More details on Brazil’s Clean Company Act regulations
Wednesday, March 25, 2015 at 12:28PM
Leonardo Ruiz Machado and Andy Spalding in Brazil, Clean Company Act, Dilma Rousseff

As we mentioned in an earlier post on the FCPA Blog, on March 18 Brazilian President Dilma Rousseff issued a presidential decree regulating the Clean Company Act, as a part of a series of anti-corruption measures to counter the increasing number of protests against the federal government.

Although in force and self-applicable since January 29, 2014, the Clean Company Act was still lacking the federal regulation needed to address various open issues about federal enforcement, including the administrative procedure for imposing the corporate liability and assessment of fines, evaluation of compliance programs and entering into leniency agreements.

This new regulation, which has been celebrated and -- at the same time -- criticized by the Brazilian legal community, addressed those and other points as follows.

Calculation of fines

The minimum fine will be either 1% of the defendant’s revenue in the year preceding the administrative action, or the sum of the value of the undue advantage obtained by the bribe plus the amount of the bribe. The maximum will be either 20% of the previous year’s revenues, or three times the undue advantage made possible by the bribe. The calculation of fines will consider the value of the company’s contracts with the government and the knowledge of its high-level administration (notably the board of directors and executive officers) with the illicit acts.

Leniency Agreement

The Controladoria Geral da União - CGU (Brazilian Federal Comptroller General) will have exclusive jurisdiction to enter into leniency agreements in federal investigations. This is true for not only the Clean Companies Act, but also other federal laws in areas such as procurement. The decree establishes minimum standards for leniency agreements, including the loss of benefits in the event of noncompliance, and the future obligation of adoption, implementation or enhancement of compliance programs.

Compliance Programs

The regulation explained the criteria for evaluating compliance programs, which fall into three categories: (i) structure; (ii) effectiveness, and (iii) company specifics.

Relevant structural features will include: the ‘tone at the top’ commitment of the senior management with the program (including the board of directors); the standards of conduct established not only for the company but also for third-parties; the accuracy of books and records; the independence of the compliance department in the corporate structure; specific prevention initiatives in bids and contracts involving governmental entities; the disciplinary action for violation of the integrity program; appropriate due diligence procedures in hiring of third parties and mergers and acquisitions transactions; and transparency in donations to political campaigns or parties.

The effectiveness of the compliance program will be measured according to its performance under the investigated case. As for company specifics, relevant factors will include the number of employees, the complexity of the corporate structure, and the level of interaction with the public sector, between others.

Additional rules regarding the evaluation of compliance programs will be issued by the CGU Chief Minister.

Administrative Procedures

For the bribery of foreign officials, the CGU has exclusive federal authority to initiate administrative proceedings.  For the bribery of domestic officials, the CGU retains authority to initiate such proceedings, but that authority is concurrent with the ministry whose officials were bribed. For example, if a bribe were paid to an official in the Ministry of Health, the federal authority to initiate enforcement proceedings would be shared by the Ministry of Health and the CGU.

Given Brazil’s federative system, important questions remain concerning state and municipal authority to initiate administrative proceedings.

The administrative procedure may be preceded by a preliminary investigation conducted by the authority, which is expected to be confidential and non-punitive.

The regulation expressly provides that illegal acts before the Brazilian Public Procurement Laws, such as the Federal Public Bidding Law (Law 8,666/1993) and other specific rules, can be judged under the same administrative procedure, with possible application of the debarment sanction provided in Public Bidding Law.

With these and other clarifications provided by the federal regulation, we now believe that federal authorities have more secure parameters to enforce this law, and that companies will develop or strengthen their compliance programs in response.  Both initiatives are critical milestones in the effort to fight public and private corruption in Brazil.

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Leonardo Ruiz Machado is the partner in charge of compliance and corporate integrity of Machado, Meyer, Sendacz e Opice Advogados in São Paulo, Brazil. The firm offers legal assistance to both Brazilian and international clients, including large corporations in the most varied sectors of activities, financial institutions and government bodies.

Andy Spalding is a Senior Editor of the FCPA Blog and Assistant Professor at the University of Richmond School of Law.

Article originally appeared on The FCPA Blog (https://www.fcpablog.com/).
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