Brazil’s new Clean Companies Law (the New Law) comes into effect on 29 January 2013. The New Law imposes liability on companies for bid rigging and fraud in public procurement as well as bribery of domestic and foreign public officials. It does not however cover bribery between corporations The New Law has broad application and foreign companies with a presence in Brazil, as well as Brazilian companies face liability.. Previous anti-bribery laws focused only on individual liability. Under the New Law companies can not be held criminally liable however breaches of the numerous new offences under the New Law can be established on the basis of strict liability. The power to impose significant fines of up to 20% of annual revenue creates a strong incentive for companies not to breach the New Law. The possibility of reaching leniency agreements with the Brazilian authorities – also introduced by the New Law – may encourage Brazilian companies to conduct their own internal investigations and report themselves to the authorities. As the year in which Brazil hosts the World Cup begins, it is possible that the authorities will seek to bring high profile cases under the New Act to signal the turning over of a new leaf.
Broadly Defined Offenses
Offenses under the New Law include:
- Offering or giving improper benefit to a public agent or related third person;
- Subsidizing the performance of illegal acts mentioned in the Law;
- Hiding or concealing the real interests or identities of beneficiaries in transactions; and
- Hindering investigation or supervision by public bodies.
With regard to public tenders and contracts the New Law prohibits:
- Undermining the competitive nature of a public tender;
- Removing or trying to remove a bidder, through fraud or offering of a benefit;
- Defrauding a public tender or a resulting contract;
- Fraudulently creating a legal entity to participate in a public tender or to enter into an administrative contract;
- Obtaining an improper benefit or advantage for modifications or extensions in public contracts, the invitation to the public tender, or resulting contracts; and
- Manipulating or defrauding the economic and financial balance of public contracts.
The Clean Companies Law provides heavy administrative penalties. It imposes fines as well as limits on a company’s ability to do business in Brazil. A company found liable for one of the acts prohibited under the New Law must compensate for damage caused by the act. Companies within the same group or consortium of groups can be held jointly and severally liable. The New Law also provides for successor liability in the context of merger and acquisitions with companies being required to provide indemnification for the damage caused up to the limit of the capital transferred in the merger or acquisition. In addition companies breaching the New Law face sanctions of between 1 and 20% of their gross revenue from the previous year. Where gross revenue cannot be determined, fines range from R$ 6,000 to R$60,000,000 (up to approx $30,000,000). In addition, adverse judgments can be published.
In addition to the above, Judicial sanctions include:
- Exclusion from public financing incentives for one to five years;
- Seizure and confiscation of assets;
- Partial suspension of activities; and
- Dissolution of the legal entity.
Penalties for violations under the Law will take account of the:
- Seriousness of the offense;
- Offender’s financial position;
- Value of the contracts held with public entities;
- Cooperation of the legal entity; and
- Existence of internal mechanisms and procedures to prevent corruption (similar to the UK Bribery Act’s adequate procedures). However unlike the UK Bribery Act, the fact that a company has such mechanisms and procedures will only be a mitigating factor in determining the level of the penalty imposed on it and not a defense against violations.
Leniency agreements can be reached with companies that cooperate with investigations and the administrative proceedings. The company breaching the New Law must admit participation in the illegal act and fully cooperate with the investigation. It is important to note, however, that leniency agreements do not eliminate liability under other applicable overlapping laws and as such should be carefully considered.
The New Law does not make any exception for “facilitation payments.” Precisely how the Brazilian authorities will apply the New Law, particularly in relation to key issues such as hospitality and entertaining, remains to be seen.
New guidelines are expected to be issued shortly after the law enters into force. which will provide guidance on the internal mechanisms and procedures that should be implemented by companies subject to the New Law as well as the criteria to be applied by regulators in relation to potential enforcement action.
Pending the issue of these guidelines, companies with a subsidiary or branch in Brazil should seek to ensure that their Brazilian operations are compliant with international norms required byUS Foreign Corrupt Practices Act and the UK Bribery Act.