Global Investigations Review - The law and practice of international investigations

Americas Investigations Review 2020

Understanding Leniency Agreements in Brazil

Former Head of the National Secretary of Internal Affairs, CGU

It is indisputable that Brazil has been experiencing a unique period in relation to the fight against corruption. The revelation of complex criminal schemes that permeated public and private institutions, with the involvement of authorities occupying key decision-making positions, intensified the debate about the need to promote good practices in the business environment and to provide an efficient response to those involved in said crimes.

In recent years, we have witnessed a considerable advance of investigations related to corruption cases, with the arrest of politicians and businessmen involved in irregularities. Also, the return of millions of Brazilian reais diverted from public funds was possible.

Simultaneously, the country went through a time of economic recession, in addition to hosting two major international events: the World Cup and the Olympics. In fact, some recent research indicates that such events, despite the country’s undoubted potential for economic and touristic leverage, may have also been used to carry out over-budgeted works to enrich public and private agents involved in corruption schemes.

In this scenario, the advancement of a new set of rules aimed at the repression of acts of corruption and the promotion of good practices within the public administration, especially in the public–private relationship, is an important element. Popular pressure and greater room for debate about the need for a more ethical environment within organisations played a key role in this outcome.

These new laws have allowed substantial advances in the investigation of transgressions occurring within public bodies and entities, as well as ensuring an efficient response to those involved in these crimes. The application of severe fines and other sanctions to corrupted and corrupting parties ensures that both sides of this crime are duly punished.

Transparency and anti-corruption measures have also gained pace, with new rules allowing for the advancement of these issues within the public administration. The discussion about the need to increase integrity measures in the private sector has also reached a prominent position, with rules that encourage legal entities to adopt proper compliance mechanisms.

Some new laws deserve prominence, such as Law No. 12.527 of 18 November 2011 (Freedom of Information Act), Law No. 12.813 of 16 May 2013 (Conflict of Interests Act), Law No. 12.850 of 2 August 2013 (Organized Crime Act), Law No. 12.683 of 9 July 2012 (which amended Law No. 9.613 of 3 March 1998 – the Money Laundering Act) and Law No. 12.846 of 1 August 2013 (Anti-Corruption Act or Clean Company Act).

The Freedom of Information Act has changed the paradigm of the treatment of information that is under the care of public bodies and entities. Secrecy is an exception and must only be present in exceptional and duly justified situations. The rules established in the law are national in character, which indicates that the union, states and municipalities must observe them.

With a focus on the public–private relationship, the Conflict of Interest Act has presented an important set of rules and principles that must be observed by public agents who have held or still hold decision-making positions in the federal administration. These agents are now barred from a particular set of behaviours, so that failure to comply with these rules may result in severe penalties for those involved.

From the criminal perspective, it is worth mentioning the amendment introduced by Law No. 12.683 in the Money Laundering Act, which significantly expanded the list of antecedent behaviours capable of generating a subsequent illegal money-laundering crime. In addition, there has also been an increase in the number of private agents subject to the rules of money laundering prevention.

Lastly, the Anti-Corruption Act deserves special mention, as it substantially innovated the Brazilian legal framework by providing for administrative and civil liability of legal persons for corruption in Brazil and abroad. In addition, it was precisely the Anti-Corruption Act that brought about the possibility for companies involved in corruption to enter into leniency agreements with the public administration, in order to obtain mitigation of or even exemption from certain sanctions.

To introduce the discussion, it is firstly necessary to understand some aspects of the Anti-Corruption Act, mainly the legal persons subjected to these rules, which are the public bodies and entities responsible for its application

Initially, it should be emphasised that Law No. 12.846/13 provides that legal persons will be administratively and civilly liable for an act of corruption, as explained below.

In Brazil, the practice of an act of corruption can result in criminal, civil and administrative consequences.

Criminal liability due to acts of corruption applies only to individuals. Thus, in Brazil, criminal liability of a legal person for an act of corruption is not possible. The practice of criminal acts by a business organisation can result in criminal sanctions only for employees, partners or other natural persons who have engaged in the offence. It will be up to the Public Prosecution Office to initiate criminal proceedings and, along with the respective police unit, to use the investigative tools necessary for the investigation of the case. It is within this context that the individuals involved in criminal practices can take a plea bargain and collaborate with an investigation in exchange for mitigating the penalties that may be applicable.

Civil liability, like criminal liability, depends on a court case. In cases of corruption, it is possible to apply the sanctions provided for in Law No. 8.429/92, known as the Administrative Misconduct Act, which provides for penalties for public officials who committed a crime and persons, both individuals and corporations, who participated in that criminal act. Penalties will be enforced by means of a judicial decision, which will be issued in proceedings put forth by the Public Prosecutor Office or the public advocate of the body or entity.

As mentioned, unlike criminal penalties, the civil sanctions provided for in the Administrative Misconduct Act can be applied to both individuals and legal entities. Thus, despite not undergoing criminal proceedings, a company involved in an act of corruption may be held civilly liable.

Within this context, it is important to point out that, in accordance with paragraph section 1, of article 17 of the act, it would not be possible for companies involved in acts of corruption to enter into agreements to mitigate or dismiss civil sanctions provided for in the Administrative Misconduct Act. However, based on other national laws and in international treaties, both the Federal Prosecution Service and the Federal Attorney General’s Office have entered into agreements in such cases.

Like the Administrative Misconduct Act, the Anti-Corruption Act provides for the possibility of applying civil sanctions to agents involved in acts of corruption, but such penalties are limited to legal entities and do not reach public servants involved in transgressions.

In relation to administrative liability for acts of corruption, Law 12.846/13 provides for legal entities involved in corruption facing the possibility of fines and making the condemnatory decision public:

Article 1. This Law provides for the strict civil and administrative liability of legal entities for acts committed against national or foreign public administration.

Article 6. Within the administrative sphere, the sanctions listed below shall apply to legal entities held liable for the wrongful acts provided for in this Law:

I - a fine in the amount of 0.1% (zero point one percent) to 20% (twenty percent) of the gross revenues earned during the fiscal year prior to the filing of administrative proceedings, excluding taxes, which shall never be lower than the obtained advantage, when it is possible to estimate it; and

II - extraordinary publication of the condemnatory decision. [1]

It should be noted that in this legal framework, it will be incumbent upon the injured body or entity to trigger an administrative procedure and apply the respective administrative sanctions to the legal entities involved in the crime: [2]

Article 8. The filing and decision of an administrative proceeding to determine the liability of legal entities shall be carried out by the highest authority within each agency or entity of the Executive, Legislative or Judicial Branches, which shall act ex officio or upon request, in compliance with the due process and full defense principles.

Thus, if an act of corruption is committed in a particular regulatory agency or even in a state-owned company, it will, as a rule, be up to such organisations to trigger an investigation and apply the proper penalties.

It is important to point out that the Anti-Corruption Law is national in nature and, therefore, even state or municipal public bodies will have jurisdiction to initiate an investigation based on the law and apply the appropriate administrative penalties.

In this way, a single act of corruption committed by a company, such as the payment of bribes to a public official to ensure undue advantages in a bidding procedure, can result in different sanctions for the private agents involved: criminal and civil for natural persons, and civil and administrative for legal persons. [3]

However, regarding administrative liability, the Anti-Corruption Law presents us with an important instrument of investigative leverage and recovery of amounts diverted from public coffers: the leniency agreement.

First and foremost, it is noticeable that leniency agreements already existed within the Brazilian legal framework. In fact, such instruments have already been used by the Administrative Counsel for Economic Defence (CADE) in competition related matters, with approximately 100 signed agreements. [4]

However, with respect specifically to administrative accountability for acts of corruption, Law No. 12.846/13 innovatively provided the possibility for administrative authorities to enter into leniency agreements with legal entities, with reduction of, or exemption from, sanctions in exchange for the company’s cooperation in the investigation of the facts.

According to article 16 of the law, certain conditions must be met before entering into such agreements:

Article 16. The highest authority of each public body or entity may enter into a leniency agreements with the legal entity liable for the performance of the acts provided for in this Law that effectively collaborate with the investigations and with the administrative proceeding provided that such collaboration results in:

I - the identification of the ones involved in the offense, whenever applicable; and

II - rapidly obtaining information and documents that prove the wrongful acts under investigation.

Paragraph 1. The agreement referred to in the head provision of this Article may only be executed if the requirements listed below are fulfilled cumulatively:

I - the legal entity is the first one to come forward and demonstrate its willingness to cooperate with the investigation of the wrongful act;

II - the legal entity completely ceases its involvement in the investigated offense as of the date the agreement is proposed;

III - the legal entity admits its participation in the wrongful act and fully and permanently cooperates with the investigations and administrative proceedings, always attending, at its expense and whenever requested, to all procedural acts until the end of the case.

Thus, it is up to the company involved in corruption to seek the body or entity responsible for the investigation and express their interest in collaborating with the investigations. At the federal level, the competence to enter into agreements is concentrated in the Office of the Comptroller General (CGU). In the same way, several states, such as the state of Rio de Janeiro, have chosen to focus this attribution on a single administrative body.

And how should such collaboration with the administrative authorities occur?

First, it is essential that the company admits its participation in the wrongful act, even if such confession is limited to the recognition of the transgression along the lines of strict administrative liability. The mere assumption of the practice of acts of corruption is not enough.

The cooperating company must also demonstrate that it ceased its participation in the investigated offence from the moment it proposed the agreement. For example, in the case of continuing payment of bribes to public agents of a particular state-owned company, the legal person must demonstrate that such wrongful act ceased prior to proposing an agreement.

The requirement to be the first to come forward about any wrongdoing is also present. However, at the federal level, this requirement must be observed only when this circumstance is relevant to the case. In addition, such a rule should be observed only in schemes involving more than one corrupting agent.

Full and permanent collaboration by the company is an essential requirement to enter into a leniency agreement. In fact, throughout the negotiation phase, evidence that shows participation of other individuals and legal entities in the illegal act, including participation of public agents, should be presented.

Although not expressly provided for in the Anti-Corruption Act, it is usual – and even obligatory when it comes to agreements at the federal level – that there is the requirement to implement or improve compliance programmes in order to prevent, inhibit and repress the practice of transgressions.

And what are the benefits that can be obtained by the collaborating company?

The Anti-Corruption Law dealt with the matter in the following terms:

Article 16, Paragraph 2. The execution of the leniency agreement will exempt the legal entity from the sanctions provided for in item II of Article 6 and in item IV of Article 19 and will reduce the amount of the applicable fine by up to 2/3 (two-thirds).

Article 17.  The public administration may also enter into leniency agreements with legal entities liable for illegal acts under Law n. 8,666, of June 21, 1993, in order to exclude or mitigate the administrative sanctions established in articles 86 to 88.

Thus, regarding administrative liability, the company that enters into a leniency agreement can get a reduction of up to two-thirds on the fine that would have been applied. This fine can range from 0.1 per cent to 20 per cent of the gross revenues earned during the fiscal year prior to the filing of administrative proceedings. In some cases, the fine can reach 60 million Brazilian reais. Also, the leniency agreement can exempt the extraordinary publication of the condemnatory decision by the company.

The Anti-Corruption Act allows the mitigation of or even exemption from the sanctions provided for in the Public Procurement Law (No. 8666 of 21 June 1993). One of the penalties provided in the Public Procurement Law is the debarment, which is a very severe penalty, since the debarred company can no longer have contracts with the government and is not allowed to participate in public auctions.

However, it was mentioned before that, a company involved in an act of corruption can also face civil sanctions. Thus, how is it possible for leniency agreements to produce effects concerning civil liability?

In the federal branch, the CGU and the General Attorney’s Office (AGU) make the participation of both organisations in the leniency agreement mandatory. Therefore, taking into account that AGU is one of the public bodies that may file a civil lawsuit against the company involved in the corruption act, its participation on the leniency agreement assures the mitigation of, or even exemption from, civil sanctions.

To conclude, in view of what has been discussed, it is undeniable that since the leniency agreements related to acts of corruption were introduced in our legal framework by the Anti-Corruption Law, relevant advancements have been made to ensure more legal certainty. Elsewhere, the possibility of the mitigation or exemption of civil sanctions and penalties provided for in the Public Procurement Law encourages companies to self-report their own crimes and enhance compliance measures. In this context, it is certain that the leniency agreement has the potential to become an important tool to leverage investigations related to corruption and strengthen the fight against these crimes.


Notes

[1] The full English version text of the Anti-Corruption Law can be found on the Federal Prosecution Service website: www.mpf.mp.br/atuacao-tematica/sci/normas-e-legislacao/legislacao/legislacao-em-ingles-1.

[2] In the case of transnational bribery, the Office of the Comptroller General (CGU) will apply the sanctions to the Brazilian companies involved.

[3] In addition to the sanctions herein, others could certainly be applied to the private agents involved, such as an administrative penalty imposed by CADE due to a competition regulation transgression. However, for the purposes of simplification of the object of study herein, one limited oneself to the main rules applicable to acts of corruption.

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