Act stimulates compliance in companies by improving practices of corporative governance.
In January 29, 2014 the Federal Act # 12,846/2013, known as “Anti-Corruption Act”, entered into force. The Act provides for the civil and administrative liability of legal entities for performing acts against the Public Administration, either national or foreign, regardless of evidences of fault or willful misconduct. The act is found similar to international acts, such as the American Foreign Corrupt Practices Act (FCPA) and the English UK Bribery Act (UKBA), representing an important and innovative event in the Brazilian legal system once it implies the recrudescence of anticorruption practices, incentivizes the improvement of corporative governance and also contributes to the increase, in the same ratio, of foreign investors’ confidence in the country.
Within the administrative scope, the legal entity envolved in acts of corruption shall have to pay a fine up to 20% of its annual gross revenue from sales, or between BRL 6,000 and R$ 60,000,000 in case it is not possible to calculate sales results. Moreover, companies involved in any illegal schemes may have their reputation seriously damaged before the market and the society, especially considering that the extraordinary publication of the condemnatory decision alludes to a singularity of the Act: the establishment of the National Register of Punished Companies (CNEP), which consists of a public list of violators and their respective penalties. Within the judicial scope, the condemnation may come in form of forfeiture of any assets, prohibition to receive public loans or subsidies, partial suspension or interdiction of activities and even dissolution of the company. The legal text allows, however, the reduction of the applicable fines and the exemption from other penalties through the celebration of a “Leniency Agreement”. This option will be available only for companies meeting some requirements, such as collaboration with the investigation and mitigation of damages.
The draft of the Decree which regulates the Anti-Corruption Act was elaborated by Brazilian Office of Comptroller General (CGU) and is already on the final stage of discussion in the Executive. The expectation is that the new Decree clarifies some confusing points in the Act. Therefore, it is especially expected that the Decree (i) fixes clear and objective parameters for the calculation of the fines applicable to the companies which violate the rules; and (ii) establishes the criteria for the assessment of the internal mechanisms and procedures used against corruption (compliance programs) adopted by the companies as well as the effectiveness of their implementation.
The Anti-Corruption Act determines that the criteria for the assessment of _ “internal mechanisms and procedures of integrity, due diligence and the incentive to report irregularities” _, as well as the _ “codes of ethics and conduct” _ of legal entities – known as “compliance programs” – must be regulated by Decree. Even though the Act does not obligate legal entities to have compliance programs, it considers them a mitigating factor for determining penalties. In this sense, the Anti-Corruption Decree will probably establish a roll of elements which should take place in compliance programs so they can serve as mitigating factors in condemnations.
According to the international experience in the anti-corruption field, the elements that should be present in a compliance program in order for it to be effective are the following: (i) periodic assessment of internal and external corruption risks to which the company may be subject; (ii) formulation of a code of conduct containing rules and procedures proportional to company’s risks and reality, with specific approach to risks, such as those arising from the conduct of intermediaries, those associated with hospitality, facilitation payments, charity, donations or contributions etc; (iii) implementation of wide and active communication channels in the companies (for the solution of doubts and direct and anonymous whistleblowing); (iv) continuous and periodic anti-corruption training to employees; (v) internal and external (that is, of commercial partners) due diligences; and (vi) appropriate disciplinary procedures with effective application of disciplinary measures and penalties. Details about the format and the application of these elements may vary, but the final result should be the existence of effective anti-corruption procedures.
With regard specifically to anti-corruption due diligences, due diligences in the context of mergers and acquisitions stand out. A risk assessment-based approach may lead to more or less complex procedures, involving questionnaires, request for specific documents and even interviews with employees of the target-company. By the end, the information obtained should lead to a risk analysis followed by the closing (or not) of the deal. The relevance of anti-corruption due diligences lies in the fact that the successor or purchaser buyer shall be liable for corruption practices of the acquired company, even if the act was committed prior to the consummation of the transaction. Controlling, controlled or affiliated companies, and even members of the same consortium are subject to joint liability in the context of corruption practices.
The entry into force of the Anti-Corruption Act as well as its imminent regulation establish a new scenario to which companies will need to adapt. It is highly recommended that companies invest in anti-corruption due diligence and in the creation (or improvement) of effective compliance programs, so that they possess powerful tools for prevention, detection and addressing of corruption and also the possibility to benefit from fine mitigation. In this context, not only the company’s assets, but also its reputation is at a stake.
The Business Consulting team of Azevedo Sette Advogados remains at your disposal for any clarifications. Contributed to this article: Leonardo Moreira Costa de Souza, Rafael Adler, Ana Paula Terra Caldeira, Marcel Medon Santos, Jackson de Freitas Ferreira, Larissa Cardoso Ribeiro Pedrosa and Ana Barbara Soares de Sousa, members of the Corporate and Economic Law teams of Azevedo Sette Advogados.