Category: Compliance, investigations and corporate governance

The increasing demand of the market and society for companies to adopt ESG (Environmental, Social and Governance) principles has brought to the business scene a new unfair conduct: greenwashing.

Greenwashing is a term used to designate deceitful marketing strategies regarding sustainable practices that do not necessarily fall into the company's actual practices. It can be used to mislead consumers into believing that the company cares about environmental responsibility, without actually adopting the sustainable actions it advocates.

The use of speeches and advertisements on alleged eco-friendly products or initiatives (which, in reality, are not that sustainable)– has already been employed by big companies that, later on, were caught. Besides the legal consequences, this conduct also brought damages to these companies’ image, credibility and reputation, which inevitably led to financial impacts.

Integrity issues are getting increasingly relevant in the corporate world and stakeholders are paying more attention to it.  This means that greenwashing practices can be identified more easily – either by verifying that a particular product is not as eco-friendly as advertised or that an environmental practice was not as sustainable as publicized.

Despite the profit earned during the period in which the inaccurate or misleading information was portraited, the identification of greenwashing may subject the company to heavy fines from regulatory agencies, loss of market value or decrease in the sale of its products, all due to the publication of negative medias showing the false marketing strategy that the company adopted and its actual activities.

However, greenwashing is not always necessarily deliberated. Many companies can greenwash without even realizing what they are doing.

For example, a company that advertises having a sustainable supply chain (and, in fact, internally it really does). However, in spite of that, the company does not investigate how their third parties work. Such situation can also be considered as greenwashing since the term does not only concern the company's operation and internal practices, but also how its third parties perform their daily activities.

That is when the “G” (governance) begins. The employees responsible for the corporate governance act to guide the actions of the company and to implement measures that confer legitimacy and effectiveness to its sustainable practices, avoiding or at least mitigating the risk of greenwashing.

Corporate governance is the system by which companies are directed and monitored. It involves not only the board of directors and partners, but also management, employees, customers, suppliers and other stakeholders.^[1]

When an efficient corporate governance system is adopted with transparent practices, greenwashing can be avoided and the economic value of a company is optimized in the long run. Moreover, good corporate governance contributes to the improvement of the quality of the organization's management and to the attraction of new investments. After all, when there is a well-structured governance, the "E" and the "S" of the ESG are effectively developed and complied throughout the company.

Below, we list a few integrity measures that can make a difference in the corporate governance of a company. These measures are not exhaustive and should not necessarily be implemented in the order considered below. However, they have been proven to be essential in strengthening sustainable practices, as well as promoting a work environment of respect for the integrity of the company.

• Implement a complete code of ethics, as well as social and environmental policies applicable internally and externally: documents are imperative for the establishment and dissemination of the company's guidelines, in addition to highlighting effectively sustainable practices.
• Dissemination, communication and training strategies: documents alone are not enough to create an organizational culture aligned with environmental issues and capable of engaging employees. It is essential that these documents are disseminated in banners, pamphlets and specific trainings to employees and third parties, specifically about the content of policies and other relevant conducts. With such practices, knowledge about internal conducts and rules will become a commonplace throughout the company.
• Commitment from senior management: it is extremely important that senior management strengthens integrity and ESG guidelines in its speeches and communications, highlighting these practices on a daily basis. When we refer to senior management, besides the directors and the president, it is also necessary to include managers and other supervisors, who, when observing and promoting ethical norms and conducts, pass that example on to their subordinates, even if indirectly (the so-called tone at the top).
  
  
• Implementation of efficient internal controls when hiring third parties: the effectiveness of internal controls is critical to mitigate the risks of greenwashing. As mentioned, it is possible that many companies do not even realize that they can be committing greenwashing when disclosing certain information and practices.

Therefore, it is recommended the establishment of procurement policies, not only to verify if a supplier has expertise to perform a service, but also to analyze issues, such as:

• Does the third party have appropriate environmental and labor processes?
• How is the third party production chain?
• How are the third party products disposed?
• How are internal integrity practices of the third party disseminated?

Having a system of internal controls allows the company to be aware of the attitudes of its third parties and makes it easier to disseminate its own environmental initiatives to other companies.

• Conducting risk assessments focused on social and environmental aspects: many risk assessments are based on large materialized contingencies. Although these analyses consider environmental aspects, they generally cover existing infractions or fines.

It is also relevant for the company to conduct preventive risk assessments, making the "E" effective within the organization. This means carrying out inspections to be able to anticipate environmental risks generated by the company's everyday decisions (construction, renovations, sewerage, etc.) and act beforehand on what can be improved, considering the least possible environmental impact.

As already pointed out, these practices are not exhaustive. Considering that there are companies with  different structures, sizes and social capital, each of the suggestions outlined here should always take into account the reality of the company and its market.

It is possible to alter several internal proceedings on the subject in existing areas (such as legal, audit and human resources) or through an external consultancy, to start off the path to show real environmental concerns. When hiring an external consultancy, it will be up to the company, to maintain the practices pointed out by the consultancy, with the appropriate updates, considering the internal resources available.

^[1] Definition proposed by the Brazilian Institute of Corporate Governance.

Category: Arbitration

In force since May 2, 2022, the Brazilian Securities and Exchange Commission’s (Comissão de Valores Mobiliários – CVM) Resolution 80/22 consolidates and updates the capital market’s main regulatory standards on the mandatory disclosure of information by issuers under its supervision – i.e. distributors of securities admitted to trade in markets regulated by the agency.

One of the main novelties brought by Resolution 80/22 is the duty to disclose corporate disputes. This requirement is provided for in item XLIII of article 33 of the Resolution, which lists the information that may be provided by companies registered under category “A” (issuers authorized to trade any securities in the market regulated by CVM). This includes confidential arbitration proceedings, as provided in Annex I of Resolution 80/22.

Even before it was approved, the new rule had already been generating much debate within the legal community, due to its possible impacts on the confidentiality of arbitration proceedings, considered one of the greatest advantages of arbitration by its users.

If, on the one hand, publicly-listed companies’ activities are governed by the general rule of transparency and the duty to inform – ensuring the broad, adequate, and timely disclosure of relevant information to investors – on the other hand, confidentiality ensures the protection of sensitive information and has been applied practically automatically in corporate arbitrations involving publicly-listed companies.

The issue of making the confidentiality of arbitration proceedings compatible with the duty to inform is especially relevant in Brazil, because it is one of the few jurisdictions in which arbitration has become the prevalent method for resolving corporate disputes involving publicly listed companies. In fact, arbitration is mandatory for companies listed in B3’s special listing segments.

Context in which CVM’s Resolution 80/22 was enacted

CVM’s former Instruction 480/09 (ICVM 480/09) already provided, in its Annex 24 (item 4.3 et seq.), that companies registered under category “A” should disclose, in their annual reference forms, the existence of any information that may be relevant for investors about judicial, administrative, or arbitral proceedings that were not under secrecy and to which the issuer or its subsidiaries were party.

With regard to confidential proceedings, item 4.5 of Annex 24 provided that the issuer should only “analyze the impact in case of loss and disclose the amounts involved” (emphasis added).

Subsequently, CVM’s Instruction 590/17 (ICVM 590/17) included the duty to disclose the initiation of arbitrations that could affect the economic and financial situation of the company in the non-exhaustive list of material facts subject to disclosure (article 2, sole paragraph, item XXII of the current CVM Resolution 44/21).

With the intention of expanding the scope of disclosure, in February 2021, CVM presented a proposal to amend ICVM 480/09 to the market, through which it stated its intent to provide investors with greater visibility of disputes (directly and indirectly) involving the issuer.

The proposal, which was the subject of extensive debate in a public hearing (see article on the Public Hearing 01/21 held by CVM’s Superintendence of Market Development – SDM), culminated in the approval of Resolution 80/22, which:

• establishes the duty to disclose corporate disputes for companies registered in category "A" and foreign companies;
• defines the term corporate disputes (demandas societárias), which are subject to disclosure (see article that details the scope of the term corporate disputes); and
• sets out guidelines for such disclosures, listing the information on corporate disputes that must be divulged by the regulated issuers and the applicable deadlines.

On May 13, 2022, as Resolution 80/22 came into force, CVM's Superintendence of Corporate Relations also released Circular Letter 3/2022-CVM/SEP, informing publicly-listed and foreign companies about the duty to disclose corporate disputes that fall under the scope of Annex I of Resolution 80/22.

These disclosures should be made through CVM’s “Sistema Empresas.NET” channel, under the category “Disclosure on Corporate Disputes” (“Comunicação sobre Demandas Societárias”).

New rules on the disclosure of arbitration proceedings

in its Annex C, CVM’s Resolution 80/22 restates the guidelines that were formerly set out in ICVM 480/09 on the disclosure of judicial, administrative, or arbitral proceedings to which the issuer or its subsidiaries are party. However, in its Annex I, the Resolution also establishes new duties to disclose more detailed information, directed especially at arbitral proceedings.

article 1, paragraph 2, of Annex I of the Resolution is especially relevant when it comes to discussing the relativization of confidentiality in arbitration proceedings, as the referenced provision establishes that the confidentiality imposed by arbitration agreements and/or the rules of arbitral institutions does not exempt companies from disclosing all of the information required by Resolution 80/22.

In light of this provision, there is no doubt that, even when parties expressly opt for confidentiality in their proceedings – via the underlying arbitration agreement or by selecting the rules of arbitral institutions that establish confidentiality as a rule –, the duty to disclose any and all information that falls within the scope of Resolution 80/22 shall prevail. The only information exempted from disclosure by Resolution 80/22 is that which is expressly classified as confidential by law.

Article 2 of Annex I lists the basic information that must be provided about the initiation of arbitration proceedings and the developments of such proceedings.

In this sense, the Resolution provides that, once the initiation of the arbitration proceeding has been disclosed, companies must (within seven working days from the submission of the notice of arbitration or its receipt), also disclose:

• the parties involved;
• the amounts, assets or rights involved;
• the main facts relevant to the dispute; and
• the claims presented.

The following developments over the course of the dispute must also be disclosed, always within seven working days from date on which the party becomes aware of them:

• the submission of an answer to the request for arbitration;
• the execution of the terms of reference, or the equivalent document indicating the definitive claims made in the proceeding;
• the issuance of decisions on requests for injunctive relief, arbitrators’ jurisdiction, the joinder or exclusion of parties; and
• the issuance of partial or final arbitral awards.

Finally, in the event that the parties to the dispute execute a settlement agreement over the course of the proceeding, this information must also be disclosed within seven working days from the submission of the executed settlement agreement (presumably, to the arbitrators), with an indication of the amounts and the parties involved and “other aspects that may be of interest to the shareholders” (item IV of article 2).

It is worth noting, however, that the wording of the header of article 2 – “[t]he issuer shall disclose to the market relevant information relating to dispute, including: [...]” (highlighted) – suggests that this is the minimum information to be disclosed.

Therefore, it remains at the discretion of the company’s investor relations officers/legal representatives to disclose additional information related to ongoing corporate arbitration proceedings, in addition to those mandatory disclosures expressly listed in article 2.

Regarding the compatibility of the new rules for the disclosure of information related to corporate disputes with the existing rules that regulate the disclosure of information about material facts to the market and investors, CVM’s Resolution 80/22 recognizes that, if the existence of corporate disputes or the developments of such disputes constitute a material fact under the existing applicable regulation, the company is allowed to disclose only the notice of the occurrence of a material fact, provided that such notice contains all of the information required by Resolution 80/22 (§4 of article 1 of Annex I).

The terms of the sole paragraph of article 2 are also noteworthy, as this provision dispenses the submission of the entire content of the documents cited in Annex I by the company, while the proposal originally submitted by the CVM for discussion in a public hearing left doubts about the need to disclose full copies of the relevant procedural documents – which would possibly exceed what is necessary for investors to make informed decisions.

The new rules are mandatory in relation to corporate disputes initiated after the Resolution 80/22 entered into force and optional for those disputes initiated previously.

It is expected that, with the new obligations to disclose corporate disputes, CVM’s objectives will be met – that is, that investors of companies subject to these rules will have access, in an adequate and timely manner, to information on corporate disputes that may influence their decisions.

Regarding the potential impacts of CVM’s new guidelines on the choice of arbitration as a venue for the resolution of corporate disputes, we believe that CVM’s Resolution 80/22, as approved, will not be a major disincentive to arbitration. It will be necessary, however, to carefully monitor how CVM will interpret these new rules in cases of possible doubts/divergences surrounding the scope of the new disclosure obligations.

Category: Labor and employment

During the covid-19 pandemic, since in-person medical examinations were not allowed, the federal government issued Law 13,989/20, which allowed the use of telemedicine for the duration of the public health emergency.

However, with the declaration of the end of the state of public health emergency of national importance on April 22, 2022 (GM/MS Ordinance 913), the use of telemedicine for medical examinations has lost its legal basis.

To allow and regulate the continuation of this practice, the federal government published, on December 28, 2022, Law 14,510/22. Besides repealing Law 13,989/20, the norm authorizes and definitively governs the practice of telehealth^[1] in Brazil.

Despite the legal authorization, there are still doubts about the possibility of performing occupational medical examinations (upon hiring, return to work, change of function, periodically, and upon dismissal) remotely.

But, after all, is it possible to use telemedicine to assist workers in occupational examinations after the enactment of Law 14,510/22?

Before the covid-19 pandemic, there was no express legal provision authorizing the use of telemedicine to perform these exams. Only in 2020, at the height of the health crisis, Federal Law 13,989/20 and Ordinance 467/20 allowed the use of telemedicine during the pandemic period. None of these standards, however, expressly established that telemedicine could be used in occupational medical examinations. Many questions then arose and remained unanswered.

At the time, there was a lot of resistance from the medical boards regarding the use of telemedicine for occupational medical examinations. It was emphasized, above all, that direct, face-to-face clinical examination of the patient was indispensable.

On this subject, the Federal Board of Medicine (CFM) issued CFM Opinion 08/20, according to which article 3 of Law 13,989/20 allowed the use of telemedicine only for clinical consultations for health care, research, teaching, prevention, or health promotion.

That is, the CFM understood that teleconsultations could not be performed in occupational examinations, which would require the examination and direct contact with the worker, under the argument that occupational examinations are regulated by Regulatory Norm 7 (NR7) of the Ministry of Labor.

It is worth pointing out that we did not analyze the issue from the point of view of the Federal Board of Medicine (CFM) and, therefore, we did not discuss the possibility of applying sanctions to physicians who perform acts that are not in accordance with the understanding of CFM Opinion 08/20. In fact, our analysis is purely from the standpoint of the Labor Judiciary.

Thus, although the norms and opinions of the medical boards have relevance when considered by the Labor Judiciary to assist in the interpretation of the norms that govern occupational medicine, the fact is that the federal legislation had not restricted the use of telemedicine in occupational examinations.

But, even without an express prohibition in the labor legislation, there was a risk of questioning of the validity of occupational health certificates (ASOs), because, although the norms and the opinions of the CFM or CRM have no binding effect in the Judiciary, they could be used as a decision-making parameter.

In addition, Law 13,989/20 authorized the use of telemedicine for the duration of the pandemic. Therefore, if there was no law/regulation that allowed the use of telemedicine after the pandemic, telemedicine examinations would no longer have a legal basis.

Law 14,510/22 does not expressly provide for the possibility of conducting occupational medical examinations via telemedicine. It does, however, establish guidelines that bring greater legal security to the performance of these exams via the use of telehealth.

The norm allows remote care both in the public network and in private hospitals and clinics, as long as the physician and the patient agree to the method. In the event of refusal, the patient must be guaranteed face-to-face care. Law 14,510/22 also guarantees physicians broad autonomy to decide whether or not to use telehealth.

By conditioning exams using the telehealth method on the physician's and patient's agreement, Law 14,510/22 brought more legal security to companies to use this exam method. However, since there are no precedents from the Labor Courts on the subject, there is still a risk of questioning the validity of ASOs prepared via telemedicine.

Thus, even with the enactment of Law 14,510/22, companies are still not fully protected and sure that the validity of ASOs prepared by means of telemedicine examinations will be recognized.

The new standard, however, in our opinion, brings in great arguments for validation to happen, if the physician and the patient agree to a remote method for occupational medical examinations.

^[1] According to Law 14,510/22, telehealth is a method of providing health services at a distance, through the use of information and communication technologies, which involves, among others, the secure transmission of data and health information, by means of text, sound, images, or other appropriate forms.

Category: Labor and employment

The deadline for companies to adapt their Internal Committees for Accident Prevention (CIPA) to the terms of MTP Ordinance 4,219/22 and Law 14,457/22 ends on March 20th and 21st of this year, respectively, but few companies are already prepared.

Law 14,457/2022, known for instituting the Emprega + Mulheres Program [“Employment + Women Program”], implemented various measures to support parenthood. The goal was to reduce the imbalance in labor relations between men and women, seeking gender parity.

Among the various provisions, Law 14,457/2022 instituted measures to prevent and combat sexual harassment and other forms of violence in the workplace, and assigned responsibility for these measures to the CIPA.

In the same vein, Ordinance 4,219/22 detailed some new CIPA obligations established by Law 14,457/22 and changed the nomenclature to Internal Committee for the Prevention of Accidents and Harassment ("CIPA+A").

In addition to other measures it deems necessary, the CIPA+A shall:

1. Include in the company's internal rules (and make them widely known) rules of conduct regarding sexual harassment and other forms of violence.
2. Establish the procedures for receiving and following up on complaints of sexual harassment and other forms of violence and, when applicable, apply administrative sanctions to those directly and indirectly responsible, ensuring the anonymity of the person making the complaint.
3. Include in the CIPA's activities and practices topics related to the prevention and combatting of sexual harassment and other forms of violence.
4. Carry out, at least every 12 months, training, orientation, and awareness actions for employees of all hierarchical levels in the company on topics related to violence, harassment, equality, and diversity in the workplace.

Main questions regarding CIPA+A

Due to the legal changes, we have discussed with many of our clients what the main impacts for companies are and, especially, what the role of the CIPA+A is. The answers to the main questions are presented below.

Aren't the new CIPA+A duties the responsibility of a company’s Compliance department? How can the new role of the CIPA+A interfere in a company’s Compliance?

No. The Compliance department is responsible for creating and implementing a company's ethical guidelines, ensuring compliance with legislation and internal rules. These guidelines involve various topics, such as fighting corruption and money laundering, conflicts of interests, data protection, and moral and sexual harassment, among others.

To this end, codes of conduct, internal policies, complaint channels, and internal procedures for investigation are created. All these procedures are created with the participation of other departments of the company, such as Human Resources, Legal, and the Executive Board. This is because there are legal, people management, and top management engagement issues involved in the entire compliance process.

The new duties of the CIPA+A are a part of a company's compliance program, since the legislation defined that the body must only establish procedures for receiving and following up on complaints, investigating facts, and applying sanctions involving sexual and moral harassment.

There is no provision for the CIPA+A to participate in the internal investigation involving reports of sexual harassment or violence at work.

In this manner, there will be no replacement or segregation of compliance activities in favor of the CIPA+A. The two groups must work together to ensure the efficiency of the entire program to prevent and combat sexual harassment.

Should the CIPA+A participate in investigations involving allegations of moral/sexual harassment?

No, unless the procedures established by the CIPA+A provide for its participation.

As determined by the legislation, the CIPA+A is only responsible for establishing the procedures for receiving and following up on complaints, investigating facts, and applying sanctions, and the CIPA+A does not have the right to participate in the investigation process.

We believe that if the intention of the legislation was that the CIPA+A participate effectively in the investigation, there would be an express provision to that effect.

Thus, the role of the CIPA+A is not to participate in investigations, but to assume a strategic role in combating harassment. It is important that there be synergy between the compliance area and the CIPA+A so that, anonymously and without details of the investigation or outcome, the CIPA+A can receive information about the existence of reports of sexual harassment or violence at work. This will make it possible to structure prevention measures and training, orientation, and awareness actions for employees in an efficient manner.

Must the results of investigation procedures on sexual harassment and violence at work be shared with the CIPA+A?

No, except if the procedures established by the CIPA+A itself for receiving, investigating, and applying sanctions have such a provision.

The legislation stipulates that the CIPA+A must include in its activities and practices topics related to the prevention and combat of sexual harassment and other forms of violence, in addition to carrying out actions to train, orient, and spread awareness among employees.

The legislation also expressly guarantees the anonymity of the whistleblower. The exposure of the aggressor or the victim can constitute moral damage, which is why information relating to the investigation, such as the name of the victim, the aggressor, the narrative of the facts, among others, must be kept confidential and shared with people necessary for the investigation only if indispensable.

The sharing of comprehensive information, such as mapping the number of confirmed cases of sexual harassment or violence at work, unconfirmed cases, the number of reports on the subject or by department, for example, helps the CIPA to fulfill its role more efficiently.

This information will be useful in structuring orientation measures, such as lectures and training, which are the CIPA+A's obligations. It helps clarify concepts, explaining to employees which behaviors constitute sexual harassment, how to identify cases of harassment of co-workers, what the procedures are for reporting it, for example, helping strategically in the performance of the CIPA+A's activities.

Can the CIPA+A interfere in the employer's directive/disciplinary power, defining the procedures for receiving and following up on complaints, as well as the administrative sanctions that must be adopted by the companies?

In the legislation on the subject, there is no provision that gives the CIPA+A the power to directly punish employees involved in cases of harassment or violence in the workplace.

It should also not be forgotten that the CIPA+A is composed of an equal number of company and employee representatives, which gives the employer participation, through its representatives, in deciding on the procedures that will be established to receive and follow up on complaints, in addition to the procedures for applying administrative sanctions

In addition, for companies that already adopt a procedure for receiving, investigating, and applying disciplinary action in cases of harassment, the CIPA+A may decide to keep the format already adopted by the company if it believes it is an efficient process.

It is important to remember that Regulatory Norm No. 5 (NR-5) assigns to the CIPA the responsibility of following up on the process of risk identification and assessment, drafting and participating in the implementation of the work plan with preventive action in safety and health at work, in addition to following up the analysis of accidents and occupational diseases, proposing improvements to resolve the problems identified.

In short, the CIPA's role has always been focused on preventing the risks of diseases and accidents that can affect employees, as well as on implementing measures to mitigate these risks.

Moral or sexual harassment, in and of itself, does not constitute an occupational illness or accident. However, if the employee develops any psychological or physical illness as a result of the harassment he has suffered, this illness will be considered an occupational disease.

Thus, sexual and moral harassment, as well as other forms of violence at work, can be framed as potential risks to the employee's health arising from the work environment and, therefore, must be fought by the CIPA.

The changes to the CIPA+A’s duties are aligned with the ESG principles ( Environmental, Social and Governance), which, in its social pillar, contains aspects about fighting moral and sexual harassment in the workplace.

After all, what will change in the CIPA+A’s activities?

The CIPA+A should play a strategic and important role in preventing and combating sexual harassment and violence in the workplace.

To this end, it must establish procedures for receiving complaints, investigating the facts, and applying administrative sanctions. In parallel, it will be necessary to carry out actions to train, orient, and spread awareness among employees and include in their activities topics about preventing and fighting sexual harassment and other forms of violence.

Although the CIPA+A does not put into operation or participate in the procedures regarding the investigation, it must adopt measures to prevent sexual harassment and other types of violence, such as periodic training and lectures. For this, the mapping of statistical data collected by the compliance department should be used based on information received by the whistleblowing channel.

Category: Labor and employment

Various businesses in Brazil have recently been suffering the consequences of the aridity of the current economic scenario. Often the organizations affected invite their creditors to discuss possible adjustments in their debt payments and at the same time reorganize their internal structure and staff.

To circumvent the point of no return from ungovernable debts with their creditors, renowned companies in crisis resort to an in-court or out-of-court reorganization plan to avoid bankruptcy - and, consequently, the domino effect on customers, suppliers, and workers.

In-court reorganization, in short, is the procedure initiated by a company with financial difficulties to make it possible to maintain its business. It is based on creating a plan approved with the creditors so that the debts are reorganized in order of preference and the business remains healthy while going through the turmoil.

As has been reported in the media, reduction and/or reorganization of the workforce has gained prominence in the judicial reorganization plan as a necessary instrument to ensure the company's health and may generate the forced measure of mass lay-offs.

The case of Lojas Americanas, especially after its filing for judicial reorganization on January 17 of this year, brought more relevance to the subject and raised questions: if the collective lay-off of workers is inevitable, is collective bargaining with unions necessary, even if the company is under judicial reorganization or in the process of reorganization? And, if negotiation is necessary, what should be negotiated with the unions?

On the subject of collective lay-offs, the Federal Supreme Court (STF) has decided Extraordinary Appeal 999435, with general repercussion (Topic 638), and decided by majority vote for the necessary prior intervention of unions in mass lay-off procedures, which we commented on in a recent article.

Looking at the current picture, it is known that if there is a need to collectively lay off workers, whether before or during the judicial reorganization phases, the prior intervention of the professional union is an indispensable step, and an agreement may be reached or not.

Although union negotiation in cases of collective lay-offs has been clarified to some extent by the STF, heated new debates have arisen over what "effective" negotiation would be when imposed on companies in crisis. In other words, what should "saving" businesses with compromised cash flow offer when negotiating with their unions?

We recall the emblematic case of Editora Abril which, at the time under judicial reorganization, proposed to its employees' unions a collective bargaining agreement with the purpose of paying in installments the severance pay and the fine provided for in article 477 of the Consolidated Labor Laws (CLT), due to workers that would be collectively laid off due to the organizational restructuring.

Despite Abril's financial challenges at the time, the 6th Panel of the Regional Court of Labor Appeals for the Second Region decided for the illegality of the collective lay-off and for reinstatement of the workers, under the argument that the proposal presented by the company to the unions "in no way represented an effective willingness to negotiate to minimize the impact of the collective lay-off of its employees.”^[1]

In our opinion, the court's understanding in this case deserves to be changed, especially because it seems unreasonable to us that companies, in this delicate moment of scarcity of economic and financial resources, should have to make additional payments or commitments of an economic nature that may expose to risk the entire business activity and the chain of individuals and companies that depend on it.

Decisions such as the one in the Editora Abril case may form a line of case law contrary to efforts to overcome crises at companies that are already undergoing or may undergo judicial reorganization. More than this: they can consolidate dangerous concepts that, in practice, would affect jobs, future hiring, and the willingness of companies to file for judicial reorganization.

^[1] Case 1000446-88.2018.5.02.0061.

Category: Banking, insurance and finance

Central Bank of Brazil (BCB) Resolution 278/22, published on December 31st of last year, regulates Law 14,286/21 regarding foreign capital in the country in foreign credit operations and foreign direct investment.

The aim of the new rules is to modernize, simplify, and strengthen the legal security for foreign capital operations in order to ensure that they are more transparent, less bureaucratic, and comply with the best international standards.

We summarize below the main changes brought about by Resolution BCB 278 in relation to this subject.

• Expansion of the list of direct investment recipients: the definition of a direct investment recipient was extended to any entity incorporated or organized in the country in accordance with the applicable Brazilian legislation, whether for-profit or not, with or without legal personality, including any company, partnership, sole proprietorship, consortium, and partnership.
• Change in the name of the information reporting system: The system used to report information to the Central Bank was changed and is now called:
• System for Provision of Information on Foreign Direct Investment | SCE-IED, in substitution for the Declaratory Registration of Foreign Direct Investment | RDE-IED; and
• System for the Provision of Information on Foreign Capital - Foreign Credit (SCE-Credit), in substitution for the Declaratory Registration of Financial Operations (RDE-ROF).
• Minimum amount for reporting foreign direct investment and foreign credit: as of December 31, 2022, reporting of foreign direct investment and foreign credit became mandatory only when the reporting thresholds stipulated in BCB Resolution 278 were reached, as indicated below.
  
  For reference, the calculation of the equivalence in other currencies of the values set out below must consider the contract execution date, or the issue date of the securities abroad, taking into account the exchange rate of the prior business day published by the Central Bank.

1. In cases of foreign direct investment, when:

• there is a financial transfer related to a non-resident investor (i.e. foreign exchange) of an amount equal to or exceeding USD 100,000 or its equivalent in other currencies;
• there is any transaction (such as corporate reorganizations, assignment, exchange, and contribution of quotas or shares, international contribution of quotas or shares, reinvestments, distribution of profits and dividends, payment of interest on equity, divestiture of holding, etc.) involving an amount equal to or exceeding USD 100 thousand or its equivalent in other currencies; or
• the base date of periodic declarations for recipients subject to such declarations (such as quarterly, annual, and five-year declarations) occurs; and

1. In the event of foreign credit, both in those cases of inflow of funds into Brazil and in the cases in which they are kept abroad, in the case of:

• direct loan, issuance of securities in the international market, issuance of privately placed securities in the domestic market, and financing, including from international organizations, whenever the value of the transaction is equal to or greater than USD 1 million or its equivalent in other currencies;
• financed imports of goods or services with payment terms longer than 180 days, whenever the value of the transaction is equal to or greater than USD 500,000 or its equivalent in other currencies;
• advance receipt of exports and external financial leasing, with payment terms longer than 360 days, whenever the transaction value is equal to or greater than USD 1 million or its equivalent in other currencies; or
• external credit operations contracted by entities of the Direct and Indirect Federal, State, Municipal, and Federal District Public Administration, regardless of the value of the transaction.

Furthermore, registration of foreign credit operations carried out before the effectiveness of BCB Resolution 278 must be kept updated until the end of the transaction. Transactions that do not fit into the reporting floors mentioned above are exempt from updating, so that the respective record will remain available only for consultation purposes until December 31, 2023.

• New values and criteria for mandatory quarterly, annual, and five-year periodic declarations in foreign direct investment: the receiver of foreign direct investment must provide:
• quarterly statement: on the base dates of March 31, June 30, and September 30 of each year, when it has total assets worth R$ 300 million or more;
• annual statement: on the base date of December 31 of the prior year, when it has total assets worth R$ 100 million or more; and
• five-year statement: on the base date of December 31 of the calendar year ending in 0 or 5, when it has, on the base date of December 31 of the prior year, total assets worth R$ 100 thousand or more. There will be no annual statement in years where there is a five-year statement.

Also released was BCB Resolution 281, of December 31, 2022, which regulates the transition period of BCB Resolution 278 and maintains the procedure for filling out the Economic and Financial Statement, as a form of delivery of the periodic quarterly statement mentioned above. In this sense, on the base date of December 31, 2022, the recipient of foreign direct investment that has total assets worth R$300 million or more must submit a quarterly statement by March 31, 2023.

In addition, the annual periodic statement of foreign direct investment for the base date of December 31, 2022, must be provided through the Foreign Capital Census system, exclusively by:

• legal entities headquartered in Brazil, with direct participation of non-residents in their capital stock, in any amount, and with equity equal to or higher than the equivalent to USD 100 million, on the respective base date; and
• investment funds with non-resident shareholders and net equity equal to or greater than the equivalent of USD 100 million, on the respective base date, through their officers. The deadline for filing the annual statement begins on July 1 and ends at 6 pm on August 15, 2023.
• Exemption from the need to provide information on foreign credit transactions related to operational leasing, renting, chartering, and technology services: foreign credit transactions related to technology supply agreements, renting, operational leasing, chartering, trademark and patent use and assignment licenses, franchising, and technical and similar services are exempt from providing information and updating, regardless of the amounts involved.
  
  The registry of transactions of the modalities provided for above prepared before the effectiveness of BCB Resolution 278 will remain available only for consultation purposes until December 31, 2023.

BCB Resolution 278 also provides that the supporting documentation of foreign direct investment and/or foreign credit operations must be kept at the disposal of the Central Bank for a period of ten years, as follows:

• in the case of foreign credit, from the date of termination of the transaction obligations; and
• in the case of foreign direct investment, from the date of liquidation of each investor's foreign direct investment in the recipient

Category: Tax

The filing of an application for mandamus by associations has become increasingly common in the area of tax law. The existence of a favorable final and unappealable decision, capable of benefiting all members regardless of their date of membership, has attracted the interest of companies from the most diverse sectors, which, in many situations, have stopped filing individual lawsuits and have taken advantage of class actions filed by associations.

It is important, however, to evaluate the risks involved in this practice, especially considering the recent decision of the Second Panel of the Federal Supreme Court (STF), which found lack of standing of an association considered generic for the purpose of filing a collective application for mandamus.

Before we discuss this precedent, it is important to restate some premises and jurisprudential understandings related to the topic.

As we know, a collective application for mandamus is a type of class action, provided for in article 5, subsection LXX, of the Federal Constitution, which aims to ensure the right of members of a political party with representation in the National Congress, a trade union organization, class entity, or association legally organized and in operation for at least one year.

In relation to associations, defined by the Civil Code as a "union of people who organize themselves for non-economic purposes" (article 53), the Federal Supreme Court (STF) promulgated in 2003 Precedent 629, by means of which it defined "the filing of a collective application for mandamus by a class entity in favor of its members regardless of their authorization."

In 2009, with the creation of the Application for Mandamus Law (Law 12,016/09), it was established that associations duly formed and in operation for at least one year could file a collective application for mandamus as long as it is pertinent to their purposes in these cases, without the need to present authorization from the members.

Nevertheless, the debate involving the lack of standing of associations in collective applications for mandamus is not over. It then questioned the need for the association to submit the list of its members at the time the application for mandamus is filed and, furthermore, whether those who joined after the application was filed could benefit from any favorable judicial decision.

This issue was submitted to the STF's review in the record of Extraordinary Appeal 1.293.130 (STF Topic 1119), the framework for resolving cases with general repercussion. It was defined that "the express authorization of the members, their list of names, as well as proof of prior membership, is not necessary for the collection of past funds from a judicial instrument resulting from a collective application for mandamus filed by a civil association entity."

This understanding was supported by the interpretation given to article 5, subsections XXI and LXX, line "b", of the Federal Constitution, to the effect that, in a collective application for mandamus, contrary to what occurs in other class actions,^[1] the petitioning association acts as a procedural substitute (and not as a mere procedural representative).

In fact, when it comes to procedural substitution, there is an express legal provision allowing the substitute to act in his own name to defend the rights of others, an exception to the rule provided for in article 18 of the Code of Civil Procedure. Thus, since this is an authorization under the law, it is unnecessary for the substitute to submit authorization.

The appellate decision in question was subject to a motion for clarification by the Federal Government, which sought, among other points, to rule out the application of the theory established for so-called generic associations. Although the motion was unanimously rejected, Justice Luís Roberto Barroso registered in his opinion that a situation involving the filing of a collective application for mandamus by "generic associations, which do not represent any specific economic and professional categories" had not been the subject matter in that issue, but could be reviewed in the future by the Supreme Court.

In this case law context, the Second Panel of the Federal Supreme Court, when considering ARE 1.339.496, decided by majority vote, on February 7th, on the lack of standing of an association considered generic for the purpose of filing a collective application for mandamus, ruling out the theory set forth in STF Topic 1119.

According to Justice André Mendonça, who cast the winning vote in the aforementioned ARE, the setting aside of the theory in question is due to the exception made by Justice Luís Roberto Barroso in the record of STF Topic 1119.

In his view, generic associations would not be subject to the theory established in the paradigm in question since, "without a reasonable determination of its social purposes, the association fails to inform the State as judge and the opposing party whom it in fact is substituting or representing. In the absence of this essential information regarding the association, the other subjects of the case have their corresponding adjudicatory tasks terminated, inasmuch as it is not known in advance to what end the association is oriented and therefore which members it, in fact, replaces. Hence, it is certain that the creation of an association without a minimally delineated determination of its objective will result in an offense to the basic principles of the process, of constitutional scope, such as access to justice, due process of law, an adversarial process, and a full defense.

Based on these premises, when analyzing the concrete case, the Justice pointed out that the association that filed the collective application for mandamus "does not categorize any individual or group of individuals, since it has been created by a congregation of individuals and legal entities that pay federal, municipal, and state taxes, legal entities or individuals, among others, that is, it can be an association of all Brazilians who pay taxes in essence.”

For this reason, the Justice concluded that "in view of the notorious lack of definition of its purpose, the aforementioned association could work on behalf of any and all taxpayers without the slightest identification of circumstance, class, or common origin (...) [which is why] the procedural substitution advocated in the collective application for mandamus, as set forth in article 5, LXX, "b" of the Constitution, does not apply in this case.”

Justices Nunes Marques, Ricardo Lewandowski, and Gilmar Mendes cast their votes in agreement with Justice André Mendonça's opinion. The dissenting opinion of Reporting Justice Edson Fachin was that the theory set forth in STF Topic 1119 should apply, recognizing the lack of standing of the applicant association. Publication of the appellate decision is awaited.

Although the decision did not assertively define what a generic association would be, which may give rise to much discussion, the fact is that some issues were mentioned as indications to classify the association as such. These are: few or no members, especially in the district in which the application for mandamus was filed, the existence of broad subject matter that does not allow delimitation of a certain and specific group, and the marketing of favorable court rulings.

Another issue that arises is whether associations that are considered generic will not be able to file a collective application for mandamus under any circumstances. Or whether, if the authorization and the list of members are presented, the possible defect will be considered cured, allowing the filing of the lawsuit.

Although the issue has not been decided in an exhaustive and definitive manner, it is undeniable that the judgment represents an additional point of attention for those who intend to rely on a final and unappealable decision in the scope of a collective application for mandamus filed by an association. This is because there is a risk that the use of the res judicata formed in the writ may be impeded due to the lack of standing of the association that filed the writ.

This situation reinforces the importance of previously evaluating the risks involved in the use of res judicata resulting from a collective application for mandamus, especially with regard to the characteristics of the association that filed the lawsuit.

We are available to assist you with this question.

^[1] RE No. 573.232 and RE 612.043.

Category: Labor and employment

Redesigned, but no less dangerous, it has made its presence felt in conversation circles in front of the large commercial buildings in Brazil's urban centers.

After 17 years of prohibition and a strong campaign to raise awareness about the health problems it causes, cigarettes, now in electronic versions, are once again being smuggled into bars, parties, restaurants, and even workplaces.

Known as electronic smoking devices (ESD), this new type of cigarette has reignited the alert of health authorities and brought focus on an issue considered settled by companies: the ban on smoking in the workplace.

In 1996 Law 9,294/96 was enacted, which prohibited, in its article 2, the use of cigarettes, cigarillos, cigars, pipes, or any other smoking product, whether or not derived from tobacco, in enclosed public or private places.

States and municipalities also have laws that restrict use and bring severe punishments for establishments that allow their patrons to smoke cigarettes (and all variations thereof) on their premises. In São Paulo, Law 13,541/09 provides for possible shutdown of establishments that allow users (or employees) to smoke inside.

It is important, therefore, that companies bring the issue back up for discussion with their employees.

In 1988, the Ministry of Labor and Social Security issued Interministerial Ordinance 3,257/88, which recommended that smoking be dealt with by the Internal Committees for the Prevention of Accidents (Cipas). The reason is the harmful effects on the worker, including on his senses, which can result in an increase in the number of work-related accidents.

With the repeal of the ordinance in 2021 by the Infralegal Labor Regulatory Framework, some companies have stopped addressing the issue in their Cipas. But the increasing number of e-cigarette users in Brazil, including in the workplace, shows the importance of resuming the campaigns.

As there is no scientific data proving the safety or reduction of harm attributed to this type of device in humans, Anvisa has prohibited the marketing, importation, and advertising of electronic cigarettes in Brazil since 2009.

The companies must be alert to the return of smoking habits in their establishments, both out of respect for the law and because it represents damage to the worker's health, which can lead to an increase in absences from work, health insurance claims, and social security leave.

An employee caught smoking an electronic cigarette in the workplace can be warned, suspended, or even dismissed for cause, depending on the company's policies on the subject.

As always, it is best to invest in awareness and prevention, not allowing this outdated - and illegal - practice to return to the corporate environment as something cool.

Category: Labor and employment

Published by the Federal Revenue Service of Brazil (RFB) at the end of last year, Cosit Opinion Letter 63/22 answers a question about the legal nature, for tax purposes, of the sums paid to employees to cover expenses with internet and electricity during working hours, in a telecommuting regime.

The requesting taxpayer informed the RFB that the amounts paid were intended to reimburse expenses incurred by employees due to the adoption of a differentiated work regime (telecommuting). It argued that the payment was not intended to reward work, but to compensate the employee for the expenses incurred by him due to a change in place of work.

In response to the inquiry, the RFB concluded that the amounts paid to reimburse expenses incurred by employees for internet and electricity consumption resulting from the provision of services under the telecommuting regime should not be included in the calculation basis of social security contributions and withholding income tax (IRRF).

The RFB, however, added that, in order to establish the compensatory nature of the amounts received, the employee must prove, through proper and suitable documentation, the amounts spent by him.

Regardless of the RFB's understanding, it must be remembered that paragraph 2 of article 457 of the CLT provides for a per diem, which consists of an amount paid by the employer exclusively to cover the cost of the expenses incurred by the employee in the performance of his work activities.

In other words, it is not actual reimbursement of expenses, but rather advance payment for the expenses that the employee will have to bear for his activities. For this reason, it is not necessary to submit receipts or proof of expenses incurred by the employee.

This condition would apply only to the reimbursement of expenses, since the latter consists of reimbursing the employee for expenses generated by his work activity. In this case, proof is required, because it is a payment for an amount already spent by the employee, and not an allowance for the employee to cover expenses.

In our understanding, the RFB mixed up the concepts of a per diem and expense reimbursement when giving its answer.

The inquiry submitted to the RFB was, in fact, regarding payment of a per diem, which, according to the CLT, is compensatory in nature. In these cases, the employee cannot be required to prove the amount spent. This requirement is only applicable in the case of reimbursement of expenses, which was not the case.

Category: Environmental

In a judgment handed down under the popular action 0150428-88.2020.8.19.0001, on January 23, the 15th Court of Public Finance of the District of the Capital of the Court of Justice of Rio de Janeiro declared the nullity of the sessions and deliberations of the State Council of the Environment (Conema) held from September 14, 2019.

The court also ordered the state of Rio de Janeiro to refrain from granting new environmental licenses based on these deliberations, until the irregularities related to the designation of Conema members and parity in the composition of the council (recognized in the judgment) are duly corrected.

The popular action, initiated in July 2020 against the state of Rio de Janeiro, has as its object the environmental licensing of an international racetrack that was being planned in the capital of Rio de Janeiro.

The authors alleged that the institution of the State Council of the Environment (Cema) – made by State Decree 46.739/19 – would represent an offense to the principle of administrative legality since the state constitution of 1989 determines the mandatory edition of state law for the creation of the council.

They also argued that the formation of Cema does not meet the requirements of parity in the composition of its members (which aims to ensure the participation of the Executive and Legislative branches, scientific communities, and civil associations), provided for in article 261, paragraph 1, item XXII, of the state constitution. They also pointed out the absence of a normative act of the Executive Branch for the appointment of full and alternate members of the body.

Based on these allegations, the plaintiffs of the popular action requested the nullity of State Decree 46,739/19, Conema Resolution 88/20 and Conema Resolution 89/20 , as well as all Conema sessions and deliberations expressed in these two resolutions – which, respectively, approved the Conema Internal Regulations and authorized the holding of virtual public hearings in the context of environmental licensing during the pandemic.

Although the sentence pointed out that the main object of the process was lost, since the State Institute of the Environment (Inea) rejected the granting of an environmental license for the racetrack in Rio de Janeiro, the sessions and deliberations of Conema were declared null and void, "(...) including resolutions 88 and 89 of 2020, in view of the irregular appointment of representatives of the public power, as well as the lack of parity in the council, in violation of article 261, paragraph 1, XXII of the State Constitution of Rio de Janeiro".

The decision also determines the maintenance of the validity of the precautionary measure granted in the file, so that the state of Rio de Janeiro refrains from granting new environmental licenses "(...) until the irregularities now recognized are remedied."

If confirmed, the decision could affect the licensing competence delegated to the municipalities of Rio de Janeiro, although this effect was not explicitly mentioned in the judgment.

This is because, according to the provision contained in article 9, VIX, paragraph "b", of Complementary Law 140/11, it is up to the municipalities to promote the environmental licensing of activities or enterprises that cause or may cause environmental impact at the local level, "(...) according to the typology defined by the respective state councils of Environment", according to the criteria of size, polluting potential and nature of the activity.

The definition of activities and enterprises with local impact was recently established in  Conema Resolution 92/21 and Conema Resolution 95/22. These deliberations were also declared null and void by the judgment handed down in the popular action.

As determined by Article 19 of the Popular Action Law (Federal Law 4.717/65), the decision rendered by the Rio de Janeiro court takes effect immediately, until an appeal is filed, if applicable, with suspensive effect by virtue of the law (article 1.012, of the CPC).

The state of Rio de Janeiro filed a request for suspension of provisional compliance with the sentence, arguing that the measure makes "(...) the economic shutdown of the state" by impeding economic development, discontinuing the provision of public services and negatively impacting many strategic projects, especially in the energy, oil and gas and sanitation sectors.

In an injunction decision handed down on February 14, the presidency of the Court of Justice of Rio de Janeiro (TJRJ) ordered the suspension of compliance with the first-degree sentence, "(...) maintaining the hygiene of Conema's deliberations, including the environmental licenses already analyzed and resolutions 88 and 89 of the aforementioned body, as well as authorizing the commission to function normally until the final judgment of the process".

In response, the plaintiffs in the original case filed a declaration against the decision of the presidency of the TJRJ, which is still pending consideration.

It is worth following the discussions and eventual developments of the subject in the course of popular action  0150428-88.2020.8.19.0001, whose sentence, debated here, must still be the subject of appeals by the Attorney General's Office of the State of Rio de Janeiro and/or other interested parties.

Category: Competition

The Superintendence General of the  Administrative Council for Economic Defense (SG/Cade) recapitulated, in a recent decision concerning a merger control filing, the discussion on which companies should be considered as part of the economic group involved in a transaction, and on the moment the group’s revenues should be accounted for, which are fundamental for the assessment of the reportability of the transaction to CADE.

In the referred case, the transaction would only be subject to mandatory filing with Cade if the revenue of a company that, at the time of  that transaction, had already been the subject of a sale and purchase transaction duly cleared by CADE but with closing still pending on the fulfillment of certain conditions precedent, was to be considered as part of the seller’s economic group.

SG/Cade has expressed in the past that the revenue assessment should consider the composition of the economic group at the moment of the transaction – which the agency has already established as the date of the filing with Cade, which can be carried out at any time before closing – and the revenues of the companies of each economic group in the year before that of the moment of the operation, under the terms of Law 12.529/2011 (the Competition Law).

In  the precedents addressing this subject, SG/Cade held that acquisitions and/or divestitures of companies, even if carried out during  the year the transaction was submitted to Cade, affect the composition of the economic group, expanding or reducing the set of companies whose revenues in the previous year should be considered for the purpose of calculating the revenue of the economic group. It also concluded that the consummation of the previous transaction and the effective transfer of the ownership of the company are not required in order to consider the company as part – or not – of the economic group.

According to SG/Cade’s understanding, the acquired company should be considered as part of the buyer’s economic group and excluded from the seller’s, even if the consummation of the transaction is still pending suspensive conditions (since those are viewed by Cade as mere conditions for the effectiveness of the transaction) and the transfer of ownership has not yet occurred. This would apply both for transactions submitted to Cade (even if Cade’s approval is pending) and for transactions not submitted to the agency.

Cade's justification for this approach was the need to assess the actual impacts of the transaction and to evaluate its risks considering the reality of the market. Assessing a market structure that ignores changes in the companies, which will no longer belong to (or that will soon become part of) a given economic group in the near future, could lead to inaccurate conclusions on the competition concerns arising from the transaction.

A close interaction between the companies’ internal M&A teams and their external legal advisors is, therefore, very important in the assessment of the need to submit a transaction to Cade, ensuring that the economic group definition is properly following Cade’s views. This would help identifying previous transactions that are relevant for the assessment of whether the revenue thresholds are met (which may happen at any time between the signing and closing).

Category: Banking, insurance and finance

The Central Bank of Brazil launched, on March 6 of this year, the pilot project of Real Digital, a sovereign currency, exclusively digital, and issued by the Central Bank of Brazil itself. Digital currencies issued by central banks have usually been called by the name of Central Bank Digital Currencies (CBDC).

One of the objectives of the pilot project, called Project RD, is to test the proposed technologies for the issuance and circulation of the digital currency and to evaluate the impacts and benefits of the creation of the Brazilian CBDC within a controlled environment. The Project RD aims more broadly to impact the end user of the financial system, although the Real Digital is an interbank wholesale product, comparable to bank reserves or settlement accounts, and will not, at least initially, circulate to the retail public.

The RD Project will adopt a model according to which the Central Bank of Brazil will issue the Real Digital, which will basically fulfill, at a preliminary stage, the function of settlement mechanism for digital assets, and these assets will be accessible to retail, issued by financial and payment institutions. Such digital assets will correspond to tokenized versions of bank deposits and balances in payment accounts, analogous to stablecoins, but inserted into a regulatory framework.

This model assumes that it is important to maintain financial intermediation and the leverage and credit generation capacity of the banking system.

A platform based on Distributed Ledger Technology (DLT) will be used in the pilot project that will simulate transactions of issuance, trading, transfer and redemption of predetermined assets. Initially, such assets will be central bank currencies, bank deposits, electronic currencies and federal government bonds. However, there may be an expansion of the assets involved in the test in the future, with preference for financial assets and securities.

The infrastructure will not allow overdraft balances, and the project will not be taken to the production environment, being restricted to simulated transactions. Participation in the project will be limited to a certain number of financial institutions and payment institutions. Other limitations may be imposed to allow for timely implementation of the project.

The RD Project involves the search for solutions to preserve information security and privacy, in order to ensure compliance with the legal requirements applicable to the Brazilian National Financial System.

It is discussed that, for the wide-ranging implementation of Real Digital, it would be necessary to amend the legislation to expand the competence of the Central Bank of Brazil for the issuance of currency in exclusively digital format. Currently, the competence of the Central Bank of Brazil for this purpose is restricted to the issuance of only certain currency formats, under the conditions and limits authorized by the Brazilian National Monetary Council, as provided for in article 10 of Law 4,595/64, accepted by the Federal Constitution as a complementary law.

It is being analyzed in the National Congress the Complementary Law Project 9/22, which proposes to regulate the issuance of the national currency in digital format. This bill includes a ban on the Central Bank of Brazil directly offering credit, banking, payment or financial investment products and services to the consumer, in order to safeguard financial intermediation.

Category: Corporate

The representations and warranties provisions in corporate agreements originate from U.S. law and arise from the duty to disclose, whereby the parties to a deal, in particular the seller, must clearly inform their counterparty on the conditions of the asset or business subject to the transaction.

In Brazilian law this same duty to inform is a consequence of the principle of objective good faith between contracting parties, which is intended to guide contractual relations.

The representations and warranties clauses express the circumstances and the context formed by the factual and legal reality in which the transaction is inserted. Through the representations and warranties, facts, information and/or documents relevant to the deal at hand are revealed. The veracity of the content is also attested to.

These clauses enable the parties to the contract to balance the asymmetry of information between them, allowing a better assessment of the risks and pricing of the asset in a given transaction.

Regarding the origin of the institute of representations and warranties, there is also a difference between the specific concepts of "representations" and "warranties" within the common-law legal system.

Representations are statements that refer to the circumstances that occurred in the past or at the time of the instrumentalization of the respective contract, functioning as guiding premises for the formation of the business.

On the other hand, warranties serve as assertions provided from one party to the other on the existence of facts in relation to which there is no discussion with respect to their subjectivity. Warranties have the purpose, therefore, to remove from the receiving party the burden of determining the veracity of the fact for itself, being the equivalent to a promise to indemnify the other party in case the guaranteed fact proves itself false.

In Brazil, when incorporating the concepts of representations and warranties, no rigorous differentiation was made. In practice, when drafting corporate transaction agreements, it is common for there to be no distinction between what is a representation and what is a warranty, including for the purposes of the obligation to indemnify resulting from any violations to the provisions of these clauses.

An important aspect to consider when drafting representation and warranty clauses is the inclusion of qualifiers. These are criteria added to the text of the representations and warranties that allow for the limitation of liability in relation to a given statement. Among these criteria, the following qualifiers may be highlighted:

• knowledge, to remove responsibility for facts that are not known to the declaring party; and
• materiality, the purpose of which is to limit the content of the information provided to issues that may materially affect the business or represent a material deviation from what has been represented by the party.

Considering that these concepts are naturally subjective, it is interesting to remove as much as possible the subjectivity from the qualifiers through the creation of objective parameters aimed at defining the criteria of materiality and knowledge within the scope of the contract.

It is also important to note how the representations and warranties clauses relate to the other clauses contained in agreements for corporate deals, among which the conditions precedent and indemnification clauses stand out.

The conditions precedent clause establishes the acts and elements that shall be satisfied from the contract’s signature date so that a certain party is obliged to complete the transaction.

It is common to find among the conditions precedent the maintenance of the validity of the representations and warranties presented on the agreement’s execution date, at the time when the closing of the deal occurs. It is also usual that materiality criteria are adopted in this ratification provision of the representations and warranties in order to enable the acceptance of such provision by the selling party.

With regard to the indemnification clause, if after the closing of the transaction the facts and information represented by the parties are not verified in practice or if there is inaccuracy with respect to the data provided, the party responsible for the breach of its representations and warranties shall indemnify the counterparty for any losses suffered due to these breaches.

The option for the indemnification model has a direct impact on the care that the parties should take when drafting the representations and warranties clauses.

Indemnification mechanics that provide for indemnification only for non-compliance with contractual obligations and breach of representations and warranties will require greater attention from the buyer in respect to the amplitude and detail of the representations and warranties.

On the other hand, indemnification mechanics based on the "my watch, your watch" model allow the buyer a lesser degree of concern regarding the seller’s representations and warranties, considering such mechanics provide the buyer with protection in relation to the entire past of the asset in question.

Despite originating in foreign law, the representations and warranties clauses play a vital role in the process of drafting contracts for corporate transactions in Brazil and find support in the Brazilian legal system.

It is therefore critical to identify, in each transaction, the relevant representations and warranties to be provided by the counterparty, making adaptations as appropriate, to provide additional protection against any contingencies that may arise following the completion of the deal.

Category: Digital Law

Last February 27, the Brazilian National Data Protection Authority (ANPD) issued a Resolution providing for administrative sanctions in cases of personal data protection violations. The fines - which had not yet been applied in Brazil - will be all over the news from now on.

According to the Brazilian General Data Protection Regulation Act (LGPD), fines are limited to a maximum of 2% of the revenue generate by the company or its corporate group in the previous fiscal year, excluding taxes and capped at 50 million BRL per violation. The act provides for other types of administrative sanctions, which can range from a warning to a partial or total ban on exercising activities related to data processing, depending on the classification of the infraction (light, medium, serious).

Reputational damage is another sanction – an unwritten one – that causes great concern to companies. No organization would like to have its name associated with an infraction which could undermine consumer confidence in the brand's products and services. In the information society, prevention has never been so important.

In this sense, it pays to have developed - and maintained - a proper personal data governance plan in an organization. It should be noted that ANPD inspections may require copies of relevant documents to evaluate personal data processing activities. The Authority may also access facilities, equipment, applications, systems, tools, technological resources, data and information of a technical, operational and other relevant nature, regardless of whether these are under possession of the company or of a third party. Inspections will clarify whether the organization's compliance program is generic and limited in scope, or whether it was tailored to the business and comprehensive, as is recommended.

Furthermore, the ANPD regulation confers special importance to training on personal data protection and cybersecurity. This initiative must involve all employees, suppliers, partners, and other stakeholders. Moreover, it is known that real achievements are reached through a change in culture; the mere advent of a law or regulation does not, by itself, change people's behavior and the organization's operational processes. That is why the emphasis on training, courses, workshops, etc. is so necessary. Not surprisingly, the ANPD expressly suggests "to the regulated agents to carry out training and courses". In fact, non-compliance with this guideline is considered an aggravating circumstance for the purposes of calculating the administrative sanction.

With an inspection at the gates, it is important to clarify that this procedure may occur at the initiative of the ANPD itself, as a result of either periodic inspection programs, or in a coordinated manner with other public agencies and entities, such as CVM, BACEN, CADE, SENACON (respectively, equivalents of the SEC, Central Bank, Antitrust authority and the Bureau of Consumer Protection) among others, or in cooperation with the personal data protection authorities of other countries.

The Sentencing Regulation informs that in order to define the sanction, authorities will take into consideration whether or not the offender displayed the following:

• good faith;
• cooperation with authorities;
• reiterated and proven adoption of internal mechanisms and procedures capable of minimizing the damage, aimed at the safe and adequate treatment of data, in accordance with the LGPD;
• adoption of a policy of governance and best practices;
• prompt adoption of corrective measures.

As can be seen from the criteria mentioned above, the application of a fine in a procedure is beset by considerations of the offender's behavior, prevention and reaction. In other words, it hinges on:

• behaving properly (good faith and cooperation)
• preventing violations through consistent, planned work (adoption mechanisms to reduce damages) and the elaboration of rules and internal processes that assure comprehensive compliance with personal data protection law. These are to be established and implemented by data processing agents through the adoption of best practices and governance rules, as per LGPD, Art. 50, header and § 1º or through a privacy governance program, as per LGPD, Art. 50, header and § 2º (adoption of best practices and governance policy)
• reacting, by responding promptly and assertively to incidents and irregularities found (prompt adoption of corrective measures)

As for the calculation of the fines, the Sentencing Regulation presents a specific methodology for applying the sanction. The calculation is based on a base rate, which will take into account the percentage of the violator's revenues, ranging from 0.08% to 0.15%, when the violation is light; from 0.13% to 0.5% of revenues when the violation is medium; and from 0.45% to 1.50% of revenues when the violation is serious. In addition, for the calculation of the base rate, the level of damage caused by the infraction will also be taken into account.

Levels of damage are divided into four categories.

The first category, of zero value, corresponds to violations that cause no damage or only cause damage with insignificant impacts, which derive from predictable or ordinary situations and do not justify the need for compensation.

The second category, of value level 1, corresponds to violations causing injury or offense to the rights or interests of a small number of holders, with limited material or moral impact, which can be reversed or compensated relatively easily.

The seriousness rises to a third level, of value level 2, which corresponds to violation affecting diffuse, collective or individual rights or interests that, given the circumstances of the case, generate impacts on the holders of a material or moral nature that cannot be easily reversed or compensated.

Finally, the degree of the most serious damage is reached, of value level 3, corresponding to an offense to diffuse, collective or individual rights or interests has an irreversible or difficult to reverse, causing, among the impacts of material or moral order, aspects of discrimination, violation to physical integrity, to the right to image and reputation, financial fraud or misuse of identity.

The degree of damage is a factor in the mathematical operation contained in the Regulation, therefore its definition and respective level will be very relevant for the values resulting from this equation, which will also have the infraction's classification, and its respective percentage of the infractor's revenues as a portion to be considered.

After the definition of the base rate, in a second stage of sentencing, the incident taxes are considered, subtracting them from revenue, which will lead to the so-called base amount of the fine. Aggravating and mitigating circumstances will then be considered (third stage), to reach the final sanction to be imposed.

In cases where there is an advantage gained, and this can be reckoned, there is a fourth stage in the sentencing, in which authorities verify whether the resulting fine is at least double the amount of the advantage gained. If the amount of the fine is lower than this threshold, an adjustment will be made so that the final amount of the fine is twice the amount of the advantage obtained from the violation.

The following are considered aggravating circumstances: recidivism and failure to comply with an orientation measure or a corrective measure not complied with during the inspection process or the preparatory procedure that preceded the administrative sanctioning process.

In cases of recidivism, the base amount fined will be increased by 5% in cases of general recidivism, and 10% in cases of specific recidivism, up to the limit of 20% to 40%, respectively. The commission of a violation by the same violator is considered generic, regardless of the legal or regulatory provision, and the repetition of the violation under the same legal or regulatory provision is considered specific. In both cases, for the purpose of applying recidivism, the period of 5 years between the date of becoming res judicata of the previous administrative sanctioning process and the date of the new infraction is counted.

Non-compliance with guidelines and preventive measures during inspection or preparatory proceedings that preceded the administrative sanctioning process will be considered as an aggravating factor. There is an increase of 20% for each measure not complied with, up to the limit of 80%. ANPD orientation measures include:

(i.) the preparation and availability of best practices guides and document templates to be used by treatment agents,

(ii.) the suggestion to regulated agents of training and courses,

(iii.) the preparation and availability of compliance self-assessment and risk assessment tools to be used by treatment agents,

(iv.) the recognition and disclosure of the rules of best practices and governance,

(v.) the recommendation:

a) of the use of technical standards that facilitate the control by the holders of their personal data;

b) of the implementation of the Privacy Governance Program; and,

c) the observance of codes of conduct and best practices established by certification bodies or other responsible entities.

In cases of non-compliance with corrective measures - that is, those determined by the ANPD with the purpose of correcting the violation and bringing the violator back into full compliance with the LGPD and the regulations issued by the ANPD - the increase on the amount of the base fine will be of 30% for each measure, up to the limit of 90%.

If there is more than one aggravating circumstance in a given case, e.g. recidivism of the violator and also non-compliance with the orientation measure, the percentages relating to each portion must be added.

As for the mitigating factors, the base amount fined will be reduced by 75% to 30% in cases where the infringement is ceased. The reduction will be of 75% when the infringement is ceased before the preparatory proceedings are initiated by the ANPD; of 50% when it occurs after the preparatory proceedings are initiated and until the sanctioning administrative proceeding is initiated; and of 30% if it occurs after the sanctioning administrative proceeding is initiated and until the first instance decision is rendered in the sanctioning administrative proceeding. It is important to note that in the cases mentioned above, the cessation of the violation resulting from the mere compliance with an administrative or judicial determination will not be considered a mitigating factor.

It is also considered as mitigating factor, with a 20% reduction, for the offender to have implemented a best practices and governance policy, or to have repeatedly and demonstrably adopted internal mechanisms and procedures capable of minimizing the damages to the data subjects, aimed at the safe and adequate treatment of data. However, in order to be considered a mitigating factor, this must have occurred before the first instance ruling is rendered in the administrative sanctioning proceeding.

When the offender proves the implementation of measures capable of reverting or mitigating the effects of the violation on the affected holders of personal data, there will be a 20% reduction, provided that this has occurred prior to the initiation of preparatory proceedings or administrative proceedings for sanctions by the ANPD. There will be  a 10% reduction when such implementation has occurred after the opening of the preparatory proceeding and before the opening of the sanctioning administrative proceeding. The adoption of measures by the offender as a result of the mere compliance with an administrative or judicial determination will not be considered as a mitigating factor.

If the ANPD finds the offender to have cooperated and acted in good faith, this will also be considered a mitigating factor, leading to a fine reduction of 5%. In case there is more than one mitigating factor, following the same rationale of the aggravating circumstances, the percentages should be added up in benefit of the offender.

The payment of the fine, once imposed by the ANPD, after due process, must be paid within 20 business days from the official acknowledgement of the ruling. An exception is made for small treatment agents, who will have a term twice as long for payment. In cases of arrears, a default penalty interest and a late payment fee of 0.33% will apply.

The ANPD ruling may be appealed; however, if an offender expressly waives this right, it will be entitled to a 25% reduction in the amount of the fine imposed. In turn, if an appeal is filed and granted, the amount of the fine paid will be refunded, adjusted by the Brazilian base interest rate (Selic rate).

In conclusion, it is vital is it to stay alert and apply knowledge derived from the rules of inspection and sentencing. This can be achieved by working with specialists in data protection, privacy and cybersecurity, either as your internal team and/or as third parties, in order to plan the governance of your company in a proper and up-to-date fashion.

Category: Agribusiness

Published in early January by the Ministry of Agriculture and Livestock (Mapa), the Brazilian Institute of the Environment and Renewable Natural Resources (Ibama) and the National Health Surveillance Agency (Anvisa), Joint Ordinance 737 submits to public consultation a proposal to regulate the procedures to be adopted for the distribution of pending proceedings for registration of equivalent technical products, premixes and formulated products of pesticides and related products.

As a mechanism for social participation, the objective of the public consultation is to receive suggestions and proposals to give greater effectiveness to the registration proceedings of products that are pending consideration by the agencies and have been initiated by October 8, 2021. The deadline for the public consultation is 60 days and ends in early March 2023.

The proposal presented is another attempt to speed up the analysis of proceedings of this nature that await procedural protocol in the registration bodies. According to industry data, the analysis of applications for pesticide registration can take up to ten years, if we consider the applications for new products and active ingredients not yet approved.

Under the proposal, the analysis of registration applications should consider the same active ingredients – which must necessarily be identical – of a product for each group of 20 proceedings, giving greater speed to the registration process for this set of products. The proposal indicates as the main process of the group the one who is in the first position of the analysis queue.

Another measure provided for by the ordinance is to make it possible for the application for registration of a new product to benefit from the most advanced stage of a product reanalysis proceeding already registered, provided that the products have identical active ingredients. In such cases, the new application proceeding will follow its own procedure, and the applicant will need to present the documents provided for in the annexes of the joint ordinance: the declaration of assignment of studies and the comparative table.

By means of the declaration of assignment, the legal representatives of the company holding a certain product already registered in the process of reanalysis and of the one whose application for registration will be filed declare, in consensus, that they allow the assignment of the dossier of information and studies already produced by the competent bodies.

To subsidize the declaration, the applicant must fill out the comparative table that indicates the numbers of the proceedings, in the three bodies, of the product to be registered and of the one with the dossier already complete.

The measure aims to avoid the double issuance of opinions by the competent bodies during the assessment of the different applications for registration.

Suggestions and contributions can be made through the Monitoring System of Normative Acts (Sisnam), of the Secretariat of Agricultural Defense (SDA).

After the deadline for the public consultation, the contributions will be analyzed by a technical group coordinated by the General Coordination of Pesticides and Related Products, with representation of the other competent bodies for the registration of pesticides.

Category: Tax

Provisional Presidential Decree 1,152 (“MP 1,152/22”), published on December 28, 2022, introduced the new Brazilian transfer pricing policy, in line with the guidelines of the Organization for Economic Cooperation and Development (OECD) and the arm's length principle (Article 2).^[1] The objective of this policy is to enable Brazil's accession to the OECD, in addition to attracting foreign investments.

Currently, the conversion of MP 1,152/22 is being analyzed by the National Congress, which already has 107 requests for parliamentary amendments on several of its provisions. According to Article 62, §§ 3 and 7^[2], of the Constitution, the conversion process must be completed within 60 days, extendable only once for the same period, under penalty of loss of efficacy of the provisional decree.

On March 29, 2023, the President of the Bureau of the National Congress issued Ruling No. 16, which extends the validity of MP 1,152/22 for 60 days, so that the term ends on June 1^st, 2023.

Despite the uncertainty, political indicators point so far to the conversion of the provisional decree, even with some amendments. The conversion is already submitted to the approval of the Plenary of the Chamber of Deputies and, subsequently, shall be submitted to the approval of the Senate.

Because of this context, the Federal Revenue of Brazil (RFB) has already informed that the regulation of the new transfer pricing policy will occur only after the completion of the conversion process.

However, due to the alignment with the OECD model, it is expected that the experience of other jurisdictions that already adopted this standard will be an important reference for the delimitation of the controlled transaction, the selection of the most appropriate method, and the preparation of documentation, observing the particularities of the Brazilian perspective on the business.

Still, Article 48 of MP 1,152/22^[3] determines that the new transfer pricing policy will take effect from January 2024, considering the non-retroactive legislation and the complexity of the policy.

However, taxpayers may opt for the application of the new policy for the current calendar year, through an irrevocable option formulated from September 2023 (Article 46 of MP 1,152/22 and Articles 2 and 3 of Normative Instruction RFB 2,132/23).^[4]

Another relevant issue of the provisional decree refers to business restructuring when it results in the transfer of benefits and/or losses between related parties. It is treated by Article 27 of MP 1,152/22.^[5]

This rule aims to capture, essentially, the transfers of gains and losses between entities of the same economic group caused by business restructuring. As a legislative innovation not yet mandatory, we understand it to be an especially propitious time for businesses to be reassessed and reorganized without the aforementioned tax burden.

^[1] "Article 2. For the purpose of determining the tax base following the paragraph of Article 1, the terms and conditions of a controlled transaction shall be established in accordance with those that would be established between unrelated parties in comparable transactions."

^[2] "Article 62. In important and urgent cases, the President of the Republic may adopt provisional decrees with the force of law and shall submit them to the National Congress immediately. [...]

• 3 - With the exception of the provisions mentioned in paragraphs 11 and 12, provisional presidential decrees shall lose effectiveness from the day of their issuance if they are not converted into law within a period of sixty days, which may be extended once for an identical period under the terms of paragraph 7, and the National Congress shall issue a legislative decree to regulate the legal relations arising therefrom. [...]
• 7 - If the voting of a provisional presidential decree is not concluded in both Houses of the National Congress within sixty days as of its date of publication, its period of effectiveness may be extended once for an identical period."

^[3] "Article 48. This Provisional presidential decree takes effect on January 1^st, 2024.

Paragraph. To taxpayers who make the option provided for in Article 46, the following shall apply, as of January 1^st, 2023:

I - Articles 1 to 45; and

II - the repeals provided for in Article 47.

^[4] "Article 2. The option referred to in Article 1 shall be formalized in the period from September 1^st to 30, 2023, through:

I - opening a digital process through the Portal of the Virtual Service Center (e-CAC Portal); and

II - annexation of the option term contained in the Annex.

• 1 - In the event of the start of the activity or the emergence of a new legal entity due to merger or spin-off in the period from September to December of the calendar year 2023, the option referred to in the caput shall be formalized in the 1^st (first) month of activity.
• 2 - In the case of extinction of the legal entity in the period from January to August of the calendar year 2023, the option referred to in the caput shall be formalized in the month of extinction.

Article 3. The option made pursuant to Article 2 shall be irrevocable and will entail, as of January 1, 2023, compliance with the provisions of Articles 1 to 45 and the effects of Article 47, all of Provisional Presidential Decree No. 1,152, 2022."

^[5] "Article 27. Business restructurings are changes in commercial or financial relations between related parties that result in the transfer of potential profit or benefits or losses to any of the parties and that would be remunerated if they were made between unrelated parties in accordance with the principle provided for in Article 2.

• 1 - The potential profit referred to in the caput comprises the expected profits or losses associated with the transfer of functions, assets, risks, or business opportunities.
• 2 - The restructurings referred to in the caput include hypotheses in which the potential profit is transferred to a related party because of the renegotiation or termination of commercial or financial relations with unrelated parties.
• 3 - To determine the compensation for the benefit obtained or for the loss suffered by any of the parties of the transaction, the following shall be considered:

I - the costs incurred by the transferring entity because of the restructuring; and

II - the transfer of potential profit.

• 4 The compensation for the transfer of the potential profit shall consider the value that the transferred items have together."