The Decree No. 55,107, of May 13, 2014 ("Decree") was published in the official gazette of the city of São Paulo on May 14, 2014, with the purpose to regulate the Federal Statute No. 12,846, of August 1, 2013 ("Anti-Corruption Statute").
The Decree regulates, among other matters, the administrative proceedings for the determination of administrative liability of legal entities, for acts committed against the government (direct and indirect municipal public administration), applicable within the sphere of the Executive Branch of the municipality of São Paulo.
The Decree established the authority of the Office of the Municipal General Comptroller ("CGM") to initiate investigations and administrative proceedings with the purpose to determine the administrative liability of legal entities for illegal acts set forth in the Anti-Corruption Statute. The municipal General Comptroller has the authority to commence and to judge the proceedings, and he/she may delegate such powers to the Municipal Official of General Internal Affairs. The proceedings shall be conducted by a panel of three municipal employees with employment stability under the law.
Amongst the innovations of the Decree, one shall find a provision that obligates all municipal agencies and entities to communicate to the CGM any potential violations to Law No. 8,666/93 ("Public Bidding Law") or Law No. 10,520/2002 ("Auction Law") that may also fall in the scope of the Anti-Corruption Statute. Such communication shall be made in a preliminary moment to the initiation of applicable proceedings pursuant to such other laws.
Additionally, upon request of the administrative panel, the administrative authority shall suspend the effects of the act or administrative procedure related to the subject of the investigation, as a precautionary measure, when there is indication of fraud, serious irregularities, risk of irreparable damages or of damages that would be difficult to repair, or any serious reasons which would put the public interest at risk. An appeal against such decision may be filed with the administrative authority in charge, within five days.
From the wording of the Decree, one shall conclude that the municipality aimed at regulating the proceedings in more detail, including: the requirements and deadlines for the serving of process to investigated legal entities; production of documental and testimonial evidence; defense opportunities; drafting of the final report by the administrative panel; drafting of an opinion on the proceedings by municipal legal attorneys; and appeals against the decision of the administrative authority (which shall have the effect of suspending the administrative decision).
One of the issues which might bring controversy concerns the provisions that permit the disregard of the corporate entity in the administrative sphere, also set forth in article 14 of the Anti-Corruption Statute. The Decree′s article 19 sets forth specific procedural rules to give effect to the administrative extension of the sanctions pursuant to the Anti-Corruption Statute to officers and shareholders with management powers.
Regarding the regulations on the application of sanctions, it is important to highlight that the Decree provides that if the legal entity commits simultaneously two or more violations, sanctions might be applied cumulatively, increasing the potential economical exposure of a legal entity accused of committing illegal acts.
The Decree basically reproduces and adds detail to the rules set forth in article 7 of the Anti-Corruption Statute, which shall be taken into consideration in the application of sanctions.
The Decree also contains the parameters of evaluation of legal entities′ compliance programs as set forth in article 7, item VIII, of the Anti-Corruption Statute. It provides that these parameters, when applicable, shall be those to be approved by federal Executive Branch′s rules pursuant to the sole paragraph of the above-mentioned article 7. Until such federal regulations are enacted, the following requirements are set forth in the Decree:
- Existence of consistent integrity and monitoring mechanisms and procedures;
- Effectiveness of the internal controls;
- Use of codes of conduct and ethics, applicable to employees and other staff;
- Existence of reporting channels that ensure anonymity, and investigation of such reports;
- Adoption of measures of transparency in the relation with the public sector; and
- Periodic trainings with the purpose of promoting internal integrity policies.
The leniency agreement was also better outlined. Only the General Comptroller of the CGM may execute leniency agreements, and the delegation of such powers is prohibited.
An interesting innovation regarding the procedure to propose leniency is the possibility that private parties ask for leniency orally, in a meeting with the municipal General Comptroller and one or more members from his staff. Such meeting shall be recorded in official minutes signed by the attendees. One original of the minutes shall be given to the offeror and another original shall remain with the government. Such option does not exist, for instance, in the regulatory decree issued by the Executive Branch of the State of São Paulo.
Regardless of the type of the offer (oral or written), negotiations of leniency agreements shall last up to 60 days, which may be extended and counted as of the date of the offer. The offer shall only become public after the execution of the leniency agreement. It is important to note that the list of ten requirements to obtain leniency is not exhaustive (article 31 of the Decree), given that the text provides that the municipal General Comptroller may require other conditions that he/she considers needed to ensure the effectiveness of the private party′s collaboration and the useful result of the proceedings.
In case the leniency agreement is not entered into, any delivered documents shall be returned to the offeror. The use of such documents to support findings of liability is forbidden, except when the public authority was aware of them before the proposal of leniency, or if the public authority could obtain them by ordinary means.
Other important section provides that when the proposal of leniency is presented after the legal entity is aware of administrative inquiries or proceedings, the reduction of the applicable fine shall be limited to one third (1/3), while the maximum reduction under other conditions would be up to two thirds (2/3).
Finally, it is worth mentioning that the Decree states that entities and municipal authorities must notify other applicable entities in case the investigated conducts may affect other branches of government. This rule includes the Administrative Council for Economic Defense - CADE, which is expressly mentioned in the Decree, in cases where the investigated conducts may also fall within the article 36 of Law No. 12,529/2011 ("Antitrust Law").
Our team continues to follow the development of other regulatory proposals as well as legal discussions on different aspects of the Anti-Corruption Statute, in order to keep our clients informed.