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Brazil’s new Anti-Corruption Law: Implications for
Companies
Sérgio Nogueira SeabraFederal internal control Secretariat
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Institutional
Framework
2
INTERNAL CONTROL SYSTEM
(CGU)
EXTERNAL CONTROL
(National Congress, TCU)
SELF CONTROL
Agencies & Entities
Internal and External Control System of Federal
GovernmentPrevention
and Transparen
cy
Ombudsman
Disciplinaryactions
Auditactions(InternalControl)
Functions of CGU:
CGUThe Internal Audit Unit and
the Anti-Corruption Agency of the Brazilian Federal Government
The Internal Audit Unit and
the Anti-Corruption Agency of the Brazilian Federal Government
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Main Audit Types
- Annual Account Audits;
- Program Audits:
- by priorities;
- by random selection of municipalities;
- Investigative and Special Audits ;
- Joint Operations with Federal Police;
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CGU Disciplinary Board
Ministries
Managers
Federal
Court of
Accounts
Office of the
Public Prosecutor
Office of the
Attorney
General
Managerial
Improvements
Administrative
Sanctions
Criminal
Convictions
Civil
Convictions
Judiciary Branch Administrative
Sanctions
Control
Agencies
Outcomes
Senate
Chamber of Deputies
Political
Control
Federal Police
Follow up of the results of the Audits
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Data-matching and
Tracking System
Public
Spending
Observatory
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Methodology
People
Analysis
MethodologyTecnology
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Audit Tracks and WorkingThemes
Federal Government Corporate Card.
Government Purchases.
Per Diems and Travel Allowances.
Outsourcing
Family Stipend Program (Bolsa Família).
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Government Purchases
1. Business connection between
bidders.
2. Relationship between bidders
and the public servants.
3. More than one "exclusive”
supplier.
4. Noncompliance with proposal
submission deadlines.
5. Fractioning to avoid more strict
bidding modalities.
6. Proposal submissions prior to
publication of bid notices.
7. Registration of proposals on non-
business days.
8. Possibility of competition in no-bid
processes.
9. Bidders with the same address.
10.Newly formed companies
participating in Bids.
11.Improper contract Amendments
(above the established limit).
1. Business connection between
bidders.
2. Relationship between bidders
and the public servants.
3. More than one "exclusive”
supplier.
4. Noncompliance with proposal
submission deadlines.
5. Fractioning to avoid more strict
bidding modalities.
6. Proposal submissions prior to
publication of bid notices.
7. Registration of proposals on non-
business days.
8. Possibility of competition in no-bid
processes.
9. Bidders with the same address.
10.Newly formed companies
participating in Bids.
11.Improper contract Amendments
(above the established limit).
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Punished companies
Expenditures and Revenues:
Daily updates
Transfers to other
entities
Federal Government
Direct Expenditures
Public Officials
Information
Expenditures on
Specific Programs
Download of
Consultations
and Charts
Transparency Portal
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Enforcement on
companies
MEASURES AGAINST IMPUNITY
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From 2004 to February 2015
5.206 expulsion penalties were applied to
Registry of Expulsion Penalties
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CGU
National Debarment List - CEIS
2,200 debarred companies/suppliers
2,600 temporarily suspended companies/suppliers
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Debarred and suspended firms/suppliers
Firm’s identification
Identification of the
Public Body responsible
for the sanction
Source of
informationState
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Environment where corruption thrives
Tomadade
Decisão
• Low capability for the detection of irregularities;
• Perception of Impunity;
• Limited transparency and social control;
• Perception of corruption as a standard or even as
being necessary for closing deals.
•Cultural Aspects (Ethics, moral values and integrity,
“short cuts”)
• Low capability for the detection of irregularities;
• Perception of Impunity;
• Limited transparency and social control;
• Perception of corruption as a standard or even as
being necessary for closing deals.
•Cultural Aspects (Ethics, moral values and integrity,
“short cuts”)
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The role of Government in preventing and countering corruption in the private sector
Promoting theadoption of
integritymeasures
Dissuasive
Punishing
Enhancing the
capability for
the detection
of irregularities
• Increased Transparency;
Access to Information
• More effective audits;
• Use of information
technology in the
identification of red flags or
irregularities
• Joint investigations
• Promotion of social control
• Increased Transparency;
Access to Information
• More effective audits;
• Use of information
technology in the
identification of red flags or
irregularities
• Joint investigations
• Promotion of social control
• Administrative proceeedings
take less time (Laws 8.112,
12.846; 8.666 and 10.520)
• Civil Liability (Law 12.846)
• Administrative proceeedings
take less time (Laws 8.112,
12.846; 8.666 and 10.520)
• Civil Liability (Law 12.846)
Creating a scenario in
which its best for the
company to invest in
ethics and integrity
than to believe in
impunity
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Law 12.846/2013: Punitive Aspects
• Strict Liability
• Harmful acts against the National and Foreign Public
Administration
• Dissuasive penalties
• Quicker proceeedings
• Due process
• Possibility of leniency agreement
• Strict Liability
• Harmful acts against the National and Foreign Public
Administration
• Dissuasive penalties
• Quicker proceeedings
• Due process
• Possibility of leniency agreement
Administrative (punishment of inapt companies; dissuasive fines and publishing of the sentence "name and shame")
Judicial (forfeiture of property and rights; suspension of activities, compulsory dissolution, among others)
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ADMINISTRATIVE PROCEEDINGS
Power to open and judge the case:
o Direct administration - Minister
o Indirect Administration - highest authority of the entity
o Office of the Comptroller General: concurrent power to open,arrogate and judge
Deadline for completion of the proceedings: 180 days,extendable
Single process - decides on the violations of Law 12,846 +debarrement of Law No. 8.666/93 + similar penalties
Request of revision to the same authority without appeal tothe President
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Law 12.846/2013 : Strict civil and administrative liability
• Administrative sphere:• fine in the amount of 0.1% to 20% of the gross revenues• extraordinary publication of the condemnatory decision
• Civil sphere:• loss of the assets, rights or valuables representing the advantage or
profit obtained from the wrongdoing• partial suspension or interdiction of its activities• compulsory dissolution• prohibition from receiving incentives, subsidies, grants, donations or
loans (from 1 to 5 years)
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Factors influencing the establishment of sanctions
Increased by:
Seriousness of the offense Advantage obtained or intended Offender’s economic situation Negative effect produced Value of contracts with the public sector
Decreased by: Offense not consummated Existence of internal mechanisms and procedures of
integrity (compliance program) Cooperation of the legal entity to the investigations
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Result of the SUM (step 1) and SUBTRACTION
(step 2) of percentages of the gross sales of the
Company
MAXIMUM AND MINIMUM (step 3): Calibration of
the value
DETERMINING THE FINE (DECREE)
MAXIMUM
MINIMUM
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STEP 1 – SUM
ESTABLISHING VALUE OF THE FINE(DECREE)
( + )
1% to 2,5%
1% to 2,5%
1% to 4%
1%
5%
1% to 5%Total value of the intended or established
contracts with the Administration
Relapse
INCREASING FACTORS
Continuity of the offense
Tolerance on the part of company high level
Suspention of public works or services
Offender's favorable economic situation
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STEP 2 – SUBTRACTION
ESTABLISHING VALUE OF THE FINE(DECREE)
( - )
1%
1,5%
1% a 1,5%
2%
1% a 4%Compliance program
DECREASING FACTORS
Ilicit act not completed
Damages repaired
Degree of colaboration with investigations
Self disclosure of irregularities to the authorities
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MINIMUM: the higher value amongst:
• the benefit obtained by the company; and
• 0.1% of gross sales, net of taxes
MAXIMUM: the lowest value amongst:• 20% of gross sales, net of taxes; and• 3 times the benefit obtained by the company
3rd step – minimum and maximum values
ESTABLISHING VALUE OF THE FINE - DECREE
When it isn’t possible to use the gross
revenue, the fine amount will be fixedbetween R$ 6,000.00 and R$ 60,000,000.00
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benefit obtained (or intended) by the company* CONCEPT *
Revenues deriving from the ilicit act
Amount that was paid or
promissed to public agent
Real costs and
expenses
ADVANTAGE
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Law 12.846/2013 directly encourages the adoption of a compliance programs
Promoting an
organizational culture of
ethical conduct and
compliance with the law
Fostering due
diligence to prevent
and detect wrongful
acts
Attenuating sanctions
in the event of liability
of the company
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Effectiveness of the
program
Characteristics of the entity and
market
Structure of the Program
Evaluation of the mechanisms and procedures of Integrity (compliance) shall consider:
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Effectiveness of the
program
Characteristics of the entity and
market
Structure of the Program
Evaluation of the mechanisms and procedures of Integrity (compliance) shall consider:
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Elements of the structure of a compliance program: • Support and commitment from senior management• Standards of conduct, policies and procedures• Education and training of employees• Recurrent risk assessment• Reliable accounting records• Internal controls • Procedures to prevent fraud in bidding processes and
within contracts with the public sector• Compliance oversight • Whistleblowing channel
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• Disciplinary actions• Remediation and response procedures (in the event of a
wrongful act) • Due diligence before hiring of agents, consultants,
intermediaries, etc., and supervision thereof• Due diligence before and during mergers and
acquisitions • Monitoring, auditing and updating the compliance
program• Transparency as regards donations to political parties
and campaigns
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Effectiveness of the
program
Characteristics of the entity and
market
Structure of the Program
Evaluation of the mechanisms and procedures of Integrity (compliance) shall consider:
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Characteristics of the entity and market (risk factors):
• Number of employees • Hierarchical complexity and amount of departments and sectors• Use (and number) of intermediaries, consultants and sales
representatives• Market sector • Countries in which it operates• Level of interaction with the public sector (and relevance of
permits, licenses and authorizations for the entity)• Number and location of subsidiaries • Whether it is formally recognized as small enterprise
Small entreprises will have a different treatment – less formalitywill be demanded of their integrity measures and some parametters will not apply.
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Effectiveness of the
program
Characteristics of the entity and
market
Structure of the Program
Evaluation of the mechanisms and procedures of Integrity (compliance) shall consider:
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Examples of effectiveness (which depends on the facts of the case and on the characteristics):• Prompt notice to the authorities• Enforcement of disciplinary actions• Changes to the program (based on risk assessments and
after occurrence of wrongful acts)• Involvement of senior management• Level of attendance to trainings(…)
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REQUIREMENTS:
o Be the first to come forward and demonstrate its willingness to cooperate in antitrust cases
o Completely ceases its involvement in the wrongful act o Admits its participation in the wrongful acto Permanently cooperate with the investigationso Offer proof of its involvement in the illicit act
Expected RESULTS :
― Identification of others parties
― Quicker obtainment of evidence
Duty to fully repair the damage
Exclusive prerogative of the Office of the Comptroller Generalwithin the Federal Executive Branch
LENIENCY AGREEMENTS
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Possible BENEFITS for the company:
― Exemption from extraordinary publication of thecondemnatory decision
― Exemption from the prohibition from receiving incentives,subsidies, grants, donations or loans
― Reduction of fines up to 2/3
― Exemption from debarrement
The agrrement will be negotiated in up to 180 days (extendable)
Company loses benefits if agreement is disrespected
Adoption of compliance program will be a requirement
LENIENCY AGREEMENTS