Last Tuesday July 12, 2022, the Brazilian Federal Government published Decree No. 11,129/22 ("Decree"), which regulates Law No. 12,846 of August 1, 2013 ("Anti-Corruption Law").
The new decree revokes Decree No. 8,420 of March 18, 2015 and amends the regulations on the anticorruption legislation in force, by improving the procedures related to the preliminary investigation, the Administrative Liability Proceeding (PAR) and, most importantly, the negotiation, execution and fulfillment of leniency agreements, ensuring greater legal certainty, predictability and attractiveness of such institutes for the legal entities. According to the decree, the main purposes of the leniency agreements will now be to (a) increase the investigative capacity of the public administration; (b) enhance the authorities' capacity to recover assets; and (c) promote a culture of integrity within the private sector.
Moreover, the decree establishes new rules that expand the prerogatives of the Office of the Comptroller General of the Union (CGU) in the scope of the liability proceedings against legal entities. The referred rules reinforce the promotion of an integrity culture in the private sector and seek to address the legal uncertainties that existed in the Brazilian anticorruption microsystem.
Among the new provisions introduced by the decree we have: changes in the calculation of penalties (including a change in the percentage reduction of the penalty for legal entities that have an effective integrity program in place); review of the methodology used to measure the undue advantage earned by corporate offenders for purposes of establishing the applicable penalty; changes to the timeframes for interruption or suspension of the statute of limitations; provision for joint action by different agencies to execute leniency agreements; imposition of limits on the exchange of information and documents obtained under a leniency agreement with other authorities; and inclusion of new requirements for renegotiation and amendment of the obligations undertaken in the agreements.
The decree also introduced a provision for indirect monitoring by the CGU of the obligations to adopt, implement and improve the integrity program, which suggests a will of the authorities to increase the inclusion of independent corporate monitors as a condition for the execution of leniency agreements under the supervision of the CGU. The topic was not formally regulated in Brazil so far, although we have seen some practical examples of the imposition of independent monitors by legal entities that have executed leniency agreements.
Among the main changes introduced by the decree, we highlight the following:
Preliminary Investigation and Administrative Liability Proceeding – PAR
- Improvement of the preliminary investigation procedure, which aims the verification of evidence of authorship and materiality of harmful acts against the public administration. The new term for the conclusion of the procedure by the competent authority will be up to 180 (one hundred and eighty) days, with the possibility of extension of such term. The new measures include the possibility of sharing information and documents with the competent authorities, as well as the application of judicial measures deemed necessary for the investigation (e.g., searches and seizures);
- Detailing of the procedures to be observed while conducting PARs, especially with regard to subpoenas, indictments, and elaboration of the respective final report. Furthermore, foreign legal entities may be subpoenaed and notified of all procedural acts regardless of power of attorney or contractual or bylaws provisions.
- The agencies and entities of the direct and indirect federal public administration can be held liable if they fail to inform the CGU of evidence of damaging acts against a foreign public administration, identified in the course of their duties.
- The decree also establishes that violations of the Anti-Corruption Law and that may also represent administrative violations of Law No. 14,133/2021 ("New Public Bidding Law") or other related laws shall be investigated simultaneously in the same PAR proceeding.
- The provisions of the decree immediately apply to the proceedings in course and the procedural acts undertaken before it becomes enforceable remain valid.
Fine for Unlawful Acts
- Improvement of the criteria for determining the applicable penalty, including changes in the calculation methods for the respective amounts and in the percentages of the calculation bases of such penalty.
- Increase from 4% to 5% of the reduction percentage of the penalty, in case the legal entity proves that an effective integrity program was in place at the time of the Anti-Corruption Law violation. The increase of the reduction percentage sends a clear message on the importance of implementing an effective integrity program.
- Improvement of the definition of "obtained or intended advantage", which now corresponds to the monetary equivalent of the product of the illicit act, i.e., the earnings or profits obtained or intended by the legal entity as a direct or indirect result of the harmful act.
- Inclusion of new methodologies for estimating the obtained or intended advantage, which include the use of the amount of the (a) revenue obtained in the scope of administrative agreements and their amendments, minus licit costs; (b) expenses or costs avoided by the legal entity, including tax or regulatory expenses; or (c) additional profit earned by the legal entity as a result of an action or omission from the public administration that would not have occurred without the harmful act.
- The leniency agreements may provide for a different deadline from the one established by the decree (i.e., 30 days) for payment of the applicable penalty or any other financial obligation imposed on the legal entity.
- The main purposes of leniency agreements are now (a) to increase the investigative capacity of the public administration; (b) to enhance the authorities' capacity to recover assets; and (c) to promote an integrity culture of integrity in the private sector.
- Preparation of a joint act by the CGU and the Office of the Federal Attorney General (AGU) to regulate the joint action of those entities in the negotiation, execution and monitoring of leniency agreements. The joint action of the CGU and AGU was previously regulated by an Ordinance and by the Technical Cooperation Agreement between CGU, AGU, the Federal Court of Accounts (TCU) and the Ministry of Justice and Public Security (MJSP), executed in 2020.
- The CGU may accept the prerogative to negotiate, execute and monitor the fulfillment of leniency agreements related to harmful acts against other government and federative entities.
- Inclusion of two new requirements for the execution of leniency agreements: (a) full compensation of the uncontroversial amount of the damage and (b) loss, in favor of the damaged entity or the Federal Union, of the amounts corresponding to the undue asset increase or illicit enrichment obtained with the violation.
- In cases where the unlawful act simultaneously implies in damage to the public entity and undue asset increase to the legal entity (provided that they are identical), the corresponding amounts will be calculated (a) in a lump sum for purposes of quantification of the amount to be paid under the leniency agreement and (b) registered as compensation for damages for accounting and budgetary purposes and for their destination to the public entity.
- The signing of the memorandum of understanding with the legal entity that is negotiating the leniency agreement will interrupt and suspend the statute of limitations for the negotiation period, limited, in any case, to 360 days. Furthermore, the PAR filed against the a legal entity may also be suspended;
- The CGU may take over the records of administrative proceedings in progress in other federal public administration agencies or entities related to the facts subject to the leniency agreement under negotiation.
- The negotiation of a leniency agreement will not interfere in the regular progress of specific administrative proceedings for the investigation of damages and losses to the federal public administration resulting from a harmful act committed by a legal entity, with or without the participation of a public agent.
- Provision of new clauses that may be included in the leniency agreement and that address (a) deadlines and monitoring of the implementation of integrity program improvement measures; (b) payment of the penalty and of the uncontroversial amount of the damages; and (c) possibility of using such amount to compensate amounts established in other sanction or liability proceedings, when related to the same facts included in the scope of the agreement.
- Provision for monitoring the obligations of adopting, implementing, and improving the integrity program, which may be carried out directly or indirectly by the CGU including the possibility of imposing independent monitorship.
- Inclusion of new criteria to be considered when defining the percentage reduction of the applicable penalty, such as the (a) timing of the self-reporting and the unprecedentedness of the harmful acts; (b) effectiveness of the collaboration of the legal entity; and (c) commitment to undertake relevant conditions to comply with the agreement.
- The information and documents obtained as a result of the leniency agreements may be shared with other authorities, upon commitment not to use them to sanction the legal entity with regard to the same facts that were the object of the leniency agreement, or upon the approval of the legal entity itself.
- The execution of the leniency agreement will interrupt the statute of limitations with regard to the unlawful acts that are subject of the agreement, which will remain suspended until the fulfillment of the commitments undertaken in the agreement or its termination.
- The benefits of exemption from the extraordinary publication of the administrative decision, the prohibition to receive incentives, subsidies, grants, donations or loans from public agencies or entities and public financial institutions or those controlled by the Public Administration, as well as the reduction of the final amount of the penalty and the exemption or mitigation of administrative sanctions will be granted to legal entities from the date of execution of the leniency agreement, and no longer from the date of its fulfilment.
- Inclusion new rules and improvement of the existing ones regarding breach, termination and amendments to the leniency agreements.
- Improvement of the evaluation parameters of the existence and application of integrity programs, as well as exclusion of the former parameter of "transparency of the legal entity regarding donations to candidates and political parties", in line with the ruling of the Federal Supreme Court (STF) regarding the unconstitutionality of political donations made by companies and of Law No. 13,165/2015 ("Electoral Reform Law"), which ratified the STF's ruling.
- Among the improvements of the evaluation parameters, we highlight the need to (a) demonstrate the senior management's commitment by providing adequate resources to the integrity program; (b) conduct adequate risk management including periodic risk analysis and effective allocation of resources; (c) conduct due diligence for hiring and monitoring third parties, politically exposed persons (PEP) and people related to them, and for granting donations and sponsorships.
- Inclusion of new criteria for analyzing the parameters for evaluation of the existence and application of integrity programs (e.g., the legal entity's gross revenue and its corporate governance structure).
- Amendments to the laws on the publication of information regarding administrative sanctions imposed on individuals or legal entities that imply a restriction to the right to participate in public bids or to execute agreements with the public administration of any federative sphere in the National Registry of Ineligible and Suspended Companies (CEIS).
- Possibility of including, in the CEIS or in the National Register of Punished Companies (CNEP), information regarding the scope of the sanction.
- Exclusion of the data contained in the CEIS or CNEP after the fulfillment of the penalty of extraordinary publication of the administrative decision.
- Inclusion of new attributions of the Minister of CGU to issue complementary guidelines, rules and procedures for ensuring the effectiveness of the decree, especially with regard to the methodology for calculating gross revenues and the taxes to be excluded for purposes of calculating fines and evaluating the integrity program, including the method for simplified evaluation in the case of micro and small companies; and
- The Ministry of Justice and Public Security, AGU and CGU will create institutional communication channels for the submission of information regarding the practice of unlawful acts against the national or foreign public administration or resulting from plea agreements and leniency agreements, as well as for international cooperation and asset recovery.
The decree, which will come into force on July 18, 2022, will revoke Decree No. 8,420/2015.
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