For the Defense December 2013 No
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For The Defense December 2013 No. 5 Brazil’s New Anti-Bribery Act Goes into Effect in January 2014—Is Your Company Ready? Brazil’s stringent new anti-bribery law, the “Clean to the Act, the Brazilian government could only sanction indi- Companies Act,”1 takes effect on January 29, 2014 and will, viduals for corrupt conduct benefiting companies. for the first time, subject Brazilian and multinational companies Former president Luiz Inácio Lula da Silva introduced a operating in Brazil to severe civil and administrative sanctions draft of this sweeping anti-bribery legislation in the Brazilian for bribing domestic or foreign government officials. The Act is Congress in February 2010, but no action was taken on it comparable to (and, in a few key respects, tougher than) the until mid-2013. Commentators have noted that the Brazilian U.S. Foreign Corrupt Practices Act (“FCPA”) and the UK Bribery Congress finally passed the Act in response to widespread Act (“Bribery Act”). It imposes strict liability for violations of its protests against official corruption and government spending provisions, prohibits “facilitation payments,” and exposes com- in connection with the 2014 FIFA World Cup and the 2016 panies doing business in Brazil to harsh penalties and fines. Olympics, both of which will be held in Brazil. Although compliance with the Act’s provisions is important Importantly, the Act brings Brazil into compliance with its for all companies doing business in Brazil, it is absolutely essen- obligations under the Organization of Economic Cooperation tial for companies involved in activities surrounding the 2014 and Development’s (“OECD”) Convention on Combating FIFA World Cup and the 2016 Olympics. Business transactions Bribery of Foreign Public Officials and the U.N. Convention related to both events are likely to involve interaction with gov- Against Corruption, which it ratified in 2000 and 2005, ernment officials (even at the local government level), which respectively. increases exposure to liability. Companies can mitigate their risks, however, by implementing meaningful compliance pro- Liable Parties grams and timely disclosing any violations, no matter how small. The Act applies to Brazilian companies, whether they are operating in Brazil or abroad, including Brazilian subsidiaries Background of the Act or agents of foreign companies. It also applies to foreign com- The Act is an unprecedented step by Brazil to hold corpora- panies doing business in Brazil. tions liable for the corrupt conduct of their directors, officers, and agents. Bribery is a crime in Brazil; however, under Brazil’s Prohibited Conduct civil law system, corporations and other legal entities generally The Act proscribes the bribery of domestic and foreign cannot be convicted of crimes because they cannot form the government officials, as well as fraud in connection with intent required to establish criminal liability. Accordingly, prior public procurement activities. It expressly prohibits promoting, © 2013, BLANK ROME LLP. Notice: The purpose of this newsletter is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. The Advisory should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel. One Logan Square • Philadelphia, Pennsylvania 19103-6998 • 215.569.5500 For the Defense offering, or giving, “directly or indirectly, an improper benefit Applicable Sanctions to a public agent…or…a third party related to [such agent].” Violators of the Act are subject to a range of sanctions, And, within the public procurement realm, the Act forbids bid including fines and judicial penalties. The civil fines available rigging, the submission of fraudulent bids, seeking to obtain under the act are severe. An offending company can be fined any undue advantage, and impeding the administrative pro- between 0.1 and 20% of its gross revenue in the year prior cess. The Act also bans financing, paying for, or otherwise to the government’s investigation. If the gross revenue cannot sponsoring prohibited conduct, as well as concealing from be calculated, then the government may impose fines ranging government investigators any such conduct. However, it does between R$6,000 (about $3,000 USD) and R$60,000,000 not reach commercial bribery. (about $30,000,000 USD). The factors considered in impos- Unlike the FCPA (and anti-bribery laws in many OECD ing such a penalty include: the seriousness of the offense, the countries), the Act does not contain a “facilitating payments” advantage gained, and the damage caused. exception. A facilitating payment is a payment made to a These penalty ranges notwithstanding, liability under the government official to expedite the performance of routine Act is not capped at R$60,000,000. Rather, the Act provides governmental action (i.e. non-discretionary functions that the that fines may not be “less than the benefit gained” and that official is required to perform) rather than to influence the the application of penalties “does not exclude the obligation to official himself. fully indemnify the damage caused.” Apart from civil fines, the Act also allows the enforcing Liability and Enforcement agency to impose an assortment of judicial penalties. These Somewhat oddly, there is no specific government agency include the loss of assets, the imposition of injunctions, debar- charged with enforcing the Act. Instead, cases involving the ment, partial suspension of a company’s activities, and even bribery of foreign (i.e., non-Brazilian) governmental entities dissolution of the company. Violating entities also may lose any will be prosecuted by Brazil’s federal Comptroller General, right they have to public incentives or subsidies, including loans the Controladoria-Geral da União (“CGU”), and cases con- from state-owned banks, for up to five years. cerning domestic bribery may be prosecuted by the highest authority of the relevant entity within the executive, legislative, Leniency through Compliance Programs or judicial branch of the Brazilian government. and Voluntary Disclosures Regardless of the enforcement agency involved, the Act Brazilian companies and companies doing business in imposes strict liability on violators of its provisions. To establish Brazil could face significant exposure under the Act. However, liability under the Act, the government needs to show only similar to violators of the FCPA, violators of the Act can substan- that the prohibited conduct was performed in the violating tially reduce their exposure by implementing strong compliance company’s interest or to its benefit. In this way, liability under programs and making prompt voluntary disclosures. the Act will be much easier to establish than liability under the The Act provides that violators may be entitled to a “cred- FCPA, as the FCPA requires the government to establish that it” that can mitigate applicable sanctions. Unlike the Bribery the company’s director, officer, employee, or agent acted with Act’s “adequate procedures” provisions, however, this “credit” corrupt intent. is not a defense to liability. The Act also expressly provides for successor liability, The specific criteria for obtaining a credit are not yet as well as joint liability in certain circumstances. In the event known.2 But, at a minimum, the offending company will have that a violating company amends its articles of incorporation, to show that it has developed and implemented internal audit- merges with another company, or is acquired, sanctions may ing procedures and mechanisms, provided incentives for the be imposed on the successor entity. However, if the offend- reporting of irregularities, and ensured the effective application ing entity was acquired, the successor’s liability is limited to of codes of ethics and conduct. fines and restitution up to the value of the assets acquired. Violators can also reduce any applicable fines by two- Separately, the Act imposes joint liability on parent companies thirds through voluntary disclosure. An entity is eligible for such and their affiliates or subsidiaries. In contrast to both the FCPA a reduction only if it reports misconduct before it is discovered and the Bribery Act, the Act also imposes joint liability on all by the government, cooperates with any governmental investi- members of a joint venture. gation, and ceases all illegal conduct. Blank Rome • 2 For the Defense Looking Forward: 2014 FIFA World Cup, payments exception—a cookie-cutter approach to compliance 2016 Olympics, and Beyond will not suffice. Companies operating in Brazil must review As with any new law, there are a number of uncertainties and adjust their current compliance plans to reflect the Act’s attendant with the Act. Commentators already have questioned requirements. They must take into consideration the amount whether the Act will be enforced rigorously, and whether it will of interaction they are likely to have with government officials, create, as the Brazilian Congress envisioned, a “compliance as well as the local culture, and may even consider engaging culture” among companies operating in Brazil. Some com- counsel or accounting advisors for compliance advice. mentators also have been critical of the Act, contending that (1) These warnings particularly apply to companies that will be the lack of a centralized enforcement authority is likely to lead involved in the 2014 FIFA World Cup and the 2016 Olympics. to inconsistent rulings and standards; and (2) the Act gives too Public outcry surrounding government spending on those events much discretion to too many agencies, creating the potential spurred the Brazilian Congress to pass the Act and it is likely for abuse. that enforcement agencies will be looking to crack down on any Those uncertainties aside, the Act takes effect in January fraud associated with them. Accordingly, any companies enter- 2014, and companies operating in Brazil must pay attention ing public contracts related to the World Cup or the Olympics, to the Act’s existence.