Merrill Brink News Reviews and Opinion on Aug 2, 2014: The New Brazilian Clean Company Act and Its Impact on Your Compliance Program
NEW YORK, Aug. 4, 2014 /PRNewswire-iReach/ -- Brazil, in preparing for its role as host to the 2014 FIFA World Cup and the 2016 Summer Olympics, has made a concerted effort to improve its worldwide reputation by addressing longstanding issues related to corrupt business practices. On January 29, 2014, the Brazilian government enacted the Clean Company Act (the Act), which for the first time in its history makes companies rather than individuals liable for corruption. The financial repercussions of violating the Act can be severe, making it vital for any organization doing business in Brazil to thoroughly understand it and update their compliance programs accordingly.
Following is an overview of the Act, how it is enforced and the potential penalties that may result from violations.
At Risk Activities and Organizations Defined
The Brazilian Clean Company Act prohibits Brazilian companies and "foreign entities with a Brazilian registered office, branch or affiliate" from bribing domestic or foreign public officials.1 In addition to bribery, it also forbids fraud related to procurements, collusion and similar acts of corruption. These actions are covered regardless where they took place. The conduct does not need to occur within Brazilian borders to be subject to government action.
Intent can also be considered a nonfactor in the Act's enforcement as it is a "strict liability" statute and applies to all violations, regardless whether there was any criminal or corrupt motivation behind them.2 Also distinguishing Brazil's Act from the corruption laws of many other countries is its lack of exceptions for so-called "facilitation payments," making it especially important for companies doing business in Brazil to adjust their compliance programs to address the new law.3
Decentralized Enforcement – Greater Risk
The Act identifies the parties who are liable and defines the conduct that it covers well, but it does not provide a lot of specific detail regarding enforcement. In general, law enforcement in Brazil is decentralized with federal and local authorities sharing responsibilities. The Act authorizes the highest level of government—whether it's the executive, legislative, or judicial branch—affected by the conduct to enforce the rules the Act contains.4 This can be particularly troubling for large organizations conducting business throughout Brazil, as they can realistically be charged by any level or multiple levels of the government.
Civil and Administrative Penalties May Apply
Companies found in violation of the Act are not subject to criminal charges. They are assessed with civil and administrative penalties only, although penalties can be severe. Depending on the transgression, an organization can be forced to pay a fine of 0.1 to 20 percent of its gross revenue for the previous year. If the company had no revenue in the year prior to the violation or the revenue cannot be determined, the organization may be subject to a fine ranging from US$3,000 and US$30 million.5
Penalties are not limited to fines: violators may also face other civic sanctions such as the suspension or dissolution of their companies. No matter what kinds of penalties an organization is given, they can be mitigated if the company cooperates with Brazilian authorities, has compliance procedures in place, and voluntarily reports conduct that the Act prohibits.6
As this brief overview illustrates, the Brazilian Clean Company Act requires special consideration if you're planning to do business in Brazil. To minimize risk, tailor your compliance program according to the new law and have it translated for your employees and associates in Brazil. You will save your organization time, money and protect your reputation by ensuring that your company's policies are clearly understood by affected parties. It is best to work with a language service provider with expertise in regulatory compliance and legal translations to ensure that your project is completed quickly and accurately, enabling you to conduct business in Brazil with confidence.
1 Kevin M. LaCroix, "The Brazilian Clean Companies Act," LexisNexis Legal Newsroom, December 11, 2013, http://www.lexisnexis.com/legalnewsroom/corporate/b/fcpa-compliance/archive/2013/12/11/the-brazilian-clean-companies-act.aspx (accessed July 8, 2014).
2 Ed Silverstein, "Brazilian Law Counters Bribery, Corruption Among Officials," InsideCounsel, April 18, 2014, http://www.insidecounsel.com/2014/04/18/brazilian-law-counters-bribery-corruption-among-of (accessed July 8, 2014).
3 Michael Martinez, "What Anti-corruption Developments in Brazil and Latin America Mean for You," InsideCounsel, June 25, 2014, http://www.insidecounsel.com/2014/06/25/what-anti-corruption-developments-in-brazil-and-la (accessed July 8, 2014).
4 Samuel Rubenfeld, "The Morning Risk Report: Brazil's Anti-bribery Law Comes into Force," The Wall Street Journal, January 29, 2014, http://blogs.wsj.com/riskandcompliance/2014/01/29/the-morning-risk-report-brazils-anti-bribery-law-comes-into-force (accessed July 8, 2014).
5 Silverstein, "Brazilian Law Counters Bribery, Corruption Among Officials."
6 Martinez, ""What Anti-corruption Developments in Brazil and Latin America Mean for You."
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