As Brazil prepares to capture the world’s attention when it hosts the World Cup in 2014 and Summer Olympics in 2016, it has taken a major step in declaring that corporate bribes should have no place its economy. On August 1, 2013, Brazil’s President Dilma Rousseff signed a broad anti-corruption law known as the Clean Companies Act (CCA). The act’s stated purpose is to hold business entities liable for corrupt acts committed in Brazil and abroad and takes effect on January 29, 2014.
Brazil’s new anti-bribery act applies to all companies, foundations and associations operating in Brazil, including foreign companies that have an office or representative in Brazil. The act seeks to punish conduct contrary to the honest administration of government at any level. It outlaws entities, their employees and agents from promising, offering or giving an undue advantage to a public agent or to a third-party related to the public agent; providing financial or other support to the performance of prohibited corrupt activity; using an individual or entity to conceal a corrupt activity or the identity of the beneficiary of the activity; committing fraud in connection with a public contracting process or otherwise thwarting its competitive character; and obstructing or interfering with the investigation or audit activities of a public agency or regulatory body.
Although the CCA does not include a criminal component, it authorizes administrative fines and “judicial sanctions.” A company found in violation of the act may receive administrative fines up to 20% of its gross revenues for the year prior to the initiation of a proceeding, excluding taxes, and possibly up to the amount of the advantage obtained, if higher. If its gross revenues cannot be calculated, a company may be fined up to approximately $26 million. Other potential sanctions include disgorgement of ill-gotten gains, suspension of an entity’s activities, dissolution, and debarment from public incentives, subsidies or grants for up to five years.
The CCA requires the government to consider a variety of factors in determining the sanction to be imposed. Importantly, a company’s existing compliance program, including its code of conduct and encouragement of internal reporting, will be taken into account. Other considerations include the nature of the offense, the harm caused, the size of the benefit obtained or intended, and the level of cooperation with authorities.
The act permits the government to enter leniency agreements that reduce a company’s fine by up to two-thirds and exempt a company from other judicial sanctions. To qualify, a company must cooperate with any government investigation in a timely fashion, and its cooperation must result in identification of the individuals or entities responsible for the wrongdoing when appropriate.
The act also imposes joint and several liability on companies acting in consortium and seeks to hold successor entities liable following mergers and acquisitions.
Comparison with the U.S. Foreign Corrupt Practices Act
The CCA’s prohibitions overlap substantially with the U.S. Foreign Corrupt Practices Act (FCPA). Like the FCPA, the CCA prohibits payments or other illicit acts that influence action by a foreign official. Both laws also apply to any foreign government official, regardless of the individual’s position or rank and can result in successor liability for companies who did not themselves participate in the underlying misconduct.
The most notable difference is that the CCA does not contain criminal provisions, although individuals remain subject to criminal penalties under other laws. Its reach, however, is broader than the FCPA in some key respects. The CCA covers corrupt payments to both foreign and Brazilian officials, while the FCPA applies only to payments to foreign officials. The CCA also prohibits all types of payments to government officials, including facilitating payments in furtherance of routine governmental action. The CCA may also be enforced by a broader array of authorities, including those on Brazil’s federal, state and local levels. Unlike the U.K. Bribery Act, however, it does not address bribery confined entirely to the private sector.
With new potential for liability, U.S. companies operating in Brazil must be vigilant in their anticorruption efforts. However, companies that launched robust compliance programs to guide employees and representatives operating in Brazil’s sometimes challenging environment should already be well-positioned to reduce the potential for liability under the Clean Companies Act and demonstrate integrity to Brazilian authorities in defending themselves against any allegations.
In order to bring their programs up to speed, companies should make sure that anticorruption policies affecting Brazil take the CCA into account, and there should be a renewed push for in-country anticorruption training. Communications from senior management to Brazil personnel demonstrating a commitment to compliance would be valuable, and the communications should be reinforced by supervisors in Brazil. Internal controls should be reviewed if they have not been recently, with an eye toward making sure there is transparency to management and approval authority is assigned to the right people. Companies should review the means for employees and others to report compliance concerns internally without fear of retaliation.
Companies likewise should evaluate whether they are applying appropriate resources to anticorruption diligence prior to mergers, acquisitions, and joint ventures, in light of the increased need for effective diligence. Companies should also evaluate their use of third-party agents, the screening that occurs before such agents are retained, and anticorruption provisions in contracts with those agents and other key vendors.
Time will tell whether the Clean Companies Act has an impact on the integrity of business in Brazil, but resources applied by U.S. companies to enhance compliance in Brazil will most certainly be a wise investment.