[author: Roberto N.P. di Cillo*]
The early 1990’s in Brazil were marked by a combination of extremely high inflation, poor quality services and goods (which were mostly manufactured locally), onerous bureaucracy, and persistent corruption. An elected president, who followed a military government which had lasted for decades, was seen to be looting most Brazilians’ savings. He was in turn removed from office and then impeached amid a corruption scandal. No wonder distrust in Brazilian public officials has been so high.
But much has now changed in Brazil. From extractive industries to soccer stadium construction, Brazil has been growing non-stop locally and internationally; in addition, some projects are too challenging, costly or risky to be assumed by Brazilians only.
Brazil has signed and implemented key international treaties or conventions under which corruption is an “evil to be defeated” at all reasonable costs, including treaties and conventions adopted by the OECD, the Organization of American States and the United Nations. But in 2013, in Transparency International’s Corruption Perceptions Index, Brazil ranked number 71, a troubling position which has been fairly stable for some time.
Brazil continues to be very interested in attracting foreign direct investment. The country is also progressively the global or regional headquarters for multinational corporations. But something had to be done.
A civil law country where the widespread perception is that certain prohibited actions can only be implemented by statutory changes rather than enforcement, businesses have not been deemed subject to any anti-corruption enforcement for corruption in or with respect to Brazil. The Brazilian Anti-Corruption Act (or “BAA”), which was enacted in 2013 and came into force on January 29, 2014, is meant to change that.
2. What has changed
Under the BAA, any incorporated or non-incorporated business (and potentially permanent establishments in the continental shelf such as oil rigs offshore Brazil) will be subject to fines of up to c. 25 Million USD per violation, sanctions (including dissolution) and liabilities (which are legally uncapped). Individual wrongdoers will also be subject to prosecution under Brazilian criminal and other statutes.
The BAA makes it illegal to (a) promise, offer or give, directly or indirectly, “advantages” to public official or related parties; (b) fund, sponsor or subsidize any infringement of the BAA; (c) use a “straw man” to conceal interests or the identity of the beneficiaries of the wrongdoing; (d) defraud competitive bids, tenders or government contracts by setting terms with competition; or (e) create obstacles for enforcement action.
What constitutes advantages seems particularly broad – and probably intentionally so – in order to cover anything of value, favor, etc. The breadth of advantages sits uneasily with the concepts of strict liability and joint and several liability, and the practice of shifting the burden of proof to the defendant. These not entirely complementary concepts, some of which were borrowed from environmental laws, are expected to add complexity to enforcement of the BAA, and complicate the job of defendants when defending against an action brought under the law.
3. Which public officials
Brazilian and non-Brazilian public officials are covered by the BAA, including, without limitation, employees of state-owned entities and international organizations. Subject to how the law is interpreted by Brazilian enforcement officials and courts, employees of state-controlled entities (as in not wholly-owned, e.g., Petrobras) are likely to be covered, too.
The BAA is silent about candidates to political office, political parties or political party officials. In a country where most investigated corruption cases are elections-related, this seems strange. But the omission was probably intentional, the result of an ongoing debate about whether legal entities should have the right to make donations to candidates or parties in connection with any election in Brazil.
4. Mitigation & Enforcement
Companies that adopt “effective” compliance programs and codes of conduct should be able to reduce exposure to fines and other sanctions under the BAA. In addition, the BAA expressly provides that cooperation during an investigation will count in the determination of whether to apply a penalty. Although many cases will likely settle rather than proceed through the courts, admission of guilt will be a condition to any settlement.
Enforcement of the BAA will be decentralized at the State or local level (at their respective costs), unless the matter involves a foreign public official or, in some not yet fully specified circumstances, a Federal official. Brazil has 27 states, one Federal District, and more than 5,000 cities or towns, so this can be tricky.
Although regulations to implement the law are expected, to date none have been issued. When promulgated, the regulations should help clarify – among other things – what amounts to an “effective” compliance program.
Both Brazilian and non-Brazilian investors are looking forward to seeing how the BAA will be regulated and enforced. Brazil’s President, Dilma Rousseff, has reassured the international community that Brazil is a safe destination for foreign direct investment. In the context of the BAA, that remains to be seen, especially if the law is employed mainly to pursue non-Brazilian parties.
However the law is interpreted and enforced, any company operating in Brazil needs to make sure it has appropriate compliance processes in place to protect against corruption. Clear, well-articulated standards for compliance and ethics are a must. Training and education are essential.
There is no silver bullet for compliance with the BAA. But developing and implementing an appropriate compliance infrastructure now, even though it is early days, is the best way to protect against a violation.
*Admitted to the Bar in Brazil (São Paulo Section) only. LLB from the Universidade de São Paulo (1995) and LLM from the University of Notre Dame (1999).