Although Brazilian anti-corruption law traces back in time more than 175 years, the ruling by the Brazilian Supreme Court on one of the most publicized corruption related cases in the country’s history – the Mensalão or “big monthly allowance” matter,1 made 2012 one of the most relevant years in recent Brazilian anti-corruption enforcement history.
Throughout the second half of 2012, the Brazilian Supreme Court practically stopped all other business to rule on the Mensalão case. The case involved 38 defendants, among whom were high ranking public officials, including members of Congress and the former Chief of staff of President Luiz Inácio Lula da Silva.2 As a result of the Court’s deliberations, most of the defendants were convicted of criminal acts including corruption and money laundering.
Although the Mensalão case has not necessarily created new concepts or a new legal framework in the Brazilian system – acts of corruption have been criminalized in the Brazilian Criminal Code since 18303 – it has brought to light changes that were already in motion in Brazil’s anti-corruption enforcement policies.
This is certainly a time of change in Brazil. The upcoming World Cup and Olympic games have brought the world’s attention to the Brazilian market. New investments are entering the country, bringing with them new models of doing business and a new business culture. In addition, for the past several years, Brazilian authorities have indicated a shift in their anti-corruption enforcement, investigational and prosecutorial efforts from a focus on the corrupted public official to the role of the private party who corrupts.
I. Current Brazilian Legal Framework
Under the current Brazilian legal framework, those involved with acts of corruption may face criminal, civil and administrative sanctions. If the accused is a legal entity, however, only civil and administrative proceedings and sanctions may be brought. Under Brazilian law legal entities do not have criminal liability.4
In general, under criminal law, civil law and administrative rules, any payment (or anything of value) offered to a public official with the intent that he or she conduct, omit or delay an official act, is illegal, regardless of value or entitlement to the action at issue. Therefore, there is no facilitating payments exception under Brazilian law.
Currently, there are no legal provisions specifically directed at anti-corruption compliance efforts and related topics – that is, there is no analogue to the internal controls requirements of the FCPA or the “adequate procedures” defense to the U.K. Bribery Act 2010 (“UKBA”) “corporate offense.” As will be further discussed in this article, there is currently a bill making its way through Brazil’s Congress that would include such legal provisions in the Brazilian system.
In addition, Brazilian law does not punish private or commercial corruption/ bribery. In order for a corruption-related offense (criminal, civil or administrative) to take place, there must be the involvement of a Government institution or official.
Nevertheless, the Brazilian legal framework adopts a broad concept of “public official” for purposes of applicable criminal, civil and administrative laws.
Although the definition of public official may vary in accordance with the applicable law, in general anyone who, even if transitorily or without remuneration, works for any level, branch or agency of government, or for any company or entity owned by the government is considered a public official.5 The definition of public official also extends to anyone who works for a private company that is hired to provide a public service.6
Corruption Related Criminal Offenses
Criminal offences are generally defined in the Brazilian legal framework through specific laws or directly under Criminal Code. For anti-corruption purposes, the most relevant offenses are defined in the Criminal Code.7
The corruption offenses are mainly trafficking in influence, active corruption, passive corruption and corruption involving foreign public administrations.
In general terms, the offense of trafficking influence, defined in Article 332 of the Criminal Code, prohibits anyone from requesting or obtaining any advantage (similar to the concept of anything of value as will be discussed in further details under the “active corruption” analysis) in exchange for influencing an act of a public official, regardless of whether the public official himself or herself knows of such undue advantage or receives an undue advantage.8
The penalties applicable to those who are found guilty of trafficking of influence are two to five years imprisonment plus fines.9
Passive and active corruption, defined in articles 317 and 333 of the Brazilian Criminal Code, clearly define as crimes the payment of bribes to public officials and the receipt of bribes by such public officials. As shown below, the terms of such articles are even broader.
Article 317 of the Brazilian Criminal Code defines passive corruption as:
“ Art. 317 – To request or receive, for oneself or for another, directly or indirectly, even if outside or prior to assuming the function, but for reason of such function, undue advantage, or to accept as promise of such advantage.”
The crime of active corruption, committed by the private party, is in turn defined under article 33 of the Criminal Code as:
“ Art. 333 - To offer or promise an undue advantage to a public official, for him to conduct, omit or delay an official act.”
Therefore, the crime of corruption in Brazil is not limited to the payment of bribes, but rather the offer or conferral of any undue advantage. This is similar to the FCPA’s concept of offers of “anything of value” – in other words, anything that is valuable to the public official receiving the proffered advantage or an offer of same.
As noted, the undue advantage does not actually have to be provided or received, as the simple request of an undue advantage by a public official or the offer and promise of such advantage to a public official is enough for the crime of corruption to occur.
The penalties for those who are found guilty of active corruption consist of two to twelve years in jail plus fines.10
The Brazilian Criminal Code, in accordance with the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (“OECD Anti-Bribery Convention”),11 also establishes the liability for acts of corruption/bribery against foreign public officials and institutions.
Active corruption in international commercial transactions (article 337- B) is defined as “directly or indirectly promis[ing], offer[ing] or giv[ing] an undue advantage to a foreign public agent, or to a third party, in order to influence him to practice, omit or delay an official act related to an international commercial transaction.”
Those who are found guilty of active corruption in international commercial transactions are subjected to one to eight years imprisonment plus fines.12
In addition, the Criminal Code also establishes the crime of trafficking in influence in international commercial transactions, defined by article 337-C as “request[ing], demand[ing], collect[ing] or obtain[ing] for oneself or for another, promise of advantage or benefit, under the pretext of influencing an act committed by a foreign public official in the exercise of his function related to an international commercial transaction.”
The penalties applied to those found guilty of this criminal offense are two to five years imprisonment plus fines.13
Corruption Related Civil and Administrative Offences
One of the most relevant civil laws in Brazil for anticorruption purposes is Federal law n. 8429 of July 2, 1992 on administrative improbity. Because this law is of a civil nature with civil sanctions, it may be applied to individuals and legal entities.
The administrative improbity law seeks the punishment of the illicit enrichment of public officials and of damages caused to the public coffers, as well as the restitution, to the public administration, of such damages. It is applicable to anyone who induces or contributes for the act of improbity, or who in any way directly or indirectly benefits from such act.14 Therefore, even if the illicit enrichment is of the public agent, the private party that aids in such enrichment is also liable under the terms of the law.
Federal law n. 8666 of June 21, 1993, known as the “procurements” law is also relevant in the Brazilian anticorruption efforts. The law establishes the rules applicable for public procurement procedures and for public contracts.15 This law is amorphous in the sense that it applies both civil and criminal penalties, not necessarily specifying when one or the other should be imposed, and establishes rules for administrative procedures.
II. Enforcement Efforts in Brazil
As previously stated, the ruling of the Mensalão case was perhaps the most emblematic law enforcement event in current Brazilian history.
The case involved alleged crimes by government officials, private banks and companies in an alleged scheme to buy political support for the proposals presented by the Executive Power. Most of the 38 defendants in the case were convicted for active and passive corruption and money laundering, among other charges.16
Although changes in the Brazilian enforcement efforts have become more apparent through the ruling on the Mensalão case, those observing actions by the prosecution, police authorities and the courts, even prior to the Mensalão case, may have discerned that change in anticorruption enforcement was already taking place due to two main factors: (i) change of the focus of the Brazilian authorities from the corrupted to the corruptor and (ii) external/foreign factors.
The Brazilian police authorities have substantially improved their investigation techniques, adopting technological advancements and working closely with police authorities of other countries in combined efforts to exchange experiences and collaborate in transnational cases. In addition, increasing investigative operations against private parties and entities are demonstrating a rising focus by the investigative authorities on the role of the private parties who are involved in corrupting or paying bribes to public officials. Private parties are increasingly being questioned about their relations with public officials and their role in corruption schemes.
Another important factor underlying the enforcement changes in Brazil comes from abroad. Foreign companies subject to laws such as the FCPA and the UKBA that are coming into Brazil through mergers or joint ventures are seeking conformity by the Brazilian companies with the terms of such foreign anti-corruption laws. On the other hand, Brazilian companies that do business abroad are finding themselves subject to the jurisdiction of the foreign authorities such as the U.S. Department of Justice and the U.S. Securities and Exchange Commission. In order to participate and compete in world markets, and at the same time mitigate the risks of international business transactions, many companies in Brazil are seeking to adopt compliance standards adopted abroad under laws such as the FCPA and the UKBA.
III. Future Trends in Brazilian Compliance
The adoption and implementation of compliance programs by companies doing business in Brazil is significantly driven by obligations under non-Brazilian legal regimes. Currently, there is no applicable law in Brazil or formal understanding by the Brazilian authorities that directly mandates the standards that should apply to compliance programs at private enterprises.
However, as signatory to the OECD Convention, Brazil has agreed to adopt all internal laws required to comply with the Convention, and to peer review regarding its compliance efforts.
Brazil has been questioned by the OECD regarding its approach towards the liability of legal entities in the Brazilian system. The Convention establishes that “each Party shall take such measures as may be necessary, in accordance with its legal principles, to establish the liability of legal persons for the bribery of a foreign public official.”17 As previously stated, under Brazilian law legal entities do not have criminal liability. In the past, the Brazilian authorities have interpreted the Convention to provide each signatory the discretion to establish the limits of such liability, within their internal legal framework.18
However, faced with its international obligations, the competent Brazilian authorities have presented to Congress a bill (Legislative Bill No. 6826/2010), through which civil and administrative liability of legal entities specifically for practices related to acts of corruption against both national and foreign public administrations is imposed. Note that the bill does not impose criminal liability of legal entities as it would be incompatible with the current legal framework.19
The bill also incorporates new principles of compliance into the Brazilian legal system. It specifically establishes reporting and compliance measures that must be considered by the competent authorities when applying penalties against legal entities. Under the bill, the establishment and enforcement of compliance programs would be formally introduced in Brazilian law as affirmative defenses in civil and administrative proceedings to what otherwise might be liability for acts related to corruption in which companies may be involved.
Although at this point it is difficult to predict when the bill will be passed into law, pressure coming from Brazil’s international obligations, especially under the OECD Anti-Bribery Convention, is likely to be a driving force in Congress.
Changes in Brazilian enforcement and policies are new and many times subtle. Such changes can often go unnoticed by those who are not carefully observing. In light of a growing enforcement environment, however, the risks related to improper business practices that may have been more widely tolerated in the past are undoubtedly rising in Brazil. Those who are doing business in Brazil need to take heed, and should look to the future and to the current signs of transformation when considering their compliance efforts.