Brazil Enacts Long-Pending Anti-Corruption Legislation

For those in legal and compliance functions at multinational and Brazilian corporations and other legal entities, the key takeaways of the new legislation include: 1) the new provisions for civil and administrative liability of legal entities that expand the kinds of conduct covered by Brazilian anti-bribery law; 2) the specific predicates for liability; and 3) the remedies available and procedures identified for government enforcement actions.

At the same time, it should be noted that the Clean Company Law does not impose criminal liability on legal entities and does not directly alter pre-existing Brazilian anti-corruption laws ' whether criminal, civil, or administrative in nature ' that apply to natural persons.

Perhaps the Clean Company Law's most significant effect will be to hold corporate entities to a stricter standard of liability in the administrative and civil spheres than under the previously existing Brazilian anti-corruption laws. This is particularly so because the government will not need to prove fault or corrupt intent on behalf of senior managers or the board of directors of the corporate entity in order to succeed in holding such entities liable.

In addition, under the law, companies found guilty will face much stiffer penalties than under the pre-existing legal framework. Of course, only time will tell how the Brazilian authorities will enforce the Clean Company Law; therefore, the extent of further regulatory challenges and compliance pressures that await companies operating in Brazil will remain somewhat uncertain for the immediate future.

In this article, we discuss the principal features of the Clean Company Law, setting it in the context of existing Brazilian laws, and preliminarily identify ways in which companies subject to the new law can prepare to meet its challenges.

The Law's Legislative History

More than three years ago, in February 2010, then-President Luiz In'cio Lula da Silva first introduced in the Brazilian Congress the bill that became the Clean Company Law (also known as Federal Law No. 12.846/2013). After roughly three years of relative inactivity, a Special Committee of Brazil's House of Representatives passed the bill on April 24, 2013. It was next referred to the Senate, which provided its well-chronicled approval on July 4, 2013.

President Dilma Rousseff formally approved the Clean Company Law on Aug. 1, 2013. As part of her approval, she exercised her constitutional authority to veto three provisions adopted by the Congress that would have softened the law's potential impact on corporate entities, as we will later discuss. The new law was then published in the Di'rio Oficial da Uni'o, the official gazette of Brazil's federal government, on Aug. 2, 2013, and will become effective 180 days later, on Jan. 29, 2014, absent a highly unlikely veto-override.

The passage of the Clean Company Law came after several weeks of public demonstrations and protests, and is widely seen as part of an effort by the government to respond to the protestors' demands for, among other things, a cleaner, less corrupt public administration. Indeed, making their way through the Brazilian legislature are other pieces of corruption-related legislation, such as that which categorizes “corruption,” including bribery, as a “heinous” crime under the Brazilian Criminal Code and the Heinous Crime Law.

The Pre-Existing Anti-Corruption Landscape

Prior to adoption of the Clean Company Law, there already were a number of laws on the books in Brazil that held individuals, such as employees and managers of corporate entities, criminally liable for bribery and other corrupt acts involving companies with which they are affiliated. Some examples are listed below.

The crime of “trafficking in influence” (“crime de tr'fico de influ'ncia”) has prohibited individuals from soliciting any advantage or benefit in order to influence a public official (and from public officials obtaining such benefits), regardless of whether the benefit is actually received or whether the official is aware that he or she is the recipient of the benefit. Individuals found guilty of this crime are subject to two to five years in prison, and monetary fines. Brazilian Criminal Code, Art. 332.

Brazilian criminal law also has prohibited both passive and active corruption, explicitly barring payment of bribes to public officials and the receipt of such bribes, with potential penalties ranging from two to 12 years in prison, and monetary fines. Id., Arts. 317 and 333.

The Brazilian criminal code has prohibited individuals from bribing foreign (non-Brazilian) officials or third parties with regard to official acts related to international commercial transactions, with guilty parties subject to prison terms of one to eight years, as well as monetary fines. Id., Art. 337-B & C.

In the administrative and civil law spheres, there previously have been two notable anti-corruption laws applicable both to individuals and corporate entities.

Federal Law No. 8.429/1992 (“Lei de Improbidade Administrativa”) has prohibited the illicit enrichment of public officials and infliction of damage to the public finances. It applies to recipients of illicit enrichment and also to individuals or entities that contribute to or participate in such action. Federal Law No. 8.429 (June 2, 1992), Art. 3.

Federal Law No. 8.666/1993 has established rules for public tenders and contracts with the public administration, providing criminal and civil sanctions for violating such rules. Federal Law No. 8.666 (June 21, 1993).

Finally, although there is no Brazilian law akin to the “books and records” provisions of the Foreign Corrupt Practices Act (FCPA), various Brazilian tax laws already oblige corporate entities to keep their books and records in an accurate manner, and those laws remain fully in force in Brazil. See generally the Brazilian Tax Code.

The Scope of the Law

As a signatory to the OECD's Anti-Bribery Convention, Brazil previously agreed to adopt laws to comply with the Convention and to subject itself to periodic OECD review of such compliance. In prior reviews, the OECD criticized Brazil for, among other things, not holding corporate entities criminally liable for corrupt conduct. OECD Working Group on Bribery, “Brazil: Phase II Report on the Application of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and the 1997 Recommendation on Combating Bribery in International Business Transactions” (Dec. 7, 2007), http://bit.ly/I1rJeY. The Clean Company Law still does not do so, but addresses other notable OECD criticisms, and supplements Brazil's anti-corruption laws in several important regards.

First, the Clean Company Law provides for corporate civil and administrative liability for bribery of domestic and foreign public officials under one law, establishing steep monetary sanctions for offending entities, and holding corporate entities to stricter standards of liability than those found in the current laws. This approach is identified under the OECD's Anti-Bribery Convention as an acceptable alternative to imposing corporate criminal liability. See OECD Convention on Combating Bribery of Foreign Public Officials in International Transactions, Art. 3(2) (2011), http://bit.ly/1irWGH7. The civil and administrative prohibitions encompass promising, offering, or giving a bribe to a domestic or foreign public official, or to a party related to such an official, for the purpose of improperly influencing government action, and financing, sponsoring or subsidizing such misconduct. Federal Law No. 12.846/2013, Art. 5.

Second, with regard to tenders and contracts, the law prohibits corporate entities from frustrating or defrauding the public tender process in any way; gaining an undue advantage or benefit from fraudulent modifications or manipulations of government contracts, bid specifications or the public tender process; or hindering the government's investigation or auditing activities. Id.

Third, by formally incorporating principles of cooperation and compliance into the new law, the Brazilian government has also brought its anti-corruption policies more into line with those of the United States and the United Kingdom.

Fourth, the Clean Company Law authorizes the Brazilian courts to consider an entity's compliance program as a factor in assessing the severity of sanctions to be levied against an entity found liable, and also significantly increases the penalties corporate entities face when committing bribery and other corrupt acts.

Andrew M. Levine and Bruce E. Yannett are partners, Steven S. Michaels is a counsel, and Ana Frischtak is an associate in the New York office of Debevoise & Plimpton LLP. They are members of the Litigation Department and the White Collar Practice Group, and may be reached at [email protected], [email protected], [email protected], and [email protected], respectivaly. Renata Muzzi Gomes de Almeida is a partner in the Corporate Law and Foreign Investment, Mergers and Acquisitions and Compliance practice groups at TozziniFreire Advogados, based in its S'o Paulo, Brazil, office. She may be reached at [email protected].

Brazil's national government has taken long-awaited action in adopting sweeping anti-corruption legislation, a critical step in the ongoing battle against corruption and a direct answer to acute pressures mounting within Brazil and around the world. The new law, known as the “Clean Company Law,” is scheduled to take effect in January 2014 ' prior to Brazil's hosting of the 2014 World Cup and 2016 Summer Olympics ' and will materially change Brazil's anti-corruption enforcement landscape.

The Clean Company Law establishes offenses and corresponding penalties for legal entities that engage in corruption or in fraudulent acts relating to public tenders and government contracts. In doing so, the new law helps fulfill Brazil's obligations under the Organisation for Economic Co-operation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Transactions (OECD Anti-Bribery Convention).

Key Takeaways

For those in legal and compliance functions at multinational and Brazilian corporations and other legal entities, the key takeaways of the new legislation include: 1) the new provisions for civil and administrative liability of legal entities that expand the kinds of conduct covered by Brazilian anti-bribery law; 2) the specific predicates for liability; and 3) the remedies available and procedures identified for government enforcement actions.

At the same time, it should be noted that the Clean Company Law does not impose criminal liability on legal entities and does not directly alter pre-existing Brazilian anti-corruption laws ' whether criminal, civil, or administrative in nature ' that apply to natural persons.

Perhaps the Clean Company Law's most significant effect will be to hold corporate entities to a stricter standard of liability in the administrative and civil spheres than under the previously existing Brazilian anti-corruption laws. This is particularly so because the government will not need to prove fault or corrupt intent on behalf of senior managers or the board of directors of the corporate entity in order to succeed in holding such entities liable.

In addition, under the law, companies found guilty will face much stiffer penalties than under the pre-existing legal framework. Of course, only time will tell how the Brazilian authorities will enforce the Clean Company Law; therefore, the extent of further regulatory challenges and compliance pressures that await companies operating in Brazil will remain somewhat uncertain for the immediate future.

In this article, we discuss the principal features of the Clean Company Law, setting it in the context of existing Brazilian laws, and preliminarily identify ways in which companies subject to the new law can prepare to meet its challenges.

The Law's Legislative History

More than three years ago, in February 2010, then-President Luiz In'cio Lula da Silva first introduced in the Brazilian Congress the bill that became the Clean Company Law (also known as Federal Law No. 12.846/2013). After roughly three years of relative inactivity, a Special Committee of Brazil's House of Representatives passed the bill on April 24, 2013. It was next referred to the Senate, which provided its well-chronicled approval on July 4, 2013.

President Dilma Rousseff formally approved the Clean Company Law on Aug. 1, 2013. As part of her approval, she exercised her constitutional authority to veto three provisions adopted by the Congress that would have softened the law's potential impact on corporate entities, as we will later discuss. The new law was then published in the Di'rio Oficial da Uni'o, the official gazette of Brazil's federal government, on Aug. 2, 2013, and will become effective 180 days later, on Jan. 29, 2014, absent a highly unlikely veto-override.

The passage of the Clean Company Law came after several weeks of public demonstrations and protests, and is widely seen as part of an effort by the government to respond to the protestors' demands for, among other things, a cleaner, less corrupt public administration. Indeed, making their way through the Brazilian legislature are other pieces of corruption-related legislation, such as that which categorizes “corruption,” including bribery, as a “heinous” crime under the Brazilian Criminal Code and the Heinous Crime Law.

The Pre-Existing Anti-Corruption Landscape

Prior to adoption of the Clean Company Law, there already were a number of laws on the books in Brazil that held individuals, such as employees and managers of corporate entities, criminally liable for bribery and other corrupt acts involving companies with which they are affiliated. Some examples are listed below.

The crime of “trafficking in influence” (“crime de tr'fico de influ'ncia”) has prohibited individuals from soliciting any advantage or benefit in order to influence a public official (and from public officials obtaining such benefits), regardless of whether the benefit is actually received or whether the official is aware that he or she is the recipient of the benefit. Individuals found guilty of this crime are subject to two to five years in prison, and monetary fines. Brazilian Criminal Code, Art. 332.

Brazilian criminal law also has prohibited both passive and active corruption, explicitly barring payment of bribes to public officials and the receipt of such bribes, with potential penalties ranging from two to 12 years in prison, and monetary fines. Id., Arts. 317 and 333.

The Brazilian criminal code has prohibited individuals from bribing foreign (non-Brazilian) officials or third parties with regard to official acts related to international commercial transactions, with guilty parties subject to prison terms of one to eight years, as well as monetary fines. Id., Art. 337-B & C.

In the administrative and civil law spheres, there previously have been two notable anti-corruption laws applicable both to individuals and corporate entities.

Federal Law No. 8.429/1992 (“Lei de Improbidade Administrativa”) has prohibited the illicit enrichment of public officials and infliction of damage to the public finances. It applies to recipients of illicit enrichment and also to individuals or entities that contribute to or participate in such action. Federal Law No. 8.429 (June 2, 1992), Art. 3.

Federal Law No. 8.666/1993 has established rules for public tenders and contracts with the public administration, providing criminal and civil sanctions for violating such rules. Federal Law No. 8.666 (June 21, 1993).

Finally, although there is no Brazilian law akin to the “books and records” provisions of the Foreign Corrupt Practices Act (FCPA), various Brazilian tax laws already oblige corporate entities to keep their books and records in an accurate manner, and those laws remain fully in force in Brazil. See generally the Brazilian Tax Code.

The Scope of the Law

As a signatory to the OECD's Anti-Bribery Convention, Brazil previously agreed to adopt laws to comply with the Convention and to subject itself to periodic OECD review of such compliance. In prior reviews, the OECD criticized Brazil for, among other things, not holding corporate entities criminally liable for corrupt conduct. OECD Working Group on Bribery, “Brazil: Phase II Report on the Application of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and the 1997 Recommendation on Combating Bribery in International Business Transactions” (Dec. 7, 2007), http://bit.ly/I1rJeY. The Clean Company Law still does not do so, but addresses other notable OECD criticisms, and supplements Brazil's anti-corruption laws in several important regards.

First, the Clean Company Law provides for corporate civil and administrative liability for bribery of domestic and foreign public officials under one law, establishing steep monetary sanctions for offending entities, and holding corporate entities to stricter standards of liability than those found in the current laws. This approach is identified under the OECD's Anti-Bribery Convention as an acceptable alternative to imposing corporate criminal liability. See OECD Convention on Combating Bribery of Foreign Public Officials in International Transactions, Art. 3(2) (2011), http://bit.ly/1irWGH7. The civil and administrative prohibitions encompass promising, offering, or giving a bribe to a domestic or foreign public official, or to a party related to such an official, for the purpose of improperly influencing government action, and financing, sponsoring or subsidizing such misconduct. Federal Law No. 12.846/2013, Art. 5.

Second, with regard to tenders and contracts, the law prohibits corporate entities from frustrating or defrauding the public tender process in any way; gaining an undue advantage or benefit from fraudulent modifications or manipulations of government contracts, bid specifications or the public tender process; or hindering the government's investigation or auditing activities. Id.

Third, by formally incorporating principles of cooperation and compliance into the new law, the Brazilian government has also brought its anti-corruption policies more into line with those of the United States and the United Kingdom.

Fourth, the Clean Company Law authorizes the Brazilian courts to consider an entity's compliance program as a factor in assessing the severity of sanctions to be levied against an entity found liable, and also significantly increases the penalties corporate entities face when committing bribery and other corrupt acts.

Andrew M. Levine and Bruce E. Yannett are partners, Steven S. Michaels is a counsel, and Ana Frischtak is an associate in the New York office of Debevoise & Plimpton LLP. They are members of the Litigation Department and the White Collar Practice Group, and may be reached at [email protected], [email protected], [email protected], and [email protected], respectivaly. Renata Muzzi Gomes de Almeida is a partner in the Corporate Law and Foreign Investment, Mergers and Acquisitions and Compliance practice groups at TozziniFreire Advogados, based in its S'o Paulo, Brazil, office. She may be reached at [email protected].