Brazil Enacts Long-Pending Anti-Corruption Legislation
After languishing in legislative limbo for more than three years, the new law is scheduled to take effect on January 29, 2014.
Brazil Enacts Long-Pending Anti-Corruption Legislation
From August 2011 to January 2013, MAPI published a series of reports examining anti-corruption activity in key global markets: the so-called BRIC countries (Brazil, Russia, India, and China), South Africa, and Mexico. The report on Brazil featured a discussion of its draft bill No. 6,826/2010.
That draft bill, which was intended to fill a major gap in the country's anti-corruption law, was first introduced in the Brazilian Congress by then-President Lula da Silva on February 8, 2010. After languishing in legislative limbo for more than three years, the new law is scheduled to take effect on January 29, 2014.
The impetus for this law's enactment seems to have come from the recent nationwide protests in Brazil against official corruption and concerns over excessive government spending associated with the country's upcoming 2014 World Cup and 2016 Summer Olympic Games.
As intended, the law fills a major void in Brazil's anti-corruption law and brings the country into compliance with its outstanding international convention commitments. Its primary thrust is to subject Brazilian companies and foreign companies doing business there to civil and administrative sanctions for bribing Brazilian or foreign public officials. This report details the specifics of the much-anticipated new anti-corruption law (Law No. 12,846/2013, the "clean companies act") and its implications for companies doing business in this major Latin American market.
Public bribery has been a criminal offense in Brazil since 1940; other corruption-related activities have similarly been criminalized since that time. On a limited number of occasions, these laws have provided the basis for prosecutions and convictions of individuals in both the public and private sectors. In what has been viewed as a major inadequacy in the country's anti-corruption law, however, only individuals and not entities can be held criminally liable for such conduct, as Brazil is a civil law country. Unlike common law jurisdictions, civil law systems generally do not apply criminal liability to legal (as opposed to natural) persons. Civil law typically considers corporations to be abstract intangible entities that have no capacity to meet the mens rea (intent) required to establish criminal responsibility. As such, even if a corporation (i.e., a legal person) is the ultimate beneficiary of a corrupt activity such as bribery, it cannot be held criminally liable in Brazil.
Corporations are subject to criminal prosecution or liability in Brazil only in the case of a few environmental crimes and antitrust violations—not corruption. In such latter cases, until the new law goes into effect, only the directors, management, employees, or agents of a corporation can be held criminally liable for their actions on behalf of the corporation.
The new law is a major step in Brazil's ability to fight corruption. This development will bring the country into compliance with the international agreements to which it is a signatory, including the Organisation of Economic Co-operation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials (ratified by Brazil in 2000) and the U.N. Convention against Corruption (ratified in 2005).
This measure, while not creating any new criminal offenses, embraces the established common-law concept of respondeat superior; that is, it addresses corporate civil and administrative liability for illicit conduct identified in the statute (e.g., bribery, fraud in government procurement, bid rigging, fraud in contracts signed with public bodies, impairing public officers' investigative activities, and influencing or financing others to engage in illegal acts against the government) that is perpetrated by a company's representatives, either for the direct benefit of the corporation or for which the company receives a benefit.
The new law was passed by the Brazilian Chamber of Deputies (the lower house of the National Congress) on April 24, 2013; approved by the Senate on July 4, 2013; signed by President Dilma Rousseff on August 1, 2013; and published in the Diário Oficial da União (the official gazette of Brazil's federal government) on August 2, 2013. The act will take effect on January 29, 2014, 180 days after that publication.
Specifics of the New Law
Under the new law, the bribery of domestic and foreign public officials is broadly defined to include promoting, offering, or giving, "directly or indirectly, an improper benefit to a public agent . . . or . . . a third party related to him."
Also prohibited is the financing, paying for, or otherwise sponsoring the offenses identified in the law. Similarly proscribed is activity concealing such illegal activities. The act covers skullduggery in the public procurement realm such as bid rigging, impeding or frustrating a due administrative process, committing fraud in the submission of a bid, or seeking to obtain any undue advantage.
The law has broad extraterritorial reach, applying to any covered illicit activity involving Brazilian or foreign public bodies by Brazilian corporate entities, regardless of whether the offense is committed in Brazil or abroad. Additionally, it covers offenses committed in Brazil by foreign companies operating there, by Brazilian subsidiaries of foreign companies, and by Brazilian agents or other authorized representatives acting on behalf of foreign companies.
For administrative or judicial sanctions to be applied to a legal entity under the law, it is not necessary that there be an underlying finding of criminal liability on the part of directors, officers, employees, or agents of that entity. Moreover, prosecutors need not establish that the entity's directors, officers, employees, or agents acted with corrupt intent. The law provides that covered "legal persons shall be held strictly liable, administratively or civilly, for the injurious acts stipulated [therein] performed in their interest or benefit, exclusive or not." That is to say that Brazilian enforcement authorities need only prove that the illegal acts were committed to benefit the company or were perpetrated in the company's interest.
It should be noted that the new Brazilian law does not include a facilitating payments exception (i.e., an exception for payments to government officials to secure performance of routine government non-discretionary actions). In this regard, the law is similar to the UK Bribery Act but unlike the U.S. Foreign Corrupt Practices Act, two anti-corruption laws with broad extraterritorial implications.
Civil fines for violations of the new law can be steep, running to as much as 20 percent of the entity's gross revenue in the year prior to that in which the administrative proceeding was initiated. Such fines are never to be "less than the benefit gained" by the illicit activity if such amount can be established. If the prior year's gross billings cannot be calculated, fines may vary between R$6,000 and R$60,000,000 (approximately $2,500-$25,000,000 in U.S. currency). The higher amount, R$60,000,000, does not appear to be a cap on the fine since other provisions of the law establish that "application of the penalties stipulated in this article does not exclude, in any case, the obligation to fully indemnify the damage caused." Penalties in judicial proceedings could include a loss of assets, injunctions, debarment, partial suspension of an entity's activities, and even dissolution of the offending entity. Offenders could lose public "incentives, subsidies, subventions, donations, or loans from public bodies or entities and public financial institutions or those controlled by the public authorities . . . for a minimum period of . . . [one] year and a maximum of . . . [five] years."
The act also provides for successor liability in the event of amendments to a company's articles of association, merger, or acquisition. In such circumstances, the surviving or successor entity is exposed to potential liability for all of the sanctions provided for in the act. If the company has been acquired, such potential liability is limited to fines and restitution up to the value of the assets acquired.
It is noteworthy that the new anti-corruption law provides for the mitigation of some sanctions if companies have effective compliance programs in place or if they self-disclose violations and cooperate with investigating authorities.
With regard to effective compliance programs, entities subject to the act may quality for reduced sanctions if they have developed and implemented "internal mechanisms and procedures for integrity, audit, and incentives to report irregularities and the effective application of codes of ethics and conduct." It should be stressed that such programs can serve as sanctions mitigation—not a statutory affirmative defense against prosecution as is provided for in the so-called "adequate procedures" provisions of the UK Bribery Act. The manner in which compliance programs are to be evaluated under the new Brazilian law will be determined by regulations to be issued by the country's federal executive branch.
Concerning voluntary self-disclosure, the act provides strong incentives for engaging in such practices. An entity that reports misconduct before it comes to the attention of the authorities, cooperates with investigators (including naming others engaged in the violations, if applicable), and ceases the illicit activities before being ordered to do so can qualify for significant leniency. Such leniency provisions in the law can reduce applicable fines by up to two-thirds, and can also lead to reductions in other applicable sanctions.
The enactment of Law No. 12,846/2013 is in keeping with a growing anti-corruption sentiment afoot in key global markets. As detailed in the MAPI series on global anti-corruption activity, Brazil, Russia, China, South Africa, and Mexico have taken steps to outlaw bribery of foreign officials by domestic concerns as well as by other entities operating within their borders. Of the BRIC countries, only India has failed to take such action.
In light of these and related developments, companies should expect that a growing number of jurisdictions will pursue corruption charges based on conduct occurring within their borders and, in some cases, beyond. This reality poses anti-corruption challenges for global companies that might be subject to different and conflicting national legal standards and parallel enforcement proceedings.
Most MAPI member companies that operate globally have well-developed anti-corruption compliance programs in place. Such programs have been tailored to meet the provisions of the FCPA's broad extraterritorial reach. As such, these compliance programs are well defined and generally adaptable to the anti-corruption legal challenges posed by new laws enacted by other nations. Still, companies need to recognize that the shifting global anti-corruption landscape necessitates continued vigilance to ensure that their related compliance policies and programs take into consideration the nuances of the different national legal regimes to which they are exposed by their international business dealings.