Brazil Enacts Long-Pending Anti-Corruption Legislation

If the offending entity is found civily liable under the Clean Company Law, it may be subject to various judicial sanctions. These include loss of assets, rights, or valuables representing, directly or indirectly, the advantage or benefit gained from the infringement; suspension or partial interdiction of the entity's activities; compulsory dissolution of the entity; and prohibition on receiving government financing (including from any institution controlled by the government) for a period of one to five years. Federal Law No. 12.846/2013, Art. 19. The law conditions the government's power to order compulsory dissolution of a corporate entity so as to limit such dissolutions to cases in which the entity was used routinely to facilitate or promote the illegal conduct or was created for the purpose of concealing or disguising the illegal conduct or the beneficiaries of that conduct. Id., Art. 19.

In actions brought by the Public Attorney's Office, if no administrative action has been brought against the corporate entity, the Public Attorney may also impose administrative sanctions on the offending entity. Id., Art. 20.

Unlike the civil versus criminal distinctions in the FCPA, under the Clean Company Law, there is no substantive difference between what types of actions can be enforced in administrative versus civil proceedings. In other words, any type of violation of the law can be enforced either administratively or civilly. Nonetheless, given the lengthy delays and inefficiencies of the Brazilian legal system, most enforcement actions are likely to be brought as administrative proceedings. The government is most likely to commence a civil action when it intends to request the dissolution of a corporate entity, since this is a judicial remedy available only in civil proceedings. Id., Art. 19.'

Leniency Agreements

The Clean Company Law authorizes regulators to enter into leniency agreements ' akin to deferred prosecution and non-prosecution agreements under U.S. law ' with offending entities. Leniency agreements will be permitted only if collaboration with the government will result in both the identification of other guilty parties involved and the swift acquisition of information and documents proving the illegal act(s). Id., Art. 16. The law does not specify how such collaboration with respect to the identification of other guilty parties is intended to work in practice with regard to a number of concrete details, including whether the identification required is intended to include private individuals (within and without the company), entities, and/or government officials.

To be eligible for leniency, the offending entity must approach the government about its desire to cooperate (and not vice-versa); immediately cease involvement in the infraction; admit to participation in the illegal conduct; and agree fully and permanently to cooperate with the government's investigation, including appearing, whenever requested and at its own expense, at any relevant judicial or administrative proceedings. Id.

Entering into a leniency agreement will reduce the amount of the applicable fine by as much as two-thirds and exempt the offending entity from all other administrative sanctions. Id. With regard to judicial sanctions, a leniency agreement will exempt the offending entity only from the prohibition against receiving government financing but will not exempt it from the remaining judicial sanctions at the government's disposal. Id.

National Registry

The Clean Company Law also provides for the creation of a National Registry of Punished Entities (Cadastro Nacional de Empresas Punidas or CNEP). Id., Art. 22. The registry will include a list of offending entities, the sanctions levied against them and the existence of leniency agreements, if any. Id. At the request of the sanctioning authority, the names of the offending entities will be excluded from the registry once the relevant sanctions or leniency agreement has been complied with and full restitution has been paid. Id.

Conclusion

For companies already subject to the FCPA or UKBA (or both), the Clean Company Law provides yet another compelling reason to implement and maintain a robust anti-bribery compliance program. At least in the short run, the new law likely will require such companies to devote greater on-the-ground compliance resources to activities in Brazil, and exert additional pressure to have personnel who can understand and speak Portuguese in both local and non-Brazilian locations. In addition, it will be important to consider and address the ways in which Brazilian laws ' both the Clean Company Law and laws already on the books ' supplement obligations under the FCPA and UKBA, such as with respect to public tenders.

For companies largely not already subject to a major transnational anti-corruption regime, including companies operating exclusively in Latin America, or mainly in the Middle East and Africa, Eastern Europe, or Asia (especially China, which is Brazil's largest trading partner), the new law presents additional legal risks that merit careful consideration. Such entities must ensure that they adopt and maintain an effective anti-corruption compliance program, including risk-based policies and meaningful procedures to ensure and test compliance with these policies. This is especially the case for Brazilian corporate entities (including branches and subsidiaries of multinationals) that engage in significant interactions with the government, such as in construction, oil and gas, mining, and other infrastructure sectors, all often involving public bidding, government contracts, and permitting and licenses.

With the Clean Company Law not yet in effect, the Brazilian government has not promulgated guidelines for evaluating the effectiveness of company compliance programs under the new law. Some commentators have speculated that the government, as the CGU has previously, will follow the standards for an effective compliance program established in the U.S. Sentencing Guidelines (United States Sentencing Commission, 2010 Federal Sentencing Guidelines Manual, ' 8B2.1., http://bit.ly/19NMmId). (In 2011, the CGU created the National Registry of Ethical Entities (Cadastro Empresa Pr'-'tica), a collection of entities that voluntarily submit their compliance programs to the CGU for evaluation. Controladoria Geral da Uni'o (CGU), Cadastro Empresa Pr'-'tica, http://bit.ly/1c3gq1R. Currently, there are only 15 entities registered, eight of which are Brazilian subsidiaries of multinationals and seven of which are Brazilian private or public entities.) These standards include a strong tone at the top, effective adoption of a code of conduct, existence of internal controls to prevent corruption, and training and discipline.

Others expect that the Brazilian government will go even further by adopting the supplemental steps identified in the OECD Good Practice Guidance on Internal Controls, Ethics, and Compliance, such as establishing an effective internal audit program and escalation process as well as conducting due diligence of third parties. See OECD Good Practice Guidance on Internal Controls, Ethics, and Compliance (Feb. 18, 2010), http://bit.ly/1eSG8Ez.

In any event, it will be imperative to monitor further legal developments in Brazil, especially how the Brazilian authorities monitor and enforce compliance with the Clean Company Law. Under U.S. law and the principles utilized by U.S. authorities in bringing enforcement actions, the existence of a robust anti-bribery regime in Brazil could affect whether the U.S. government will bring certain Brazil-related charges and could even lead the U.S. to defer entirely to an anti-bribery prosecution taking place in Brazil.

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].' 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].

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Brazil's new Clean Company Law, which establishes penalties for legal entities that engage in corruption or commit fraud in relation to public tenders and government contracts, was enacted to help 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). As discussed in Part Two of this article, violation of the law may result in administrative proceedings being brought against a corporate entity, but another method of enforcement is also authorized.

Civil Judicial Enforcement

The existence of an administrative proceeding against a corporate entity does not preclude the bringing of judicial proceedings against the same entity based on the same alleged illegal conduct. Federal Law No. 12.846/2013, Art. 18. Judicial proceedings must be commenced by the Public Attorney's Office of the relevant level of government harmed by the illegal conduct (i.e., the federal, state or municipal governments) in accordance with the rules of Brazilian civil procedure. Id., Arts. 19 & 20; see also Brazilian Code of Civil Procedure Law No. 7.347 of July 24, 1985.

If the offending entity is found civily liable under the Clean Company Law, it may be subject to various judicial sanctions. These include loss of assets, rights, or valuables representing, directly or indirectly, the advantage or benefit gained from the infringement; suspension or partial interdiction of the entity's activities; compulsory dissolution of the entity; and prohibition on receiving government financing (including from any institution controlled by the government) for a period of one to five years. Federal Law No. 12.846/2013, Art. 19. The law conditions the government's power to order compulsory dissolution of a corporate entity so as to limit such dissolutions to cases in which the entity was used routinely to facilitate or promote the illegal conduct or was created for the purpose of concealing or disguising the illegal conduct or the beneficiaries of that conduct. Id., Art. 19.

In actions brought by the Public Attorney's Office, if no administrative action has been brought against the corporate entity, the Public Attorney may also impose administrative sanctions on the offending entity. Id., Art. 20.

Unlike the civil versus criminal distinctions in the FCPA, under the Clean Company Law, there is no substantive difference between what types of actions can be enforced in administrative versus civil proceedings. In other words, any type of violation of the law can be enforced either administratively or civilly. Nonetheless, given the lengthy delays and inefficiencies of the Brazilian legal system, most enforcement actions are likely to be brought as administrative proceedings. The government is most likely to commence a civil action when it intends to request the dissolution of a corporate entity, since this is a judicial remedy available only in civil proceedings. Id., Art. 19.'

Leniency Agreements

The Clean Company Law authorizes regulators to enter into leniency agreements ' akin to deferred prosecution and non-prosecution agreements under U.S. law ' with offending entities. Leniency agreements will be permitted only if collaboration with the government will result in both the identification of other guilty parties involved and the swift acquisition of information and documents proving the illegal act(s). Id., Art. 16. The law does not specify how such collaboration with respect to the identification of other guilty parties is intended to work in practice with regard to a number of concrete details, including whether the identification required is intended to include private individuals (within and without the company), entities, and/or government officials.

To be eligible for leniency, the offending entity must approach the government about its desire to cooperate (and not vice-versa); immediately cease involvement in the infraction; admit to participation in the illegal conduct; and agree fully and permanently to cooperate with the government's investigation, including appearing, whenever requested and at its own expense, at any relevant judicial or administrative proceedings. Id.

Entering into a leniency agreement will reduce the amount of the applicable fine by as much as two-thirds and exempt the offending entity from all other administrative sanctions. Id. With regard to judicial sanctions, a leniency agreement will exempt the offending entity only from the prohibition against receiving government financing but will not exempt it from the remaining judicial sanctions at the government's disposal. Id.

National Registry

The Clean Company Law also provides for the creation of a National Registry of Punished Entities (Cadastro Nacional de Empresas Punidas or CNEP). Id., Art. 22. The registry will include a list of offending entities, the sanctions levied against them and the existence of leniency agreements, if any. Id. At the request of the sanctioning authority, the names of the offending entities will be excluded from the registry once the relevant sanctions or leniency agreement has been complied with and full restitution has been paid. Id.

Conclusion

For companies already subject to the FCPA or UKBA (or both), the Clean Company Law provides yet another compelling reason to implement and maintain a robust anti-bribery compliance program. At least in the short run, the new law likely will require such companies to devote greater on-the-ground compliance resources to activities in Brazil, and exert additional pressure to have personnel who can understand and speak Portuguese in both local and non-Brazilian locations. In addition, it will be important to consider and address the ways in which Brazilian laws ' both the Clean Company Law and laws already on the books ' supplement obligations under the FCPA and UKBA, such as with respect to public tenders.

For companies largely not already subject to a major transnational anti-corruption regime, including companies operating exclusively in Latin America, or mainly in the Middle East and Africa, Eastern Europe, or Asia (especially China, which is Brazil's largest trading partner), the new law presents additional legal risks that merit careful consideration. Such entities must ensure that they adopt and maintain an effective anti-corruption compliance program, including risk-based policies and meaningful procedures to ensure and test compliance with these policies. This is especially the case for Brazilian corporate entities (including branches and subsidiaries of multinationals) that engage in significant interactions with the government, such as in construction, oil and gas, mining, and other infrastructure sectors, all often involving public bidding, government contracts, and permitting and licenses.

With the Clean Company Law not yet in effect, the Brazilian government has not promulgated guidelines for evaluating the effectiveness of company compliance programs under the new law. Some commentators have speculated that the government, as the CGU has previously, will follow the standards for an effective compliance program established in the U.S. Sentencing Guidelines (United States Sentencing Commission, 2010 Federal Sentencing Guidelines Manual, ' 8B2.1., http://bit.ly/19NMmId). (In 2011, the CGU created the National Registry of Ethical Entities (Cadastro Empresa Pr'-'tica), a collection of entities that voluntarily submit their compliance programs to the CGU for evaluation. Controladoria Geral da Uni'o (CGU), Cadastro Empresa Pr'-'tica, http://bit.ly/1c3gq1R. Currently, there are only 15 entities registered, eight of which are Brazilian subsidiaries of multinationals and seven of which are Brazilian private or public entities.) These standards include a strong tone at the top, effective adoption of a code of conduct, existence of internal controls to prevent corruption, and training and discipline.

Others expect that the Brazilian government will go even further by adopting the supplemental steps identified in the OECD Good Practice Guidance on Internal Controls, Ethics, and Compliance, such as establishing an effective internal audit program and escalation process as well as conducting due diligence of third parties. See OECD Good Practice Guidance on Internal Controls, Ethics, and Compliance (Feb. 18, 2010), http://bit.ly/1eSG8Ez.

In any event, it will be imperative to monitor further legal developments in Brazil, especially how the Brazilian authorities monitor and enforce compliance with the Clean Company Law. Under U.S. law and the principles utilized by U.S. authorities in bringing enforcement actions, the existence of a robust anti-bribery regime in Brazil could affect whether the U.S. government will bring certain Brazil-related charges and could even lead the U.S. to defer entirely to an anti-bribery prosecution taking place in Brazil.

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].' 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].

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