monday, 16 march of 2015

Brazilian Anticorruption Law

Maria Fernanda Pecora Gédéon and Amanda Federico Lopes Fernandes

1.Context of the Brazilian Anticorruption Law

The enactment of the Law nº 12,846 of August 2013, known as the Brazilian Anticorruption Law (“LAB”), places Brazil in a group of countries concerned with the implementation of differentiated business standards in terms of quality and conduct of the companies.

This law has come to fill a gap in our legislation, since, until its enactment, there was not a specific law responsible for imputing to legal entity penalties for acts of corruption. Nevertheless, until the present moment, the expected decree from the CGU - Comptroller General that shall regulate the LAB is still waiting for Mrs. Dilma Roussef’s, Brazilian president, approval.

After more than one year of its existence, the LAB is still missing the regulation of the mentioned decree and such absence of regulation is in some way hindering the prompt and effective enforcement of it, particularly in times of relevant corruption investigations in Brazil.

The LAB seeks to respond the commitment made by Brazil in 2000 to the OCDE - Organization for Economic Cooperation and Development referred to the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The corruption involving foreign public officials was recently regulated by countries like the UK, Mexico and Chile, following the footsteps of the U.S. that since the 70s addresses the subject through the FCPA - Foreign Corrupt Practices Act.

The establishment of this law represents a vision of greater competitiveness for our country, and its application seeks to bring the issue of efficiency and probity in the enterprise business environment.

2.Key Features of the Law

Like the Law nº 9,613 of March 1998, which deals with the crime of money laundering and which transferred the investigation function to financial institutions; it is possible to realize that the LAB aims to extend the responsibility for controlling the corruption acts from the public authorities to the private individuals, with incentives to create compliance programs.

Although the LAB expressly has a tendency towards the administrative and civil liability of legal entities, as stated in its Article 1, some of its penalties are so close of the ones provided in the Brazilian Criminal Law that aim to discourage illegal conducts, such as active corruption and active corruption in international business transaction, which are already found in the Criminal Code of 1940.

The Law enforcement is directed to the entrepreneur, foundational, association and foreign legal entities, and it is possible to blame the successor of the company in case of merger or acquisition and economic group.

The conduct subject of accountability are the acts committed against the public administration, not only the national but also the foreign. Therefore, Brazilian companies that wishes to compete in foreign markets should also be prevented from punishments based on foreign laws from where they intend to do business (FCPA, UK Bribery Act of April 2010).

The practices considered harmful include not only the ones against public property (domestic or foreign), but also against the principles of public administration or against the international commitments assumed by Brazil.

The generic and broader nature of the legal definition of harmful act to the public administration results on a list of harmful acts, that includes not only the actual lump sum payment or settlement of undue advantage to a public servant or others related to it, but also the offer or cost of these practices.

In many ways, the Anticorruption Law uses institutes contained in Law nº 12,529 of November 2011, the Antitrust Law, especially with regard to the types of administrative sanctions.

Another interesting point to be noted is the provision of illicit behaviors regarding to bids, despite that the Law 8,666 of June 1993, already provides and condemn them. There is, certainly, a concern of the legislator to give greater effectiveness to the Bidding Law.

2.1.Strict Liability

The type of liability that the law imposes on legal entities is the strict liability. In this sense, showing that the company was not at fault for an act committed, for example, by an employee or a third party acting in purported benefit of the company, will not exempt it from liability.

The assessment of liability dispenses finding of guilt, the damage is assumed and the result desired by the offending agent is indifferent. The public authorities do not need to prove that a company that actually was involved in an act of corruption with government officials benefitted from this act. Just the proof that corruption existed so it can be punished without the need to prove its intent to practice such harmful act.

2.2 Sanctions

At the administrative sphere, the sanctions that can be determined are the extraordinary publication of the conviction and / or a fine ranging from 0.1% to 20% of the gross revenues of the last financial year preceding initiation of administrative proceedings, excluding the taxes.

The fine shall never be less than the benefit received by the convicted company, and the subsidiary, controlling and associated companies and also the consortium members of the same administrative contract are jointly and severally liable for its payment.

When it is impossible to apply the discretion of annual turnover, the fine shall be between R$ 6,000 (six thousand reais)1 to R$ 60 million (sixty million reais)2.

The sanctions shall be applied according to the peculiarities of the case, such as severity of the violation, its consummation or not, violator's economic status, cooperation of the legal entity for the determination of the violation, the existence of preventive and reprimand means to illicit conducts practiced by the legal entity or its members, etc.

The term of the administrative process is 180 days from the date of publication of the act that establishes the Investigative Commission and it may be extended indefinitely under reasoned request of the authority initiating the proceeding. The negative impact of a "stalled" investigation over a public-held company can be huge: creating instability and reducing its value, without the public authority has been taking any action in relation to the process.

Another circumstance of negative impact is the lack of detail in the law on confidentiality of information obtained in the investigative processes.

Regarding the sanctioning agency in the administrative sphere, if on the one hand the law is quite clear with regard to the power of CGU - Comptroller General to bring to themselves the investigation of a case that happens in any area of the Federal Executive Branch, there is not the same mention about sanctioning agencies in others federal spheres.

In the judicial sphere, the direct Public Administration (Union, States, Federal District and Municipalities) through their respective public advocacy or agencies of public representation, and the Public Prosecutor Office may file lawsuits requiring the loss of property, rights or values in order to compensate public money in proportion to the benefits obtained.

The lawsuits may also result in suspension or partial interdiction of business activities, and, in the most serious cases, in its compulsory dissolution, and prohibition on receiving incentives, subsidies, grants, donations or loans from public agencies and public or controlled financial institutions by the public authorities, for a minimum of one and maximum of five years.
3.National Register of Punished Enterprises

The Brazilian Anticorruption Law creates within the Federal Executive Branch the "National Register of Punished Enterprises - CNEP", aimed to advertising the sanctions applied for infringing legal entities.

The insertion of the name of a company in the National Register of Punished Enterprises can cause significant losses in the financial order, as to depart of customers and partners to conduct business, besides of preventing the convicted company to participate in bidding processes, and to the very image of the company, which in current context of computerization and quick sharing of information, can be extremely severe and long lasting.

Although the law mentions the existence of this register, it does not make reference if a company considered inapt by a federal entity is prohibited from transacting with all other federal entities.

4.Leniency Agreement

Incorporating principles of comparative law and following the open path by the Brazilian Antitrust Law, the LAB brings with it a chapter dedicated to the leniency agreement, whereby the legal person responsible for the commission of an act of corruption may enter into an agreement with the public administration.

The offending legal entity agrees to cooperate with the investigation of the unlawful and to cease its practice, in exchange for exemption of the penalty to make public the offense committed and reduction of fines up to 2/3 of the applicable amount.

The leniency agreement is a voluntary statement of guilty. To discover and report an offense to the Anticorruption Law to regulatory agencies, before they find the problem, the legal entity that have denounced itself may have the benefit of the mitigating in its sanctions.

Likewise, the leniency agreement is not able to exempt the legal entity of the obligation to make full reparation for the damage caused and it must be followed by the others legal entities belonging to the same economic group, as long as they signed it together.

Unlike the type of leniency agreement brought by the Antitrust Legislation that provides for administrative and criminal immunity in case it is signed, the leniency agreement regarding subject of anticorruption does not allow this complete immunity, questioning the incentive that offenders could take on signing it.

For the purposes of signature of the leniency agreement, just the self-incrimination is not enough. The sanctioning agencies will take into account, among other factors, the level of cooperation of the company with the investigation, the amounts involved, the recurrence in practice and "the existence of mechanisms and procedures of integrity, due diligence and encouragement of whistleblowing and the effective implementation of codes of ethics and conduct within the legal entity”.

In other words, the LAB values insertion of the called compliance programs in order to prevent offenses of fraud and corruption for the purposes of mitigation of the sanctions. Moreover, the law is concerned with the effective implementation of the compliance instruments, thus seeking to make a screening of the quality programs and that they are effective in practice.

5.Compliance

The compliance program consists of internal activities of an organization created with the purpose to fulfill and comply with the laws and regulations applicable to its business practice, goods and services with which it deals and provides.

It is a method of prevention and fast response to acts of corruption and to the risks involved with potential acts of corruption.

The program includes prevention and control instruments as channels of complaint, manuals of conduct and analysis of the risks of the activities, which are made in a specialized way for each organization, as well as training aimed to raise awareness of the actors involved in areas prone to corruption. It should also provide control mechanisms to check compliance with and respect to the program developed.

It is not impossible to count on a prefabricated program; the implementation and management of a good compliance depend on careful analysis of the characteristics of the entity, its object, forms of action, if there is a direct relationship with public administrations, among others.

The successful development of the program depends on the involvement of qualified people to implement it and to give effect in their application. This situation gets prominence, since the existence and effective implementation of the program are taken into account in the determination of the sanctions.

The specialization of the compliance program also becomes important in order to prevent the activities of the legal entity to become frozen. In order to reach such outcome, the program must count on skilled professionals who have the sensitivity to capture the particularities of each entity.

The communication channel between the organization and those responsible for managing the program and its improvement must be constantly maintained in order to, if it is needed to reprimand an illicit or a simple risk, take the appropriate response or appropriate legal action.

Therefore, it is clear that legal entities, in particular the companies, need to implement a new form of conduct and be alert to the implications that their actions can generate.

6.Conclusion

The corruption has a very high cost. It affects everyone, not just the offending legal entity but, mainly, affects the efficiency of generation of its capital.

With the LAB, the legal entities cannot shirk responsibility anymore for the acts of their representatives on the argument that "they didn’t know". Now the responsibility for the acts of corruption is objective, in other words, independent of guilt, and the corresponding penalties can reach astronomical values.

Thus, the implementation of mechanisms to prevent and respond to acts of corruption within the legal entity is the best option both to adapt to the law and to rely on mitigating possible conviction as to strengthen a new concept of doing business option in a transparent and efficient manner.

It is possible to say that it is essential to adopt such program for businesses that deal fairly with the public administration, by either importing or exporting products, participation in bids and the similar.

A better control and reprimand of illicit practices against public administration is the main theme. Comply with this new paradigm is a matter of adaptation and survival. Thus, the compliance program must be "tailor-made" for each corporation, taking into account the dynamics and interactions specific to each organization.

1 Corresponding to the value of US$1,925.42 (conversion rate of 1 Real = 0.3209037 Dollars, accessed on March 12th, 2015: http://www4.bcb.gov.br/pec/conversao/conversao.asp).
2 Corresponding to the value of US$19,254,222.00 (conversion rate of 1 Real = 0. 3209037 Dollars, accessed on March 12th, 2015:
http://www4.bcb.gov.br/pec/conversao/conversao.asp).

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