Since Jan 29, 2014 the Brazilian Act which provides for civil and administrative liability & sanctions imposed on local private legal entities who carry on acts against the public administration whether domestic (means any government (federal, state or municipal spheres), governmental entity (or any department thereof), legislative entity, regulatory authority, administrative entity, department, commission, board, agency or instrumentality (including any state-owned or controlled, directly or indirectly, legal entity by any government) or foreign (means diplomatic representations of any level or branches, public agencies, bodies or legal entities controlled, directly or indirectly, by the government of a foreign country) is enforceable and therefore moving companies to adopt a so called “clean” corporate governance approach.
That Act holds an extraterritorial scope of application which means that it applies also to bribery acts committed by Brazilian business organizations and by Brazilian of foreign individuals (board members, officers and persons that have been acting as offenders, co-offenders or participants there from) against foreign public administration, even if the misconduct takes place abroad (beyond the Brazilian borders).
The aforesaid liability shall survive in the event of a corporate restructuring like the amendment to the articles of association, transform of a limited liability company into a joint stock company and vice-versa, merger, amalgamation, or split-off/split-up operation.
Whenever a M&A initiative occurs, the liability will be limited to the obligation to pay the money fine and the entire amount of the damages caused to the public administration, but limited to the extent of the assets that were undertaken by the successor company, who will be exempt from other sanctions set forth in the law, exception made when there is there is proof of false pretense or fraudulent intent.
For the purposes thereof, unlawful conduct shall be the one that results into damages to domestic or foreign public assets in violation of the international commitments undertaken by Brazil before the OECD(*) as defined herein below:
(1) to promise, offer or give, directly or indirectly, any improper advantage to a government official or to third persons related to him/her;
(2) to fund, pay for, sponsor or in any way support the practice of unlawful acts provided in there;
(3) to use individuals or legal entities as intermediaries with the aim to hide or deceive its actual interests or the identity of the beneficiaries of that misconduct;
(4) regarding public bidding and contracts:
a) to spoil or deceive, by means of an agreement, arrangement or otherwise, the competition element of the public bidding proceeding;
b) to prevent, disturb, or deceive the accomplishment of any act of the public bidding proceeding;
c) to remove, or attempt to remove a competing bidder by means of a deceiving conduct or the offer of any type of advantage;
d) to deceive a public bidding or the contract there from;
e) to incorporate, by a deceiving or illegal manner, a legal entity to attend a public bidding or to enter into an administrative contract;
f) to obtain undue advantage or benefit, by a deceiving manner, deriving from the modification or postponement of contracts entered into with the public administration without previous legal authorization;
g) to manipulate or deceive the finance-economic balance of the contracts entered into with the public administration; or
(*) In 1997, Brazil participated and signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which originated this bill. Several years later, in December 2007, the OECD reviewed the national efforts made and recommended that the Brazilian government amend the national laws in order to impose liability on a company for acts of bribery and corruption, and to provide for effective sanctions.
(5) to hinder the investigation and auditing activities by the governmental bodies, entities or civil servants, or to interfere in their acting, within the regulatory agencies and the assessment bodies of the national financial system inclusively.
Under the administrative sanctions, the following measures shall apply:
(i) payment of a fine in the net amount ranging from 0,1% to 20% of the legal entity gross revenue accounted in the preceding fiscal year, however such fine shall never be lower than the amount unlawfully obtained when it is possible to be find out. In the event the gross revenue figure is non-verifiable then, the fine will range from R$ 6.000,00 (US$ 2,400.00) till R$ 60.000.000,00 (US$ 24,000,000.00); and
(ii) the condemnatory decision shall go public.
Leniency Agreement: the highest ranked authority of each governmental entity may enter into a leniency agreement with the deceiving legal entity or individuals whenever they effectively cooperate with the investigations and the administrative proceedings, provided that such cooperation should result:
(i) in the identification of other parties involved with the unlawful act; and
(ii) in the quickly obtainment of information and documents proving the unlawful act under investigation.
Under court sanctions, the following measures shall apply severally or cumulatively:
(i) the loss of assets, rights or amounts which represent the advantage or profit, directly or indirectly, obtained from the misconduct;
(ii) activities of the deceiving party shall be put on hold or suffer partial interdiction;
(iii) legal entity mandatory winding-up; or
(iv) the deceiving legal entity remains prohibited from receiving fiscal benefits, aids, support, donations or loans from public bodies or entities as well as from public financing or controlled institutions during a period of 1 (one) to 5 (five) years.
The Act will undoubtedly have significant implications for companies that operate in Brazil. Where previously only individuals could be held accountable for corrupt acts, under the auspices of the Act companies themselves can now be administratively and civilly liable for acts committed on their behalf. As such, companies operating within Brazil will have to take measures to ensure that their existing internal compliance procedures are in line with both Brazilian and international standards.
If you would like to know more about that matter please contact Fischer Law Firm and we will be honored to perform joint efforts pursuing to render the customized support you are looking for.