Brazil: The Antitrust Leniency v. The Anti-Corruption Leniency In Brazil: A Brief Analysis Of Incentives

Last Updated: 24 December 2014
Article by Bruno De Luca Drago

By Bruno De Luca Drago1

The Brazilian anti-Corruption Law (12.846/13), enacted as a resulted of international criticism and nonconformity of the Brazilian society to uneventful corruption scandals in all government branches. Among the mechanisms for containment and reduction of injurious acts to the public administration listed in the Law, the Leniency program stands out, notably mirrored in the experience of similar agreements executed by the Administrative Council for Economic Defense (CADE), the antitrust agency responsible for the defense of competition in Brazil. Although still pending on further regulation, some clarifications and changes are seem as indispensable to promote real interest from undertakings to enter into such routes.

It is undeniable the increasing amount of investigations carried out in Brazil more recently, particularly by the Public Prosecutor's Office, by administrative authorities engaged in bidding processes and their bodies of control and by CADE, which encompasses corruption and cartels issues, especially when the government represents the largest buyer. In this context of multiple nature of infringements, it is not recommended a single leniency agreement to be signed with any of these authorities.

The need to confess collusive behaviors and lenient's duty to cooperate bring strong connecting elements between these institutes, which require perfect alignment so that a favorable decision can be made by the company. In addition to the Antitrust and Anti-corruption leniency, plea agreements in criminal proceedings, designed for individuals involved in such wrongdoings, provides an additional flavor on the dynamics of the incentive analysis.

Thus, the question companies involved in these illicit behaviors should ask themselves lies on whether there are proper incentives, on the different legislations involved, that would justify pursuing such agreements with the public authorities.

In this regard, referring to Anti-Corruption Law incentives specifically, it shall be noted that some issues of concern stand out. At first, unlike the FCPA, its decentralized system establishes that the so-called major authority of each agency or public entity will be responsible for conducting investigations and implementing the leniency agreement. In other words, the executive, legislative and judicial branches, at the federal, state and local level, shall claim jurisdiction on such investigations and agreements. Such decentralization implies cost replication and difficulties for training and harmonizing the decision-making process among the various authorities.

Secondly, at least two highly important incentives found at the Antitrust Leniency are not replicated on the Anti-Corruption law: total immunity of administrative fines, which, according to the later, may be only reduced up to 2/3 of the original value; and the lack of coverage of the leniency agreement for individuals, which brings uncertainty for the company's directors and employees who might have contributed to the infringement.

The implementation of the leniency program by CADE in 2000 certainly resulted in a considerable increase in the number of cartel investigations in Brazil. The acceptability of these agreements derives mostly from the recognition of incentives for its achievement. However, although the effects from CADE's leniency seem to be predominantly positive, the same cannot be expected with respect to the Anti-Corruption Law, particularly for the reasons above. And more importantly, the ineffectiveness of this institute can be harmful even for the Antitrust leniency, whenever corruption elements relate somehow to the collusive practices pursued by the Brazilian Competition Watchdog.

Finally, in addition to the claimed innovations to the anti-Corruption Law, further discussions on possible binding effects between the two leniency institutes shall be carried on, aiming the mitigation of any deleterious effects resulting from the different level of incentives provided by the two legislations.

1 Mr. Drago is a senior partner at Demarest Advogados. The author acknowledges the valuable contribution of Ciro Alvarenga to the preparation of this article.

2 According to information provided by Cade's Citizen Information Service (SIC Cade), approximately 40 agreements with companies and individuals have been signed until November 2014.

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.

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