Brazil: Compliance Programmes For Brazilian Subsidiaries

Last Updated: 4 November 2015
Article by Charles Wowk

The new Brazilian Anticorruption Law establishes severe punishment for companies that involve themselves in acts that are injurious to the government, especially corruption and frauds in government contracts. Liability extends to the partners, shareholders and administrators in general, to the extent of their culpability. It happens that blame is no longer linked to direct participation in the act that causes the damage, but rather to what was done of a preventive nature by those who had the duty to do everything necessary to combat corruption. Thus, in principle, it will not be sufficient to say that the administrator of a company did not know of an act of corruption that occurred in a given department, if this administrator had taken no steps to minimize the risk of such an occurrence.

This scenario alone would be one good reason for installing the so-called compliance programmes, because if steps for combating corruption are adopted, this reduces significantly the risk of personal liability of the company's executives for illicit acts that may be committed by some member of the staff.

Compliance programmes have other important advantages, such as the improved image of the company and the guarantee of being able to continue to operate in markets that currently require proof of combat of corruption. Furthermore, the Brazilian anticorruption legislation grants the right to a reduction of penalties and the possibility of leniency agreements with companies that can show that they have installed effective corruption combat programmes.

There is still no regulation as to what is regarded as an "effective" programme for combating corruption, but Brazil will no doubt follow the same models that have been used in other countries where similar legislation has been sanctioned

Every company must develop its own mechanisms, in accordance with its characteristics, size, degree of exposure to risks etc., but basically the introduction of a compliance programme should consist of the following stages;

1st stage: Diagnosis of the level of exposure of the client to problems of corruption; discussion with the company's management and recommendations for the principal aspects of the future compliance programme.

2nd stage: Installation of the compliance programme (including control policies and procedures; compliance area, or at least a compliance officer, due diligence programme for employees and third parties; whistle-blowing programme; training/awareness programme; policies for reply and investigation).

3rd stage: application of the reply and/or investigation in the event of any incident or problem; continuous monitoring of the efficiency of the programme.

Although it is very common for foreign companies to send their models of code of conduct to their Brazilian subsidiaries and, at times, carry out a presentation of such codes to the local employees, this is not sufficient to enable these subsidiaries to say that they have effective compliance programmes in Brazil. Thus, in addition to whatever rules and standards of parent companies, the recommendation is that Brazilian subsidiaries shall have their own compliance structures in Brazil, in order to demonstrate the existence of effective programmes, thereby guaranteeing adequate benefits and protection for the companies and their managements.

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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