Compliance in Brazil

Compliance in Brazil

Legal Basis

In order to regulate compliance issues In Brazil, three legal documents are particularly relevant :

  • The Anticorruption Law (Decree 8.420/15)
  • The Competition Law
  • The Money Laundering Law

With view to controlling and sanctioning corrupt business practices the following legal sources are pertinent:

  • The Common Regulation of the Supreme Control Organ of Brazil ( Controladoria-Geral da União – CGU) and the Secretariat for SME (Secretaria da Pequena e Média Empresa) 2.279/15
  • Regulations 909 and 910 of the CGU
  • Provisional Measures 678/15 and 705/15

The regulations are being monitored by the Ministry for Transparency, Supervision and Control (Ministério de Transparência, Fiscalização e Controle). Brazil is standing by the following signed international conventions:

  • OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions
  • UN Convention against Corruption
  • Interamerican Convention against Corruption

In line with the OECD Convention the Brazilian Anticorruption Law does not only include domestic actions but also those targeted at third party states including their public administration, diplomatic representations and international organizations.

 

Corporate Liability

From a legal point of view there are three types of corporate liability: administrative liability of the company, criminal conduct of the company, and the liability of the management.

 

Administrative Liability of the Company

Since the introduction of the Anticorruption Law not only natural entities but also legal entities can be sanctioned for corrupt practices independently from proving the management`s guilt or intent. The sanctions can consist of penalties as well as additional damages which can be redeemed from parent companies, subsidiaries or otherwise connected companies of the perpetrator.

Even the offer or granting of an indirect, unwarranted advantage through a third party (suppliers, service companies, intermediaries) counts as a damaging activity under the Anticorruption Law wherefore companies de facto become responsible for the actions of their business partners. Consequently, even if no own, direct damaging activity has been carried out, the indirect participation of a company can lead to liability!

 

Criminal Conduct of the Company

Besides the offense of corruption there also exists the damaging activity against public law and the principles of the public administration.

This concerns the following activities:

  • The direct or indirect promise, offer or warrant of an indirect advantage in favor of an official or a person connected to an official
  • Using a legal or natural entity to conceal the true interests or identities of the beneficiaries of an activity
  • Impeding investigations or inspections
  • Impeding or fraudulent influence of the competitional character of a public procurement process
  • Deterrence of a competitor in a public procurement process through fraud or offering an Advantage
  • Fraudulent or dishonest founding of a legal entity in order to take part in a public procurement process
  • Fraudulent generation of advantages through changes or extension of public contracts
  • Manipulation or fraudulent influence of the fiscal balance of public contracts
  • Furthering of any such named actions

 

Liability of the Management

Besides the company, managing directors, authorized signatories and other accessories can also be held liable both administratively and criminally with up to three times if the generated capital gains.

The chances of criminal proceedings increase in the absence of an effective compliance program even if the management is not directly involved in corrupt activities! In contrast, the existence of an effective compliance program can be used as a reason to reduce penalties. However, if a company employs a “sham compliance program” aimed at covering existing misconducts, higher penalties will result!

Requirements for an effective Compliance Program

According to article 41 of Decree 8.420/2015 an effective Compliance Program (Programa de Integridade) consists of:

  • All mechanisms targeted at internal integrity, controlling and incentives processes focuses on irregularities
  • Measures to effectively implement ethics codes and codes of conducts
  • Rules and regulations focused at discovering and correcting deviations, fraudulent activities, irregularities and illegal activities against the public administration domestically and internationally

In order to evaluate the respective adequacy of a compliance program, the number of employees, the complexity of hierarchies, the usage of consultants and intermediaries, the sector and country of activities, the degree of interaction with the public administration (Licenses etc.), the number and residence of legal entities connected with the company as well as its size will be included.

Depending on the size of the company, the evaluation criteria differ as follows:

 

Compliance Program Evaluation Criteria for big companies

 (> 360.000,00 Reias/annually)

Compliance Program Evaluation Criteria for SME

(< 360.000,00 Reias/annually)

•  obligation of top management to support the program („tone of the top”)

•  Introduction of ethics codes and codes of conduct, guidelines, integrity procedures for employees, service providers, suppliers etc.

•  actual effectiveness of the program

•  regular trainings and evaluations

•  continuous improvement and monitoring of the program with view to accounting and transactions

•  Internal controls that grant the quick and reliable production of balance sheets

•  processes aimed at prevention of fraudulent activities when interaction with public institutions including third parties (payment of taxes, inspections, licenses, legal documents etc.)

•  degree of independence of the Compliance-Officers

•  functionality and access (including third parties) to communication channels for reporting fraudulent activities (whistle blower)

•  implementation of disciplinary measures in case of program violation

•  processes targeted at preventing irregularities and time-sensitive damage repair

•  control of irregularities or security breaches during mergers, acquisition or restructuring of the company

•  transparency in case of donations to political actors

•  Engagement of a managing director who disseminates the culture of integrity

•  Engagement of a managing director in terms of implementing preventive and repressive measures

•  codes of ethics and conduct when interacting with officials, during public procurement processes, when offering gifts or donations and when employing officials

•  training of management and employees in integrity measures

•  awareness of the potential risks of the company

•  electronic accounting of transactions

•  professional qualifications of the accountant(s)

•  internal controls regarding the correctness of transactions and their conformity with guidelines from the management

•  criteria for the authorization of accounting reports and documents

•  procedures to penalize/sanction employees in case of misconduct

•  procedures to instantly stop irregular practices and eliminate damages

•  Transparency with view to donations for political actors

 

Sanctions

Administratively, the liability of a company will be tried during a PAR-process (Processo Administrativo de Responsabilização) where an effective compliance program can reduce the penalty  between 1-4% of the original sanction. If the company is held liable for its transgressions, penalties and/or the publication of the sanctions can result.

The penalty will be 0,1%-20% of the gross revenue of the company within the last year before the PAR-process. If the revenue cannot be evaluated, penalties range between 6.000,00 and 60.000.000,00 Reais.

The publication of sanctions, a type of public shaming strategy, has to be carried out and paid by the company in a medium with high or nation-wide circulation.

If the administrative proceedings lead to legal proceedings, the following sanctions are possible:

  • loss of property assets, rights, goods, or other advantages that have been gained though unlawful activities
  • Suspension or partial prohibition of business activities
  • compulsory dissolution of the company
  • prohibition of reception of awards, bonuses, donations or loans from public institutions or companies with a majority of public shareholders between 1-5 years

 

Leniency-Agreements

If a PAR-process has begun, a company may still sign a Leniency Agreement (Acordo de Leniência), thus admitting to its harming activities while repairing damages and implementing or improving an already existing compliance program.

 

Responsibilities arising from the Leniency Agreement Advantages of its Completion
• ceasing to take part in illegal activities

• identifying perpetrators

• handing over evidence of harming activities

• cooperation during inspection

• creation of an effective Compliance Program

•  permission to continue cooperation with public institutions and partaking in public procurement processes

•  Reduction of penalties

•  clearance of certain other penalties

•  comprehensive clearance of penalties if the company is the first to sign a Leniency Agreement

 

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