The Effects of Covid-19 on Compliance Programmes in Brazil

In summary

This chapter aims to analyse the effects of covid-19 on Brazil’s compliance programmes. The public health crisis brought about by the pandemic made it imperative to adopt significant measures that introduced new risks of corruption in the business environment. This chapter examines the tools for preventing and detecting illicit acts implemented by Brazilian legislation, in particular the Anti-Corruption Law. The new risks for companies are discussed, as well as the respective actions that should be considered by contemporary compliance programmes. In concluding, the importance of aligning ethical values for maintaining integrity and ensuring protection under the rule of law will be assessed.

Discussion points

• New covid-19 pandemic challenges
• The relaxation of rules (Law No. 13,979/2020)
• Compliance programmes in Brazil
• Operation Car Wash and the Anti-Corruption Law (No. 12,846/2013)
• New risks to integrity and new strategies adopted in the face of the pandemic

Referenced in this article

• Law No. 13979/2020
• UK Procurement Policy Note
• Guidance from the European Commission on Using the Public Procurement Framework in the Emergency Situation Related to the COVID-19 Crisis
• The Capacity to Combat Corruption Index (2020)
• Operation Car Wash
• Anti-Corruption Law (No. 12846/2013)
• Federal Decree No. 8420/2015 and No. 9203/2017
• Rio de Janeiro State Law No. 7753/2017 and No. 46745/2019

Coping with the new covid-19 pandemic presents itself as the challenge of a generation. The speed and seriousness with which the crisis has spread across all continents shows its devastating potential to destabilise societies and economies, with even more damaging consequences in developing countries. In the face of urgent demands, the main objective of which is to save lives, quick decision-making as well as the implementation of drastic measures create opportunities for the practice of corruption, fraud and misconduct. In this context, once a state of emergency has been decreed, a new set of rules is imposed, seeking, for instance, to mitigate requirements in bidding procedures. Therefore, alignment with ethical principles that ensure integrity and guarantee the protection of the rule of law at all levels of government and business activities becomes vital.

This chapter aims to discuss the impacts of the pandemic in Brazil, notably in relation to the risks generated by the integrity policies adopted in the business environment. What are the new elements introduced in such an environment? What risks could challenge company performance? These, and other questions, will be addressed below.

Initially, it is worth remembering that corruption is a universally recurring phenomenon. Once detected, a trail of illegality is revealed and a series of measures to control and combat it are demanded. In Brazil, this phenomenon has gained greater visibility due to the countless scandals that have led to the emergence of several crimes so routine that they have taken root in the whole social organism, weakening the reputation of companies and institutions, in addition to causing incalculable losses to society. It is observed that, despite the implementation of control mechanisms, the practice of deviant acts exists because it is linked to the decisions taken by each individual in the face of the opportunity to gain undue advantages.

In developing countries, systemic corruption contributes to the weakening of the rule of law. Reality has shown that, even in the face of several convictions, the reiteration of deviant conduct exposes the ineffectiveness of the inhibitory and exemplary character of the law, perpetuating the historical practice of the phenomenon. In this scenario, the emergence of the pandemic caused by covid-19 added to the urgency of combating corruption; the need to relax measures in order to save lives being, without doubt, an unprecedented challenge. Thus, having to deal with new risks, the efficiency of compliance programmes has been put to the test; challenged to adapt and update procedures to meet the demands of the current crisis.

Brazil’s vulnerability is most evident when we consider the recent research carried out in Latin America. In the 2020 Capacity to Combat Corruption Index prepared by the Americas Society and Council of the Americas and Control Risks, which assessed the capacity of 15 Latin American countries to prevent, detect and punish corruption during the covid-19 pandemic, Brazil occupies the fourth position in the ranking. According to the index, countries with a higher score and consequently better ranking are more likely to prosecute and punish those who commit acts of corruption. However, although Brazil has relatively strong anti-corruption credentials, the study reveals a decline in the category called ‘legal capacity’. This data demonstrate that, despite the advances in the past decade, especially in the legal framework and control systems, much remains to be consolidated in the fields of ethics and integrity.

With the arrival of covid-19, a public health crisis developed, making it imperative to adopt emergency measures, such as the easing of controls, emergency financial contribution, remote work, among others, which culminated in the introduction of new risks for corruption scenarios in general.

In response, several countries have been urged to make fast decisions. Both the United Kingdom and the European Union published guidelines on faster emergency contracting. In South America, Colombia has adopted measures aimed at eliminating the need for public bidding for purchases made due to the pandemic, in addition to the mandatory disclosure of certain information on the government’s electronic public procurement platform.

In Brazil, Law No. 13,979/2020, as well as the decrees issued since the beginning of the pandemic, reduce the requirements for entering into public contracts and provide for limitations on the exercise of economic activities, procedures for donations, restrictions on the movement of people and mandatory use of protective equipment in commercial establishments, among other aspects. Such measures have resulted in greater interaction between the public and private sectors – and consequently increases the risk to integrity. The opportunity generated by the relaxation of rules, the pressure to maintain the business and the profitability of companies in times of recession, and the rationalisation of fraud – all in order to make illicit behaviour socially accepted and justified – are some of the elements that can result in a perfect storm for corruption.

It is in this environment – in which the efficient implementation of public health policies presents itself as an unavoidable measure – that the search for tools to prevent, detect and remedy the existence of illicit acts becomes even more essential.

It is important to note that deviations and fraud are phenomena of undesirable eventuality, with the ability to prevent the desired social policies from reaching their real recipients, in addition to making the success of policies to contain the pandemic unfeasible.

In relation to the business sector, the practice of irregularities and the achievement of undue gains in this period, even if they result in short-term advantages, can end up compromising the company’s reputation and generating corruption, which will take many years to be overcome. Faced with this scenario of uncertainty and crisis, the management of corporate integrity programmes, whose compliance and governance policies have recognised potential to mitigate risks of corruption, is of paramount importance.

It is worth mentioning that the debate on the implementation and continuous improvement of compliance programmes only recently gained momentum with the beginning of Operation Car Wash. The greater exposure to adverse effects for companies involved in criminal schemes and the enactment of a set of laws that, in addition to providing more transparency to public management, allowing for more robust action by the anti-corruption bodies, are some of the factors driving the culture of business integrity.

Thus, it is necessary to recognise that the requirement for the adoption of practices and tools aimed at preventing and detecting illicit acts is not exactly a novelty in Brazil. In fact, the mandatory creation of control structures to inhibit the practice of irregularities, especially in regulated environments – such as the financial or insurance sectors – already existed within several legal instruments and regulations issued by the government agencies. Examples of such are the very rules for combating money laundering, provided for in Law No. 9,613/1998 and expanded by Law No. 12,683/2012, which reach a significant number of private actors for whom the implementation of prevention mechanisms is mandatory.

However, it was only recently that the discussion was really amplified. In the legal field, it is valid to refer, among others, to some legal instruments:

• Law on Access to Information (Law No. 12,527/2011);
• Conflict of Interest Law (Law No. 12,813/2013);
• Law against Criminal Organizations (Law No. 12,850/2013);
• Law on State-Owned Companies (Law No. 13,303/2016); and
• the Anti-Corruption Law (Law No. 12,846/2013).

This legal framework allowed for the advancement of policies to combat corruption and generated undeniable incentives for the creation of preventive and remedial measures pertaining to illicit acts.

Specifically, the Anti-Corruption Law saw the introduction of civil and administrative liability for legal entities involved in crimes against the national and foreign public administration. The application of harsh sanctions in a strict liability regime and allowing for the possibility of leniency agreements for acts of corruption – an instrument that, until then, had its scope limited to antitrust offences under Law No. 12,529/2011 in Brazil – roused greater business interest in the adoption of a culture of corporate integrity. Despite anti-corruption legislation stipulating that the existence and application of these mechanisms being only capable of mitigating the application of the penalties provided for in the rule, the law’s potential to promote ethics and transparency in business environments is evident.

It should also be noted that, on regulating Law No. 12,846/2013 at the federal level, Decree No. 8,420/2015 lists the tools that must be present in these corporate compliance programmes (article 42) and that should be considered by the authorities for the reduction of a penalty or even monitoring the commitments made under leniency agreements. For example, mention is made to the integrity policy aimed at company employees and collaborators, risk analysis related to the practice of illicit acts, the need for complete and accurate accounting records and the creation of anti-corruption channels.

It can be seen, therefore, that in the past decade, these and other important compliance measures started to be intensely debated in Brazil and gained more prominence in the business environment. Compliance programmes have gained more stability and have become part of the day-to-day activities of companies that operate in the most diverse segments. The past five years in Brazil were marked precisely by this important debate that unfolded along two main prongs: the cost of corruption for our society and the integrity tools present in compliance programmes that can stop these advances.

In the wake of the federal regulation on the subject, some states have chosen to require that integrity programmes, similar to those outlined in Federal Decree No. 8,420/2015, be mandatorily implemented by legal entities that enter into contracts with the respective public administration. In other words, despite the fact that Law 12,846/2013 does not require the presence of these compliance tools in the business environment, their existence is a requirement for companies to enter into contracts with certain states, such as the states of Rio de Janeiro (Law No. 7,753/2017), Rio Grande do Sul (Law No. 15,228/2018) Amazonas (Law No. 4,730/2018) and the Federal District (Law No. 6,112/2018).

This set of rules, strengthened by the aforementioned circumstances that fostered the evolution of the fight against corruption in Brazil, resulted in a situation wherein the adoption of integrity mechanisms could take a prominent position on the agenda of business policies.

However, the arrival of the covid-19 pandemic and all its negative social and economic developments could put at risk some of the significant achievements obtained. Budgetary difficulties in maintaining efficient and continuous policies of corporate integrity, as well as the possible presence of elements that stimulate the practice of irregularities, may result in unwanted setbacks with regard to the creation of an ethical and transparent business environment, with the aforementioned reputational and financial consequences lasting for long periods and in often unpredictable ways.

On the other hand, this scenario also has the potential to consolidate the role of corporate compliance programmes as an efficient means of prevention. It is indeed precisely in situations marked by a crisis that the real scope of these measures can be verified and the perception of their benefits becomes more visible to the company, its stakeholders and the community itself. It is up to the manager of integrity policies to adapt these tools and to foster a new prioritisation of instruments for the prevention and detection of illicit acts, based on a risk matrix that takes into account the pandemic and the dissemination of its effects on the business of the legal entity.

It is a fight against a current, in which the attempt to minimise damage by cutbacks either in personnel or in the budget comes up against the subsequent weakening of control systems, the reduction of which may cause even greater losses for the business sector. Hence, the importance of assessing the company’s risks, as well as identifying possible new risks that represent decisive factors for establishing indicators and guiding adequate flexibility in the face of the pandemic. Additional challenges and risks, such as those arising from work done remotely or donations made to face the humanitarian crisis, must also be properly assessed. In the case of donations, the identification of conflicts of interest and the proper application of donated amounts require special attention from compliance policies, such as their frequency.

It is worth also mentioning that the speed and efficiency required in times of crisis do not dispense with transparency in organisational structures. On the contrary, the efficiency of said programmes requires greater transparency, particularly with regard to emergency purchases, where disclosure of the final beneficiaries attests to the smoothness of the company’s purposes.

One must also emphasise that in the management of integrity, in view of the tsunami effect brought about by covid-19, the role of ombudsmen is even more prominent, due to the potential increase in complaints related to the practice of corruption. In this context, it is important that complaint handling policies are adapted to the new factors introduced by the crisis.

In addition, ethical and integrity standards increasingly point to the preservation of values focused on human rights and the environment, and establishing sanctions or policies favourable to the public and private sectors. Policies and processes that prevent risks of violations of human rights as well as the environment must be implemented both internally by the company, through the provision of mechanisms to reduce contagion among employees, and in negotiations with suppliers where business partners that respect such policies are prioritised.

Corporate compliance programmes can be just the necessary weapon to prevent deviations to the detriment of social interests in this health crisis. The advances in the ethical field, already clearly identified in certain corporate segments, and the increase in social perception of the costs of corruption in recent years have the potential to curb setbacks in search for more probity and transparency in the relationship between public and private interests.

In fact, the next few years will be a real test for the culture of corporate integrity in Brazil. Therefore, maintaining the unrestricted and unequivocal support of upper management for integrity policies and the continuous compliance with business ethics are essential requirements in such an environment.

Finally, it is worth remembering that the discussion around good integrity policies has also reached the public sector. There were several actions aimed at creating an ethical environment in bodies under the federal branch and at other levels of government. For example, we note Decree No. 9,203/2017 at the federal level, Decree No. 46,745/2019 in the state of Rio de Janeiro and Decree No. 47,185/2017 in the state of Minas Gerais. This integrity system harmonises with corporate compliance measures already outlined and represents yet another tool capable of ensuring the adherence to the compliance rules during this pandemic.

In fact, the complex structures of the Brazilian public administration bodies require a specific set of rules that can deal with the different risks of corruption naturally identified in the provision of public services and in the implementation of public policies. Thus, these integrity policies focus on creating instruments similar to those verified within the scope of private organisations – with the creation, for example, of complaint channels and training courses – without forgetting the necessary adaptation to the specific characteristics inherent to the public activity and the peculiarities of governmental actions to be launched in the different locations in the country.

However, among the challenges arising from the pandemic in improving the efficiency of public integrity programmes, for example, the increased risks of the practice of acts of corruption and fraud in public contracts stands out due to the relaxation of rules for emergency contracting. If public procurement and tenders are routinely considered as one of the most significant risks to integrity, in times of crisis these same risks reach very high levels, as occurred, for example, during the humanitarian crisis caused by Hurricane Katrina in 2005.

Thus, a crisis situation combined with the relaxation of requirements for public contracts is seen by many as the ideal opportunity for abuse of power for private gain. In developed and developing countries, such as Italy, Germany, Serbia or Brazil, acts of corruption in public purchases related to the covid-19 pandemic have already been detected. In the face of this emergency scenario, policies and measures to prevent corruption, as is the case with traditional public integrity programmes, must adapt to the additional risks caused by the pandemic through the development of a contemporary anti-corruption action plan, to assist in decision-making by the crisis cabinets.

This chapter has sought to raise the awareness of another adverse effect of the covid-19 crisis. The possibility of corruption and fraud in this period of crisis constitutes an undeniable and vigorous element of risk for the consolidation of the progress achieved in the culture of corporate ethics. It will be up to the public integrity and corporate compliance policies themselves, through the development of action plans that contemplate additional risks of corruption brought about by the crisis, and to all who are committed to the maintenance and execution of their respective instruments, to overcome these obstacles, in order to allow the path to transparency, ethics and probity to continue be treated upon.