Imagine you are a compliance officer for a multinational company with securities listed on a U.S. stock market. The Foreign Corrupt Practices Act (FCPA) falls squarely within your purview, but other anti-corruption regimes seem less relevant because of a lack of enforcement (with the exception, perhaps, of the UK Bribery Act). Until recently, Brazil may have fallen into the category of countries about which you had lesser concerns in terms of vigorous anti-corruption enforcement. However, new enforcement efforts may be tilting the scale. Just ask Embraer SA, which finds itself dealing with criminal prosecutions of employees in Brazil, while facing parallel bribery-related investigations of the company in the United States and Brazil.
On September 23, 2014, The Wall Street Journal reported that Brazilian authorities had filed a criminal complaint alleging that eight Embraer employees bribed government officials in the Dominican Republic to secure a $92 million military procurement contract. According to the report, the U.S. Department of Justice and Securities and Exchange Commission provided evidence to the Brazilian authorities and are assisting in the investigation. The complaint alleges that Embraer vice presidents, regional directors and sales managers agreed to pay $3.5 million to a retired Dominican Air Force colonel who was serving as the director of special projects for the Dominican military, in exchange for his influence over the legislature to approve the contract with Embraer. The money was paid through three shell companies owned by the colonel and allegedly was intended for a Dominican senator. After Embraer's compliance department prevented the employees from completing the transactions, the employees allegedly concealed the remaining payments as consulting fees in connection with a deal to sell aircraft to the Kingdom of Jordan. The employees are charged with corruption in international transactions and money laundering, and each faces eight years in prison if convicted.
It initially was reported in November 2013 that U.S. and Brazilian authorities were investigating whether Embraer had bribed a government official in the Dominican Republic in exchange for a contract to provide military aircraft. At the time, it was one of the first known investigations by Brazilian authorities into a Brazilian company for bribing government officials outside Brazil, and an indicator that the then-recently passed Brazil Clean Companies Act was in action. It is unknown whether the Brazilian investigation has ended with the criminal indictments. There are no indications that U.S. authorities have ended their investigations into Embraer or that Brazilian authorities have chosen not to pursue the company under the Clean Companies Act. Accordingly, more trouble may still be coming Embraer's way.
The Organization for Economic Cooperation and Development (OECD), which recently published its Phase 3 report on Brazil's implementation of the OECD Anti-Bribery Convention, has commended Brazil for enacting its Clean Companies Act and for the indictments handed down in the Embraer case. However, the OECD remains generally critical of Brazil's anti-bribery enforcement efforts to date. The Phase 3 report cites several contributing factors for OECD's ongoing concerns, including Brazil's failure so far to issue the decree necessary to fully enforce the Clean Companies Act, a statute of limitation issue, and the lack of private-sector whistleblower protections.
Compliance officers whose companies have operations in, or do business in, Brazil should continue to monitor the legal developments in that country − and all should view the Embraer case as a cautionary tale. The apparent cooperation between U.S. and Brazilian authorities in that case highlights the importance for compliance departments to be mindful of the other anti-corruption laws that can impact businesses in non-U.S. jurisdictions. Brazil is just one example of several countries that recently have focused on combating bribery and corruption, especially that perpetrated by multinational companies and their employees.
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