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Memorandum: Anti Corruption Law

21 de May de 2019 | Publications

1. On August 1st, 2013, Congress enacted Law 12.846, which aims to fight corruption practices in the Public Administration, national or foreign. Such Law is not the only piece of legislation in Brazil regarding such matter. There are other Laws in force, like the Criminal Code (Decree-Law 2.848/1940, articles 317, 332, 333, 343), the Public Bidding Law (Law 8.666/1993, articles 91, 92, 95 and 96) and Law 8.429/1992 (Administrative Improbidade Law).

2. It is also important to note that Brazil was already committed in the international scenario to fight corruption. In fact Brazil has ratified:

a) The Inter American Convention Against Corruption (IACAC), which was the first international anti-corruption convention, dated March 1996 and adopted in Caracas, Venezuela by the Members of the Organization of American States. It was signed on March 29th, 1996, approved by Congress on 06.25.2002 and enacted by Decree 4.410 dated 10.07.2002;

b) The OCDE – Organization for Economic Co-Operation and Development Convention on Combating Bribery of Foreign Officials in International Business Transactions, which was signed on December 17, 1997, approved by Congress on 06.14.2000 and enacted by Decree 3.678, dated November 30, 2000;

c) the Union Nations Convention against Corruption, dated 10.21.2003 and signed by Brazil on 11.09.2003 and enacted by Decree 5.687, dated January 31st, 2006.

3. Among other aspects, Law 12.846 is being discussed because of its broad terms. The Law is applicable to all business and companies, whether personified or not, regardless of its form of incorporation or organization, as well as it is applicable to foundations and civil associations, of legal entities or individuals.

4. It must be noted that even foreign companies that have an office, branch or mere agent in the country, even temporarily (as elucidates the sole paragraph of the first article of the Law) are under its effects.

5. The acts which are considered harmful to the Public Property (“Patrimônio Público”) national or foreign, and therefore unlawful, are those listed in article 5 of the Law, which are as follows:

I – To promise, to offer, or to give directly or indirectly, improper advantages to the public agents, or to a third party related to the latter;

II – To finance, to bear the expenses, to sponsor, or to engage by any means in an act defined as illegal by the Law, being those acts duly proven;

III – To use an individual or legal entity as an intermediary to hide or to conceal the actual intentions or the identities of the persons benefitted by the corruption acts;

IV – In what regards biddings and agreements:

a) To frustrate or to defraud, by any means, the competition in the public bidding procedure;
b) To avoid, to disturb or to defraud the performance of any act of the public bidding procedure;
c) To remove or try to remove any bidder by means of defraud or offer of any sort of advantage;
d) To defraud the public bidding procedure or agreement arising thereof;
e) To incorporate, in a fraudulent or irregular way, a legal entity to take part in the bidding procedure or to execute the public agreement;
f) To obtain advantage or undue benefit in a fraudulent way, regarding amendments or extensions of agreements executed with the Public Administration, without legal authorization, or not authorized in the noticed with invitation to bid or in its respective agreement;
g) To manipulate or to defraud the economic break-even point of the agreement;

V – To hinder surveillance or investigation of Public Agencies, Public Entities or Public Agents, including but not limited to the Regulatory Agencies and the Entities which control the National Finance System.

6. According to the Law, the company and the individuals who took part in the act will assume responsibility. The company’s liability is objective, meaning that there is no need to prove the intention to fraud or the guilt. That is a big difference as compared to the other Laws related to corruption mentioned in item 1 above. There the proof of misconduct and of the intention to fraud is necessary. On the other hand, the individuals (company’s employees who took part in the act, officers and directors) will be punished to the extent of his/hers culpability.

7. It is also important to highlight that the liability of the company will survive any form of corporate reorganization, such as amendments to the company’s articles of association or By-Laws, amalgamations, spin-offs, mergers. In such cases, the new company will be liable as a successor, but its liability (to pay the indemnification and fines) will be capped to the amount of the transferred assets, with the exception of fraud duly proven.

8. There is a presumption of joint liability between the companies belonging to the same Group, that means between the controlling company and its subsidiaries, affiliates and also between the companies which take part in a consortium.

9. According to the Law the investigation (administrative procedure) will be opened by the initiative of the supreme Authority of each Public body or entity in which there is a suspicious of corruption.

10. Such an authority will nominate a commission composed of at least two members who are government employees in the Public Body or Entity. Such commission has to conclude the work in a 180 day time period, meaning that it has to present a conclusive report and to suggest the penalties.

11. The company will have the right to present its defense in 30 days, counted as of its subpoena.

12. If the investigation is concluded by the imposition of a fine and such fine is not paid to the Treasury, the company’s name will be enrolled before the Non Payer’s List of the Public Administration (“CADIN”) and the debt will be collected by the Treasury

13. In the Estate of São Paulo, Decree 60.106/2014 was enacted to implement the Law. In such Estate the investigation may be started by the Secretary of Estate, by the Attorney General of the Estate and by the President of the General Internal Affairs in case of Public Entities belonging to the Direct Administration. In case of Public Entities belonging to the indirect administration the investigation may be started by the President of the entity. In the city of São Paulo Decree 55.107/2014 was enacted. According to such Decree, the City Auditing Committee is the only entity with powers toinitiate the investigation foreseen in Law 12.846/2013, regarding acts of corruption practiced against the Municipal Administration.

14. To the companies held responsible for the unlawful acts described by the Law, it may be applied a fine ranging from the amount of 0.1% (one tenth percent) to 20% (twenty percent) of the gross revenues, taxes excluded, of the previous year, that means the year before the administrative procedure was started. If it is not possible to determinate the amount of the fine, the fine will be fixed from R$ 6,000.00 (six thousand Reais) up to R$6,000,000.00 (six million Reais).

15. It is important to note that the payment of the fine does not exclude the company’s obligation to fully indemnify the damages and losses incurred as a result of the unlawful act.

16. It is also important to highlight that according to article 16 of the Law, leniency agreements may be offered to the company held responsible for the unlawful acts provided in the Law. The cooperation will have the purpose of identification of other parties involved in the offense, as well as to obtain documents and proof of the unlawful acts. The leniency agreements may reduce up to 2/3 (two third) of the fine imposed.

17. We call your attention to the fact that the investigation procedure foreseen in the Law 12.846/93 does not impair the possibility of the Prosecutor and or the Public Attorney bringing charges to the company by filing the competent civil or criminal actions. In such actions, among other penalties, the following may be imposed: (1) seizure of the assets, amounts or rights which were illegally obtained by means of the corruption acts; (ii) suspension or shut down of the company’s activities; (ii) company’s winding up; (iv) prohibition to receive incentives, loans, donation or any form of subventions by Public banks or by banks controlled by the Government Authority.

18. The statute of limitation for the acts foreseen in the Law is five years, counted as from the date of acknowledgment of the offense, or in the case of repeated violation, from the day it has ceased.

19. Foreign companies or persons may be subject to the Law even if the crime is committed abroad. This expanded jurisdictional coverage is controversial. According to Professor Modesto Carvalhosa, a famous scholar, article 7, paragraph 2 of the Brazilian Criminal Code must be observed in what regards the jurisdiction. Such an article states that the crimes which are committed abroad may be subject to the Brazilian jurisdiction if:

– Brazil is forced to repress such crime by means of executed Convention;

– The crime is committed by a Brazilian;

– The crime is committed in a Brazilian ship or airplane.

In addition to this, the Brazilian jurisdiction will be applicable if :

– the criminal comes to Brazil;

– the act must be considered a crime where it took place;

– the crime must be one of those to which Brazil authorizes extradition;

– the criminal must not have been declared innocent of all charges in the jurisdiction the crime took place.

19. Albeit that, Law 12.846 simply states that foreign companies or individuals residing and domiciled abroad are subject to the Law, even if the act of corruption took place abroad. As explained above, such provision may give rise to discussion.

20. Finally we would like to point out that an effective compliance program is a key component to show the company’s concern and values. To have an Ethics Booklet and to perform training sessions with the employees and the Board is highly recommended. It is also recommended to review the standard company’s agreements to include a non corruption practice clause, and, from time to time to review the suppliers and partners practices. These may help to prove that the company was focused in preventing corruption. However, those efforts do not eliminate the liability, but may be considered to mitigate the penalties.

This being all for the moment, we remain.

Sincerely Yours,

BARBARA BRENTANI RONCOLATTO

RICARDO BONILHA BRENTANI