New guidelines to Brazil´s Clean Company Act

Yesterday, July 12, 2022, Decree 11.129 was enacted, which regulates Law 12.846/2013 (the “Clean Company Act”), which holds companies administratively and civilly liable for acts against the public administration, national or foreign. The new rules will take effect on July 18, 2022 and will revoke Decree 8420/2015.

The new decree aims at improving the action of the Comptroller General of the Union (“CGU”) in holding companies accountable for illegal acts against the public administration, improving 4 relevant topics, as described below:

• Preliminary investigation procedure: 

The first innovation refers to the preliminary investigation, which is the responsibility of the competent entity, upon becoming aware of the possible occurrence of a harmful act, to decide whether to initiate such procedure by itself or by a commission of 2 or more members, selected from permanent civil or public servants. The preliminary investigation will be confidential and non-punitive and will investigate evidence of authorship and materiality of the harmful acts. 

The preliminary investigation may have the support of specialists as well as request banking and tax information on the movement of public resources, even if confidential, to the control agencies, including the search and seizure procedures in Brazil or abroad.

The investigation period will not exceed 180 days, extendable, upon justification. Once the investigation is concluded, the information obtained will be sent to the competent authority, with a report on the evidence of authorship and materiality of acts harmful to the federal public administration, for a decision on the establishment of an Administrative Liability Proceeding (“PAR”). 

• Phases of the PAR:

The most relevant instructions of Decree 11.129 are described below:

1. The commission that will determine the PAR will be composed, in federal public administration entities without statutory servants, by 2 or more permanent employees, preferably with at least 3 years in the entity;
2. The establishment of the PAR will contain, at least, a clear and objective description of the harmful act, the evidence that supports the understanding of the commission and its legal framework;
3. If the subpoena to the company is unsuccessful, a new subpoena by public notice will be published;
4. In the absence of a written defense by the company within the legal term, the other terms will run against it, regardless of notification or subpoena;
5. Once the written defense is presented, the commission will assess the relevance of producing evidence, and may interfere in a motivated manner with requests for evidence that are illicit, impertinent, unnecessary, delaying, or untimely;
6. Upon completion of the final report, the commission will forward the PAR to the initiating authority, which will determine the subpoena of the company for a manifestation within 10 days. After this period, the competent entity will analyze the regularity and merit of the PAR;
7. The PAR will be forwarded to the competent authority for judgment, with a request for reconsideration with suspensive effect by the company, within 10 days;
8. If the decision is maintained, the company will be granted a new period of 30 days to comply with the sanctions;
9. The company will be able to follow the PAR by its legal representatives, ensuring confidentiality, guaranteeing the company the right to full defense and adversarial proceedings.

• Criteria for setting a fine:

The criteria for setting the fine in item I of article 6 of the Clean Company Act were improved, where Decree 11.129 provided clearer and more objective parameters for the competent authority. The sanctions set were a fine of 0.1% to 20% of the gross revenue of the last year prior to the establishment of the PAR, excluding taxes, which would never be less than the benefit obtained, when its estimation was possible.

With the new regulation, the Clean Company Act will provide that the amounts that will constitute the calculation basis can be calculated through:

• Sharing of tax information;
• Accounting records produced or published by the accused company, in Brazil or abroad;
• Estimate, taking into account any information about its economic situation or the state of its business, such as equity, share capital, number of employees, contracts, among others;
• Identification of the total amount of funds received by the non-profit company in the year prior to the start of the PAR, excluding taxes levied on sales.

In addition to the items above, Decree 11.129 also provides that the calculation of the fine begins with the sum of the amounts corresponding to the following percentages of the calculation base:

• Up to 4%, if there is a combination of harmful acts;
• Up to 3% for tolerance or awareness of people from the companys executive or management body;
• Up to 4%, in the event of interruption in the case of the provision of public service, in the execution of contracted work or in the delivery of goods or services essential to the provision of public services on the event of non-compliance with regulatory requirements;
• 1% for the economic situation of the company that presents general solvency and general liquidity ratios greater than 1 and net income in the last year prior to the beginning of the PAR;
• 3%, in case of recidivism.

• Up to 0.5%, in case of non-completion of the infraction;
• Up to 1%, in case of proof of spontaneous return, by the company, of the benefit obtained and the compensation of the resulting damages; or inexistence or lack of proof of advantage gained and damages resulting from the harmful act;
• Up to 1.5% for the company’s degree of collaboration with the investigation of the harmful act, regardless of the leniency agreement;
• Up to 2%, in the event of voluntary disclosure by the company of strict liability for the harmful act;
• Up to 5%, in the event of proof that the company has and applies an integrity program. 

Although the Brazil’s Clean Company Act provides, in its article 7, item II, that the sanctions will take into account the advantage obtained or intended by the violator, this concept needed to be clarified. Decree 11.129 provides that an advantage received or intended is understood to be the monetary equivalent of the proceeds of the illicit act, understood as the gains or profits obtained or intended by the company as a direct or indirect result of the practice of the harmful act.

For more information on the matter, contact us at +55 (11) 4083-7600 or at ifranco@azevedosette.com.br, gferreira@azevedosette.com.br and jpavin@azevedosette.com.br.