Anti-corruption in Brazil: Current Status and the Next Steps

In summary

This article discusses anti-corruption developments in Brazil in the past 12 months and what to expect in the future.

Discussion points

• Perceived levels of anti-corruption efforts in Brazil
• Relevant anti-corruption and compliance-related developments in the past 12 months
• Brazil’s Federal Government Anti-Corruption Plan

Referenced in this article

• Attorney-General’s Office
• Office of the Comptroller-General (CGU)
• CGU’s Ordinance No. 1,214/2020
• Organisation for Economic Co-operation and Development
• Federal Prosecutor’s Office
• Supreme Court
• Federal Court of Auditors
• Technical Cooperation Agreement on Leniency

Introduction: Perceived levels of anti-corruption in Brazil

In October 2019, Transparency International released a report titled ‘Brazil: Setbacks in the Legal and Institutional Anti-Corruption Frameworks’.^[1] The report highlights how certain anti-corruption developments in the recent past were under serious threat following legal and institutional changes.

A year later, Transparency International felt ‘compelled to publish [a 2020] update to once again denounce further deterioration of the country’s laws and institutions’.^[2] The report presented setbacks in the legal and institutional anti-corruption framework, including political interference in law enforcement institutions, the reversal of a legal precedent by the Supreme Court that had been upheld since 2016 and that barred imprisonment before all possible appeals are exhausted, and discontinuation of task forces, among other remarks.

Echoing the assessment by Transparency International, the Organisation for Economic Co-operation and Development (OECD) made the unprecedented decision in March 2021 to create a permanent working group to monitor the situation in Brazil.^[3] Apparently alarmed at recent setbacks in Brazil’s anti-corruption battle, the OECD has seen fit to keep constant vigilance over the country’s attempts to curb corruption.

Since mid-2019, the OECD has voiced its concerns about Brazil’s ability to remain committed to meeting its obligations under the OECD Anti-Bribery Convention. More than once since then, the OECD has drawn attention to what it considers to be ‘threats to the independence and capacity of law enforcement to fight corruption’^[4] in Brazil, urging the government to react accordingly.^[5]

Recent developments

The following sections highlight the key anti-corruption and compliance-related developments in Brazil in the past 12 months.

A view from within: relevant data on Brazil’s level of enforcement activity

Interestingly, even though the perception of Brazil’s anti-corruption environment seems to have deteriorated in recent years, the level of enforcement actions undertaken by certain government authorities would suggest otherwise.

If those abroad imagine that Brazil’s efforts to combat corruption seem to be waning, those notions are not shared by those closely monitoring the commitment of the Office of the Comptroller-General (CGU) to bring enforcement actions against those that violate Brazil’s Clean Company Act.^[6]

According to information gathered by the CGU since the Clean Company Act was enacted, there has been a steady increase in the number of administrative proceedings initiated by the CGU to investigate allegations of misconduct (known as PAR proceedings). As shown in the chart below,^[7] this growth trend has even been observed in 2020, a year marked by the devastating effects of the covid-19 pandemic.

In terms of leniency agreements entered into with the CGU, a similar trend can be observed (below).^[8] Even though there was a marked decrease in 2020 in the number of leniency agreements signed with the CGU, there are clear signs of a recovery by mid-2021, with three agreements signed.

A growth trend can also be observed when comparing the number of leniency agreements with the Federal Prosecutor’s Office (MPF) in 2019 and 2020 (respectively) and ratified by the MPF’s fifth Chamber of Coordination and Review.^[9]

New developments concerning leniency agreements

Technical Cooperation Agreement on Leniency

In August 2020, a Technical Cooperation Agreement on Leniency (TCA) was signed by relevant Brazilian authorities in the fight against corruption – the CGU, the Attorney General’s Office (AGU), the Ministry of Justice and Public Safety and the Federal Court of Auditors (TCU). Even though MPF is also listed in the TCA as a signatory, it has not signed the agreement. In fact, MPF’s 5th Chamber of Coordination and Review has issued a formal opinion advising MPF against adhering to the terms of the TCA.^[10] Nevertheless, the MPF has been participating in relevant leniency agreements.

The aim of the TCA is to control the organised efforts of its signatories in their pursuit of coordinated and simultaneous anti-corruption enforcement actions, especially those in respect of leniency agreements. The following paragraphs summarise the main provisions brought forth by the TCA.

The CGU and the AGU are responsible for the negotiation and formalisation of leniency agreements under Brazil’s Clean Company Act and will be responsible for forwarding relevant information about matters under the TCU’s jurisdiction for its appraisal.

If, during the course of an investigation, the MPF, the TCU or the Federal Police come across relevant information regarding wrongdoing perpetrated by a company, they must inform the CGU and the AGU,^[11] which will, in turn, enforce the appropriate provisions of the Clean Company Act.

If, however, during the course of an investigation or proceeding initiated under the Clean Company Act, the CGU learns of the involvement of an individual, it should notify^[12] (1) the MPF and the Federal Police, so that these entities can pursue any appropriate legal action to hold the individual criminally liable for his or her actions, and (2) the AGU and the MPF to take legal action to hold the individual liable under the Administrative Improbity Law.^[13]

The TCA also focuses on how information gathered as a result of the cooperation of a company seeking to enter a leniency agreement with the authorities is to be shared by and among its signatories. Special attention is paid to the information received as part of leniency agreements, whose primary recipients and custodians are the CGU and the AGU: this information may not be used by the MPF, the TCU or the Federal Police against the company that cooperated with the CGU and the AGU; only other companies and individuals involved in the misconduct can be held liable by the MPF, the TCU or the Federal Police as a result of the shared information.

Additional relevant aspects of the TCA also provide for (1) the need to have the signatories create appropriate mechanisms for compensation and the deduction of fines originating from a single set of facts, thus avoid punishing companies for conduct already considered by another signatory under a different statute (i.e., ne bis in idem), and (2) the importance on having the signatories adopt a single standard for assessing damages and fines.

TCU’s ability to impose additional sanctions

In addition to the new framework proposed by the TCA when dealing with leniency agreements, in March 2021 the Supreme Court (STF) issued a decision that has particular relevance to the TCU’s ability to impose additional sanctions on companies that have already entered into leniency agreements with other relevant authorities.

According to the STF’s decision, the TCU is not allowed to debar a company that has previously entered into a leniency agreement with other public administration entities, based on the same facts that have given rise to the agreement in the first place.

In the matters specifically addressed by the decision, the court lifted a company’s debarment. To back his decision, Justice Gilmar Mendes emphasised the two main goals that should guide the interpretation of the many leniency regimes that coexist in Brazil’s anticorruption framework: (1) institutional alignment of the entities responsible for the enactment of leniency agreements; and (2) the importance of preserving legal certainty in a way that gives those cooperating with authorities the required predictability as to the sanctions and benefits associated with their cooperation.

However, Justice Gilmar Mendes also made clear that the court’s decision does not entirely exclude the TCU’s punitive aspirations when a leniency agreement has already been concluded. The TCU should still be able to review a matter already subject to a leniency agreement to determine whether additional damages may be claimed by the public administration. However, no debarment can be imposed if a company has signed a leniency agreement and has not breached it.

Evaluation of compliance programmes

Publication of PAR Proceedings

Another interesting development took place at the end of 2020. The CGU’s activities started to make publicly available relevant information and documents pertaining to PAR proceedings it had finalised by it.^[14] The availability of this material enables anyone interested in understanding CGU’s thought process to examine the type of evidence presented in the proceedings, the considerations made and the decisions reached. It opens a door into the analysis carried out by the CGU, allowing for more transparency of its enforcement of relevant anticorruption statutes and regulations.

In addition to the insight into the interpretation and enforcement of relevant legal provisions, the documents made available on CGU’s database leave no doubt as to the level of importance it gives to a company’s implementation of a compliance programme. This is particularly relevant for companies wishing to do business in Brazil as it provides relevant insight into CGU’s evaluation of compliance programmes and highlights the benefits to be derived from the existence of an effective compliance programme (e.g., reduction of fines).

The cases also seem to indicate that either many of the companies subject to enforcement actions did not have a compliance programme in place or had one that was considered inadequate, thus granting no credit for the company. In some cases, even if a compliance programme had been evaluated, the credit given was only about half of the maximum credit that a company can receive in connection with the adequacy of its compliance programme.

Pró-Ética Report

In October 2020, the CGU issued a new version of the Pró-Ética Report^[15] on the progress of the Pró-Ética Register in the 2018–2019 biennium.

The Pró-Ética Register, which has existed since 2010, comprises an initiative founded by Instituto Ethos and the CGU that promotes and fosters voluntary adherence to best practices in the implementation of corporate integrity programmes. The main objective of the initiative is to encourage companies to adopt integrity best practices by publicly advertising their adoption of such practices as a means of recognition.

To be registered as a Pró-Ética Company, six aspects of the organisation are evaluated: tone at the top; policies and procedures; communication and training; hotline and remediation; risk assessment and monitoring; and transparency and social responsibility.

These criteria are in line with the provisions of both the Clean Company Act and Federal Decree No. 8,420/2015, which regulates important provisions of the Clean Company Act, including setting the parameters to evaluate effective compliance programmes.

In addition to being a relevant anticorruption initiative in Brazil, the reports issued by the Pró-Ética also provide companies with comprehensive guidelines about the potential pitfalls associated with implementing effective compliance programmes from the perspective of the authorities regularly involved in analysing corporate compliance programmes, such as the CGU.

Compliance in the context of public procurement

New Public Procurement Law

In April 2021, a New Public Procurement Law was enacted (Federal Law No. 14,133/2021), creating a new regime for public bidding proceedings and contracts with the public administration.^[16] The main provisions brought about by the new Law that are relevant from an integrity standpoint include the need to have a successful bidder in major hirings (of more than 200 million reais, or about US$38 million), to implement a compliance programme within six months of the date of signing the related contract with the public administration for building projects, and the provision of services and goods of considerable value.

The new Law outlines the benefits for bidders who adopt comprehensive compliance programmes (which should encompass sustainable corporate practices and promote diversity in the workplace). The existence of a compliance programme can also serve as a tie-breaker between equal bids, as well as an important factor to be considered if a company finds itself in the position of being sanctioned, fined or otherwise punished for misconduct associated with the bidding proceedings or contracts entered into with the public administration.

Finally, administrative infractions provided for both in the New Public Procurement Law and in the Clean Company Act will be investigated and prosecuted jointly in a single administrative proceeding.

Note that even though the New Public Procurement Law has already been enacted, a two-year transition period has been established by the Law itself and it will not come into full effect until the end of this period. In the meantime, public administrators will be allowed the prerogative to choose whether to apply the new law or the previous ones.

CGU Ordinance No. 1,214/2020

In June 2020, the CGU issued Ordinance No. 1,214/2020, which establishes rules and proceedings for the rehabilitation of individuals and companies debarred by the CGU under the provisions of the Public Procurement Law.

According to the Ordinance, companies and individuals that have been debarred by the CGU may request to be reinstated and regain the ability to participate in public bidding proceedings and to enter into contracts with public administration entities.

To be reinstated, companies and individuals must cumulatively comply with the following requirements: (1) the passing of the two-year debarment term characterised by the prohibition to take part in public bidding proceedings and to enter into contracts with public administration entities; (2) full disgorgement of the damages produced by the entity or individual to the public treasury; and (3) adoption of measures – such as the implementation of an effective compliance programme^[17] – that show that the reasons that motivated the misconduct that led to the debarment have been overcome.

In addition to the possibility of reinstatement introduced by the Ordinance, companies should also note the importance placed by the CGU on the need to keep appropriate records pertaining to the effectiveness of a company’s compliance programme.

The Ordinance is clear when asserting that all requests for reinstatement must be accompanied by supporting documentation attesting to the company’s compliance with the three above-mentioned prerequisites.

Ordinance No. 1,214/2020 makes a clear reference to another of the CGU’s Ordinances when establishing the type of supporting documentation it expects to receive as evidence of an effective compliance programme, namely Ordinance No. 909/2015, which specifically sets the parameters for the preparation of a company’s profile report^[18] and integrity report.^[19]

What to expect in the future

Despite the setbacks in the fight against corruption in the recent past, there have been important developments. As has been mentioned, the CGU has been increasing the number of enforcement actions in the context of the Clean Company Act, which is expected to continue.

Moreover, in December 2020, the federal government issued its Anti-Corruption Plan^[20] which sets forth 142 actions with the aim of enhancing the mechanisms of prevention and detection, and associated with holding entities and individuals liable for corrupt acts. The actions listed in the plan should be implemented before 2025 and are especially relevant as they chart the way forward in terms of how the Federal Executive Branch expects to organise its anticorruption efforts.

The actions listed in the Anti-Corruption Plan are meant to be carried out by entities other than the federal government itself, such the AGU, CADE,^[21] the CGU, the Federal Police, the Central Bank, among others.

The following is a summary of the most noteworthy action items and the organisations expected to carry them out:

• Prepare a study to assess the enactment of possible alterations to the Clean Company Act (CGU).
• Alter the provisions of Federal Decree No. 8,420/2015, which regulates relevant aspects of the Clean Company Act (CGU).
• Propose regulations that contain criteria for the granting of discounts in the fines included in leniency agreements (CGU).
• Update the regulations and other related materials associated with the evaluation of corporate compliance programmes (CGU).
• Update the regulations addressing leniency agreements in accordance with the provisions of the TCA of August 2020 (CGU and AGU).

Notes