The Anti- and Anti- Review

Second Edition

Editor Mark F Mendelsohn

Law Business Research Chapter 3

BRAZIL

Adriana Dantas and Luiz Eduardo Alcantara 1

I INTRODUCTION

2013 will be remembered as the year in which joined the group of countries that have enacted a law that has the potential to severely punish legal entities involved in acts of corruption. !e bill had remained under discussion in the Brazilian Congress for over three years and became Law No. 12846/2013 (the Anti-Corruption Law) 2 on 2 August 2013. !e Law will come into force 180 days following its publication and, during this period, government authorities, companies and the legal community have been actively preparing for a new legal reality that will govern the relationship between private parties and the public administration. Corruption is not a new topic in Brazil. Like most democratic nations, Brazil has adopted administrative, civil and criminal anti-corruption rules that have formed part of the Brazilian legal system for many years. In fact, corruption has been criminalised under the Brazilian Criminal Code since 1830.3 Despite the legal framework, Brazil has always been a country where corruption, if not endemic, is very much present within its large bureaucratic government, at the federal, state and municipal levels. !is reality is caused by a lack of enforcement of the law, which was unable to change a widespread culture of bene"t and corruption throughout all levels of the public administration. It is not by coincidence that Brazil

1 Adriana Dantas is a partner and Luiz Eduardo Alcantara is an associate at BM&A – Barbosa, Müssnich & Aragão. 2 Federal Law No. 12846 of 2 August 2013, available at: www.planalto.gov.br/ccivil_03/_ Ato2011-2014/2013/Lei/L12846.htm. 3 Criminal Code of 16 December 1830, Articles 130–133, available at: www.planalto.gov.br/ ccivil_03/leis/lim/lim-16-12-1830.htm.

33 Brazil ranks 69th out of the 176 countries measured in the Corruption Perception Index 2012 of Transparency International. 4 However, the new Anti-Corruption Law includes instruments designed to e%ectively punish private companies involved in acts of corruption and in the other illegal acts de"ned in the Law, thereby being able to promote a new business culture in Brazil. It is against a background characterised by the coexistence of extensive corrupt practices with an increasingly e%ective law enforcement environment that this chapter discusses Brazilian anti-corruption law, its enforcement, and compliance mechanisms and presents our outlook and conclusions. Brazilian companies and foreign companies operating in Brazil certainly face challenges and need to prepare for and prevent risks created by their level of interaction with the public administration at the federal, state and municipal levels in Brazil.

II DOMESTIC BRIBERY: LEGAL FRAMEWORK

!e Brazilian legal framework on anti-corruption consists of criminal, civil and administrative o%ences that seek to punish both the public o'cial and the private party (individual or legal entity) that participate in the act of corruption. !e concept of corruption under Brazilian law, regardless of whether in the criminal, civil or administrative spheres, necessarily requires the participation of a government institution or a public o'cial. In other words, the Brazilian legal framework has not yet formally adopted the concept of corruption in the private sector or commercial corruption and bribery. Nonetheless, the Brazilian legal framework adopts a broad concept of ‘public o'cial’ for the purposes of applicable criminal, civil and administrative laws. In general, anyone who works for any level, branch or agency of government, or for any company or entity owned by the government, is considered to be a public o'cial. !e de"nition of public o'cial is also extended to anyone who works for a private company that is hired to provide a public service. For criminal purposes, Article 327 of the Brazilian Criminal Code (Decree-Law No. 2848/1940) de"nes a public o'cial as ‘anyone who, even if transitorily or without remuneration, holds a public post, employment or function’. Article 327 further states that ‘anyone who holds a post, employment or function in a government agency, or who works for companies that have been contracted to render services or to execute activities that are typical of the public administration’, is also regarded as a public o'cial.5 Wrongdoings involving public o'cials are also governed outside the criminal law. Law No. 8429/1992 (the Administrative Improbity Law) 6 establishes civil sanctions

4 Corruption Perception Index 2012 of Transparency International, available at: www.transparency.org/cpi2012/results. 5 Decree-Law No. 2848 of 7 December 1940, Article 327, available at: www.planalto.gov.br/ ccivil_03/decreto-lei/del2848.htm. 6 Civil law related to acts against the public treasury. !is law is discussed in more detail below.

34 Brazil for acts de"ned as illicit because they constitute ‘administrative improbity’. !e Administrative Improbity Law also gives a broad de"nition of ‘public o'cial’. Article 2 of the Law considers a public o'cial to be anyone who holds, ‘even if transitorily or without remuneration, upon election, appointment, designation, hiring or any other means of endowment a mandate, post, employment or function’: a in the direct or indirect administration of any of the branches of Brazilian government at the federal, state, or municipal levels or in the federal district or the territories; b in a company that has been made part of the state’s property; c in an entity to whose creation or funding the public treasury contributed or contributes more than 50 per cent of its assets or annual income; d in an entity to whose creation or funding the public treasury contributed or contributes less than 50 per cent of its assets or annual income (in such cases, the economic sanctions shall be limited to the illicit e%ects for the public treasury’s contributions); or e in an entity that receives grants, bene"ts, tax or credit incentives (in such cases, the economic sanctions shall be limited to the illicit e%ects for the public treasury’s contributions).

Finally, Law No. 8666/1993 (the Procurement Procedures and Government Contracts Law) de"nes a public o'cial as ‘anyone who holds, even if transitorily or without remuneration, a public function or employment,’ as well as ‘anyone who holds a post, employment or function in government agencies, or in foundations, public companies and mixed economy companies, and other entities that are, directly or indirectly, controlled by the public administration’. i Criminal offences Criminal o%ences are generally de"ned in the Brazilian legal framework under the Criminal Code or other speci"c laws. Under the Brazilian system, legal entities have no criminal liability, except for environmental crimes. Nevertheless, members of management, employees and representatives in general of legal entities may be criminally liable for acts of corruption or bribery involving the legal entity. !e legal entity, despite not being a defendant, may have its assets seized and forfeited in a criminal action if such assets are found to be instruments or proceeds of crime. Title XI of the Brazilian Criminal Code de"nes crimes against the public administration. Such o%ences are divided into four main groups: crimes committed by public o'cials; crimes committed by private parties; crimes against foreign public administrations; and crimes against the administration of justice. !e crime of in+uence tra'cking is de"ned in Article 332 of the Criminal Code as ‘to request, demand, collect or obtain for oneself or for another, a promise of advantage or bene"t, under the pretext of in+uencing an act committed by a public o'cial in the

35 Brazil exercise of his function’, regardless of whether the public o'cial is aware of such undue advantage or e%ectively receives an undue advantage. !e penalties applicable to those who are found guilty of tra'cking in+uence are two to "ve years’ imprisonment plus a "ne. Passive and active corruption de"ned in Articles 317 and 333 of the Brazilian Criminal Code clearly prohibit the payment of bribes to public o'cials and the receipt of bribes by such public o'cials. In fact, the terms of such articles are even broader. Article 317 of the Brazilian Criminal Code, under the chapter of crimes committed by public o'cials, de"nes passive corruption as ‘to request or receive, for oneself or for another, directly or indirectly, even if outside or prior to assuming the function, but by reason of such function, undue advantage, or to accept a promise of such advantage’. !e crime of active corruption is de"ned under Article 333 of the Brazilian Criminal Code as ‘to o%er or promise an undue advantage to a public o'cial, for him to perform, omit or delay an o'cial act’. 7 !us, the crime of corruption is not limited to the payment of bribes, but rather any undue advantage, in a similar concept to the US Foreign Corrupt Practices Act’s ‘anything of value’. !e undue advantage does not have to actually be given and received; the simple request of an undue advantage by a public o'cial or the o%er and promise of such advantage to a public o'cial is enough for the crime of corruption to be committed. !e penalties for those who are found guilty of active and passive corruption range from two to twelve years’ imprisonment plus a "ne. ii Civil and administrative offences As noted, Law No. 12846/2013 (the Anti-Corruption Law) was sanctioned on 2 August 2013. !is Law provides for the administrative and civil liability of legal entities involved in acts against the public administration of national and foreign governments. Notwithstanding this broader scope of illegal and prohibited conduct, the primary focus of Brazil’s Anti-Corruption Law is to prevent corrupt acts, by making it illegal to o%er or pay an ‘undue advantage’ to a public o'cial or by any means subsidise the commission of such an act. However, the Anti-Corruption Law reiterates that various acts committed in the context of public bids and government contracts are illegal, regardless of whether public o'cials are involved. Such acts include: a frustrating or defrauding by means of an arrangement, agreement or any other method the competitiveness of a public procurement procedure; b preventing, disturbing or defrauding the performance of any act in a public procurement procedure; c removing or attempting to remove a bidder in public procurement procedure, by means of fraud or o%ering of any kind of advantage; d defrauding a public procurement procedure or any related contract; e creating, fraudulently or irregularly, a legal entity to participate in a public procurement procedure or to enter into a government contract;

7 Decree-Law No. 2848 of 7 December 1940, Articles 317 and 333, available at: www.planalto. gov.br/ccivil_03/decreto-lei/del2848.htm.

36 Brazil f fraudulently obtaining an undue advantage or bene"t from an amendment to or an extension of a government, without authorisation under the law, or from the notice of the public procurement procedure or the related contractual instruments; g manipulating or defrauding the economic-"nancial balance of a government contract; and h hindering the investigation or auditing activities of government bodies, public o'cials or entities, or interfering in their activities, including those of regulatory agencies and of auditing bodies that form part of the national "nancial system.

!e Anti-Corruption Law introduces administrative and civil penalties that apply directly to legal entities’ income and assets and are capable of seriously disrupting their activities. At the administrative level, companies are exposed to "nes ranging from 0.1 per cent to 20 per cent of their gross annual revenue, and special public disclosure of the decision "nding that the company was involved in corruption. If a civil judicial proceeding is initiated, legal entities may be compelled to forfeit assets and rights obtained by means of corrupt practices, their business activities may be suspended, they may be prohibited from receiving incentives, subsidies, subventions, donations or loans from public entities, and they may even be compulsorily wound up. !ese sanctions can apply even without proof of intention on the part of the legal entity, because the Law imposes strict liability. !us, proof that an illegal act was caused by a legal entity, through either action or omission, is su'cient grounds for legal action and sanctions. One of the most important pieces of legislation on civil liability for corrupt practices in Brazil is the Administrative Improbity Law. Because this statute is civil in nature, it is applicable to both individuals and legal entities. !e Administrative Improbity Law seeks to punish illicit enrichment of public o'cials and loss caused to the public treasury, and to recover that loss. It is applicable to anyone who induces or contributes to the act of improbity, or who in any way, directly or indirectly, bene"ts from such act.8 According to Article 12, the following penalties may be applied to those who are found to have violated the Administrative Improbity Law: a con"scation of assets illicitly embezzled from the public treasury or of any pro"ts that may have been obtained to the detriment of the public treasury; b indemni"cation of any loss that may have been caused to the public treasury; c suspension of all political rights a period of eight to ten years; d payment of a civil "ne of up to three times the amount of the illicit gains; e payment of civil "ne of up to 100 times the amount of the remuneration paid to the public agent; f prohibition to enter into contracts with public entities; and g prohibition from receiving any direct or indirect public incentives or bene"ts for between "ve and ten years.

8 Brazilian Federal Law No. 8429 of 2 June 1992, Article 3, available at: www.planalto.gov.br/ ccivil_03/Leis/L8429.htm.

37 Brazil

!e penalty will vary according to the loss caused by the acts of improbity and the economic gains obtained by the defendant. Another important statute for purposes of anti-corruption in Brazil is the Procurement Procedures and Government Contracts Law, which establishes the rules for public procurement procedures and government contracts. 9 !is Law provides for both civil and criminal penalties, and establishes rules for administrative proceedings to impose administrative sanctions. !e civil penalties of the Procurement Procedures and Government Contracts Law are applicable to both legal entities and individuals. However, for the reasons explained above, the criminal sanctions are applicable solely to individuals. !e civil sanctions for any failure to perform government contracts are: a warning; b civil "nes; c termination of the contract; d temporary prohibition to participate in public procurement procedures and to enter into contracts with public entities, for no longer than two years; and e declaration of unsuitability to bid or contract with the public administration.

!ese sanctions can also be applied if the person or entity is found liable for tax fraud, causes illicit acts to frustrate the competitiveness of the public procurement procedure or demonstrates unsuitability to contract with the public administration. !e criminal penalties under the law vary from six months’ to six years’ imprisonment plus a "ne. iii Other rules !e codes of conduct and ethics of di%erent Brazilian public institutions may also be used as guidance in the relation between private entities and individuals and public agents. Although not all public institutions in Brazil maintain codes of conduct or ethics speci"cally governing contacts between their employees and members of the private sector, certain codes have become known as examples of general rules to be followed in relations with the public sector. One of the most signi"cant codes of conduct applicable to public agents in Brazil is the Code of Conduct of the Upper Federal Administration. 10 Although this Code is only applicable to o'cials holding high-ranking functions in the federal administration, it lays out speci"c rules pertaining to issues such as gifts, travel and entertainment, and other speci"c rules that are not only useful as guidance to public o'cials in general, but also for companies or other private individuals who have contact with the public sector.

9 Brazilian Federal Law No. 8666 of 21 June 1993, available at: www.planalto.gov.br/ccivil_03/ Leis/L8666cons.htm. 10 Code of Conduct of the High Federal Administration, 21 August 2000, available at: www.planalto.gov.br/ccivil_03/codigos/codi_conduta/cod_conduta.htm.

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Other than these codes, which are more valuable for illustrative purposes since they are not compulsory for the private sector, Brazil is still de"cient in ethical rules that speci"cally bind the private sector in its relationship with public o'cials. However, it is important to keep in mind that for criminal purposes, the concept of o%ering or granting an undue advantage to a public o'cial is very broad, making the opportunity for giving gifts, trips and other invitations to public agents quite limited. Finally, as may be noted from the rules described above, any payment to public o'cials constitutes an undue advantage under Brazilian law. !erefore, Brazilian law allows no exception for facilitating payments.11 iv Political donations Financing of political campaigns is mainly governed by Federal Law No. 9504/1997 (the Electoral Law). !e regulations under Law No. 9504/1997 are found in resolutions issued by the . Legal entities and individuals may, according to speci"c rules, make "nancial contributions to political campaigns, directed to speci"c candidates, political parties or coalitions of parties. Such contributions may consist of identi"ed cash deposits, bank transfers, cheques made to the order of an identi"ed bene"ciary, or in assets or services that can be valued in money. Any donation must be made to bank accounts speci"cally opened for the purpose of receiving donations for political campaigns. Giving money through any other means is prohibited. Candidates, political parties and coalitions cannot accept, directly or indirectly, donations from the following entities: a a foreign entity or government; b an entity of the public administration or foundation maintained with public funds; c companies that are the operators or grantees of public services; d public companies; e private entities, which, due to legal provisions, receive compulsory contributions; f public utility entities; g unions; h not-for-pro"t companies that receive funds from abroad; i religious and charitable institutions; j sporting entities; k non-governmental companies that receive public funding; l public interest civil society organisations; or m cooperatives whose members are operators or grantees of public services or bene"ted from public funds.

Donations by legal entities to political campaigns is expressly limited under Brazilian law, in the aggregate, to 2 per cent of total gross revenue for the year prior to the campaign,

11 See Stuart H Deming, !e Foreign Corrupt Practices Act and the New International Norms , 15–16 (American Bar Association, 2005).

39 Brazil according to Article 81 of the Electoral Law. 12 Any entity created in the year of the election may not make donations. If a company exceeds such limitation it will be subject to "nes of between "ve and ten times the exceeded amount and may be prohibited from participating in public procurement procedures and contracting with the government for up to "ve years. Finally, any donation made with the intent of inducing a public o'cial to conduct, omit or delay an o'cial act will constitute an undue advantage and will therefore be illegal, even if the above-mentioned requirements for political donations are met.

III ENFORCEMENT: DOMESTIC BRIBERY

Enforcement of the anti-bribery provisions has increased in Brazil in the past decade. Investigations and prosecution of acts of corruption have undoubtedly risen. !e Federal Police has substantially improved its investigation techniques and its management, and has launched several operations to "ght organised crime in three main branches: "nancial crimes, tax crimes and corruption. Crimes against the public administration constitute a hot topic for the Federal Police and several investigations operations are being conducted, involving transnational companies and high-ranking o'cials. !e Mensalão case 13 is a good example of how prosecutions of bribery-related crimes have developed in recent years. !e case relates to the largest political and corruption scandal in Brazil, and involves alleged misconduct by public agents, political actors, private banks and companies in a scheme to buy political support from coalition allies. !e scheme allegedly consisted of channelling money from state-owned companies through the advertising budget to members of Congress to guarantee political support to the proposals presented by the Executive Branch. !e case is still under judgment by Brazil’s Supreme Court (Criminal Lawsuit No. 470), which has already convicted several defendants of active and passive corruption and money laundering, among other o%ences. !e ruling will likely have signi"cant repercussions for the interpretation of corruption and money laundering laws in Brazil.

12 Individuals may donate up to 10 per cent of their gross income earned during the year prior to the election. Federal law No. 9504 of 30 September 2007, Article 23, Section 1°, I, available at: www.planalto.gov.br/ccivil_03/leis/l9504.htm. 13 In 2012, the Brazilian Supreme Court decided to convict most of the 38 defendants in a case that involved bribery, money laundering and embezzlement of public funds by individuals, companies, banks, political parties and high-ranking public o'cials, including members of Congress and the former Chief of Sta% of the last , Luis Inácio ‘Lula’ da Silva. !is case is known as Mensalão (‘big monthly stipend’) in a reference to the allowances illegally provided to Congress members in exchange for political support. However, the conviction has not yet the force of res judicata because the Supreme Court has yet to decide the merits of the appeals submitted by some defendants.

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IV FOREIGN BRIBERY: LEGAL FRAMEWORK

!e Brazilian Criminal Code, in accordance with the Organisation for Economic Co-operation and Development (OECD) Anti-Bribery Convention, also establishes liability for acts of corruption or bribery involving foreign public o'cials and institutions. For such purposes, Article 337-D of the Brazilian Criminal Code de"nes a foreign public agent as ‘anyone who, even if transitorily or without remuneration, holds a public post, employment or function, in state entities or in diplomatic representations of a foreign country’. Article 337-D also considers a foreign public agent to be ‘anyone who holds employment or a function in companies controlled, directly or indirectly, by a foreign state or international public organisations’. Active corruption in international commercial transactions (Article 337-B) is de"ned as ‘to directly or indirectly promise, o%er or give an undue advantage to a foreign public agent, or to a third party, in order to in+uence him to practise, omit or delay an o'cial act related to an international commercial transaction’. !ose who are found guilty of active corruption in international commercial transactions are subject to one to eight years’ imprisonment plus a "ne. !e Criminal Code also establishes the crime of in+uence tra'cking in international commercial transactions, de"ned by Article 337-C as ‘to request, demand, collect or obtain for oneself or for another, a promise of advantage or bene"t, under the pretext of in+uencing an act performed by a foreign public o'cial in the exercise of his function related to an international commercial transaction’. !e penalties applied to those found guilty of this criminal o%ence are two to "ve years’ imprisonment plus a "ne. As explained above, such criminal o%ences do not apply to legal entities, as under the Brazilian legal system legal entities only have criminal liability for environmental crimes. Nevertheless, the new Anti-Corruption Law establishes extraterritorial jurisdiction and provides that foreign bribery is also an illegal act that exposes the o%ender to civil and administrative sanctions in Brazil. !e penalties established in the new Anti-Corruption Law for acts against foreign public administrations can therefore apply to legal entities. !e de"nition of foreign public o'cial brought by the Anti-Corruption Law is the same as the one provided for in Brazilian Criminal Code. It is worth mentioning that, as explained in Section II.ii, supra, illegal acts under the Anti-Corruption Law are not limited to bribery and corruption.

V ASSOCIATED OFFENCES: FINANCIAL RECORD KEEPING AND MONEY LAUNDERING

Under Brazilian law, companies are required to keep accurate "nancial books and records. !e regulations are, however, essentially focused on tax and bankruptcy law and accountability to shareholders, and not on anti-corruption provisions. Federal Law No. 10406/2002 (the Brazilian Civil Code) establishes, in Article 1179, that ‘companies must follow an accounting system, based on uniform entries in their books corresponding to the underlying documentation, and must draw up,

41 Brazil annually, a balance sheet and a pro"t and loss statement’. Federal Law No. 5172/1966 (the Brazilian Tax Code) establishes that companies must keep the books required for commercial and tax accounting and documentary evidence to support the information entered in the books. It is a crime under Federal Law No. 8137/1990 (the Tax Crimes Law) to omit facts or insert inaccurate items in the company’s "nancial records in order to evade taxes. Neither companies nor individuals are required to report any criminal activity that they may become aware of. !e same is true for the disclosure of violations of anti- corruption laws. !e case is di%erent in a scenario where an individual, in a management position, with the responsibility for taking action in this "eld within the company, learns that bribery or any other criminal act is being practised. In this case, individuals have been prosecuted for failure to take action in order to avoid the criminal conduct. Federal Law No. 9613/1998 (the Anti-Money Laundering Law) was recently amended by Federal Law No. 12283/2012. Among the several changes made to the Law, the Brazilian legal system has eliminated an exhaustive list of possible predicate o%ences for acts of money laundering, established that any criminal o%ence can be a predicate of money laundering, and therefore expanded the extent of the Law. !e Anti-Money Laundering Law is also drafted in broad terms. !e Law de"nes the criminal o%ence of money laundering and establishes criminal penalties, as well as determining administrative obligations and penalties to those subject to its provisions. !e crime of money laundering is committed whenever one ‘conceals or dissimulates the true nature, origin, location, availability, transaction or ownership of assets, rights or valuables that constitute the direct or indirect proceeds of a criminal o%ence’. !e crime is also committed if, in order to omit or dissimulate the proceeds, one converts the assets into licit goods; acquires, receives, exchanges, negotiates, gives or receives in guarantee, keeps, keeps in deposit, transacts or transfers them; or imports or exports them with values di%erent from the real values. Finally, the criminal o%ence also encompasses the use, in economic or "nancial activity, of assets, rights or valuables that are proceeds of crime, and participation in a group, association or "rm with the knowledge that its main or secondary activity is directed to the commission of money laundering crimes. !e penalty established for the crime ranges from three to ten years, plus a "ne. In establishing client due diligence, record keeping and reporting obligations, the Anti-Money Laundering Law sets out the following sanctions for the failure to comply with administrative obligations: a warning; b "ne; c temporary ineligibility for management positions in any of the entities that have the duty to report; and d revocation or suspension of business licences.

42 Brazil

!e bodies that govern some professional activities, such as banking and accounting, have established the rules for their members to comply with the client due diligence, record keeping and reporting obligations. 14 Investigations and prosecutions of money laundering in cases involving bribery- related conducts are routine.

VI ENFORCEMENT: FOREIGN BRIBERY AND ASSOCIATED OFFENCES

Although the foreign bribery o%ences have been part of the Brazilian legal system for nearly 10 years, there is currently no actual enforcement by the Brazilian authorities, and there are no reports of a criminal action or investigation for acts of foreign bribery. !e new Anti-Corruption Law is expected to contribute to changing this scenario.

VII INTERNATIONAL ORGANISATIONS AND AGREEMENTS

Brazil is an active party in multilateral agreements related to anti-corruption. It is has rati"ed the following agreements: a the OECD Anti-Bribery Convention; b the United Nations Convention against Corruption; c the United Nations Convention against Transnational Organized Crime; d the Inter-American Convention against Corruption; and e Cooperation Agreement between Brazil, India and South Africa.

In order to comply with the above conventions, Brazil has adopted speci"c provisions such as the corruption of foreign public o'cials o%ences and the liability of legal entities for the commission of acts of corruption.

VIII LEGISLATIVE DEVELOPMENTS

!e most recent and important legislative development is the adoption of the Anti- Corruption Law. !e Executive Branch submitted the bill to the National Congress in February 2010. !e bill took over three years to pass Congress and was "nally made into Law on 2 August 2013. !e Law is expected to come into force on 29 January 2014, and the federal administration is working diligently to prepare the regulations that will implement and guide the application of the Anti-Corruption Law. Moreover, a bill that de"nes passive and active corruption as a heinous crime is now being examined in the House of Representatives. Already approved by the Senate, the future law may increase the penalties applicable to existing crimes, and by classifying corruption as a heinous crime, the future law will impose stricter sanctions on those found convicted.

14 Federal Accounting Council – CFC, Norm No. 1445/2013 of 26 July 2013. Brazilian Banks Federation – FEBRABAN, Rule No. 011/2013, entered into force on 14 August 2013.

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IX OTHER LAWS AFFECTING THE RESPONSE TO CORRUPTION

Brazilian labour laws (governed by Federal Law No. 5452/1943) must be considered when developing and applying compliance programmes, especially regarding internal rules for whistle-blowing protection and penalties for non-compliance. !ere is, however, no speci"c law in the Brazilian legal system regarding whistle- blowing related to anti-corruption enforcement.

X COMPLIANCE

!e adoption of compliance programmes by companies doing business in Brazil is currently mostly caused by foreign obligations such as those established under the FCPA. Many companies in Brazil are adopting compliance programmes and policies mostly due to requests of foreign companies coming into Brazil through mergers, acquisitions or other speci"c projects, or in order to attract business with foreign companies subject to laws such as the FCPA and the UK Bribery Act. !e new Anti-Corruption Law stimulates the adoption of compliance programmes, not only because it establishes severe penalties, but also because it provides that the authorities must consider the existence of compliance programmes when applying any penalty. !e federal government, represented by the O'ce of the Executive Comptroller (CGU), must still establish parameters on how compliance programmes will be taken into consideration, which is expected to occur before the law enters into force. Until then, the CGU administers a register called the ‘Pro-Ethics Company Register’, which includes guidelines on how to draw up an e%ective compliance programme. 15 To date, the Register contains only 15 companies. In addition, the new Anti-Corruption Law authorises the authorities to enter into leniency agreements with o%ending legal entities. According to Article 16, the legal entities must e%ectively collaborate with the investigations and that collaboration must result in: (1) identi"cation of others involved in the o%ence; and (2) exchange of information and documents that prove the illegal acts. To obtain the bene"ts of a leniency agreement, the legal entity must be the "rst to express its willingness to cooperate, cease and admit its participation in the illegal act and fully cooperate with the investigation. !e leniency agreement may exempt the legal entity from some of the penalties, including a reduction of up to two-thirds of applicable "nes, in line with the Brazilian practice in the "eld of antitrust.

XI OUTLOOK AND CONCLUSIONS

!e Brazilian framework on anti-corruption law is at a critical and signi"cant point. Brazilian authorities are working intensively to adapt the country’s legal system to international trends and requirements not only in response to a growing global anti-

15 More information available at: www.cgu.gov.br/empresaproetica/cadastro-pro-etica/.

44 Brazil corruption movement, but most importantly to respond to protests and demands by Brazilian society at large. Brazilian legal entities who do business abroad and have already implemented mechanisms in compliance with the FCPA and the UK Bribery Act have created the grounds for a more transparent and ethical business culture in Brazil. In addition, the new Anti-Corruption Law is a key element in fostering this new business culture, and it will be important to watch closely how it will be implemented and interpreted by Brazilian courts and administrative bodies. Despite the few convictions at present, a growing number of individuals, companies and public o'cials have been subject to investigations, prosecutions (both civil and criminal) and public exposure. In addition, higher volumes of public funds have been devoted to combating corruption and white-collar crimes. As a result, 20.7 per cent of the total number of the domestic investigations initiated in 2013 were related to crimes against the public treasury, thereby surpassing, for the "rst time in history, investigations of drug tra'cking, which amounted to 16.9 per cent of the total.16 Consequently, anyone doing business in Brazil should carefully measure anti- corruption-related risks with a view not only to past and present perceptions, but also to the signs of change that already point to a much more responsive and strict enforcement environment in the near future.

16 !is data is based on data by the High Command of the Federal Police.

45 Appendix 1

ABOUT THE AUTHORS

ADRIANA DANTAS BM&A – Barbosa, Müssnich & Aragão Adriana Dantas is the partner who heads the corporate ethics and international trade practices at BM&A. She holds a PhD in International Economic Law from the University of Sao Paulo and an LLM from the University of London. She was a visiting scholar at Georgetown University Law Center (2006 to 2007), and a Fulbright and British Council scholar. She has practised law in Washington, DC, London, Geneva, and Brasilia, and has vast international experience in the "eld of anti-corruption. LUIZ EDUARDO ALCANTARA BM&A – Barbosa, Müssnich & Aragão Luiz Eduardo Alcantara graduated in law from the University of São Paulo, having completed part of his studies at Ludwig-Maximilians Universität of Munich, Germany. He is a Brazilian attorney, and a member of the São Paulo Section of the Brazilian Bar Association.

BM&A ! BARBOSA, MÜSSNICH & ARAGÃO Av. 1455, 10th $oor 04543-011 São Paulo Brazil Tel: +55 11 2179 4600 Fax: +55 11 2179 4597 [email protected] [email protected] www.bmalaw.com.br

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