Overview
On August 1, 2013, Brazil enacted a Bill of Law (the "Anticorruption Law") imposing civil and administrative liability on corporations that commit certain corrupt acts. With very few exceptions, Brazil, like many other countries, does not recognize criminal liability for corporations. This represents Brazil's first step toward joining the many countries that have enacted tough anticorruption laws. Brazilian companies, and foreign companies operating in Brazil, should be aware of this new law and should consider implementing appropriate changes to their compliance programs.
This QuickCounsel examines Brazil's new Anticorruption Law, compares it to the U.S. Foreign Corrupt Practices Act (the "FCPA") and to the UK Bribery Act 2010 (the "Bribery Act"), and offers suggestions for corporate compliance departments that will need to prepare their companies to comply with the new law.
Brazil's Anticorruption Law
Background
The Anticorruption Law, which will become effective January 28, 2014, fills a gap in Brazilian law. Until now, there was no specific law imposing liability on corporations for corrupt acts committed by their employees or agents. Only individuals could be punished for such violations. Under the new law, both the corporations and the individuals involved in the corrupt activity face liability.
The new law was enacted, in part, to
- address the Organization for Economic Co-operation and Development's requirements related to Brazil's compliance with the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions;
- respond to the Brazilian public's demand for increased government transparency and integrity; and
- help Brazil prepare for major international events that it will be hosting during the next three years (e.g., the FIFA World Cup and Rio Summer Olympics).
Scope
In general, the Anticorruption Law prohibits companies (acting through directors, officers, employees or through external companies or individuals) from offering or giving an unjust advantage to a domestic or foreign public official or to a related third party, or from financing or subsidizing such conduct. It also forbids certain practices that jeopardize the competitive character of public bids or that affect the issuance of public contracts. The prohibited conduct is very broad and includes not only the actual payment or provision of any undue advantage to any public official or third party, but also the acts of offering, promising, sponsoring or otherwise supporting such activity.
Unlike the FCPA and similar to the Bribery Act, the Anticorruption Law is not limited to corruption involving foreign officials. Like the FCPA and unlike the Bribery Act, the Anticorruption Law does not reach corrupt acts committed within the private sphere (commercial bribery). The Anticorruption Law imposes civil and administrative liability on corporations engaging in wrongful acts in relation to any public official, whether domestic or foreign. All three statutes reach those who use intermediates to engage in wrongful conduct.
In contrast to the FCPA, which requires proof of corrupt intent, the Anticorruption Law is a strict liability statute. The Bribery Act contains no element of a "corrupt" or "improper" intent in relation to the bribery of a foreign public official, although this is a requirement for the general bribery offense under the Bribery Act. Liability under the Anticorruption Law is established merely by showing that a director, officer, employee or other agent committed a prohibited act to benefit the corporation. As in the Bribery Act, the Anticorruption Law states that the fines arising out of the strict liability affecting commercial organizations may be mitigated by the existence of adequate procedures to prevent bribery.
Portions of the Anticorruption Law are still unclear. There is no definition of certain key terms, such as what the "national public administration" is, and who a "public agent" is under the law. Other terms, e.g., "foreign public administration," are defined broadly, and potentially apply to any entity directly or indirectly controlled by the public administration of a foreign state, as well as any public international organization.
As with other anticorruption statutes, such undefined terms within the Brazilian Anticorruption Law are likely to provide challenges to compliance officers seeking to advise their companies. For example, under the FCPA it has been a continuing challenge for compliance officers to determine whether the FCPA's definition of "foreign official" includes officers, directors, and employees at state owned entities or companies over which foreign governments exercise some level of control. Likewise, under the Bribery Act, to take advantage of the "adequate procedures" affirmative defense, there is still uncertainty around what steps companies must take and policies companies must enact to avail themselves of this affirmative defense.
Penalties
The Anticorruption Law imposes severe penalties for violations. Fines may be up to 20% of the company's annual gross revenues. The proposed bill originally capped fines at the value of the contract or public bid related to the offense. This attempt to limit the penalty was vetoed by Brazil's President Dilma Rousseff, demonstrating how serious the Brazilian government has become concerning anticorruption matters.
If the company's annual gross revenues cannot be determined, the Anticorruption Law provides that fines shall range between R$6,000 (six thousand reais / ~$2,500 USD) and R$60,000,000 (sixty million reais / ~$25,000,000 USD). However, the fine may not be lower than the benefit obtained by the company. When fixing the penalties, the authorities may consider the benefit obtained, the losses suffered by the public treasury, the economic strength of the company, and the existence of internal compliance mechanisms. These corporate penalties are similar to those available under the FCPA, which can range up to $2 million or twice the amount of the pecuniary gain sought in the transaction for bribery violations, and up to $25 million for accounting violations. The Anticorruption Law follows the trend of aggressively responding to corruption evidenced by the 2010 UK Bribery Act, which provides for potentially unlimited fines.
In another major distinction from the FCPA and Bribery Act, the Anticorruption Law holds parent and affiliated companies, subsidiaries, and members of the same consortium in a given public contract, jointly liable. There is no comparable provision in these two other anticorruption statutes.
As with the FCPA and the Bribery Act, liability under the Anticorruption Law is generally not affected by change of ownership. In addition, under the Anticorruption Law, in case of a merger or a sale of assets, the successor company is only liable for a fine up to the value of the transferred assets.
In addition to administrative actions, Brazilian public entities may also file civil lawsuits requesting return of funds, assets, or rights wrongfully obtained, with a view to recovering the losses suffered by the public treasury commensurate with the benefits directly or indirectly obtained by the wrongdoing companies. On top of monetary penalties, such lawsuits may also lead to sanctions that range from the suspension of public loans and subsidies, up to the complete debarment of companies.
Benefits of self-disclosure
Following the example of the Brazilian Antitrust Act (Law nº 12,529/2011), the Anticorruption Law authorizes the execution of leniency agreements with companies that have been accused of violating the Anticorruption Law and that self-report and cooperate in the relevant investigations and administrative proceedings. Such agreements may reduce the amount of the fine imposed by up to two-thirds. The execution of deferred prosecution agreements with companies investigated for potential violations of anticorruption laws is a long-established practice in the United States but it is yet to be initiated in the UK. The concept of Deferred Prosecution Agreements will be introduced in the UK in February 2014 when the Crime and Courts Act 2013 comes into force. In the United States, prosecutors can offer non-prosecution and deferred prosecution agreements, as well as civil and administrative resolutions. In addition, U.S. authorities consistently assert that self-disclosure and cooperation in anticorruption matters yields tangible results for offending individuals and companies. Crim. Div., U.S. DOJ & Enforcement Div., U.S. SEC, A Resource Guide to the U.S. Foreign Corrupt Practices Act at 54-55 (Nov. 14, 2012) (the "Guide"); but see Stephen J. Choi & Kevin E. Davis, Foreign Affairs and Enforcement of the Foreign Corrupt Practices Act, NYU Law and Economics Research Paper No. 12-15, NYU School of Law, Public Law Research Paper No. 12-35 (July 20, 2012) (research paper examined FCPA enforcement actions from 2004-11 and found no discernible evidence that voluntary reporting of FCPA violations resulted in lesser penalties). If Brazilian authorities want to enhance the effectiveness of the Anticorruption Law's cooperation provisions, they will need to demonstrate clear and tangible benefits to companies and individuals who voluntarily disclose violations and cooperate with authorities.
Enforcement
Ideally, the Anticorruption Law should have designated a specific government agency to have the responsibility for filing and pursuing civil and administrative proceedings. That would have allowed that agency to develop the relevant technical expertise, and to give the business community consistent guidance. Instead, however, any entity within the Executive, Legislative, and Judicial branches impacted by the unlawful conduct may bring an action to enforce the law. This could lead to inconsistent standards, practices, and rulings.
A further source of potential controversy is the fact that the highest authority within each public body will preside over the proceedings concerning alleged corrupt conduct by that same body. This could give rise to conflicts of interest.
This procedure, however, does not apply to proceedings relating to foreign government officials, which are the exclusive responsibility of the Federal Government General Controller (CGU - Controladoria Geral da União). The CGU has also been given the discretion to exercise jurisdiction over matters involving the Federal Executive branch. As a general rule, every CGU investigation must be concluded within a 180-day period.
The Brazilian enforcement model is in sharp contrast both with U.S. enforcement of the FCPA and with UK enforcement of the Bribery Act. In the United States, enforcement authority is limited to the Securities and Exchange Commission and the Department of Justice. They work closely together and, for the most part, have developed a uniform and consistent approach to the enforcement of the FCPA. Few FCPA investigations are, however, concluded within 180 days. In the UK, in practice the Serious Fraud Office is the main law enforcement authority responsible for investigating and prosecuting cases relating to domestic and overseas corruption.
Conclusion
Brazil's Anticorruption Law reflects a continuing trend toward tougher anticorruption standards in Latin America and throughout the world.
The Anticorruption Law also underscores the value of corporate compliance programs, a theme evident in recent FCPA enforcement actions, which increasingly emphasize the importance of such programs. The Anticorruption Law expressly assures that the existence of corporate integrity mechanisms such as internal controls, hotlines, and the effective application of codes of conduct will be taken into account when penalties are considered. While the value of these preventive measures is not expressly set forth in the FCPA, as it is in the UK Bribery Act, U.S. enforcement authorities in their recently published Guide (at 56-66) have specified that these mechanisms are highly relevant to their assessment of penalties.
While there are discernible differences among the Anticorruption Law, the UK Bribery Act and the FCPA, there are notable similarities concerning the emphasis on corporate compliance programs, potential benefits of self-reporting, and severe penalties for violations.
The Brazilian business community and foreign companies doing business in Brazil must be aware of the greater exposure that arises out of this new legislation, especially the strict liability and joint liability provisions. Domestic and foreign companies that do business in Brazil should take steps to manage their increased exposure.
Brazilian companies that have not yet taken measures to prevent fraud and corruption should promptly take such measures. Brazilian companies that already have anticorruption mechanisms in place should make sure that their codes of conduct and controls are in compliance with the provisions of the Anticorruption Law. Similarly, foreign companies that do business in Brazil should examine their anticorruption policies to ensure that they comply with the Anticorruption Law, and should begin training and educating their employees concerning Brazil's new, and strict, Anticorruption Law.