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The Investigations Review of the Americas 2019

Enforcer Overview: the Petrobras Case – Administrative Penalties for Corruption in Brazil

Head of the National Secretary of Internal Affairs, CGU

Head of the National Secretary of Internal Affairs, CGU

Corruption is a worldwide problem and a great challenge faced by all countries, to some degree. The state departments that deal with this issue and the anti-corruption agencies have been working hard to improve their cooperation to fight against transnational crimes. Furthermore, strong efforts are being made around the globe to combat domestic corruption cases.

Despite the overall concern to adopt sufficient and capable measures to reduce this kind of transgression around the world, each country has its own social, political and historical circumstances and different legal and practical needs. Thus, the government departments responsible for the design and implementation of the measures required to tackle corruption have to consider these distinct scenarios.

The objective of this article is to discuss a famous corruption case that took place in one of these situations. In the following paragraphs, I will summarise the main events of the Petrobras case in Brazil, and the efforts that are being made to effectively respond to the companies involved in the wrongdoing, considering specifically the administrative liability provided by the Brazilian legal framework.

It is important to note that Petrobras is a huge, publicly held company controlled by the Brazilian government that operates in the oil, natural gas and energy industry markets. Also an expert in deepwater technology, Petrobras is one of the largest companies in Latin America and a major international energy player, with business in several different countries.

The crimes revealed in the Petrobras case were discovered in Operation Car Wash. This massive criminal investigation was launched in 2014 and is being carried out by the Federal Police Department and by a task force of federal prosecutors in the State of Paraná, in Brazil. Over time, the investigations have spread to other states, like Rio de Janeiro and São Paulo.

The scheme consisted in the payment of bribes, bid-rigging and political party financing. In brief, the companies paid bribes totalling millions of dollars to officials at Petrobras and to Brazilian politicians to get inflated prices in contracts. The investigations have revealed multiple networks of embezzlement of public funds in Petrobras and in other publicly held companies.

Operation Car Wash has revealed that the biggest Brazilian construction firms were involved in these crimes and most of these companies participated in the cartel and paid kickbacks to secure improper advantages in the contracts. Due to this scheme, some of the construction firms were making huge illegal profits over the past few decades.

The Petrobras case started in the middle of a unique and special moment in Brazil, with two major events that took place in the country: the World Cup (2014) and the Olympic Games (2016). In addition, in 2013, street protests against the raising of transport fares became a march with thousands of people demanding a serious fight against corruption, and public investment in education and healthcare programmes. Also, during this period, Brazil experienced one of the strongest recessions in its history and a seemingly never-ending political crisis. The Petrobras case was an unexpected event in this tumultuous time.

Following this very brief introduction to the Petrobras case and the complex scenario out of which Operation Car Wash emerged, I shall now outline the administrative sanctions that are applied to the companies involved in transgressions. Of course, if a company commits an illegal act, it can face a civil lawsuit – not just an administrative proceeding – and is subjected to civil penalties, as well. Although there is no doubting the relevance of this issue, the purpose of this article is limited to an overview of the administrative sanctions and the applicable corresponding legal landscape.

So, what kind of administrative sanctions are the companies that committed transgressions in Petrobras subjected to?

At this point, it is important to explain two important laws in Brazil: the Anti-Corruption Law (No. 12846 of 1 August 2013) and the Public Procurement Law (No. 8666 of 21 June 1993).

The Anti-Corruption Law resulted from a commitment signed by Brazil related to the Organisation for Economic Co-operation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials. But, besides the possibility to apply penalties to corrupt companies that pay bribes to foreign public officials, the Anti-Corruption Law foresees civil and administrative liability to companies that commit domestic corruption acts, as has occurred specifically in Petrobras.

But the main point here is that the Anti-Corruption Law was enacted in 2013 and entered into force in January 2014. So, the wrongful acts committed before January 2014 are not subjected to that law. And in the Petrobras case most illegal acts were carried out before this date, and, consequently, it is not possible to apply the Anti-Corruption Law to the majority of the companies involved. So, which administrative sanctions could these companies face?

To answer this question, we have to know about the Public Procurement Law, which is similar to the Federal Acquisition Regulation in the United States. According to the Public Procurement Law, if a company has committed a severe transgression in a contract with the government or in a public auction it could be subjected to certain penalties, such as debarment.

Debarment is a very severe penalty. The debarred company can no longer have contracts with the government and is not allowed to participate in public auctions. Note that some companies get more than half of their earnings from contracts with the government, so in these cases, debarment is tantamount to a death penalty for these companies.

Debarment is the most severe penalty in the Public Procurement Law, but other sanctions do exist. For instance, it is possible for a legal person to be penalised with a suspension or a fine in cases where they have committed minor transgressions in contracts or even in a public procurement auction. However, debarment is undoubtedly the most feared penalty.

When it comes to administrative liability, although it is not possible to apply the Anti-Corruption Law to corruption cases in Petrobras, it remains possible to apply the provisions of the Public Procurement Law, considering that we are dealing with transgressions related to contracts in Petrobras.

The sanctions provided in the Public Procurement Law can be applied by the government department or the state-owned company that has been victim of the illegal act. Thus, regarding the facts that were revealed in Operation Car Wash, Petrobras can open an administrative proceeding and apply debarment or other administrative penalties set forth in the Public Procurement Law or its own internal rules.

In some relevant cases, however, for example those that involve vast amounts of money, the Ministry of Transparency and Comptroller-General (CGU) can enforce the sanctions provided in the Public Procurement Law. Therefore, in these particular situations, the CGU can trigger an investigation, open an administrative procedure and apply the penalties. This is valid for the entire executive branch, including Petrobras and other state-owned companies. Consequently, the CGU has started more than 30 administrative procedures and investigations related to the companies that are involved in the Petrobras case.

Of course, this kind of attribution is not new to the CGU. Indeed, since the creation of the CGU 15 years ago, this government department has been working to impose penalties on legal persons as well as on public employees. At this moment, the CGU is conducting over 100 administrative disciplinary procedures against public employees who committed transgressions in their work. The most severe penalty that can be applied to these people is dismissal.1

At the same time, the CGU is supervising more than 1,000 administrative procedures in progress against public employees carried out by different government departments. As a result of this work, over the past few years, the executive branch has dismissed more than 5,500 public employees who committed different kinds of transgressions, 550 just in 2016.

Concerning penalties applied to legal persons, more than 40 debarment penalties have been imposed by CGU over the past five years.

One of these penalties was applied to the Delta Company, one of the biggest Brazilian engineering companies, which had a lot of contracts with the government, both federal and local, to build roads, bridges, facilities and various other infrastructure. A debarment penalty was imposed due to illegal payments made to public officials from the Transport and Infrastructure Department.

And what are the results of these 30 administrative procedures and investigations that have been triggered by the CGU over the past four years related to Operation Car Wash?

As of April 2018, more than half of these procedures were concluded and eight debarment penalties have already been applied to these companies.

In addition, the CGU has been negotiating an administrative leniency agreement2 with others to get some important information concerning transgressions that may have been committed. In 2017, an important leniency agreement was closed with a big Brazilian engineering company involved in Operation Car Wash. The company agreed to pay 574 million Brazilian reals, due to damages in Petrobras. As explained before, regardless of the fact that, for the most part, the administrative penalties foreseen in the Anti-Corruption Law are not applied, it is still possible to impose debarment, which has a strong dissuasive and punitive potential. It should be noted that most of the engineering companies whose misconduct was identified in Operation Car Wash usually have contracts with other publicly held companies or state departments, which makes debarment all the more of a deterrent to them.

The imposition of a penalty, even an administrative one, must be based on clear and convincing evidence. Thus, there are natural obstacles to applying sanctions in complex and hard-to-identify crimes, as have occurred in the Petrobras case. However, the results are starting to show and the debarment penalties already applied make it clear that these obstacles are starting to be overcome.

Also, due to the fact that Brazil is a state party of the OECD Anti-Bribery Convention, the Anti-Corruption Law allows the sanctioning of Brazilian companies involved in international corruption cases. Regarding to administrative liability, the CGU has the competence to apply the administrative penalties in these cases. As explained before, it is not possible to enforce the Anti-Corruption Law in cases occurred before January 2014. Even so, the CGU has already triggered more than 10 administrative procedures to investigate possible transnational bribery cases occurred after this date and related to Brazilian companies.

The results mentioned in this chapter relate only to the administrative liability. Of course, other important outcomes are being achieved in the civil and criminal lawsuits in progress in the courts. The great efforts that are being made by the Brazilian authorities have ensured the due application of civil, criminal and administrative penalties to the persons, legal or natural, involved in the crimes committed in Petrobras and in other publicly held companies.

Of course, there is still a long way to go and many challenges to be overcome in the next few years. However, the first steps to really deal with historic Brazilian problems have already been taken. Maybe, in 10 or 15 years’ time, it will be possible to look back and see that a lot of the progress that Brazil has achieved came from the actions that took place during this complex period.

Notes

1 According to Brazilian law, the dismissal of a public servant from any government department has to be preceded by an administrative procedure, which gathers evidence related to a severe wrongdoing committed by this employee.

2 The Anti-Corruption Law, article 16, provides that a leniency agreement may be entered into in respect of administrative proceedings where the company self-reports and willingly cooperates in the investigation. As a result of the agreement, any fine will be reduced by up to two-thirds, and the company will be exempt from certain sanctions.

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