Brazil: Internal Investigations and Cooperation with Enforcement Authorities

In summary

Brazil has made outstanding progress towards a more ethical corporate world in the past decade. At the heart of this progress, internal investigations have become an essential tool in the war against corruption. Brazilian companies have implemented internal investigations using the US model. However, not all measures used in other countries are suitable in Brazil, which still has a paternalistic labour mindset in its judicial system. This article discusses particular points of difference in corporate investigations while updating important developments in the past two years of cooperation with enforcement authorities.

Discussion points

• Internal investigations in Brazil
• Relevant cultural aspects
• Brazilian enforcement authorities
• Latest examples of leniency agreements

Referenced in this article

• Brazilian Anti-Corruption Law (the Brazilian Clean Company Act (BCCA)), Law No. 12846
• Decree No. 8420/2015, which regulates the BCCA
• Law No. 12850/2013
• Compliance Programme: Guidelines for Private Companies, September 2015, issued by the Brazilian Comptroller-General of the Union (CGU)
• CGU’s Normative Ruling No. 2, regarding approving the methodology for calculating administrative fines
• Orientation 10/2020, issued by the Federal Prosecution Office

Introduction

Brazil has become a good example of the advance of compliance in the corporate world. Unfortunately, the nation owes this to the infamous corruption scandals involving once very respectable companies responsible for the greatest successes in our economy. As a result, Brazil has a market in which unethical businesses find it difficult to prosper, although the same cannot be said at this moment about the political community and certain other institutions in the country.

The investigations behind the scandals have been known all over the world as Operation Car Wash. Although it has largely involved the giant state-owned multinational oil and gas corporation, Petrobras, several other nations have been caught up in the scandals.^[1]

The modern anti-corruption model for corporate investigations was devised in the United States as a result of the enactment of the Foreign Corrupt Practices Act (FCPA) after the US Congress investigated the Democratic Party’s activities during the re-election campaign of the then President Richard Nixon. Known as the Watergate scandal, the world has since been transformed by the need for multi­national organisations to align themselves in the fight against corruption.

The impetus created by Operation Car Wash has led to Brazilian companies earnestly implementing internal investigations using the US model. This article discusses particular points of difference in corporate investigations in Brazil without necessarily describing the investigative methods used in other jurisdictions but how sensitive certain investigative aspects can be in Brazil.

Stricter than all the anti-corruption legislation already in force, the domestic market is self-regulated and expects rigorous daily measures to improve the environment for a better and more transparent business world. Nonetheless, Brazilian enforcement authorities have already made an effort to offer guidance for carrying out internal investigations.

Finally, this article recounts the latest efforts by organisations within Brazil’s enforcement authorities to negotiate agreements that enhance the continuing battle against corruption and the remedies to address its harmful consequences through the application of sanctions that are appropriate to the Brazilian environment.

Brazilian anti-bribery legislation

In 1997, owing to the efforts of the United States to survive in a world in which bribery of international authorities was still acceptable, members of the Organisation for Economic Co-operation and Development signed the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, requiring that all the signatory countries enact their own legal framework on the cause.^[2]

In line with that Convention, Brazil enacted its anti-corruption law in 2013, Law No. 12846, known as the Anti-Corruption Law (or, internationally, as the Brazilian Clean Company Act (BCCA)),^[3] explicitly dealing with corporate bribery. With the BCCA, strict liability for acts of corruption was introduced in the civil sphere only, albeit often more severe than criminal liability. The BCCA provides for the possibility of lessened sanctions when the offending entities volunteer efforts to mitigate and remedy corporate misconduct. The statute encourages, in particular, internal procedures for the reporting of wrongdoings and cooperation in the investigation of the underlying infractions.

Thus, since then, internal investigations in Brazil, previously considered a typical procedure of US companies, have become a reality not only for multinationals in Brazil but also for Brazilian public and private entities.

During Operation Car Wash, the conclusions of internal investigations both in the early stages and as they developed significantly affected most Brazilian companies, such as Petrobras, Embraer, Odebrecht and other large private construction enterprises. The results of these investigations, unprecedented in Brazil, were handed over to the authorities in exchange for reduced sanctions.

Hence, internal investigations are now part of life for all Brazilian corporations, not just companies involved in corruption scandals. It became clear to the corporate world that one of the most critical aspects for the effectiveness and success of compliance programmes is the investigation of complaints. With this, the entity demonstrates its sincere commitment to fighting corruption by dealing with allegations through fair, independent and well-conducted investigations.

The Brazilian enforcement authorities have rules providing thresholds for evaluating internal investigations to explore misconduct and to negotiate agreements, as discussed below. However, no norm in Brazil addresses the specific rules of when a company should start its investigations and how they should be conducted. For this reason, Brazilian companies usually establish rules as part of their own internal policies, largely inspired by the Anglo-Saxon system.

Nevertheless, and as discussed below, legal and cultural aspects make internal investigations in Brazil unique. Thus, it is mandatory that Brazilian companies, multinationals or not, consider these aspects before adopting foreign models, thus making appropriate adaptations, avoiding potential allegations of harassment, labour claims and even violation of privacy laws by all involved in the investigative procedures.

The following sections give just a few examples of certain peculiarities about which internal investigations in Brazil should be sensitive.

The whistleblower

As in any jurisdiction, internal investigations can be initiated in a variety of ways. In Brazil, the most common way is through a complaint made by an employee or by a third party through the company’s own channels.

Reporting wrongdoings directly to the authorities is not a customary practice in Brazil, mainly for cultural reasons. Brazilians do not look favourably on the practice of whistleblowing.

The legal framework in this regard is still rather weak.^[4] The rewards or benefits for whistleblowers in exchange for information about wrongdoings are not as beneficial as in other countries: the reward for providing information to the Brazilian authorities is fixed at a maximum of 5 per cent of the recovered amount.

For these reasons, anyone who intends to report wrongdoings in the work environment might feel safer to do so through a company’s reporting channels, relying on the purported confidentiality promised during the investigation process.

Another factor that makes employees or third parties prefer to report through internal channels is the guarantee of non-retaliation that any effective compliance programme should offer. Programmes should ensure an environment in which employees feel able to raise suspicions and be confident that their complaints are taken seriously by an employer’s genuine concern to prevent illegal activities.

Thus, unlike other jurisdictions, especially the United States, Brazilians are not used to reporting wrongdoings directly to authorities. However, with the spread of compliance and the incentives offered through the instruments of rewarded cooperation and collaboration with authorities, this cultural aspect is expected to change in Brazil.

Hold notices

In internal investigations, especially those conducted by US companies, one of the first measures is an attempt to preserve the integrity of the documents that are potentially relevant to the investigation. Thus, employees are usually advised of the need to preserve these documents in a hold notice. This is important because the destruction of documents can be considered a crime in several countries.

However, in Brazil and other Latin American countries, hold notices may cause precisely the opposite effect, that is, the recipients tend to destroy such documents as soon as they receive the hold notice. Although regrettable from an ethical and moral standpoint, this attitude by Brazilian employees can be attributed to an expanded interpretation of a constitutional principle by which no one is obliged to self-incriminate or produce evidence against themselves. In addition to destroying materials that might be critical to the investigation, a recipient of a hold notice may also create other obstacles, such as not making available his or her laptop or mobile phone and even refusing to participate in interviews.

Thus, before deciding to send a hold notice to employees in Brazil, this risk must be carefully evaluated.

Another controversial difference between investigative methods in Brazil and other jurisdictions is the willingness in certain countries to notify the suspect of the wrongdoing right at the beginning of the investigation. The risk of notifying the suspect is similar to the hold notice dilemma: the suspected individual might start destroying evidence and even threaten potential witnesses, thus significantly disrupting the investigative process. Therefore, the decision about ‘if’ and ‘when’ to bring the case to the attention of the suspected person is one of the main challenges of any internal investigation in Brazil. Best practices dictate that the decision should be cautiously evaluated by the head office and the subsidiary with the assistance of independent local counsel.

Attorney–client privilege

The definition of who should conduct the internal investigation must take into consideration the rules of privilege applicable in Brazil. As a country with a civil law system, it is essential that the person appointed to conduct the internal investigation be an attorney (whether in-house or outside), even if the organisation has an independent investigation department. As all over the globe, attorneys have a unique benefit to their profession: the confidentiality guaranteed to communications between a lawyer and a client (the privilege).

The concept of privilege is treated differently from country to country. In Brazil, privilege belongs to society rather than the client, as in countries with a common law system. Privilege is characterised as a duty in Brazil, an obligation of the lawyer to keep confidential the secrets entrusted to him or her by a client, safeguarding the confidential information for the client’s protection. When using a lawyer, the results of any investigation are prevented from becoming public or easily accessible by any third party or any authority. This protection is ensured by the Brazilian Bar Association’s statute^[5] and the Federal Constitution.^[6]

For this reason, in certain investigations, it is strongly recommended to avoid procedures being conducted by human resources or even compliance officers (unless they are lawyers by profession), so as not to expose the corporation to vulnerability of communications secrecy. In both Brazil and other jurisdictions, these officers will not have the prerogative to remain silent if summoned to reveal information about the investigation, and are thus obliged to provide details to the authorities and unintentionally cause harm the organisation.

Labour aspects

Another crucial factor to be considered in internal investigations in Brazil is the risk of labour complaints arising from a poorly conducted investigation or the result of it.

First, it is critical to preserve the confidentiality of the entire procedure and the privacy of the employees involved, especially those who are interviewed. Likewise, the rights and constitutional guarantees of employees as citizens not to self-incriminate and remain silent must be respected.

All records of the measures must be safely stored, especially those concerning the interviews, to ensure a better defence of the company in any eventual labour lawsuits filed by employees involved in the investigation.

Another significant aspect to consider is the dismissal of an implicated employee at the end of the investigative procedure. In Brazil, termination for cause is the most severe disciplinary measure against employees for misconduct. In extreme situations of acts of corruption, bribery, fraud, unfair competition, among others, termination for cause may be the only appropriate measure. However, Brazilian labour courts find that the employer has the burden of proof, and invariably it can be against a company’s interests to publicly reveal its executives’ transgressions. For this reason, employers often prefer to dismiss such employees without cause. This is often another key divergence between the foreign parent company and its subsidiaries since, in many jurisdictions, regulators favour dismissal for cause as an opportunity to set an example to the entire organisation.

Consequently, each step of the investigation should be planned and conducted with these aspects in mind, with the assistance of local counsel from the outset.

Data protection

Employers should be mindful of Brazilian privacy laws, which are well developed, given the influence of Europe’s General Data Protection Regulation. Brazil’s data protection statute is the General Law of Personal Data Protection (LGPD).^[7]

In most countries, companies have the right to access information stored on corporate servers and electronic devices used by their employees. Brazilian court decisions have consistently upheld that, since the employing company is the owner of its equipment, it has the right to manage and supervise its use, having a legitimate legal interest in ensuring that it is being used properly.^[8] Thus, corporate devices such as computers, laptops, mobile phones and corporate emails are the employer’s property and are not subject to employees’ privacy and confidentiality rights. This right is based on the duty of diligence for a company’s business and reputation, as the employer may be held responsible for the misconduct of its employees when using company devices and for the strict liability imposed by the BCCA.^[9]

Therefore, an organisation can, or even should, monitor and collect relevant information from these devices for its protection and for use in the internal investigative process.

To that effect, there is no legal provision in Brazil requiring prior notice to employees whose corporate devices will be inspected as part of an investigation. The usual practice is to notify the employee at the exact time of collection, and only if it is not possible to access this material directly from the server, precisely to avoid any possibility of the equipment or data ‘disappearing’.

Conversely, this activity should not be conducted indiscriminately. As corporate electronic devices may also contain personal information, it is recommended that an employee’s formal and overall consent be obtained when the employee first joins the company.

By inadvertently adopting foreign models of internal investigations, without consideration for the privacy rights of those being investigated, Brazilian employers assume a considerable risk of allegations of harassment and violation of rights provided by Brazilian laws.

Therefore, employees should be expressly informed from their first day of employment that corporate devices must be used only for professional purposes and are subject to monitoring. Ideally, new employees should sign an acknowledgment of being so informed. The company’s code of conduct and related policies on the use of corporate equipment must explicitly address these matters. Businesses must conservatively respect emails and personal communications, even when found on corporate devices. Personal information that may be collected on corporate devices that is not related to the investigated facts must be disregarded and their confidentiality preserved to avoid undue exposure of the employee’s private information.

Cooperation with enforcement authorities

During all the years of Operation Car Wash, certain cases became very well known and were widely publicised by the media not only in Brazil but around the world. Organisations that previously had been recognised for their professionalism were now having to face severe accusations of money laundering, corruption, tax evasion and other crimes.

The most notable cases involved Odebrecht, Braskem, Eletrobrás, Embraer, Petrobras, JBS and Telefônica Brasil.

Operation Car Wash brought to light conduct that had occurred in Brazil for many years, if not decades. Each of these companies, according to its sector, had a professional and institutionalised scheme of corruption. Odebrecht even had its own specialist bribery department. Illicit payments were made in several countries by these Brazilian organisations. Another company within the Odebrecht group, Braskem, a joint venture of Odebrecht and Petrobras, was highly active in bribery. Both companies were jointly sentenced to pay US$800 million to authorities in the United States and Switzerland.^[10]

Another company that was considered a jewel in the country, Embraer, sold aircraft to the Dominican Republic, Saudi Arabia, Mozambique and India, between 2007 and 2011, through illicit financial transactions and payment of bribes, all of which was recorded in the company’s accounting books.^[11]

Petrobras’ scheme was diversified: it benefited politicians who were responsible for appointing certain internal officers; it also benefited contractors in bidding processes who formed special a cartel. Financial operators were responsible not only for intervening in the bribes but also for laundering the money to the beneficiaries.^[12]

Telefônica’s corruption scheme involved the suspicious transfer of more than 132 million reais to the group of companies in which the son of former President Luiz Inácio Lula da Silva was a shareholder. Evidence collected from receipts, emails and bank details showed that Telefônica benefited from various government decisions, including a decree signed by President Lula that authorised the acquisition of Brasil Telecom in 2008.^[13]

Giant meat packing company JBS, led by brothers Joesley and Wesley Batista, simulated cattle purchases to hide the payment of bribes to politicians. Cattle was sold and paid for but never delivered to the buyer.^[14]

Reporting improper conduct is not mandatory in Brazil albeit advisable if the offender wishes to negotiate leniency either at a corporate or personal level. Therefore, self-reporting and cooperation are recommended to receive benefits from the enforcement authorities.

Negotiating leniency is rather complex in Brazil as more than one authority may have jurisdiction over a certain case. The Comptroller-General of the Union (CGU), the Federal Prosecution Office (MPF), the Audit Court and the Office of the Attorney General (AGU), to name just a few, sometimes compete for the leading role.

Notably the CGU and the MPF have rules that specify the importance of internal investigations in the context of any cooperation with regulators. These rules indicate the criteria by which internal investigations will enable the reduction of the sanctions imposed on the offender, as discussed below.^[15]

Agreements with any enforcement authority require the full cooperation of the parties. Cooperation by a company demands a deep analysis of all the facts within the company’s walls, as well as of those who represent it. Thus, in the context of cooperation with the enforcement authorities, an internal investigation is an intrinsic part of the process.

Types of cooperation

Unlike the United States and the United Kingdom, there is no legal provision in Brazil for deferred prosecution agreements (DPAs) or non-prosecution agreements (NPAs).

However, the pressure of civil society, Operation Car Wash and the tremendous level of impunity concerning white-collar crimes resulted in the enactment of the BCCA and Law No. 12850/2013,^[16] regulating the agreements between companies or individuals (or both) and enforcement authorities, respectively called leniency agreements and rewarded cooperation, as explained below.

Rewarded cooperation

Although Brazil does not provide for DPAs and NPAs, rewarded cooperation^[17] is similar to the plea bargain that is used widely in the United States. Whereas DPAs and NPAs are extrajudicial agreements and require no judicial ratification, plea bargains and rewarded cooperation must be ratified by the courts.

A plea bargain is a voluntary agreement, negotiated with the US Department of Justice, that must be approved by a court before its decision. The accused pleads guilty in exchange for a less severe punishment.^[18]

Rewarded cooperation is different from the plea bargain in certain respects. It first appeared in the legal system in Law No. 9807/1999,^[19] which deals with protective measures for victims, witnesses and the accused or convicted persons who are exposed to serious threats because of their cooperation with the investigation or prosecution.

With the enactment of Law No. 12850/2013, rewarded cooperation started to be regulated effectively: the investigated person, now named ‘a whistleblower’, collaborates with the criminal investigation, presenting facts, evidence and revealing third parties involved in the crimes in question.

To be valid, the rewarded cooperation agreement requires that the whistleblower be (1) an individual, (2) not the leader of a criminal organisation and (3) the first to collaborate. The information provided by the whistleblower must be sufficient to identify other members of the criminal organisation and the criminal offences committed, to achieve recovery of the values involved the crime, and to reveal the hierarchical structure and division of tasks within the criminal organisation.

The agreement must be in writing and filed under seal to protect the physical integrity of the whistleblower. The court does not participate in the negotiations of rewarded cooperation, being only responsible for its approval, provided all the aforementioned requirements have been fulfilled.

With the approval of the agreement, to those who have collaborated effectively and voluntarily with the investigation and the criminal process, the court may grant a judicial pardon and reduce by up to two-thirds the penalty of detention or replace it with a rights’ restriction penalty.

In the United States, a plea bargain must be signed prior to a criminal sentence being decided, whereas rewarded cooperation may be executed either before or after the award. If the ratification of the rewarded cooperation occurs after the sentence, the whistleblower’s penalty may be reduced by half or the imprisonment conditions may be downgraded, even if the legal requirements are not met.

Finally, it is important to emphasise that, just as the agreement may be ratified, it can also be terminated, if the whistleblower maliciously omits facts under the rewarded cooperation or continues the unlawful conduct under the agreement.

Leniency agreements

When using this kind of cooperation, companies must collaborate effectively with the investigations and the administrative procedure and make it possible for the authorities to identify others involved in the wrongdoing and quickly obtain materials that prove the illicit conduct being investigated.^[20]

To be eligible for leniency, the infringing entity must (1) be the first to demonstrate its interest in cooperating with the investigation, (2) cease its involvement in the infraction as of the date the agreement is proposed, (3) confess its involvement and cooperate fully with the investigations, and (4) follow, at its own expense, all procedural acts until the signing of the agreement.^[21]

A leniency agreement can exempt the company from two-thirds of the total amount of the applicable fine, but it does not exonerate the company from completely repairing the damage caused.^[22]

The BCCA provides that sanctions may be mitigated by the existence of compliance mechanisms and internal procedures, such as incentives to report misconduct.^[23]

The CGU is responsible for signing leniency agreements within the scope of the Federal Executive Branch, as well as in the case of harmful acts against a foreign public government.^[24] However, the CGU does not have the power to monitor leniency agreements. This is the responsibility of other authorities, as discussed below.

CGU

Decree No. 8420/2015,^[25] which regulates the BCCA, clearly establishes that leniency agreements with legal entities in breach of anti-corruption laws are made possible if the offender effectively collaborates with the investigations and the administrative process,^[26] assists with the identification of others involved in the infraction, when applicable, and expedites delivery of information and documents proving the misconduct under investigation.^[27]

The same Decree, when dealing with calculation of the penalty, establishes a fine of between 0.1 per cent and 20 per cent of the company’s gross annual revenue, or between 6,000 reais and 60 million reais if the revenue cannot be measured.^[28]

CGU’s Normative Instruction 2/2018,^[29] which approves the methodology for calculating administrative fines for leniency agreements, determines that they must have the primary purpose of enhancing the investigative scope, with the company’s full and permanent cooperation.

In September 2015, the CGU published a manual – Compliance Programme: Guidelines for Private Companies (the CGU Manual)^[30] – which clearly states the importance of internal investigations for cooperation agreements.

The CGU Manual deals with remediation measures, providing that the detection of evidence of harmful acts to the public administration should trigger internal investigations, which serve as the basis for applicable measures, and addressing procedural matters to be adopted in investigations, such as deadlines.

Finally, the CGU Manual mentions that a company may also provide for independent investigations to guarantee the credibility and impartiality of the information obtained. The scope of the investigation must be consistent with the possible extent of the wrongdoings.

MPF

The MPF^[31] issued Guidance No. 10 in November 2020,^[32] which also emphasises the importance of internal investigations in the context of a leniency agreement. This Guidance states that it is the duty of those interested in negotiating agreements with the MPF to submit the actual status of the internal investigations, procedures and proceedings, whether administrative or judicial or arbitration, domestic or foreign, in which the facts underlying the agreement are being regularly investigated, as well as the status of any administrative or judicial measures taken by the party to challenge it. The legal entity must inform the MPF of the status of the investigation, sending a copy of the relevant documentation.

Recent cases

As mentioned, several cases in Brazil have made history and have generated wide interest in other countries, especially those of Operation Car Wash. We therefore focus only on cases since 2020.

In the past two years, leniency agreements have been accomplished with Amec Foster Wheeler, SICPA and CEPTIS, Samsung Heavy Industries, and Car Rental Systems, which are briefly outlined below.^[33]

On 25 August 2020, the CGU and the AGU signed a leniency agreement with Car Rental Brazil Ltda (Car Rental). Car Rental learned, through internal investigations, about illicit payments to public agents in 2010. A penalty of 762,200.76 reais was paid on 18 September 2020.^[34]

On 22 February 2021, the CGU, the AGU and the MPF signed a leniency agreement with Samsung Heavy Industries (SHI), regarding illicit acts under contracts with Petrobras with a penalty of 811,786,743.49 reais. This agreement is part of a global resolution between SHI and Brazilian and US authorities with a commitment to making improvements to SHI’s compliance programme.^[35]

On 7 June 2021, the CGU and the AGU signed a leniency agreement with SICPA do Brasil Ltda (SICPA) and CEPTIS SA (CEPTIS), with sanctions amounting to 762 million reais. Through its internal investigations, SICPA had learned of misconducts relating to a federal police operation called ‘Addictions’, which revealed illicit payments to public agents between 2009 and 2015. SICPA and CEPTIS also agreed to enhance their compliance programmes.^[36]

On 26 June 2021, the CGU, the AGU and the MPF, together with US and UK authorities, announced this most recent agreement with Amec Foster Wheeler Energy Limited and Amec Foster Wheeler Latin America, which are part of the John Wood Group PLC. Misconduct during a project with Petrobras resulted in penalties of 86,196,063.32 reais to the offenders, who also gave a commitment to enhance their compliance programmes.^[37]

In at least two of these cases (SICPA/CEPTIS and Car Rental), the internal investigations were extremely important, since it was only through them that the companies were able to identify the illicit conduct required to sign the leniency agreements.

Conclusion

The Brazilian corporate environment has certainly been making an important contribution to a more ethical business world. The often self-regulated Brazilian market is stricter than all the anti-corruption legislation in force in the country, especially in internal investigations.

Being ahead of the authorities in discovering their own misconduct and conducting internal investigations that are effective and robust to remedy wrongdoings is an essential component of a compliance mindset. And companies in Brazil appear to be learning and incorporating this concept steadfastly.

However, it is essential that companies heed the particular idiosyncrasies of the Brazilian culture, being sensitive to cultural and historical aspects when conducting internal investigations, as explained earlier.

There has also been significant progress in negotiations with the regulators to preserve the financial health of corporations and their social function. Despite the challenges of Brazilian regulators having overlapping authority, enforcement authorities have been making an effort to overcome their differences in coordinating agreements with offenders, thus working towards a more harmonious application of fines and sanctions as well as fostering improved compliance programmes for the corporate world.

All in all, the corporate business environment in Brazil is increasingly assuming its vital role. Regretfully, other institutions in Brazil are not following the trend at the same pace.

Notes