Brazil continues to increase its efforts to combat bribery and corruption through a combination of new legal instruments, increased domestic enforcement, and enhanced international cooperation. The most notable development in recent years is the enactment of Brazil’s first anti-bribery statute applicable to companies, Law 12,846/2013 (the Clean Company Act). The statute provides for strict civil and administrative liability of companies for acts “against the public administration, national or foreign.” Sanctioned conduct includes bribery, bid-rigging, fraud in the execution and performance of contracts with the government, and obstruction of audits, inspections, and investigations by public officials. Bribery, in particular, is defined as “the promise, offer or supply, directly or indirectly, of an undue advantage to a public official or a related third-party” by an entity domiciled in Brazil. Since corporate liability for an agent’s conduct is strict, liability is independent of an administrative or judicial showing of culpability.
Following the Act’s entry into force on January 29, 2014, companies held liable for “acts against the public administration” will be subject to fines of up to 20% of their gross revenue in the year preceding initiation of an investigation, publication of the condemnatory decision, and disgorgement. In establishing the amount of the fine, Brazilian authorities will consider factors such as the amount of the undue advantage and the degree of injury caused to the public administration. Both the cooperation of the investigated entity and the existence of an effective compliance program are mitigating circumstances that may reduce the fine, but are not affirmative defenses. Taking a leaf out of Brazil’s competition law enforcement book, the Clean Company Act also provides for a leniency program that gives authorities discretion to reduce fines by two thirds for the first entity that cooperates with an investigation.
The Clean Company Act provides the General Comptrollers’ Office (CGU, in the Portuguese version of the acronym) with authority to investigate and prosecute acts against the federal government and foreign administrations. At the federal level, the CGU’s jurisdiction to investigate acts against the public administration is concurrent with that of the highest authority of each public entity from which the conduct arose, and many questions remain about how such concurrent jurisdiction will operate in practice. The statute also provides state and municipal governments with authority to investigate and sanction acts against the public administration, potentially raising the risk of different authorities having overlapping jurisdiction over the same conduct. Following the enactment of the Clean Company Act, various Brazilian States and Municipalities have enacted similar legislation, such as the State of Tocantins and the City of São Paulo. Companies doing business in these locations must therefore be prepared to comply with such myriad of applicable laws.
At the time of this writing, Brazilian federal authorities have not published regulations that will provide details about how the Clean Company Act will be enforced. Prominent among the issues that need further regulating are the administrative procedures for investigating acts against the public administration, and the minimum requirements for compliance programs, which as noted earlier may operate as a mitigating circumstance in establishing the amount of sanctions under the statute.
These legislative developments have been accompanied by a more aggressive enforcement strategy at the federal level, spearheaded by the Brazilian Federal Police and by the Federal Prosecutor’s Office (Ministerio Publico Federal). A watershed moment was the conclusion of the “mensalão” trial (a congressional vote-buying scheme) in 2013, which resulted in the imprisonment of 12 defendants convicted by the Brazilian Supreme Court for corruption, conspiracy, money laundering, and tax evasion. Individuals who began their prison sentences in 2013 included such high-profile politicians as Lula’s former Chief of Staff José Dirceu (10 years and 10 months), the former President of the Worker’s Party José Genoino (six years and 11 months), and the former Treasurer of the Worker’s Party Delúbio Soares (six years and eight months). In 2014, after serving several months in a federal penitentiary, the political operatives of the “mensalão” were successful in converting their jail sentences to house arrest.
Another high-profile enforcement action still in progress is “Operacão Lava Jato” (lava jato means car wash in Portuguese), which was launched by the Brazilian Federal Police in March of 2014 in six states and the Federal District, and has led to the arrest of more than 20 individuals at the time of this writing. Operacão Lava Jato involves an alleged corruption scheme in which resources from over-priced contracts to build a new Petrobras refinery in the State of Pernambuco were diverted to a number of political parties in President Roussef’s coalition. As a result of on-going investigations, a former senior Petrobras executive, and four other senior executives of implicated construction companies, have entered into leniency programs and are now cooperating with the Brazilian authorities. The conduct at issue in this case predates the entry into force of the Clean Company Act. US authorities are also reportedly investigating Petrobras, a partially state-owned enterprise and SEC “issuer,” in connection with the conduct unveiled to date by Operacão Lava Jato.
Finally, in late October 2014, the OECD Working Group on Bribery published Brazil’s Phase 3 Report, in which it evaluates and makes recommendations for Brazil’s enforcement of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and related instruments. The Report commends Brazil for improvement in discrete areas, in particular the enactment of the Clean Company Act, but criticizes Brazil for its low level of enforcement, and raises numerous other issues regarding the legal and enforcement framework as well. The Phase 3 Report notes that Brazil has only opened five investigations related to foreign bribery in the 14 years since Brazil joined the Convention, and urges Brazil to step up its enforcement efforts against foreign bribery in the near future. Likewise, the 2014 report of Transparency International on the Enforcement of the OECD Antibribery Convention continues to classify Brazil as a country with “little or no enforcement”.
As a member of the OECD, OAS and UN corruption conventions, Brazil has treaty-based cooperation obligations with many other countries, as well as a network of mutual legal assistance treaties. Its SEC equivalent, CVM, has a cooperation agreement with the SEC. Brazil appears to have increased its international cooperation in recent years, but concerns remain about the speed and efficacy of such cooperation.
We can expect to see further pressure on Brazil’s reelected government to implement and enforce the Clean Company Act in 2014, both in the domestic and the foreign business spheres. Companies with operations and relationships in Brazil and with Brazilian firms should be mindful of the evolving legal and regulatory framework in Brazil and the strong interest in seeing increased enforcement from the Brazilian authorities.