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Monday
Nov102014

OECD to Brazil: Really?

The OECD Phase 3 anti-corruption monitoring report on Brazil helps put in context the corruption issues that were raised during the recent presidential campaign. At the outset, the report mentions that the lead examiners had to reveal to the authorities the existence of 5, of only 14, foreign bribery investigations brought since 2000 (none of which have yet been prosecuted). This rather gives the plot away. Indeed, none of Brazil’s ongoing investigations were opened on the basis of discovery by the authorities but on information provided by the OECD.

With a degree of understatement the examiners noted:

The number of foreign bribery allegations appears low, given the size of Brazil’s economy and the high-risk countries and sectors in which its companies operate…

Unsurprisingly, the examiners expressed serious concerns that Brazil had not proactively detected any instances of suspected foreign bribery involving its individuals and companies; that there was an absence of proactivity in initiating investigations which were often bedeviled by complex administrative proceedings. Particular concern was expressed about limitation periods which fluctuate with actual sentences and a reluctance by the authorities to open investigations for fear of making time run.

A number of factors were identified for this lack of proactivity, including the size, nature and financing of state owned enterprises; judicial reluctance to investigate on the basis of media allegations; and the complete absence of private sector whistleblowing procedures and a misunderstanding of its role in countering corruption.

The examiners noted that foreign bribery by a legal person does not constitute a predicate offence for money laundering and highlighted the failure of auditors and tax authorities to discover and highlight the use of bribes.

Praise was given for the setting up of new anti-corruption units in the federal prosecution service and the authorities were congratulated on passing the Organized Crime Act and the Corporate Liability Act CLA (not yet implemented), which introduces a strict civil and administrative liability regime for offenses such as foreign bribery. However, the examiners expressed concern that the legislation’s vagueness would limit the expected level of enforcement.

Also welcomed was Brazil’s adherence to the 2006 OECD Council Recommendation on Bribery and Officially Supported Export Credits but against that must be set the absence of action by export credit agencies when credible allegations of foreign bribery existed.

The examiners noted the removal from the CLA of debarment from the list of penalties. The explanation that this was not required on account of existing debarment procurement provisions failed to persuade. The pre-existing regime does not apply to foreign bribery offences. This was considered to represent a serious gap in Brazil’s enforcement remedies. The examiners pointed out that most phase-3 monitoring reports had revealed that debarment was consistently considered the strongest deterrent for foreign bribery offenses, which was also confirmed in the feedback received from the Brazilian business community.

So all in all quite a lot on President Dilma Rousseff’s in-tray but if, as was suggested to the lead examiners, media allegations of corruption are “frowned upon” by the investigating judiciary, it could be quite an uphill task.

A copy of the OECD's Phase Three report on Brazil is here (pdf).

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Alistair Craig, a commercial barrister practicing in London, is a frequent contributor to the FCPA Blog.