Doing business in Brazil? Be ready for Brazil's new anti-corruption legislation

For companies doing business in Brazil, there's no time to lose when it comes to reviewing and bolstering anti-corruption compliance efforts.

Of course U.S. companies doing business abroad have long been concerned about anti-corruption compliance. Certainly the SEC and DOJ's active enforcement of the U.S. Foreign Corrupt Practices Act has motivated U.S. directors and officers to take compliance seriously. Other countries also have strict anti-corruption/anti-bribery laws. For example, the U.K. Bribery Act, passed on April 8, 2010, is arguably stricter than the FCPA. It also prohibits both domestic and foreign bribery.

Enter Brazil. On August 2, 2013, Brazilian President Dilma Rousseff signed into law new anti-corruption legislation, known popularly as the "Clean Company Law" or the "Clean Companies Act." The Act goes into effect Jan. 24, 2014. The Act prohibits companies from engaging in bribery and other corrupt practices involving either foreign or domestic government officials.

Brazil was an original signatory to the OECD Convention on Combating Bribery of Foreign Officials, and has a long history of anti-corruption efforts. For example, bribery by individuals is already illegal in Brazil. The point of the Clean Companies Act, however, is to target companies: the Act contemplates strict liability for companies whose employees engage in any of the prohibited activities.

With the signing of the Act, corporations that do business in Brazil need to ensure they have an effective corporate compliance program. Creating and adhering to a corporate compliance program makes sense not only so that companies can mitigate the risk of violating the Clean Companies Act; the Act is more lenient to violators who have strong compliance programs.

Who is subject to the Clean Companies Act? Who will enforce it? What are the penalties?
The Act applies to companies—whether exchange-listed or not—doing business in Brazil, including those operating through a local subsidiary. It prohibits the bribery of government officials, and activities like bid rigging, financing or influencing others to engage in illegal acts. Like the FCPA, the definition of a government official is broadly expansive. Unlike the FCPA (and like the U.K. Bribery Act), facilitation payments are prohibited. Notably, companies may be liable under the Clean Companies Act if any employee pays a bribe on behalf of the business: prosecutors need not prove that the company had any "corrupt intent."

The power to enforce the Act is broadly delegated in Brazil. The Act contemplates enforcement at the federal, state and even municipal levels. It remains to be seen how this will unfold in practice.

The potential penalties for violating the Act are severe. Companies found to have violated the Act are subject to judicial penalties that include, among others, the disgorgement of any profit that resulted from the bribery, suspension of the company's activities and, in some cases, the dissolution of the company. Additional administrative penalties may include fines of up to 20 percent of a company's gross revenue.

Finally, any company considering an acquisition that involves Brazilian operations take note: the law holds that successors will be tagged with successor liability to the extent the acquired company had been in violation of the Act. While the successor may not be subject to as full a range of penalties as the acquired company (in the absence of collusion), payment of fines and disgorgement may still be significant.

What should companies with business in Brazil do right now?
In a piece of good news, the Act recognizes effective internal control measures as a factor to mitigate punishment. The clear intent of this provision is to encourage proactive corporate compliance. Now is the time for companies to review and bolster their anti-corruption compliance efforts in Brazil. Moreover, to the extent a company is considering acquiring a company with operations in Brazil, the diligence review with respect to corruption and bribery should now be all the more serious and thorough.

The views expressed in this blog are solely those of the author. This blog should not be taken as insurance or legal advice for your particular situation. Questions? Comments? Concerns? Email me at phuskins@woodruffsawyer.com.