Brazil's anti-corruption enforcement record has to date been poor. Indeed, in Transparency International's 2013 Progress Report on assessing the enforcement of the OECD Convention on Combating Foreign Bribery, Brazil was ranked in the "little or no enforcement" category. Recent events, however, indicate that this is likely to change.
With its rise in the rankings of the world's largest economies and its imminent hosting of the 2014 World Cup and 2016 Olympics, the pressure to improve its record has been evident. Domestic pressure has also increased. Widespread civil unrest during the summer of 2013 was significantly influenced by popular condemnation of corruption in the country.
The effects have been clear. The Brazilian Supreme Court's recent ruling that the majority of the politicians and businessmen convicted in the "Mensalão case" (involving the embezzlement of public monies to pay coalition parties for political support) must begin their prison terms is considered a landmark ruling in showcasing the government's efforts in tackling corruption. Further, in its report, Transparency International lists four investigations into foreign bribery by Brazilian companies that are currently underway, and all are said to have commenced in 2012.
The unrest also resulted in Brazil's new anti-corruption law (the Anti- Corruption Law) being rushed through the Brazilian Senate, despite being originally proposed in 2010. Both external and internal pressure indicate that the Brazilian authorities are likely to prioritise investigation and prosecution of corruption.
The Clean Company Law
Otherwise known as "the Clean Company Law", the Anti-Corruption Law (Federal Statute No 12,846/13) was signed by Brazil's President Rousseff on 1 August 2013 and came into force on 29 January 2014. In summary, the key provisions of the new law are:
The Anti-Corruption Law prohibits companies and individuals from engaging in direct and indirect acts of bribery or attempted bribery, of both foreign and Brazilian public officials. Whilst the definition of a public official is not entirely clear, it is envisaged that it will cover any individual who holds a position in any public agency or entity. It remains to be seen whether the definition also encompasses individuals in companies owned or controlled directly or indirectly by governments. In contrast to the FCPA, facilitation payments are prohibited.
The Anti-Corruption Law applies to Brazilian companies with respect to domestic and foreign bribery. It also applies to Brazilian subsidiaries of foreign parent companies, as well as to non-Brazilian companies that have representations in Brazil (e.g. through an office or branch) for bribery occurring in Brazil.
Corporate liability for employees and third parties Companies will now be responsible for the unlawful acts of their employees and agents.
The Anti-Corruption Law imposes successor liability in the context of mergers and acquisition transactions so that an acquiring entity may be liable for any acts of corruption committed by the acquired entity.
Strict liability offence
Unlike the FCPA, no corrupt intent is required. It is sufficient to demonstrate that one or more offences were committed in a legal-entity's interest or to its benefit.
Whilst, unlike the UK Bribery Act, the Anti-Corruption Law does not cover commercial bribery, the new law does extend to fraud or manipulation in a public bidding process and tampering or interfering with government investigations.
Significant administrative and judicial penalties may be imposed on corporations that infringe the Anti- Corruption Law, including:
- Fines of up to 20% of the company's gross turnover for the previous fiscal year, but no less than the benefit obtained by the company.
- Disgorgement of benefits attained through the unlawful act.
- Debarment of the entity from participating in future public procurement.
- Banned receipt of subsidies, donations, grants or loans from public bodies for a period ranging from one to five years.
- Dissolution of the entity.
Fines can be mitigated if companies demonstrate that they maintain effective anti-corruption compliance programmes, if they self-report violations to the authorities and if they co-operate in the relevant investigations.
Companies with interests in Brazil must therefore take note. Indeed, Brazil is not a jurisdiction unfamiliar with corruption. Although being one of the world's largest economies, including being South America's leading economic power, Brazil is currently ranked 72nd out of 177 countries in Transparency International's Corruption Perceptions Index, with the incidence of corruption being prevalent in both the public and private sectors. Moreover, Brazil's key industries - mining, oil, petrochemicals and infrastructure - are traditionally susceptible to corruption, but the compliance frameworks of Brazilian businesses are largely underdeveloped.
Crucially, the shift in the law will have to contend with traditional business practices that do not prioritise transparency over efficiency. This will require both cultural transformation and effective compliance programmes. With respect to the latter, in the absence of comprehensive direction from the Brazilian government, companies should rely on international best practice standards, such as the World Bank Integrity Guidelines, as well as guidelines in relation to the UK Bribery Act from the Ministry of Justice, and the FCPA from the US Department of Justice and Securities and Exchange Commission.
In addition, companies should consider the following points which are of particular relevance to the Brazilian market:
The new Anti-Corruption Law exists within a growing matrix of laws in various jurisdictions, and it may offer Brazilian and other regulators, such as the UK's Serious Fraud Office or the US Department of Justice, a footing for joint enforcement. A company's anti-corruption compliance programme must therefore be guided by a global strategy.
Investor due diligence
Investment in Brazil – whether directly or in companies with a Brazilian presence - will need to be subject to robust risk-based anti-corruption due diligence, tailored to the specific industry in which such entities operate and the corresponding risk factors they exhibit.
Anti-corruption compliance has not traditionally been an element of many Brazilian companies' legal risk management strategy. Accordingly, embedding an anti-corruption compliance programme that transforms the culture of the organisation is key. Mere procedures alone will not affect the required cultural change.
Businesses in Brazil generally have a high-level of interaction with the public sector, increasing the risk of bribery. Companies must ensure their engagement with regulators is carefully monitored and controlled.
Third-party relationships will have to be managed closely. Businesses must have an in-depth understanding of their business partners and conduct sufficient due diligence, not only prior to engagement, but also throughout their relationship to ensure such partners do not commit corruption offences on their behalf. This will be of distinct importance to companies involved in the 2014 World Cup and 2016 Olympics, owing to the complexity and large contracts that those events entail.
Companies must have established procedures for conducting effective internal investigations, as they will need to act promptly should allegations of improper conduct be made. The results of internal investigations are likely to be central to a company's ability to decide on whether to make a voluntary disclosure to the authorities, which will be of particular importance considering the possibility of benefitting from leniency under the Anti-Corruption Law.
The Anti-Corruption Law imposes significant penalties on companies and highlights the Brazilian government's increasing focus on tackling corruption. Whilst attention to the particular imperatives of compliance and risk under the Anti-Corruption Law should be of particular note to companies with Brazilian interests, all multinational companies should take the new law as a signal of the increasing importance and complexity of anti-corruption regulation around the world and need for a responsive global strategy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.