Leonardo Ruiz Machado
Machado Meyer Sendacz e Opice, Brazil
Karina da Guia Leite
Machado Meyer Sendacz e Opice, Brazil
On 29 January 2015, the Federal Law No 12,846/2013, also known as the Brazilian Anti-Corruption Act or the Clean Company Act, completed one year of its effectiveness. And, on 18 March, the President finally enacted its regulation, Decree No 8,420/2015 (the Decree).
The Clean Company Act is the practical result of international commitments signed by Brazil in combating corruption, notably under the conventions on the matter held by the United Nations, the Organization of American States, and the Organisation for Economic Co-operation and Development. It innovated the national legal scenario by targeting, on a strictly liability basis, all legal entities directly or indirectly involved in illegal acts against national or foreign governmental entities, including, among others, corruption and fraud at public tenders.
The Decree, equally important in this respect, sets forth in its provisions specific details of several aspects of the Clean Company Act in a federal sphere, which brings the promise of more clarity for companies in the way the law will be enforced. To summarise, the main parameters provided by the Decree are: evaluation of compliance programmes, application of fines and entering into leniency agreements.
Compliance programme evaluation
The provisions established under the Decree expressly determine the parameters for the evaluation of organisations’compliance programme (named the "Integrity Programme" by the Decree) and include the following:
· the "tone at the top" commitment of senior management (including the board of directors);
· the ethical conduct standards established for company employees and for contracted third parties;
· continuous training;
· periodic risk assessment;
· accurate and complete books and records;
· establishment and maintenance of robust internal controls;
· specific prevention procedures in cases of public bids, contracts and in other interactions with the public sector, even through third parties;
· independence of the compliance department in the company’s corporate structure;
· the existence of communication channels;
· disciplinary action for violation of the compliance programme;
· procedures to ensure prompt interruption of irregularities;
· appropriate measures before and after commercial engagement with third parties;
· previous due-diligence procedures in M&As;
· periodic risk assessment and continuous monitoring; and
· transparency over donations to political campaigns, candidates or parties.
When assessing this, the Decree establishes that the enforcement authority also has to take into consideration certain specifications of the company, such as: the number of employees and complexity of the corporate structure; the use of third parties; the industry and countries in which it operates; the level of interaction with the public sector; and the importance of the licences and official authorisations for the business.
Application of fines
The Decree provides that the method of calculating fines (ranging from 0.1 per cent to 20 per cent of the company’s gross earnings - excluding taxes - from the most recent fiscal year) is tied to the following factors:
· continuation of the harmful act over a period of time - the fine ranging from one per cent to 2.5 per cent of earnings;
· tolerance or acknowledgement from high-level administration of the company (controlling shareholders, board of directors or the executive officers) - one per cent to 2.5 per cent;
· In the event that public services or the execution of a contracted project was suspended - one per cent to four per cent;
· the economic situation of the offender, based on its solvency and overall liquidity ratio - one per cent;
· recurrence of the offence - five per cent; and
· the value of the contracts - ranging from one per cent to five per cent (applied to contracts above 1bn Brazilian Reais (about US$346m)).
In addition to the calculation of the fines, the Decree establishes mitigating factors that will be considered, including the following:
· no consummation of the illicit act - reduction of one per cent;
· reimbursement of the damages caused by the offender - reduction of 1.5 per cent;
· cooperation of the offender with the investigations, regardless of signed leniency agreement - reduction ranging from one per cent to 1.5 per cent;
· voluntary report of the harmful act by the company prior to the beginning of the administrative procedure – reduction of two per cent;
· compliance programme - reduction ranging from one per cent to four per cent.
Leniency agreement
Another point regulated under the Decree is the entering into leniency agreements between the investigated legal entity and the enforcement authorities, which provides for a possibility of reducing the final value of the applicable fine of up to two thirds.
The regulation established that the Federal Comptroller General (the CGU) has de facto jurisdiction in the federal sphere, and the leniency agreement can be applied not only to the sanctions imposed by the Clean Company Act, but also to the penalties established by other Brazilian laws, such as the Public Bidding Law.[1]
The proposal for the agreement can be applied even when the administrative procedure is in place, but it cannot exceed the date of the final report issued by the enforcement authority. If the leniency agreement is accepted, the Decree establishes the possibility of the signing of a memorandum of understanding between the investigated entity and CGU regarding the main elements to be provided for in the agreement. And, in this context, some minimal standards must be stipulated, in particular the provision of loss of the benefits in the event of non-compliance, and the future obligation of adoption, implementation or enhancement of compliance programmes.
Conclusion
The Decree that regulates the Clean Company Act is still highly regarded, especially in view of the notability of the points included in the regulation. Therefore, even though there remains some room for interpretation, the regulations provide companies significantly greater clarity on the application of the new law.
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[1] Federal Law No 8,666/1993.
(International Bar Association - 27.05.2015)
(Notícia na Íntegra)