Archive for the ‘Brazil’ Category

World Cup Puts Focus on Complex Compliance Issues In Brazil

Wednesday, June 11th, 2014

Today’s post is from Gregory Paw (Pepper Hamilton LLP).

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Tomorrow afternoon, Brazil begins what many hope will be a month-long showcase of “joga bonito” – the Brazilian passion for football summarized by Pelé as “play beautifully” – with the opening game of the 2014 World Cup pitting the host team against Croatia in São Paulo.  Yet the days leading to the opening have been filled with anxious scenes of subway strikes by groups of laborers, social advocates and students, and the accompanying snarls of traffic clogging the streets of the nation’s biggest city.  The protests are not as large as those of last spring, but nonetheless put into context the issues of the past year as Brazil adjusts to a post-boom economy and debates the public spending priorities that favored sports venues over other public works projects.  All of these events are of importance to compliance professionals watching the Brazilian business landscape for important anti-corruption trends and a better understanding of the current risk environment.

The past year has seen passage of landmark anti-corruption legislation, and the growing pains that can come with implementing a law that ushers important change.  Brazil currently lacks a centralized enforcement infrastructure for its powerful new anti-corruption law.  Brazil’s 27 states and its municipalities, as well as each branch of national government, all can launch investigations and render interpretations on open issues under the new law, such as the critical issue of whether any liability cap exists.  The inevitable inconsistencies will make compliance an ongoing challenge.

Equally important is the persistent culture of corruption that continues to dominate the Brazilian business news.  Many of the recent stories have focused on infrastructure projects in preparation for the World Cup and the 2016 Olympics.  Cost overruns for Brazil’s 12 World Cup host stadiums are soaring.  For example, an audit from the Court of Accounts of the Brazilian Federal District demonstrated a near-doubling from the $312 million 2012 estimated cost, with overpriced construction work alone accounting for $196 million of this overrun.  Political donations from connected companies “are making corruption in this country even worse and making it increasingly difficult to fight,” said an Audit Court arbiter in recent local press reports.  “These politicians are working for those who financed campaigns.”  At least a dozen other federal investigations are underway.

The problems are not limited to sports stadiums.  A scandal involving as many as 15 public transportation systems is said to have revealed corruption by several multi-national companies and inflated project costs in an area of vital public need.  The multi-nationals mentioned as part of the probe, Siemens, Alstom and Bombardier, have denied wrongdoing and pledged cooperation.  But in January 2014, a federal court banned Siemens from bidding on new government work, and a public prosecutor in São Paulo is said to have sought to cancel Alstom’s corporate registration.

Touching deeper to the core of the Brazilian economy are corruption investigations at Petrobras, the state-run oil and gas company.  Swimming under a mountain of debt and declining stock value, Petrobras has launched an internal review of alleged bribery by a Dutch company that serviced off-shore oil rigs.  The Brazilian Congress also has launched a probe into two deals that have turned very expensive – one involving the purchase of a refinery in Texas and the other involving a refinery in the northeastern Brazilian coastal town of Recife.  Both deals cost many times more than their expected prices.  Petrobras’ president recently met federal police personally to turn over company files pursuant to a court order.  Petrobras says the cost overruns come from insufficient infrastructure in Brazil’s poor-but-growing northeast, but critics focus on mismanagement and an alleged culture of graft as these issues play out in advance of a presidential election in October.  The arrest in March of the former head of the company’s refining and supply unit in a money laundering probe has added to the swirl of rumors.  For her part, President Dilma Rousseff – also the former chair of Petrobras – has defended the company, explaining in April 2014 local press reports that “Petrobras will never be stained with any wrongdoing.  Whatever needs to be investigated will be investigated with maximum rigor.”

Against this backdrop, Brazilian economic growth has slowed by more than half of its peak 2010 rate, and a March 2014 poll by a Brazilian news organization found that more than two-thirds of the population thought corruption was lower during Brazil’s time of dictatorship.  Perhaps part of that feeling comes from the current greater media transparency on corruption probes.  But companies operating in Brazil can expect that the focus on anti-corruption issues will only continue to remain a complicated compliance challenge.  Most important is a continuing focus on compliance fundamentals:

  • Leadership setting clear expectations on ethics and compliance
  • Risk awareness, coupled with controls designed to address those risks
  • Due diligence and monitoring of business partners
  • Nurturing the compliance commitment through training and communications
  • Promptly follow up if potential issues arise

These fundamental steps will best protect companies operating in Brazil, where hope runs high that the attention from the World Cup will highlight the Brazilian spirit and creativity which has proven so resilient through past eras of change.

Bribery Of A Foreign Official On U.S. Soil

Thursday, April 17th, 2014

[This post is part of a periodic series regarding "old" FCPA enforcement actions]

The core enforcement action described below highlights a rare instance of FCPA violations being charged along with violations of the U.S. domestic bribery statute.  The enforcement action is also a rare instance of the United States being the location where the foreign official was allegedly bribed.

Control Systems Specialist / Darrold Crites

In this 1998 criminal information, the DOJ alleged that Control Systems Specialist, Inc. (“Control Systems” a company engaged in the purchase, repair, and resale of surplus military equipment) and its President Darrold Crites made improper payments to a Brazilian Air Force Lt. Colonel (“Col. Z”) stationed at Wright Patterson Air Force Based in Ohio.  The information describes Col. Z  as follows.

“Col. Z was the Foreign Liaison Officer for the Air Force of the Republic of Brazil … and was authorized to make purchases of military equipment on behalf of the Brazilian Aeronautical Commission (“BAC”), the purchasing agent of the Brazilian Air Force.  The BAC was an “instrumentality” of the Government of Brazil.”

The DOJ alleged that Crites met with a civilian employee of the United States Air Force who worked at Wright Patterson Air Force Base as the Command Country Manager (“Country Manager”) for Brazil and was responsible for representing the United States Air Force in dealings with Col. Z.

According to the DOJ, “Country Manager agreed to provide Crites with surplus part numbers, model numbers, and U.S. military sources of surplus parts in exchange for the promise of payments of money, using information he would obtain through his position as a civilian employee of the United States Air Force.”

In turn, the DOJ alleged that “Crites would thereafter purchase the surplus equipment identified by the Country Manager, recondition it, and resell the same to the BAC.”  According to the DOJ, Col. Z would approve the BAC’s purchase from Control Systems in exchange for payments of money.  Specifically, the DOJ alleged that Crites paid Col. Z “a series of bribes, disguised as ‘consultant fees,’ for each bid accepted by Col. Z on behalf of the BAC.”

The DOJ also alleged that Crites formed a separate company (“Company Y”) with the assistance of an Ohio businessman (“Businessman X”) to pay bribes to Col. Z “in exchange for his approval of Company Y’s bids to sell surplus U.S. military equipment to the BAC.”

According to the DOJ, Crites and Businessman X, as officers of Company Y “arranged not less than forty-four purchases of surplus U.S. military equipment for repair and resale to the BAC.”  The DOJ alleged as follows.

“Some of the surplus equipment was obtained by the BAC through the Defense Reutilization and Marketing Service (DRMS) under the Foreign Military Sales (FMS) program and then provided to Control Systems for repair.  Other equipment was purchased directly by Control Systems or Company Y, repaired, and then sold to the BAC.  In all cases, after each purchase was effected, Col. Z was paid for his approval of the transactions.”

According to the DOJ, Crites, Control Systems and others “paid a total of $99,000 to the Country Manager and a total of $257,139 to Col. Z.”

Based on the above allegations, the DOJ charged Control Systems and Crites with conspiracy to violate the FCPA’s anti-bribery provisions and a substantive violation of the FCPA’s anti-bribery provision.  Based on the allegations involving the Country Manager, the DOJ also charged Control Systems and Crites with violating 18 USC 201, the domestic bribery statute.

Pursuant to this plea agreement, Crites pleaded guilty to the three charges described above.  In the plea agreement, Crites agreed to cooperate with the DOJ.  According to the statement of facts in the plea agreement, “Crites and Control Systems received approximately $672,298 as a result of the contracts received from the government of Brazil.”  According to a docket entry, Crites was sentenced to three years probation (with the first six months of probation to be spent in home confinement with electronic monitoring with work release privileges) and 150 hours of community service.

Pursuant to this plea agreement, Control Systems also pleaded guilty to the three charges described above.  According to a docket entry, Control Systems was ordered to pay a $1,500 fine and was sentenced to one year probation.

International Materials Solutions Corp. / Thomas Qualey

Based on the same core allegations in the Control Systems / Crites enforcement action, in 1999 the DOJ also alleged in this criminal information that International Materials Solutions Corporation (“IMS” – like Control Systems an Ohio company that engaged in the purchase, repair, and resale of surplus military equipment) and Thomas Qualey (the President of IMS) conspired to violate the FCPA’s anti-bribery provisions and violated the FCPA’s anti-bribery provisions.  According to the information, IMS and Qualey paid a total of $67,563 to Col. Z to induce the approval by Col. Z of a bid by IMS for the acquisition and repair of ten fork lift trucks.

Pursuant to this plea agreement, Qualey pleaded guilty to the two charges described above.  According to the Statement of Facts in the plea agreement, Qualey and IMS “received approximately $392,250 as a result of the contracts received from the Government of Brazil.”  According to this judgment, Qualey was sentenced to three years probation ((with the first four months of probation to be spent in home confinement with electronic monitoring with work release privileges) and 150 hours of community service and ordered to pay a $5,000 fine.

Pursuant to this plea agreement, IMS pleaded guilty to the two charges described above.  According to this judgment, IMS was ordered to pay a $1,000 fine plus and was sentenced to one year probation.

See this prior post for another FCPA enforcement in connection with the U.S. Foreign Military Sales program.

Friday Roundup

Friday, January 31st, 2014

What others are saying, more candy, seriously out-of-whack, not first hand, and for the reading stack.  It’s all here in the Friday Roundup.

What Others Are Saying

Last week, I published this article “Why You Should Be Alarmed By The ADM FCPA Enforcement Action.”  I’ve received a higher than norm amount of feedback – all positive - about the article via e-mail and social media.  Below is what others are saying about the article.

“For many reasons this is a terrific article.  [You are] very brave to write this necessary and timely analysis.”

“Just wanted to say thank you for keeping me updated on your FCPA-related work.  It looks like your 2010 Facade article is still holding up pretty well, despite the DOJ’s “Guidance” from last year.  It will be interesting to see how long the agencies can continue with their relatively unconstrained enforcement practices.”

Thanks for sharing Mike. And don’t change: you are as good as ever!

“Excellent article, Mike!  Readable even by those of us who are not lawyers.  The conclusion about why ADM chose settlement is undoubtedly true of many others who are charged, but leads to a question of the [conduct] of those who are charged to extract “easy takings” rather than have to justify themselves to the SEC or DOJ.  On whose behalf are they acting?”

Also a thank you for the many positive and encouraging comments I’ve received since publishing two posts (here and here) concerning the recent departure of the DOJ’s FCPA Unit Chief.

In other news on that front, White & Case recently announced here that Kathleen Hamann will join the firm as a partner “from the DOJ where she was an anticorruption policy counsel and trial lawyer assigned to the Foreign Corrupt Practices Act (FCPA) Team in the Criminal Division’s Fraud Section.”  The head of White & Case’s Global White Collar Practice stated: “Kathleen’s experience at the DOJ gives her a strong understanding of the complexities of the FCPA and the federal government’s anticorruption policies.  Kathleen is a wonderful addition to our global white collar team, and will further strengthen our ability to represent and defend clients around the world in all phases of investigations, and criminal and civil enforcement proceedings.”

More Candy

This previous post “Like a Kid In A Candy Store” highlighted the abundant offerings of FCPA year in reviews this time of year.

There is more candy to digest.

See here for the slick Global Bribery and Corruption Review 2013 from Hogan Lovells.

See here for Mayer Brown’s FCPA Update:  Year-End 2013.

But again, be warned - the divergent enforcement statistics are likely to make you dizzy at times and as to certain issues.  [Given the increase in FCPA Inc. statistical information and the growing interest in empirical FCPA-related research, I again highlight the need for an FCPA lingua franca (see here for the prior post), including adoption of the “core” approach to FCPA enforcement statistics (see here for the prior post), an approach endorsed by even the DOJ (see here), as well as commonly used by others outside the FCPA context (see here)]

Seriously Out-Of-Whack

One could have either of the following positions.

DOJ enforcement of criminal laws is more about leverage against public companies and risk aversion by corporate leaders rather than facts and law.  Therefore, even if a company settles various enforcement actions for approximately $20 billion in a year, it is not surprising that a company’s profits and stock price are up and that the company’s CEO is therefore given a substantial raise.

DOJ enforcement of criminal laws is about facts and law and if a company settles various enforcement actions for approximately $20 billion in a year, it is just not right that the company’s CEO is given a substantial raise.

Regardless of your position (I know where I fall), you would have to agree that things are seriously out-of-whack these days.

See here and here for articles regarding the compensation of James Dimon (CEO of JPMorgan).  As highlighted in the Wall Street Journal article.

“J.P. Morgan Chase’s board delivered a strong endorsement of Chief Executive James Dimon, boosting his pay 74% for a year in which the nation’s largest bank agreed to more than $20 billion in legal payouts …”  [...] The raise reflects the view among the board that most shareholders believe Mr. Dimon is doing a good job protecting the bank’s earnings power and driving the stock price higher despite the high-profile legal settlements, according to people familiar with the board’s conversations. [...] Many large shareholders seem comfortable with the bank’s leadership, too. The company’s stock price rose 33% during 2013, outpacing the 30% increase in the S&P 500 stock index. If not for its billions in legal expenses, J.P. Morgan likely would have earned record profits.  [...]   Warren Buffett, the billionaire investor who personally owns an undisclosed number of shares in J.P. Morgan, described Mr. Dimon as a “bargain.” “If I owned J.P. Morgan Chase, he would be running it, and he would be making more money than the directors are paying him,” said Mr. Buffett, who has publicly defended the bank executive before.”

“Not First Hand”

JPMorgan of course is under FCPA scrutiny for its alleged hiring practices in China.  (See here among other posts).

In this video interview, Goldman Sach’s CEO Lloyd Blankfein talks about hiring issues at his company.  As noted in the related article, “asked whether he had seen any hiring that looked like a bribe, Mr. Blankfein paused for a moment” and said “not first hand.”

Reading Stack

From BalkanInsight, an in-depth piece regarding the Magyar Telecom enforcement action (see here for the prior post).

From the Economist regarding Brazil’s new FCPA-like law.

*****

A good weekend to all.

Friday Roundup

Friday, August 23rd, 2013

In the classroom, what if, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday roundup.

In the Classroom

I am pleased to share this release concerning a new Foreign Corrupt Practices Act class I am teaching this semester at Southern Illinois University School of Law.  As noted in the release, the course is believed to be one of the first specific FCPA law school classes offered that is exclusively devoted to the FCPA, FCPA enforcement and FCPA compliance.

I am grateful for the media coverage the class has attracted.  See here from Corporate Counsel, here from Main Justice, and here from Corporate Crime Reporter.

What If?

As highlighted in this previous post concerning JPMorgan’s scrutiny in China,  the conduct at issue in the front-page New York Times article was disclosed (sort of) in the company’s August 7th quarterly filing.  That filing identified, under the heading “Regulatory Developments” the following.

“A request from the SEC Division of Enforcement seeking information and documents relating to, among other matters, the Firm’s employment of certain former employees in Hong Kong and its business relationships with certain clients.”

In the disclosure context, it has been noted by various courts that once a company “speaks” on an issue, its statements to the market can not be so incomplete as to be misleading.  Was JPMorgan’s August 7th disclosure misleading?  If not misleading, a bit “too cute?”  If JPMorgan’s August 7th disclosure mentioned the reason for the SEC’s request for information and that the request was in connection with an FCPA inquiry, would there even have been a front-page article in the NY Times on August 18th?  And if there was no front-page NY Times article would JPMorgan’s FCPA scrutiny have dominated the news this week?

Scrutiny Alerts and Updates

Entertainment Gaming Asia

Entertainment Gaming Asia, Inc., a company with shares listed on NASDAQ, is the focus of this article in the Cambodia Daily which states:

“Venturing into Cambodia’s casino market in May 2011, Macau-backed gambling firm Entertainment Gaming Asia (EGA) promised tens of thousands of dollars to the wife of Pailin’s provincial governor in order to lease land for the construction of a new casino … [...]   There is no suggestion that the land lease arrangement breaks any laws.  But EGA’s registration with the SEC means the company is subject to the U.S. Foreign Corrupt Practices Act (FCPA). [...] EGA senior vice president Traci Mangini declined to comment on the land-lease arrangement.“We are not available for comment,” Ms. Mangini said in an email. Contacted this week, Mr. Chhean [who has held the powerful local position of governor in Pailin for more than a decade] insisted there was nothing improper about the land being rented from his wife. “It is correct that they hire the land [from my wife], they have hired it for two years already,” he said. He said the casino was fully approved by the government in Phnom Penh, and that he had no role in the licensing decision. Mr. Chhean said there was nothing inappropriate about the wife of a governor having business interests.”

Microsoft

This March 2013 post highlighted Microsoft’s FCPA scrutiny and how the DOJ and SEC “are examining kickback allegations made by a former Microsoft representative in China, as well as the company’s relationship with certain resellers and consultants in Romania and Italy.”  Add Pakistan and Russia to the list.  As reported in this Wall Street Journal article:

“In Russia, an anonymous tipster told Microsoft that resellers of its software allegedly funneled kickbacks to executives of a state-owned company to win a deal, the people familiar with the matter said. In Pakistan, a tipster alleged that Microsoft authorized a consulting firm to pay for a five day trip to Egypt for a government official and his wife in order to win a tender, the people familiar with the matter said. The two contacted Microsoft directly in the last eight months, the people said.”

Eli Lilly

In December 2012, Eli Lilly agreed to pay $29 million to resolve an SEC FCPA enforcement action concerning alleged conduct in China, Brazil, Poland and Russia (see here for the prior post).

Lilly is again under scrutiny.  As referenced here by Reuters:

“U.S. drugmaker Eli Lilly and Co said it was ‘deeply concerned’ about allegations published in a Chinese newspaper that it spent more than 30 million yuan ($4.90 million) to bribe doctors in China to prescribe the firm’s medicines instead of rival products. A former senior manager for the company, identified by the pseudonym Wang Wei, told the 21st Century Business Herald that bribery and illegal payments at Eli Lilly’s China operations were widespread. [...] Eli Lilly said in an emailed statement to Reuters that it was looking into the matter. ‘Although we have not been able to verify these allegations, we take them seriously, and we are continuing our investigation,’ the statement said. The U.S. firm said it had been made aware of “similar allegations” of kickbacks in 2012 by a former sales manager. It said the firm had opened an investigation at that time involving staff interviews, e-mail monitoring and expense report audits.”

For the Reading Stack

Informative posts here and here on the FCPAmericas blog on how Brazil’s new bribery law compares to the FCPA.  Also on the FCPAmericas blog, informative posts here and here regarding the unknows of the law.

In reference to JPMorgan’s FCPA scrutiny over its alleged hiring of family members of alleged “foreign officials,” this article in the Economist states:

“Connections also count in the West, of course. Following initial reports of the SEC’s investigation in the New York Times, a flood of stories have noted the jobs held in politically sensitive American firms by the sprogs of American politicians. Even when offspring are not involved, the revolving door between the public and private sectors raises questions about why people are hired. JPMorgan Chase did not hire Tony Blair as a senior adviser for his knowledge of risk weights, after all. Mary Schapiro, a former head of the SEC, recently joined Promontory, a consultancy packed with ex-regulators used by banks to cope with regulation (she has said she will not lobby any government body in her new role). If it is unfair to cite these names, it is only because there are so many others. If the regulators genuinely fret about why firms make hiring decisions, they may want to extend their inquiries to Washington, DC, and New York as well.”

In the context of GlaxoSmithKline’s scrutiny in China, this Wall Street Journal article highlights “China’s fast-growing but deeply underfunded medical system” where “doctors are widely seen as underpaid, which makes them prime recipients of honorariums, which are
legal, or illegal cuts of sales from drug companies …”.

*****

A good weekend to all.

New Brazilian Legislation Addresses Bribery By Corporate Entities

Wednesday, July 10th, 2013

Today’s post is from FCPA Professor’s Brazil Expert Gregory Paw (Pepper Hamilton) and Fabiola Emilin Rodrigues (Demarest Advogados)

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New Brazilian Legislation Addresses Bribery By Corporate Entities

The millions of Brazilians protesting in recent weeks in cities and towns across Brazil have brought important and far-reaching corruption reform to one of the world’s largest economies.  The implications for companies operating in Brazil will come fast, and will include incentives to operate an effective compliance program and establish a control environment that will detect potential wrongdoing inside a corporation.

Protests Highlight Corruption Concerns and Need for Reform          

Protesters initially cited a bus fare increase as the motive for their ire.  Yet as days passed, the root causes of the crowd’s anger turned to broader social issues such as economic fairness and the quality of civil services like health, education and transportation.  Corruption and the mismanagement that protesters say blights Brazil and its political system became a focal point.  Even as Brazil’s national football team struck a major win over defending World Cup champion Spain, cheers in the historic Maracanã Stadium were met with equally strong shouts outside the stadium walls calling for political reform.

The protesters supported the demands for reform by citing recent history, including last year’s trial of an elaborate vote-buying scheme that allegedly included congressmen, judges and a high-level advisor to the former president yet resulted, in the eyes of skeptical protesters, in little tangible punishment or political reform.  Instead of change, protesters pointed to the fact that almost a third of Brazil’s Congress is facing charges in trials overseen by the Supreme Federal Tribunal, according to a prominent watchdog group.

As protests spread and grew, political leaders of all suits suffered swift declines in popularity and scrambled to find measures to meet the public demands.  Municipal officials rolled back transit fare increases, and President Dilma Rousseff pledged additional investments in public transit projects.  Congressional leaders began to move legislation that had languished for years to earmark oil royalties to education and public healthcare.

Corruption also became a key reform point.  As initial measures, Brazil’s Senate approved a bill establishing stiffer sentencing for certain corruption convictions, and the congressional lower house rejected a constitutional amendment intended to limit investigations into legislative corruption.  In the midst of this activity, the Supreme Federal Tribunal ordered the arrest of a lower house deputy convicted on corruption charges three years ago, marking the first time under Brazil’s modern constitution that the court ordered the arrest of a sitting congressman.

The Clean Companies Act

In Brazil, criminal liability is personal.  With the exception of environmental crimes, corporations face only civil and administrative liability under a complex maze of regulations.  After entering international treaties concerning corporate liability for crimes, Brazil has struggled for several years to pass legislation holding companies accountable for acts of corruption.  Legislation introduced in 2010 went through study and several hearings, yet ­numerous attempts to bring the bill to vote failed.

This April, a bill establishing civil and administrative corporate liability finally passed the lower house of Congress.  The bill appeared to languish until July 4, 2013, when the Senate took up and passed the legislation.  The new law goes to President Rousseff for approval, and will come into force 180 days after it is published in the official gazette.  The law is expected to take force in early 2014.

The bill addressing corruption by legal entities will complement existing laws in the Brazilian Criminal Code addressing bribery by individuals, which apply where criminal intent can be demonstrated that a person offered or promised any benefit to public employees that relates to an express or implied request or suggestion that the public employee perform or refrain from performing, or delay any act within the scope of his duties.  Thus, if the new bill becomes law, individuals will face criminal liability and legal entities will face civil and administrative sanctions for bribery.

Foreign and Domestic Corporate Liability

The new law establishes strict liability for Brazilian legal entities, as well as foreign legal entities with a “registered office, branch or representation in the Brazilian territory.”  The law prohibits bribery of public officials relating to local and foreign public administration.  Specifically, the law establishes civil and administrative liability for corporate entities that “promise, offer or give, directly or indirectly, an undue advantage to a public agent, or third person related to him.”  The law also prohibits bid rigging and other ­frauds in the public procurement process, as well as efforts to hinder investigations or audits by public agencies.

Sanctions for offenses, which the Organisation for Economic Co-operation and Development directed should be “effective, proportionate and dissuasive,” can range from one percent to 20 percent of the entity’s gross revenue from the prior year or R$ 6,000 (about US$3,000) to R$ 60 million (about US$30 million) if the revenue is too difficult to calculate.  Firms found liable can be dissolved or suspended, or face forfeiture, debarment, loss of public contracts and prohibition on incentives and public financing.  Offending firms can find information about the nature of the misconduct published in newspapers, providing a powerful incentive against misconduct.

Voluntary Disclosure and Cooperation

The bill encourages the cooperation of firms under investigation , including by voluntary reporting to the authorities, before the initiation of a proceeding, as well as the disclosure of information during the course of the investigations.  The bill also provides a leniency program for companies that first disclose wrongdoing and cease involvement in the unlawful practice.  Fines can be reduced by up to 2/3 under the leniency program, and other sanctions may also be relieved.

Compliance Programs

­Critically, the bill provides that a legal entity that has an effective compliance program in place will get credit for this effort.  Specifically, “the existence of mechanisms and internal integrity procedures, audit and incentive denunciation of irregularities in applying the code of conduct and ethics within the legal entity” will be considered when applying any sanction, with criteria to be set by the federal government.  The extent of credit is not yet known, but this incentive is similar to efforts by regulators in the United States and United Kingdom to encourage responsible corporate citizenship.

One of the bill’s lower house sponsors, Mr. Carlos Zarattini (PT-SP), emphasized that the legislation is important not only for its punitive aspect but also because it encourages companies to adopt good administrative practices in order to avoid infringing the laws, and also to correct errors through leniency agreements.  “Now we not only have established a way to punish as induce companies to a correct practice,” Mr. Zarattini explained.   Another sponsor, Mr. John Arruda (PMDB-PR), summarized that “[f]rom this law we are creating goals for that in Brazil to establish a culture of best practice in the private sector.”

Addressing Risk under the Clean Companies Act

Companies operating in Brazil will have a strong incentive to establish and strengthen compliance efforts when the Clean Companies Act takes effect. Establishing and operating compliance programs – and building off of international standards of compliance that have developed under other major anti-corruption laws — will be the best line of defense under the new law.  The law’s effectiveness will depend in large part on how the Brazilian business community embraces the concepts of effective compliance.   This “essential engine” in the fight against corruption, as Senate President Renan Calheiros  observed, carries a number of benefits to Brazil, including generating renewed interest in Brazilian investments by multi-national companies that will appreciate the greater transparency and legal certainty afforded by the new law.