João Daniel Rassi and Gauthama C. C. Fornaciari de Paula

On August 2nd Law 12,846 was published in Brazil, knows as the “Anti-Corruption Law”. The new law regulates the civil and administrative liability of companies for corrupt practices committed against government entities in the country and abroad. It will take effect in February 2014.

Its main purpose is to strengthen the oversight and increase the penalties imposed on companies that participate in or benefit from fraud and bribery involving public procurement processes, to deter such behavior. Enactment of such legislation was a commitment of the Brazilian State under the auspices of the Organization for Economic Cooperation and Development (OECD).

The first novelty is the establishment of strict liability of companies for crimes committed against governmental entities, meaning there is no need to prove malicious intent or negligence by the executives or third parties (Arts. 1 to 3), making it easier to convict companies, either in the administrative sphere or the civil courts for the commission of illegal acts. The law provides that the company remains liable even in the case of alteration of its bylaws or articles of association, transformation of corporate type or restructuring (consolidation, merger or split-off), according to Art. 4.

The law defines the following illicit acts against the public administration: promising, offering or giving, directly or indirectly, any undue advantage to a public agent or person related thereto; financing, paying for, sponsoring or in any way supporting the commission of illicit acts; using an interposed legal entity or individual to conceal or dissimulate the real interests or identity of the beneficiaries of illicit acts; committing fraudulent acts in public bidding procedures and administrative contracts; and interfering in or hindering the investigation or oversight by the control entities (Art. 5).

In the administrative sphere, the Anti-Corruption Law defines the following penalties, which are substantially greater than those possible under the general terms of the Penal Code and other laws: a fine of 0.1% to 20% of the previous year’s gross revenue, never to be less than the value of the advantage obtained; and if gross revenue cannot be used as a parameter, a fine of R$ 6 thousand to R$ 60 million. In both cases, the offending company must also publish an announcement in a wide-circulation newspaper and at its website disclosing the guilty finding (Art. 6).

The following criteria will be considered in setting the administrative penalty: the gravity of the act; the nature of the advantage obtained or sought; whether or not the illicit act was consummated; the degree of harm or danger caused to the government; the negative consequences of the illicit act; the company’s economic situation; the level of cooperation with the investigation; the existence and effective application of internal procedures for auditing legal compliance and codes of conduct, evaluated at the discretion of the investigating authority; and the value of the contracts with government entities (Art. 7).

The commencement of administrative proceedings to investigate and punish suspect companies rests with the head of the government body or entity affected by the suspected illegal acts, who can do so ex officio or at the instigation of a whistle-blower. The administrative proceeding must allow the accused company to exercise the constitutional due process rights of rebuttal and amble defense. In all cases, the Comptroller-General’s Office (Controladoria-Geral da União – CGU) has concurrent authority to open investigative proceedings and independent competence to oversee those commenced by governmental entities, to assure their regularity. The CGU also is empowered to conduct proceedings to investigate the participation of Brazilian companies in corrupt practices against foreign government entities (Arts. 8, 9 and 28).

The administrative proceeding will be conducted by a commission formed of two or more civil servants of the entity involved (Art. 10). They can apply for judicial measures to assist in the investigation, such as search warrants. The commission must conclude the proceeding within 189 days, but this can be extended by the head of the governmental entity (Art. 11). At the end, the commission must present a final finding. After being notified, the company will have 30 days to present a defense (Art. 11). The company will be represented in the case according to its bylaws or articles of association (Art. 26) and can engage lawyers to assist it in the defense. In the case of foreign companies, the representation will be by the representative, manager or other executive in charge of its local subsidiary or branch (Art. 26, § 2). The final judgment will be by the head of the governmental entity conducting the proceeding (Art. 12). At the end of the administrative proceeding, if there is a guilty finding, the commission must notify the Federal Prosecutor’s Office to that the proper further measures can be taken, such as filing a public civil action (Art. 15).

The law also allows disregard of the legal personality (“piecing the corporate veil”) in case this has been used with abuse of right to facilitate, conceal or dissimulate the commission of illicit acts or to cause confusion of assets. In this case, the penalties can be extended to the guilty company’s administrators and partners or shareholders with management powers (Art. 14).

Another novelty of the Anti-Corruption Law is the possibility of entering into leniency agreements when the company under investigation effectively cooperates with the probe to help identify other perpetrators as well as to provide evidence more quickly. To be eligible for leniency, the following requirements must be satisfied: the company must be the first to cooperate in the investigation; it must cease its involvement as of the moment of proposing the accord; it must admit its participation in the illicit acts; and it must cooperate in all phases of the investigations and administrative judgment proceeding (Art. 16). The leniency agreement will release the company from the obligation to publicize its participation and from being barred to obtain public loans of subsidies, and also can bring reduction of the fine by up to two-thirds (Art. 16, § 2).

The law further establishes that the application of administrative penalties does not preclude judicial civil liability (Art. 16). Therefore, in judging a public civil action according to the grounds in Art. 5 of the Anticorruption Law, the judge can impose, individually or cumulatively, the following penalties: forfeiture of any assets, rights or amounts that represent the illicit advantage gained, reservation made for the rights of injured parties or third parties that acted in good faith; partial suspension or interdiction of activities; dissolution of the company; and prohibition to receive public loans or subsidies for up to five years (Art. 19). A guilty verdict also will establish the obligation to repair the damage caused by the illicit act in full (Art. 21, sole §).

The law establishes the National List of Punished Companies (Cadastro Nacional de Empresas Punidas – CNEP), to further publicize all the penalties imposed on companies found guilty, containing their identification data, type of penalty, date of application and duration of any restrictions (Art. 22). The records will also indicate the existence of a leniency agreement (Art. 22, § 3). After the period of the penalty lapses or the company complies with the leniency agreement and repairs any damage caused, the record in the CNEP will be expunged (Art. 22, § 5).

The statutory limitation period for the illicit acts under the law is five years (Art. 25). That period is interrupted (set back to zero) with the opening of an investigation or administrative proceeding (Art. 25, sole §). The signing of a leniency agreement suspends the running of the time-bar period (Art. 16, § 9).

The above summary demonstrates that Brazil has established a new normative and organizational framework to hold companies liable for illicit corrupt practices against government entities, with the possibility of imposing heavy penalties and also harm to the public image, increasing the risk of business activity. Besides this, there will certainly be judicial discussions on the criteria for configuring illicit acts, the observance of due legal process and the relationship between the administrative and judicial enforcement powers, including in the criminal sphere.

Therefore, the Anti-Corruption Law is a pressing challenge that demands the mobilization of businesspeople and lawyers to take preventive measures, as well as the organization of the public administration to implement the new measures and to investigate and punish illicit acts.