The FCPA on Steroids: Brazil Ups the Ante in Fighting Corporate Corruption

by BakerHostetler
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Recently, in the wake of massive protests throughout Brazil concerning corruption and other issues, Brazilian President Dilma Vana Rousseff dramatically increased anti-corruption prohibitions in Brazil by signing into law the Anti-Bribery Act or "Lei Anticorrupção." The newly enacted Anti-Bribery Act for the first time imposes strict liability on corporate entities for their involvement in acts of corruption in Brazil. Although the law does not contain criminal penalites, it does feature potential draconian civil fines of 0.1 percent to 20 percent of the violator's gross revenues from the year preceding an enforcement action[1], full disgorgement of illegally obtained benefits, partial or full suspension of corporate activities, and potential debarment, among other remedies. The new law goes into effect in early 2014, and ushers Brazil into a group of nations that has recently enacted or is in the process of enacting more expansive anti-corruption statutes.[2] Given the law's "strict liability" focus and potentially draconian civil penalties, corporations operating in Brazil would be well advised to redouble efforts to enhance anticorruption compliance programs in order to prevent violations and provide a basis for seeking reduced penalties should a violation occur.

Differences Between Brazil's Anti-Bribery Law and the FCPA.

There are three significant differences between Brazil's Anti-Bribery Law and the U.S. Foreign Corrupt Practices Act of 1977 (as amended), 15 U.S.C. §§ 78dd-1, et seq. (FCPA) which merit discussion:

  1. Unlike the FCPA, which incorporates the element of corrupt intent, the Brazilian Anti-Bribery Law requires no element of intent and imposes strict liability for offenders;
  2. Whereas the FCPA only applies to corrupt payments to foreign officials, the Brazilian Anti-Bribery Law prohibits corrupt payments to both foreign and domestic officials;
  3. While violators of the FCPA can face criminal penalties in the United States, the Brazilian Anti-Bribery Law does not impose criminal sanctions but instead relies upon the imposition of the potentially draconian civil penalties discussed below.

What Acts Are Prohibited under the New Law?

The Brazilian Anti-Bribery Law prohibits (i) promising, offering, or giving, directly or indirectly, an undue advantage to a public official, or third person related to him or her; (2) financing, funding, or sponsoring or in any way subsidizing, the practice of illicit acts under the law; (iii) using an intermediary legal entity or individuals to conceal or disguise its real interests or the identity of the beneficiaries of the wrongdoings.

In the context of government contracts, companies are prohibited from (i) defrauding the competitive nature of a public bidding process; (ii) preventing, hindering, or defrauding the performance of any act of a public bidding procedure; (iii) diverting or attempting to divert a bidder by fraudulent means or by the offer of any type of advantage; (iv) defrauding a public bid or its resulting contract; (v) deceitfully forming an entity to participate in a public bid or contract; (vi) illegally benefitting from changes or extensions of government contracts; (vii) defrauding the financial-economic balance of government contracts; or (viii) or hindering or interfering with the investigations or audits of public agencies, entities, or agents.

What Sanctions Will Apply to Violators?

Although violators of the Brazilian Anti-Bribery Law will not be subject to criminal sanctions, the new law establishes the following potentially draconian civil penalties to incentivize compliance: (i) fines of 0.1 percent to 20 percent of the violator's gross revenues from the year preceding initiation of enforcement; (ii) full disgorgement of illegally obtained benefits; (iii) forfeiture of assets, rights, or other values obtained as a result of the wrongdoing; (iv) partial or full suspension of corporate activities; (v) compulsory dissolution; or (vi) debarment for one to five years, including prohibition from receiving incentives, subsidies, grants, donations or loans from public financial institutions during the debarment period.

Will Companies Receive "Credit" for Voluntary Disclosures?

Under the Brazilian Anti-Bribery Law, self-disclosure and full cooperation with government investigations and proceedings may enable a company to enter into a leniency agreement, which may confer the following benefits: (i) up to a two-thirds reduction in fines; (ii) a waiver of debarment; and (iii) avoidance of government publication of its decision with regard to the conduct. However, self-disclosure and cooperation alone will not guarantee these benefits -- the Brazilian government must also be convinced that the company has ceased all prohibited conduct and has effective compliance programs in place. Most importantly, however, much like with the U.S. Antitrust Leniency Program, only the first violator to come forward to cooperate with an investigation will be eligible for a leniency agreement. The seriousness of the violation as well as the benefits obtained by the company through the prohibited conduct will be important factors in the government's decision regarding mitigation of sanctions.

What Steps Should Companies with Operations in Brazil Take?

Companies with Brazilian operations should examine their current anti-corruption compliance policies and update them to ensure compliance with the new Anti-Bribery Law before it goes into effect. Although many of the hallmarks of an effective FCPA compliance program will also address many of the requirements of the Anti-Bribery Act, training, policies and materials will need to be tailored to the new law and its specific provisions.

  • Training. All employees that interact with government officials, as well as upper management-level employees, should be trained on the kinds of payments and the types of conduct prohibited by the Anti-Bribery Law, as well as the FCPA. Employees should understand that the Anti-Bribery Law is a strict liability statute that does not require corrupt intent for a violation.
  • Company Policies. Written company policies should be reviewed and evaluated to determine whether revisions to the policies are necessary in order to ensure compliance with the Anti-Bribery Law. Employees should be required to review and certify compliance with such policies on an annual basis.
  • Third Party Due Diligence. Assuring the adequacy of policies requiring due diligence of third party contractors is critical, as the Anti-Bribery Law, similar to the FCPA, prohibits acts committed by a company through a third party. Inserting anti-corruption compliance provisions in third party contracts should be a standard practice. In addition, contracts with third parties should contain right to audit provisions, anti-corruption certifications, and third party contractor invoices should be carefully reviewed and scrutinized.
  • Red Flags. As long recognized in the area of FCPA compliance, companies should continue to pay particularly close attention to identifying and properly responding to "red flags" and should focus attention on high risk areas such as government contracting; interactions with customs and tax authorities; and efforts to obtain government approvals necessary to secure required licenses, permits, and certifications.

Conclusion.

Only time will tell how aggressively the new Anti-Bribery Law will be enforced once it becomes effective. However, businesses with Brazilian operations should take the time now to assess and potentially revise their anti-corruption policies to ensure they address the requirements of the Brazilian Anti-Bribery Law. Bottom line -- as soccer teams around the world train and prepare for 2014 in Brazil to ensure success, corporate entities with operations in Brazil should do the same!

[1] If gross revenues cannot be estimated, the fine can be set within a range of R$6,000 to R$60,000,000 (approximately $2,600 to $26,000,000).
[2] The following countries have recently passed dramatically new anti-corruption statutes or significantly amended exiting statutes: the United Kingdom (2010), China (2011), Colombia (2011), Mexico (2012), Canada (2013), Russia (2013).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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