There is a growing concern from investors, both local and foreign, regarding corruption in Brazil and, consequently, a more detailed analysis of such aspects when deciding to invest in Brazilian companies.
In that respect, there is a convergent movement of investors and investees towards greater transparency and management control. On one hand, investors are giving more consideration to such issues when performing risk assessments and due diligence prior to committing themselves to invest. On the other hand, Brazilian companies are implementing (or reviewing) their own compliance programs, creating or reviewing anticorruption internal policies and providing trainings against wrongdoings to their employees; as well as conducting a more thorough assessment of their service providers.
The increasing regulation of compliance rules in Brazil, although some are applicable for specific sectors of the economy, traces a new panorama in Brazil. The enactment of the Brazilian Anticorruption Act (Law No. 12,846, dated August 1, 2013), the implementation of the Brazilian Code of Corporate Governance by the Brazilian Securities Exchange Commission (CVM) and the creation and publishing of a list of Ethic Companies by the General Comptroller of the Union (Controladoria Geral da União – CGU) are background to such changes. One of the most recent efforts in that direction was the enactment of Resolution No. 4567 on April 21, 2017 by the Central Bank of Brazil, which comes into effect in August this year and requires financial institutions to notify the Central Bank of Brazil about any information that may adversely affect the reputation of its controlling individuals, shareholders with relevant equity stake and members of statutory bodies, such as information about criminal lawsuits or investigations in which they are defendants.
Therefore, Brazilian companies are adjusting themselves to these new compliance rules, either mandatorily by the authorities or, in a more comprehensive manner, by demand of their stakeholders. In M&A transactions, the task is even greater because investors have the challenge of conducting a due diligence process in the potential investee that meets their internal controls standards and identifying exposure to these reputational risks.
Lawyers have a key role in this movement, either on the investor's side by identifying and assessing risks during the legal due diligence, or on the company/sellers´ side by providing a risk assessment and assisting them in adjusting their compliance practices.
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