Anticorruption Enforcement In Brazil

Editor's Note: Last month, the authors discussed the rise in high-profile corruption investigations in Brazil, the most glaring example of which is the Petrobras scandal, which is currently sweeping up corporations and politicians alike in its wake. Considering this increased emphasis on rooting out corruption, the authors noted it would be wise for companies operating in Brazil to pay careful attention to their operations there, to ensure compliance with Brazilian and other countries laws. That discussion concludes herein.

Companies operating in Brazil, and their in-house and outside counsel, have been watching its anticorruption enforcement environment evolve ever since Brazil's new Clean Companies Act came into effect on Jan. 29, 2014. The Act brought with it a new wave of anticorruption implications for companies operating in one of the largest economies in the world, with potential for civil or administrative liability for a wide range of corrupt activities. That can include fines of up to 20% of a company's gross revenue for the fiscal year ending prior to the initiation of the investigation, forcing a company to relinquish any benefits received from the illegal conduct, limiting a company from participating in public bidding processes or even forcing dissolution.

Like similar anticorruption laws, such as the U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act, the Clean Companies Act has an international impact, allowing Brazilian enforcement agencies to enforce the law against acts occurring inside and outside Brazil, and against Brazilian companies and foreign companies with a registered office, affiliate or branch in Brazil. Although the Clean Companies Act brings strict liability and does not provide for a UK Bribery Act-style “adequate procedures” defense that could eliminate fines altogether, companies are able to mitigate potential fines based on cooperation and the existence of an effective compliance program.

Recent Regulation Under The Clean Company Act

A recent regulation known as Decree No. 8,420 clarified what a company must do to earn a reduction in penalties. First, a company that cooperates and enters a leniency agreement with the government may have a fine reduced by up to two-thirds. That company must be the first to cooperate and admit to its wrongdoing. It also needs to help identify other involved parties, and produce information or documents that evidence wrongdoing. Second, a company can reduce its penalty if it has an effective compliance program.

The decree contains guidance in this area that largely mirrors that given by the DOJ and SEC in relation to the FCPA, and by the UK Ministry of Justice in relation to the UK Bribery Act. Specifically, a company may earn a reduced fine if it can demonstrate: 1) the commitment of senior management; 2) policies and procedures applicable to employees and third parties; 3) compliance training; 4) periodic reviews of the program's effectiveness; 5) various internal controls; 6) whistleblower channels and protections; 7) disciplinary measures; 8) due diligence procedures; and 9) specific procedures related to public sector interactions.

Outlier or Harbinger Of Change?

The recent spike in anticorruption enforcement in Brazil is notable, but is not wholly isolated. Chinese authorities have been equally vocal and demonstrative in pursuing anticorruption investigations and enforcement actions against individuals and corporations over the last few years. An amendment to the PRC Criminal Law, effective Nov. 1, 2015, has added new bribery-related crimes and penalties, modified sentencing standards, and continues a trend of shifting enforcement focus from targeting bribe recipients to targeting bribe givers.

Canada has similarly increased enforcement of its Corruption of Foreign Public Officials Act (CFPOA), with prosecutors having recently obtained the first prison sentence for an individual convicted under the law. Prosecutors have also been pursuing CFPOA charges against a number of corporate defendants, who could now face up to a decade of debarment from government procurement under a March 2014 amendment to government procurement policies. This change ' to allow debarment based on commission by a company or its subsidiaries of an “integrity offense” ' is particularly significant because the offense is not limited to violations of Canadian law. In fact, it has been reported that Canadian officials are reviewing settled FCPA enforcement actions to determine whether companies that entered such agreements should be debarred in Canada. If that occurs, it will clearly impact not only anticorruption enforcement inside, but also outside, of Canada, as companies considering an FCPA, UK Bribery Act, Clean Companies Act or other settlement will have to consider whether it might trigger debarment in countries like Canada.

Meanwhile, enforcement actions under the UK Bribery Act have been slow to develop in the five years since the law's enactment, although it is reported that the UK Serious Fraud Office has a number of investigations underway and is nearing a first-ever deferred prosecution agreement disposing of a UK Bribery Act case. Given that the UK Bribery Act was not retroactive, this should perhaps not be surprising, particularly since most FCPA investigations take multiple years to conclude and often involve conduct more than five years in the past.

Recommendations

The push to rid Brazil of graft impacts each company operating in the country. The recent regulatory guidance under the Clean Company Act provides those companies with standards by which to measure a successful compliance program ' standards that have now been consistently endorsed in Brazil, the United States and the UK, through similar guidance from anticorruption enforcement authorities in each country. Every company with Brazilian operations or business activities should take action. Compliance initiatives need to be tailored to specific risks and implemented throughout an organization. Even those multinationals with compliance programs built to address FCPA or UK Bribery Act risk should reassess whether Brazil's law, regulations, and now-roiling enforcement environment demand changes.

In fact, Brazil's current high-octane enforcement push should serve as a wake-up call to all companies with international business operations of any kind that increasingly aggressive anticorruption enforcement is not a passing trend or an isolated phenomenon. Rather, anticorruption has become an increasingly fundamental focus area for law enforcers throughout the most significant economies in the world. If companies do not take steps to match this evolution with an equally robust compliance response, they run the significant risk of becoming part of the next headline.

Alex Brackett is a partner in the Richmond, VA, office of McGuireWoods LLP, and the co-head of the firm's Strategic Risk & Compliance team. Ryan Bonistalli is an associate in the same office. Both are part of the firm's Government Investigations and White Collar Litigation group.

Editor's Note: Last month, the authors discussed the rise in high-profile corruption investigations in Brazil, the most glaring example of which is the Petrobras scandal, which is currently sweeping up corporations and politicians alike in its wake. Considering this increased emphasis on rooting out corruption, the authors noted it would be wise for companies operating in Brazil to pay careful attention to their operations there, to ensure compliance with Brazilian and other countries laws. That discussion concludes herein.

Companies operating in Brazil, and their in-house and outside counsel, have been watching its anticorruption enforcement environment evolve ever since Brazil's new Clean Companies Act came into effect on Jan. 29, 2014. The Act brought with it a new wave of anticorruption implications for companies operating in one of the largest economies in the world, with potential for civil or administrative liability for a wide range of corrupt activities. That can include fines of up to 20% of a company's gross revenue for the fiscal year ending prior to the initiation of the investigation, forcing a company to relinquish any benefits received from the illegal conduct, limiting a company from participating in public bidding processes or even forcing dissolution.

Like similar anticorruption laws, such as the U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act, the Clean Companies Act has an international impact, allowing Brazilian enforcement agencies to enforce the law against acts occurring inside and outside Brazil, and against Brazilian companies and foreign companies with a registered office, affiliate or branch in Brazil. Although the Clean Companies Act brings strict liability and does not provide for a UK Bribery Act-style “adequate procedures” defense that could eliminate fines altogether, companies are able to mitigate potential fines based on cooperation and the existence of an effective compliance program.

Recent Regulation Under The Clean Company Act

A recent regulation known as Decree No. 8,420 clarified what a company must do to earn a reduction in penalties. First, a company that cooperates and enters a leniency agreement with the government may have a fine reduced by up to two-thirds. That company must be the first to cooperate and admit to its wrongdoing. It also needs to help identify other involved parties, and produce information or documents that evidence wrongdoing. Second, a company can reduce its penalty if it has an effective compliance program.

The decree contains guidance in this area that largely mirrors that given by the DOJ and SEC in relation to the FCPA, and by the UK Ministry of Justice in relation to the UK Bribery Act. Specifically, a company may earn a reduced fine if it can demonstrate: 1) the commitment of senior management; 2) policies and procedures applicable to employees and third parties; 3) compliance training; 4) periodic reviews of the program's effectiveness; 5) various internal controls; 6) whistleblower channels and protections; 7) disciplinary measures; 8) due diligence procedures; and 9) specific procedures related to public sector interactions.

Outlier or Harbinger Of Change?

The recent spike in anticorruption enforcement in Brazil is notable, but is not wholly isolated. Chinese authorities have been equally vocal and demonstrative in pursuing anticorruption investigations and enforcement actions against individuals and corporations over the last few years. An amendment to the PRC Criminal Law, effective Nov. 1, 2015, has added new bribery-related crimes and penalties, modified sentencing standards, and continues a trend of shifting enforcement focus from targeting bribe recipients to targeting bribe givers.

Canada has similarly increased enforcement of its Corruption of Foreign Public Officials Act (CFPOA), with prosecutors having recently obtained the first prison sentence for an individual convicted under the law. Prosecutors have also been pursuing CFPOA charges against a number of corporate defendants, who could now face up to a decade of debarment from government procurement under a March 2014 amendment to government procurement policies. This change ' to allow debarment based on commission by a company or its subsidiaries of an “integrity offense” ' is particularly significant because the offense is not limited to violations of Canadian law. In fact, it has been reported that Canadian officials are reviewing settled FCPA enforcement actions to determine whether companies that entered such agreements should be debarred in Canada. If that occurs, it will clearly impact not only anticorruption enforcement inside, but also outside, of Canada, as companies considering an FCPA, UK Bribery Act, Clean Companies Act or other settlement will have to consider whether it might trigger debarment in countries like Canada.

Meanwhile, enforcement actions under the UK Bribery Act have been slow to develop in the five years since the law's enactment, although it is reported that the UK Serious Fraud Office has a number of investigations underway and is nearing a first-ever deferred prosecution agreement disposing of a UK Bribery Act case. Given that the UK Bribery Act was not retroactive, this should perhaps not be surprising, particularly since most FCPA investigations take multiple years to conclude and often involve conduct more than five years in the past.

Recommendations

The push to rid Brazil of graft impacts each company operating in the country. The recent regulatory guidance under the Clean Company Act provides those companies with standards by which to measure a successful compliance program ' standards that have now been consistently endorsed in Brazil, the United States and the UK, through similar guidance from anticorruption enforcement authorities in each country. Every company with Brazilian operations or business activities should take action. Compliance initiatives need to be tailored to specific risks and implemented throughout an organization. Even those multinationals with compliance programs built to address FCPA or UK Bribery Act risk should reassess whether Brazil's law, regulations, and now-roiling enforcement environment demand changes.

In fact, Brazil's current high-octane enforcement push should serve as a wake-up call to all companies with international business operations of any kind that increasingly aggressive anticorruption enforcement is not a passing trend or an isolated phenomenon. Rather, anticorruption has become an increasingly fundamental focus area for law enforcers throughout the most significant economies in the world. If companies do not take steps to match this evolution with an equally robust compliance response, they run the significant risk of becoming part of the next headline.

Alex Brackett is a partner in the Richmond, VA, office of McGuireWoods LLP, and the co-head of the firm's Strategic Risk & Compliance team. Ryan Bonistalli is an associate in the same office. Both are part of the firm's Government Investigations and White Collar Litigation group.