Publications

Category: Labor and employment

Ordinance No. 1,287/2017, published in December by the Ministry of Labor, prohibits the granting of a "negative service fee" under the Worker's Food Program (PAT). This fee represents a discount granted by meal and food card operators as a way to become more competitive and attract customers. In practice, the purchasing company acquires a monthly credit to be distributed via cards to its employees, but disburses a smaller amount due to the discount granted.

Because it is a common practice, the promulgation of the ordinance caused great concern among companies that contract for this type of service, afraid that they will have their registrations with the PAT canceled. The consequences would be even alarming, since the cancellation of registration may result in assessments, fines, and collection of tax and social security payments, even retroactively.^[1]

The issue gained new prominence in March of this year when the Ministry of Labor confirmed in Technical Note No. 45/2018 that the prohibition on the negative service fees also applied to contracts signed before the publication of Ordinance No. 1,287/2017. Consequently, a large number of lawsuits were filed by companies that contract for these services and subsequent injunctions were granted to suspend the effects of the technical note and the ordinance.

Pressed, the Ministry of Labor chose to revoke Technical Note No. 45/2018 in an opinion signed last August 28. However, the relief for businesses is only apparent.

Contrary to what one might imagine, the Ministry of Labor did not reconsider its understanding. On the contrary, despite acknowledging "the chaos created" and that the technical note was "inopportune", the body ratified its position by saying that the content of the note was "valid, legitimate, and effective" and concluded its opinion stating that it is the duty of the tax auditor, at the time of the audit, to “enforce" the application of the text of Ordinance No. 1,287/2018.

In this context, the possibility of assessment of companies that have contracts with the application of negative service fees has been strengthened. Given the high risks to which they are exposed, it is strongly recommended that companies in this situation review and consider taking some measures, including legal measures, to mitigate them.

^[1]Registration in the PAT allows companies to deduct from their taxable income, for the purposes of Corporate Income Tax, expenses with employee food programs. In addition, it removes the salary nature from the benefit offered to employees and exempts from social security payments over the amounts granted.

Category: Tax

On March 15th, 2017, the Federal Supreme Court (STF) judged Extraordinary Appeal No. 574.706/PR (with recognized general repercussion), in which it was established that the ICMS is not included in the tax base for contributions to PIS and Cofins.

After the decision was handed down, on March 15th, 2017, the Attorney General of the National Treasury filed a motion for clarification (which is still awaiting a decision) in order to request (a) temporal softening of its effects and (b) clarification regarding the amount of ICMS subject to exclusion from the tax base for contributions to PIS and Cofins.

Nevertheless, on October 18th, 2018, the RFB, by its General Coordination of Taxation and its General Coordination of Administrative and Judicial Litigation, issued Cosit SCI No. 13, which provides several considerations about item 'b' above.

In order to comply with final and unappealable court decisions that deal with the exclusion of the ICMS from the tax base of Contributions to PIS/Pasep, in the cumulative or non-cumulative determination regime, the following procedures must be observed:

1. a)the amount to be excluded from the monthly tax base of the contribution is the monthly value of ICMS to be collected, according to the understanding reached in the judgment of Extraordinary Appeal No. 574.706/PR, by the Federal Supreme Court;
2. considering that to determine the Contribution to PIS/Pasep for the period the legal entities segregate the calculation and record of each monthly tax base, according to the Tax Situation Code (CST) established in the legislation regarding the contribution, it is necessary to segregate the monthly amount of ICMS to be collected in order to identify the ICMS installment to be excluded in each of the monthly tax bases for the contribution;
3. said segregation of the monthly ICMS to be collected, for the purpose of excluding the proportional value of the ICMS in each of the tax bases of the contribution, shall be determined based on the percentage ratio between the gross revenue related to each tax treatment (CST) of the contribution and the total gross revenue received each month;
4. to determine the ICMS amounts to be collected, calculated, and recorded by the legal entity, it is preferable to consider the amounts recorded in its ICMS and IPI digital tax books (EFD-ICMS/IPI), which are transmitted monthly by each of its establishments that are subject to said tax; and
5. in the event that the legal entity is exempted from recording an ICMS entry in the EFD-ICMS/IPI in some of the periods covered by the final judicial decision, it may alternatively prove the values ​​of the ICMS to collect, month by month, based on the tax collection forms, attesting to their payment, or via some other means that are able to demonstrate the ICMS amounts to be collected, defined by the States with jurisdiction over each of its establishments.

Legal Provisions: Law No. 9,715, of 1998, article 2; Law No. 9,718, of 1998, articles 2 and 3; Law No. 10,637, of 2002, articles 1, 2, and 8; Decree No. 6,022, of 2007; Federal Revenue Service of Brazil Normative Instruction No. 1,009, of 2009; Federal Revenue Service of Brazil Normative Instruction No. 1,252, of 2012; ICMS Agreement No. 143, of 2006; COTEPE/ICMS Act No. 9, of 2008; ICMS Protocol No. 77, of 2008.

From an analysis of the excerpt transcribed above, two conclusions are necessary: (i) in the RFB's view, only the ICMS actually collected by the establishment (after the deduction of the non-cumulative credits and any tax benefits granted by states to taxpayers) may be subject to the exclusion from the tax base of the contributions to PIS and Cofins and; (ii) the monthly segregation of the ICMS to be collected, for the purpose of excluding the proportional value of the ICMS from the tax bases of each of the contributions, shall be determined by the percentage ratio that exists between the gross revenue related to each of the tax treatments of the contribution and the total gross revenue received each month.

Cosit SCI No. 13 makes clear the RFB's understanding on the matter. Therefore, taxpayers who adopt a different position about the exclusion of ICMS from the tax base of the contributions to PIS and Cofins, as well as those that record amounts collected in excess as credits (for eventual offset after final judicial decision), shall be contested.

Considering that Cosit SCI No. 13 lends itself to fulfilling final court decisions about the exclusion of ICMS from the tax base of the contributions to PIS and Cofins, taxpayers who have individual decisions that differ from the understanding settled in Cosit SCI No. 13 are authorized, in our opinion, to use their individual and concrete decisions instead of the one mentioned in the RFB act.

In light of the above, and especially the fact that the subject matter of Cosit SCI No. 13 is still awaiting a decision by the STF on the motion for clarification presented by the Attorney General's Office (which would prevent the RFB from promulgating rules on the subject), we understand that the interpretation adopted by the RFB is subject to questioning by taxpayers.

Category: Labor and employment

Every labor relationship is based on mutual trust between the parties. Every day, new products are created, new production techniques are implemented, and new markets are pursued. Employees have access to information that, if disclosed, may jeopardize the earnings of their companies and their very existence.

Trust, honesty, and loyalty in relationships with employees are therefore essential for companies to pursue their business strategies without fear that their practices will be disclosed to competitors and eventually undermine their relationship with the market.

Information of this nature is automatically protected during the course of the employment contract, which is governed by the principle of trust between the parties, but what happens after termination of the contract?

The Consolidated Labor Laws (“CLT”) or any other labor legislation has no answer to this question, but it can be found in the Industrial Secrets Protection Law (Law No. 9,279/96), which, in article 195, XI, determines that one commits a crime of disloyal competition when one "discloses, exploits, or uses, without authorization, knowledge, information, or confidential data, usable in industry, commerce, or the provision of services, excluding that which is within public knowledge or which is obvious to a person skilled in the art, to which he had access through a contractual or employment relationship, even after the end of the contract.”

Thus, most standard employment contracts already provide for a confidentiality clause that transcends the employment relationship. It so happens that, in view this legal provision, two other questions are posed: does this restriction prevent employees from obtaining a new employment position, thus violating the principle of free professional practice provided for in article 5, XIII, of the Constitution? From a technical point of view, what information should be considered confidential?

The answer to the first question is not simple. Employers often insert in the body of the employee's employment contract, regardless of the time, a non-competition clause, which may be understood as similar to the confidentiality clause, although different. If the jurisprudential understanding were that the two clauses resemble each other and should be performed together, there may be no limitation on the employee without due consideration.

Fortunately, the majority view in labor case law is that the two provisions are different, principally because the impediment on disclosure of the confidential information of the employer does not restrict the former employee's professional activity after termination of the contractual relationship, because the information is protected by law, and the performance in a competing company of similar or even identical functions to those previously performed is not protected by the confidentiality clause.

Since Law No. 9,279/96 itself defines what is considered confidential information, if the employee discloses information of public knowledge or that a specialist would be able to obtain for himself, it does not infringe on any provision of law. That is what is found from a simple reading of article 195, XI, of the Law. However, this framework covers any information that may be characterized as an industrial secret. In theory, if the employee discloses the values ​​of wages or benefits of the company, this could be considered breach of an industrial secret, given the scope of the principle.

The STJ has already handed down a decision to the effect that a protected industrial secrecy is that which is expressed by the employer during and after the employment relationship, such that indication of the points of the contract subject to protection must be carried out by the employer, lest that point not be protected in relation with its employees.

In the judgment rendered in the appeal pursuant to internal rules of court in an interlocutory appeal in the context of Special Appeal No. 21.167 RS, of the authorship of Justice Sidnei Beneti, in which the practice of unfair competition by a former employee was discussed because he had used confidential information obtained during the period in which he was employed by the appellant, it was emphasized that the employment contract entered into with the nonmovant party did not show any exclusivity and confidentiality clause for the information considered confidential by the employer. As a result of this omission, it was concluded that no crime of unfair competition occurred.

Therefore, it is recommended that employers draft in the contract an express clause containing the confidential information protected by industrial secret (Law No. 9,279/96).

Another controversial point on the subject is the jurisdiction to adjudicate suits whose cause of action relates exclusively to this subject. If the suit only deals with this issue, the jurisdiction is that of the Common Justice because it is an infraction against Law No. 9,279/96. However, the Labor Courts have constantly invoked this jurisdiction when there is another proceeding in progress involving both parties and it deals, even if remotely, with the same issue.

It should also be noted that ordinary suits have been accepted, with a petition for preliminary injunctive relief, to prevent the disclosure of confidential information in a preventive manner, provided that the imminent risk of disclosure of this information by the employee is demonstrated.

The subject is controversial and brings about many questions based on different perspectives. However, more and more lawsuits on this topic have reached the courts seeking to protect the industrial secrets of employers vis-à-vis their former employees.

Category: Public and regulatory law

Decree No. 9,507/18, published on September 24, extends the possibility of hiring outsourced workers by the direct federal public administration and public companies and companies controlled by the Federal Government.

After the judgment on the Objection of Breach of Fundamental Precept No. 324 and Extraordinary Appeal No. 958252, in which the Federal Supreme Court (STF) recognized the legality of outsourcing in all stages of the productive process of private sector business activities, the enactment of Decree No. 9,507/18 revoked Decree No. 2,271/97, which governed the same subject, but specifically established that activities should be performed indirectly (outsourcing): conservation, cleaning, security, surveillance, transportation, copying, reception, reprography, telecommunications, maintenance of buildings, equipment, and installations.

In addition, the former decree referred to the direct federal public administration, government agencies and foundations, while the new decree covers public companies and companies controlled by the Federal Government.

With its entry into force set for January 22 of next year (repeal period of 120 days), Decree No. 9,507/18 will be in line with Law No. 13,467/17 (the Labor Reform), which extended the concept of outsourcing. The text of the decree provides for the publication of an act by the Ministry of Planning, Development, and Management that will define the services to be hired preferentially through outsourcing.

The new decree concentrates its provisions on an indication of situations in which the use of outsourcing is prohibited. For the direct federal public administration, government agencies and foundations, services may not be outsourced when they: (i) involve decision-making in the areas of planning, coordination, supervision, and control; (ii) are considered strategic for the body; (iii) are related to police, regulatory, public service, and sanctioning power; or (iv) are inherent to the functional categories covered by the body's career plan, except for when there is a legal provision to the contrary or in the event of an extinguished position within the scope of the general staff.

Auxiliary, instrumental, or ancillary activities to the abovementioned services may be carried out by outsourced workers, except for activities related to the exercise of police power, which cannot be performed indirectly.

For public companies and companies controlled by the Federal Government, services that require the use of professionals with assignments inherent to the positions included in their job and salary plans cannot be outsourced, except in cases of temporary services, technology upgrades, or service specialization, and also when the company cannot compete in the competitive market in which it operates.

The new decree stipulates that contracts entered into with outsourced companies must contain clauses that cover the labor risks to which the public administration is subject, since there is only secondary responsibility on the part of the public administration when it fails to properly supervise the obligations assumed and provided by the company hired.

Category: Tax

The tax amnesty enacted by the Rio de Janeiro State was just regulated through Decree 46.453/2018, published on October 11, Resolution Sefaz 333/2018 and Resolution PGE 4280/2018, both published on October 22. The deadline for enrollment into the amnesty program is of 30 days from November 1, 2018.

According to this program, the taxpayer can settle tax debts related to ICMS, IPVA (in the case of natural persons) and fines imposed by the State Accounting Court, with an amount higher than 450 UFIR-RJ (currently BRL 1,482.25), with due dates before June 30, 2018, whether assessed or not, enrolled into the State outstanding debtors list or not and including those already being collected in court.

Benefits

The program allows the payment of the consolidated tax debt (updated amount plus fines and interest) according to the following alternatives:

(i) a lump sum payment, paid up until the last working day of the issuance month of the payment form (DARJ), with a reduction of 85% of fines and 50% of default interests;

(ii) in 15 installments, with a reduction of 65% in fines and 35% of default interest;

(iii) in 30 installments, with a reduction of 50% in fines and 20% of default interest; or

(iii) in 60 installments, with a reduction of 40% in fines and 15% of default interest.

Debts related exclusively to fines resulting from non-compliance with ICMS’ obligations, whether or not enrolled into the State outstanding debtors list, can be included in the program if the fault occurred until March 31, 2018, according to the following payment alternatives:

(i) in a lump sum payment, paid up until the last working day of the issuance month of the payment form (DARJ), with a reduction of 70% of fines and 50% of default interest;

(ii) in 15 installments, with a reduction of 55% in fines and 35% of default interest;

(iii) in 30 installments, with a reduction of 40% in fines and 20% of default interest; or

(iii) in 60 installments, with a reduction of 20% in fines and 15% of default interest.

The law also allows taxpayers to cumulate these discounts with the fines reduction provided by the articles 70, 70-A, 70-B and 70-C of Law 2.657/96, which are:

(i) 50% in the case of payment within 30 days counted from the date of the knowledge of the Tax Assessment;

(ii) 20% in the case of payment within 30 days counted from the knowledge of the 1st administrative instance’s decision;

(iii) 10% in the case of payment within 30 days counted from the knowledge of the 2nd administrative instance’s decision;

(iv) 90% and 70% for fines for not complying with ancillary obligations, if these have been settled within 30 days or before the tax inspection, respectively; and

(v) 50% in penalties for infractions committed by micro and small enterprises, defined by Federal Complementary Law 123/2006.

Procedure for enrollment of debts not registered in State outstanding debtors list

Before the enrollment into the program, taxpayers should be aware of all pending decisions and give up administrative defenses. Taxpayers with access to the Fisco Fácil Portal should be aware of the notifications in the portal and electronically give up administrative defenses.

If the taxpayer does not have access to the Fisco Fácil Portal or has opted to partially withdraw from the administrative defenses, it is necessary to file the waiver personally in the State Revenue Office and, in the same act, to require the enrollment of debts in the Complementary Law 182/2018 program.

For taxpayers with access to the Fisco Fácil Portal, the request must be formalized exclusively through the website for the cases of (i) tax assessment with fine; (ii) infraction notices with only fines; (iii) declared debts of ICMS regarding own operations; (iv) declared debits of ICMS regarding internal tax substitution; (v) declared debts of ICMS regarding interstate replacement; and (vi) declared debits of ICMS regarding differential of rate, regulated by EC nº 87/2015. In the case of other debts, the enrollment must occur through a petition filed with the designated State Revenue Office.

The taxpayer who does not have access to the electronic portal must submit a request for enrollment in the designated State Revenue Office, according to the form that will be available in Sefaz website, for each establishment’s state registry.

After the enrollment, taxpayers will receive a proceeding number to follow up the status of their payment in installments program.

For lump sum payments, the deadline is November 30, 2018. For installment payments, the first installment must be paid in November 30, 2018, and the other installments will expire on the 10th day of each month. Payments will be made exclusively at Bradesco Bank.

There will be no charge for state service fees in cases of installments requested through the Fisco Fácil Portal and in requests for lump sum payments.

Procedure for enrollment of debts registered in State outstanding debtors list

Enrollment of debts registered in the State outstanding debtors list into the special payment program, in the case of lump sum payment, may be made by the following means:

(i) through a form issued in the State Attorney’s Office website, filed with Central State Attorney's Office or designated Regional State Attorney's Office, and the payment form (DARJ), which is payable exclusively in the Bradesco Bank, within a maximum period of 5 (five) days or until the last working day of the month, whichever occurs first;

(ii) directly on the website of the State Attorney's Office, with the issuance of the payment form (DARJ), which is payable exclusively in the Bradesco Bank, within a maximum period of 5 (five) days or until the last working day of the month, whichever occurs first; or

(iii) by agreement with the correspondence which may be forwarded by PGE, by payment in a lump sum payment, exclusively in the Bradesco Bank, within the deadline set forth in the payment form (DARJ) sent.

Enrollment of debts registered in State outstanding debtors list into the special payment program, in the case of installment payment, will be done exclusively via a form issued in the State Attorney’s Office website, filed with Central State Attorney's Office or designated Regional State Attorney's Office. In addition to the referred form, the taxpayer must submit the following documents:

(i) power of attorney with specific powers of confession, in the case of an application by a proxy;

(ii) consolidation of the company's social contract;

(iii) National Registry of Legal Entity (CNPJ) card;

(iv) proof of establishment for companies and proof of residence for individuals;

(v) proof of the payment of the first installment, through the DARJ issued by the State Attorney’s Office website;

(vi) a copy of the petition waiving the right on which an action is based or any judicial measure referring to the debit enrolled;

(vii) a copy of the declaration for be made aware of the existence of Tax Enforcement, in accordance with the form established by the State Attorney’s Office;

(viii) Assumption of Responsibility issued in the State Attorney’s Office website, duly signed by the company’s administrator or by his proxy.

The amount of legal fees due to the Public Attorneys of the State of Rio de Janeiro in the case of enrollment into the program will be:

(i) for the debts enrolled into the State outstanding debtors list which are not objects of tax enforcement: 3% for a lump sum payment and 6% for installment payments; and

(ii) for the debts which is being collected in court: 4% for a lump sum payment and 8% for installment payments.

These amounts relate only to the enrollment into the State outstanding debtors list or to the filing of the Tax Enforcement. In addition to these amounts, the fees fixed in other proceedings whose objects are the debts paid will be due in full.

The State Attorney’s Office System shall formalize the liquidation of the installment payment, when the revenue from the value of each of the installments is confirmed.

General terms and conditions

Taxpayers can use LC 182/2018 to pay (i) the remaining amounts of the consolidated tax debts of previous payment in installments programs, except for those related to other amnesty or remission programs; (ii) the ICMS related to tax substitution; and (iii) fines resulting from non-compliance with ancillary obligations.

It is expressly prohibited the payment of tax debts enrolled into the program with the conversion of judicial deposits into State’s revenue. Therefore, taxpayers must have to pay the amount due with the relevant reduction stated in the amnesty program and then request the withdrawal of the judicial deposit.

The enrollment into the amnesty program implies in the irrevocable and irreversible confession of the tax debt, expressly renounces of any defense or administrative or judicial appeal as well as the withdrawal of those already filed. If there is an administrative proceeding in progress regarding the debt, the taxpayer must have to inform the waiver of defenses and appeals within 30 days counting from the enrollment into the amnesty program.

The enrollment into the amnesty program requires the regularity of the taxpayer over the entire installment period. Taxpayers can be excluded in case of (i) non-payment of three consecutive installments; (ii) existence of unpaid installment for more than 90 days; and (iii) default or irregularity of any other principal or ancillary obligations due for more than 60 days, which will be regulated by a Joint Resolution to be issued by State Revenue Office and State Attorney’s Office.

The taxpayers can be notified about issues involving the enrollment of debts by electronic means, through the Taxpayer's Electronic Domicile (DEC) or by the e-mail provided in the enrollment form.

Category: Compliance, investigations and corporate governance

Law No. 12,846, also known as the Anti-Corruption Law, was enacted five years ago, on August 1^[1]. Not only an important improvement in the legal framework to combat corruption, it has led to the strengthening of a culture of integrity and corporate governance in both private and state-owned companies.

The glass half full

Firstly, there was a shift in focus in order to concentrate anti-corruption efforts on the role of the corruptor, especially legal entities and economic groups. Prior to Law No. 12,846, anti-corruption enforcement in Brazil focused on sanctioning government officials and public servants.

The Anti-Corruption Law brought in strict liability in administrative enforcement, without the difficult task of proving intent, willful misconduct or culpability of the individual. In addition to facilitating the fight against illegal payments through administrative sanctions proceedings (speedier and more objective, without the rigidity and excessive guarantees typical of criminal proceedings), strict liability encourages companies to invest in the prevention of unlawful conduct and in the promotion of a culture of compliance.

As the unlawful acts committed by employees began to give rise to direct liability for companies, even if carried out without authorization or even the knowledge of the organization, companies began to invest more heavily in compliance and integrity programs, monitoring, codes of conduct and internal policies, corporate training, employee awareness, and complaint channels, among others. According to a survey by KPMG and Amcham in 2017, "compliance" and "integrity" are among the top three priorities of companies, and about 60% of Brazilian companies have increased significantly their compliance investments in recent years.

There has also been a change in the perception of reproach, as society and public authorities come to understand that the role of the private corruptor should be as repudiated as that of the corrupt government official. Historically, corruption was combated by the Criminal Code, with crimes of active bribery (article 333 - offer or promise an undue advantage to a public official) and passive bribery (article 317 - request or receive an improper advantage due to a public function), as well as other laws focused on government officials and public agents, such as the Law on Administrative Misconduct (Law No. 8,429/92) and the Law on Public Tenders (Law No. 8,666/93). Today, corruption is combated primarily by the punishment of corrupt legal entities, especially by using monetary sanctions (fines and disgorgement of unlawful advantages) and non-monetary sanctions (prohibition on contracting with the government, loss of incentives, suspension of activities).

It has also become clear that legal punishment is not the only way to achieve ethics and integrity in the corporate world: in the era of transparency and full information, responses by the market, consumers, and employees may bring about extremely costly reputational sanctions for corrupt companies, such as devaluation of stock prices,^[2] loss of sources of financing, rejection of products by consumers, and flight of talent, among many others. Likewise, integrity awards encourage ethical conduct and compliance practices, such as compliance awards, transparency and governance rankings, appreciation of shares,^[3] and creation of intangible value. Further: companies punished that enter into leniency or deferred prosecution agreements tend to act as “watchdogs” in the markets in which they operate, as they, with more stringent rules, have a competitive disadvantage compared to competitors who commit unlawful acts.

The Anti-Corruption Law has also created an administrative liability framework capable of imposing sanctions on an entire business group. Article 4, paragraph 2, extended strict liability to the economic group, including controlling, controlled, affiliated companies or consortium members. In spite of the valid intent to stimulate the fight against corruption in the context of economic conglomerates, the Anti-Corruption Law has not created clear parameters to define the scope of this joint and several liability, especially in the context of equity investments and mergers and acquisitions. The authorities need to use this mechanism in enforcements against conglomerate entities and their shareowners only to the extent that they contributed to the commission or perpetration of an unlawful act.

Another significant change was the expansion of monitoring and due diligence work for entities outside the organization. For example, one of the criteria for assessing the effectiveness of a compliance system is the existence of due diligenceinto third parties, which includes suppliers, distributors, representatives, and agents. In other words, the outsourcing of the activities and the risk of unlawful conduct can no longer be used as an excuse to perpetuate irregular conduct. Likewise, in the context of acquisitions and investments, it is advisable to conduct diligence into the companies acquired in order to mitigate the risk of succession for liabilities related to unlawful conduct.

In addition, the new legal system creates a strong incentive for officers and directors to act diligently, preventatively, and proactively. Traditionally, the criminal liability of officers and directors depended on proof of their actual participation in wrongful acts, whether with intent (even in the softened modality of assumption of risk) or culpability (the modalities negligence or omission). A recent precedent of the Federal Supreme Court (Criminal Action 470, known as "Mensalão") expanded criminal liability of officers and directors with the so-called “fact domain theory”, which resulted in punishing officers and directors who, having a special duty to act and prevent unlawful acts by virtue of their supervisory position, permitted (by intent or culpability) unlawful acts of employees under their supervision. As a result, officers and directors began to invest more heavily in training and tools for monitoring and control in their reporting lines.

It is worth noting that the system of administrative liability of companies has been able to achieve greater efficiency in conducting investigations and recovery of funds than the traditional proceedings of criminal law. Through negotiated justice and collaboration, Brazilian authorities were able to enter into leniency agreements and recover significant sums from business groups.

In the scope of state-owned enterprises and state-controlled companies, the improvement of governance and compliance and integrity systems came about with the enactment of Law No. 13,303/2016 (State Companies Law) and other decrees^[4]. Among other goals, these rules introduced greater transparency and professionalism to the management of state-owned companies and, above all, are intended to curb (or reduce) the political appointment model for management positions, one of the main factors in the spread of corruption in Brazil. For example, the appointment of officers and directors of state-owned enterprises and state-controlled companies depends on minimum requirements for technical capacity, professional experience, and academic training and unblemished reputation,^[5] which makes it difficult for political parties to appropriate the positions thorough political appointments. Some types of appointments are expressly prohibited.^[6]

The half empty glass

If, on the one hand, the new Anti-Corruption Law proved able to improve the efficiency of prosecution of unlawful conduct, on the other, it revealed a lack of transparency among control and inspection bodies. We saw, in recent years, a lack of coordination and legal uncertainty among the public authorities to combat corruption. The Brazilian constitutional legislator was very generous in distributing competencies to bodies in charge of protecting administrative morality and the public purse.

The Public Prosecutor's Office (MP) is responsible for protecting public and social property at the federal and state levels.^[7] The Federal Accounting Court (TCU) and its state counterparts have the duty to supervise the use of public resources in general.^[8] The Attorney General's Office (AGU) reserved its mission to defend the interests of the Federal Government in and out of court, including against acts of corruption.^[9] In addition, Law No. 10,683/2003 created the Federal Comptroller's Office (CGU) as an advisory body to the head of the Federal Executive Branch in matters related to administrative morality. There are, therefore, four federal entities competing for space in the control of corruption.

Brazil has a "multi-agencies" institutional design, where several public bodies and entities have the authority to carry out preventive and repressive actions regarding acts of corruption, in the administrative, civil and criminal spheres. If, on the one hand, a multi-agency system makes it difficult for the private entities to capture the State (since there will always be some public entity that is not integrated into the corrupt scheme), on the other hand, this system, if not working properly, can result in destructive competition between agencies and will bring enormous legal uncertainty to private defendants, which will ultimately discourage the use of leniency agreements. Currently, several leniency agreements entered into by the Federal Prosecutor’s Office (MPF) are being challenged by other anti-corruption authorities, in large part to protect their spheres of competence and institutional/corporate interest.

For example, at the request of the MPF, an injunction was revoked in an administrative misconduct action against an engineering company that entered into a leniency agreement, an injunction that decreed a freeze on its assets. In the context of an interlocutory appeal filed by the AGU,^[10] the 4th Federal Circuit Court of Appeals (TRF-4) ruled that the AGU's participation in the discussions regarding the full compensation of damages and the amount to be compensated was necessary. Therefore, the leniency agreement entered into with the MPF would not be valid, as it would depend on ratification by the AGU. Thus, until there is ratification by the AGU, the action of misconduct should continue and the assets should remain frozen.

More recently, the 13th Federal Criminal Court of Curitiba has prohibited the use of evidence obtained by Operation Carwash against informants and companies that confessed crimes and agreed to collaborate with the prosecutors in charge of the investigations.^[11] The decision directs the control bodies (such as the TCU and CGU) and other entities (such as the Central Bank, the Federal Revenue Service, and Cade) not to use evidence of the leniency agreements against cooperating parties without authorization. With this decision, prompted by a request by the MPF, informants and companies are now protected against a raid by other control bodies over the same illegal acts covered by a leniency agreement. For the prosecutors of the MPF, the measure is necessary in order to avoid having the legal uncertainty created by the lack of coordination among the various control bodies discourage new cooperating parties, thus harming the fight against corruption.

How then does one ensure the coordination of public authorities and legal certainty for parties to leniency agreements? This can occur, for example, through: (i) a process of adherence by the other bodies to leniency agreements entered into by one of them as a requirement to be able to use the evidence therefrom; (ii) the creation of cooperation agreements and memoranda of understanding between the authorities, to ensure coordinated action;^[12] (iii) legal rules that encourage effective cooperation between authorities, with peremptory deadlines for a response, under penalty of tacit consent; (iv) creation of a committee or commission with representatives of all bodies with the power to negotiate a unified leniency agreement for a given company; or (v) creation of leniency negotiation programs and policies approved by the authorities, such that leniency agreements signed by any authorities in compliance with these programs must honored by the other agencies.

And the future?

Without a doubt, the first five years of the Anti-Corruption Law have been very positive and there’s potential for even greater developments in the future. However, new measures will be necessary to continue to perpetuate the culture of ethics and corporate governance. Among the challenges ahead, we highlight the following: (i) expansion of powers and improvement of the CGU's structure and budget; (ii) creation of objective calculation criteria for the imposition of fines and other sanctions; (iii) changing the existing statutory limitation rules, which currently result in impunity; (iv) revision of the limits on judicial venue due to the prerogative of function for politicians; (v) promotion of cooperation among all control bodies to create greater legal certainty; and (vi) more debate about the expansion of the Anti-Corruption Law to also curb private corruption (as in the United Kingdom and France, for example).

The seed for an effective fight against corruption has not only been planted, as we are already reaping its first fruits. However, moving to a full-fledged culture of integrity takes longer, requires the steady support of society, and will likely take more than a generation.

^[1] In force as of January 1, 2014.

^[2] For example, with Operation Carwash, the market value of Petrobras went from R$ 380 billion in 2010 to R$ 120 billion in 2015. JBS and BRF had a 10.59% and 7.25% drop in their share price, respectively, when Operation Weak Meat (Carne Fraca) was launched.

^[3] Companies on the Corporate Governance Index of the BM&FBovespa registered appreciation in their shares 122% higher than shares of companies of the IBOVESPA. "The data confirm: good governance practices increase share prices" - Revista Exame, July 3, 2017.

^[4] For example, Federal Decree No. 9,203 (regulates public governance in the federal administration) and São Paulo Municipal Decree No. 58,093 (regulates public governance in public companies and state-controlled companies in the City of São Paulo).

^[5] The State Enterprises Law establishes minimum eligibility requirements for officers and directors (including the board of directors and board of executive officers): (i) 10 years of professional industry experience; (ii) 4 years with a managerial or executive position, a committee position, a member of a faculty or researcher, or a market professional; (iii) compatible academic training; and (iv) not be ineligible (following the provisions of Complementary Laws No. 64 and 135). An eligibility committee will be created to review the above requirements.

^[6] For example, the State Enterprises Law prohibits the appointment of representatives of regulatory bodies, ministers or secretaries of state, members of the decision-making structure of political parties in the last 36 months, trade unionists, representatives of entities that have signed contracts or partnerships with state companies as a person with other forms of conflicts of interest.

^[7] Federal Constitution of Brazil, article 129. III.

^[8] Federal Constitution of Brazil, article 70.

^[9] Federal Constitution of Brazil, article 131.

^[10] Interlocutory Appeal 5023972-66.2-17.4.04.0000/PR

^[11] Moro trava investigações para proteger empresas e delatores da Lava Jato [“Moro locks investigations to protect companies and informants in Operation Carwash”], Folha de S. Paulo, ed. June 13, 2018, p. A4.

^[12] The first initiative in this direction was a memorandum of understanding between the MPF ​​and CGU on the confidentiality of the information exchanged during the negotiation, which later culminated in MPF ​​Guidance No. 01/2017. Another initiative was the memorandum of understanding between the CGU and AGU, which later culminated in Ordinance No. 2278.