Brazil: Brazil’s new Anti-Corruption Law: risk and compliance in Latin America’s biggest economy

Business ethics and anti-corruption world

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:

Public officials
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.

Application
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.

Successor liability
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.

Other offences
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.

Penalties
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.

Mitigation
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.

Cultural shift

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:

Global strategy
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.

Ethical culture
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.

Regulatory interaction
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 liability
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.

Internal investigations
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.

Conclusion

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.