brazilian and non-Brazilian companies operating in the country will come under scrutiny before the matter resolves, both from local authorities enforcing the Clean Company Act and from U.S. and other authorities with a potential jurisdictional hook under the FCPA or similar laws.
Recent Regulation Under the Clean Company Act
As we have discussed before, the Clean Company Act imposes civil and administrative liability on companies for wide-ranging corrupt activities. It allows Brazilian enforcement agencies to bring actions against companies with a presence in Brazil for acts occurring anywhere in the world.
The law imposes strict liability for violations, but companies can mitigate fines through cooperation and by demonstrating an effective compliance program. Decree No. 8,420 is a recent regulation that clarifies what a company must do to earn a reduction in penalties. First, a company that cooperates and enters a leniency agreement with the government may have a fine reduced by up to two-thirds. That company must be the first to cooperate and admit to its wrongdoing. It also needs to help identify other involved parties, and produce information or documents that evidence wrongdoing.
Second, a company can reduce its penalty if it has an effective compliance program. The decree contains guidance in this area that largely mirrors the guidance given by the DOJ and SEC in relation to the FCPA, and by the UK Ministry of Justice in relation to the UK Bribery Act. Specifically, a company may earn a reduced fine if it can demonstrate: (i) the commitment of senior management, (ii) policies and procedures applicable to employees and third parties, (iii) compliance training, (iv) periodic reviews of the program’s effectiveness, (v) various internal controls, (vi) whistleblower channels and protections, (vii) disciplinary measures, (viii) due diligence procedures, and (iv) specific procedures related to public sector interactions.
The push to rid Brazil of graft impacts each company operating in the country. The recent regulatory guidance under the Clean Company Act provides those companies with standards by which to measure a successful compliance program. Every company with Brazilian operations or business activities should take action. Compliance initiatives need to be tailored to specific risks and implemented throughout an organization. Even those multinationals with compliance programs built to address FCPA or UK Bribery Act risk should reassess whether Brazil’s law, regulations, and now-roiling enforcement environment demand changes.