Minimizing Bribery Risks in Brazil: A Complete Review of the Legislative Landscape and How to Address Corruption Risks in Your Operations in Brazil Shin Jae Kim (CCEP, CCEP-I) Partner - Corporate Compliance & Investigation skim@tozzinifreire.com.br Renata Muzzi Gomes de Almeida (CCEP) Partner - Corporate Compliance & Investigation rmuzzi@tozzinifreire.com.br Juliana Sá de Miranda Partner Corporate Compliance & Investigation and White Collar Crimes jmiranda@tozzinifreire.com.br September, 2014 South America in the 21st century South America in the 21st century 1
Business Environment in South America Low level of transparency Sense of impunity for corrupt conduct Presence of the Government in the economy Lack of compliance culture Labor legislation among the world s most restrictive, specially the rules regarding hiring and firing of employees Countries with high levels of concentration of wealth Countries with decentralized and multi-faceted power structures - seek a series of approvals from several different government authorities Over regulation in Latin America Economy Ease of Doing Business Rank Dealing with Trading Filtered Starting a Getting Registering Getting Protecting Paying Enforcing Resolving Construction Across Rank Business Electricity Property Credit Investors Taxes Contracts Insolvency Permits Borders Puerto Rico (U.S.) 40 1 1 31 10 18 1 2 14 16 13 1 Peru 42 2 8 23 19 1 4 2 6 6 15 17 Colombia 43 3 14 8 22 4 9 1 12 20 25 2 Mexico 53 4 5 10 28 25 6 11 17 7 5 3 Panama 55 5 3 15 3 7 7 13 30 1 21 18 Bahamas, The 84 12 15 18 12 32 12 20 1 12 20 7 Uruguay 88 13 4 30 6 28 9 17 23 18 15 8 Paraguay 109 20 19 17 14 6 12 11 18 31 14 25 Brazil 116 22 20 25 2 11 19 13 26 27 19 21 Argentina 126 26 27 32 20 20 9 17 25 29 2 14 Bolivia 162 30 30 26 26 24 22 22 31 28 23 10 Haiti 177 31 32 27 17 20 30 26 19 30 10 29 Venezuela, RB 181 32 25 22 32 10 22 31 32 32 9 28 Source: World Bank/IFC Main Risks Corruption and bribery Tax fraud International Trade (local and international laws; import and export controls; customs regulations) Antitrust Environment Insider trading Money laundering Crimes against the Financial System Consumer relations Labor (privacy; sexual and moral harassment; moral damages; health and safety; etc.) Fraud Government contracts Gifts and entertainment) Conflict of Interest Commissions, rebates and discounts IP (laws involving protection of trade secrets etc) Donations 2
TI Corruption Perceptions Index 2013 Results FCPA Enforcement in South America Out of 17 cases examined as of 2009 up to now: Countries PROSECUTIONS Argentina 5 Brazil 3 Costa Rica 2 Honduras 2 Venezuela 2 Panama 1 FCPA Enforcement in South America Key Industries: Healthcare companies 4 cases Energy Industry 3 cases Manufacturing company 3 cases DOJ v. SEC: 17 cases 9 cases prosecuted by both DOJ and SEC; 5 cases only by SEC and 3 cases by DOJ Payment subsidiary companies or use of third party, or combination of both 3
FCPA Enforcement in South America In 10 cases, third-party agents were used as means of payment Direct payment by subsidiary companies occurred in 3 cases A combination of the two means of payment was used in 4 cases All 14 cases prosecuted by SEC involved the violation of the FCPA s books and records provisions, 7 cases also involved the violation of anti-bribery provisions What What is Brazil? is Brazil? Immense Territory (5 th largest) Territory: 8,515,767 km 2 (5th largest) Coastline: 7,367 km Population: 202.,7 million GDP: US$: 2.25 trillion GDP per capita: US$: 11.400 What is Brazil? What is Brazil? Democratic country Foreign investor- friendly Spoken Language is Portuguese and not Spanish Federation composed of 26 States and one Federal District (Brasilia is the capital city) and more than 5700 Municipalities Mixed race and ethnicity In the world: 7 th largest economy and 7 th largest in purchasing powers 1 st orange producer 3 rd largest manufacturer of commercial aircraft 7 th car producer 5 times World Cup Champion 4
Scenario in Brazil Scenario in Brazil Increase of concern on reputational risks Highly regulated Media pressure Active NGO s Active and strong regulatory agencies Active Prosecutors, with experts in different sectors Increase and severe administrative penalties Legal requirement in certain sectors Market requirements (clients, business partners, financing agents, etc.) International Conventions ratified by Brazil OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions in 2000 OAS Inter-American Convention Against Corruption in 2002 UN Convention Against Transnational Organized Crime in 2004 UN Convention Against Corruption in 2006 5
Brazilian Clean Company Act: Introduction Law n. 12.846/2013, better known as the Anticorruption law or Brazilian Clean Company Act, in force since January 29, 2014 Administrative and civil liabilities on legal entities for acts committed against the national or foreign public administration involving: Corruption activity Fraud in government contracts Brazilian Clean Company Act: Introduction -Applicable to any incorporated or non-incorporated business - Offenses: (a) promise, offer or give, directly or indirectly, undue advantages to public official or related parties; (b) fund, sponsor or subsidize any infringement of the law; (c) To make use of an individual or legal entity interposed to conceal or dissimulate its real interests or the identity of the beneficiaries of the wrongdoing; (d) defraud competitive bids, tenders or government contracts by setting terms with competition; or (e) create obstacles for enforcement action Brazilian Clean Company Act: Liability Strict liability for acts of corruption committed in their interest or benefit Not necessary to prove that the management or directors had a corrupt intent Does not exclude the personal liability of individual violators Successor liability (corporate restructuring, mergers, acquisitions and spin-offs) Joint liability of controlling, controlled, affiliates or companies in consortium 6
Brazilian Clean Company Act: Sanctions Administrative Sanctions: - Fine up to 20% of the entity s gross revenues in the year prior to the initiation of the administrative proceedings, or even up to R$ 60 million in circumstances in which it is not possible to calculate gross revenues; - Publication of the condemnatory decision on media of wide circulation. Judicial Sanctions: - Loss of assets, rights or valuables derived from the illicit act, except for the right of the harmed party or third-party in good faith; - Suspension or partial interruption of company s activities; - Prohibition to receive incentives, grants, donations or financing from public entities and financial institutions owned or controlled by the government, for a period of 1 to 5 years; - Compulsory dissolution of the legal entity, in some specific situations. Brazilian Clean Company Act: Leniency Agreement Leniency Agreement - cease the conduct - effective collaboration that results in: - identification of other parties involved, when applicable - obtaining evidence of the illegal conduct Entering into a leniency agreement will result in a reduction or exemption of certain sanctions (i.e.: publication of the decision) Does not exempt the company from the obligation of full restitution of the damage caused Rules for granting leniency program - Necessary to have transparency in rules and benefits of the leniency program, predictability, trust in the authorities, reasonableness, obeying to confidentiality rules Brazilian Clean Company Act: ethics and compliance programs VIII - Existence of mechanisms and procedures for integrity, auditing and incentives to report irregularities, as well as effective application of codes of ethics and conduct within the legal entity. The evaluation parameters of compliance programs will be established by regulation from the Federal Executive Branch 7
Brazilian Clean Company Act: Final Provisions Blacklisting - National Registry of Punished Companies (CNEP) - Public list created within the Federal Executive Branch to gather and publish information on sanctions imposed under this law. The statute of limitations is 5 years as of the date of the acknowledgment of the violation or, in case of a permanent or continuous violation, from the date it has ceased Challenges Decentralization of enforcement authorities: multiple investigations and proceedings Multiple fines and penalties Concurrent application of various laws and rulings Lack of criminal amnesty for individuals Unclear benefits of the leniency agreement Lack of experience of the authorities Criminal provisions Brazilian Criminal Code - Active and passive domestic corruption - Active corruption and traffic of influence in international business operations identification of other parties involved, when applicable Bribery of foreign public officials was included in the Criminal Code in 2002 as a result of the implementation of the OECD Convention on Combating Bribery of Foreign Officials in international business transactions Facilitation payments, as the one allowed under the FCPA, are illegal and may be considered bribe 8
Criminal provisions NO CORPORATE CRIMINAL LIABILITY FOR CORRUPTION Even if a company is the ultimate beneficiary of the bribery, the corporation cannot be held criminally liable for the crime of corruption Only individuals may be criminally prosecuted, even if the individual acted on behalf and to benefit the company Directors, managers or any employee may be held liable for corruption when acting as representatives of the corporation Lack of anticorruption laws applicable to the private sector Public Officials Whoever holds a position, job or performs a public duty, even temporarily or without any remuneration Examples: staff of public institutions, police officers, senators, deputies, judges, arbitrators, Petrobrás employees, doctors and nurses in the public hospitals. Undue Advantages Any benefit given aiming at having the public official act or refrain from acting in relation to the performance of their official duties Non-monetary benefits, such as travels or gifts that are extravagant or frequent may be considered undue advantage 9
Criminal provisions: internal investigations No regulation Assessment of the implications of reporting the corruption to the authorities Company s exposure Acceptance of the evidence gathered in the internal investigation in Court Increase control measures to prevent future violations Evaluate the effectiveness of the corrective action Search and Seizure: Current Scenario Government investment in the Federal Police Department hiring and training of personnel Cooperation agreements between the Federal Police and: economic regulators (CADE) tax authorities food and drug regulators (ANVISA) International cooperation agreements between Brazil and the USA, Switzerland, France, China, Portugal and Italy. Increase in the number of operations conducted by the Federal Police involving large companies and public officials Search and Seizure You should Follow the authorities closely during the search Deliver copies of the requested documents instead of the originals Take notes on the conduct of the action and the documents that are taken Make the search as organized as possible 10
Search and Seizure You should not Destroy or delete documents or electronically stored data Provide information that is not requested Render a statement or authorize the interview of employees during the search Answer any question that you do not know the answer to Sign any document without your lawyer s approval Leave the authorities alone during the search Trends Enforcement increase No longer a matter of foreign legislation Increase of compliance due diligence (prior or/and post M&A, Consortium, JV) Compliance program implementation Increase of internal investigations Pending bill to award whistle blowers in action against corruption Any questions? 11
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