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Monday, July 28, 2014

The New Brazilian Clean Company Act: What You Need to Know When Doing Business in Brazil

As Brazil’s profile rises on the world stage—serving as host to both the 2014 FIFA World Cup and the 2016 Summer Olympics—its struggles with corruption gain more attention. To address its longstanding issues and to improve its reputation, the Brazilian government enacted the Clean Company Act on January 29, 2014, which for the first time in the government’s history makes companies rather than individuals liable for corruption. Because the financial repercussions of violating the Act can be severe, organizations conducting business in Brazil would do well to thoroughly review the Act’s content and adjust their compliance programs accordingly.

This article provides an overview of the Act, including how it is enforced and the potential penalties that come with violating it.

What It Covers

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 The Act is not limited to bribery, however: it also forbids collusion, fraud related to procurements, and similar acts of corruption. It covers these actions without regard to where they took place, meaning that the conduct does not need to occur within Brazil’s borders for the government to take action against it. 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 of whether there was any criminal or corrupt motivation behind them.2 Also distinguishing the 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

Enforcement

The Act establishes the parties and conduct that it covers well, but it does not offer specific details on enforcement. In general, law enforcement in Brazil is decentralized, with federal and local authorities sharing responsibilities. As such, 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 The implications of this decentralization can be particularly concerning for large organizations that conduct business throughout Brazil, as they can realistically be faced with charges from any level or multiple levels of the government.

Penalties

Regardless of which authority enforces the Act, companies found guilty of violating it are not subject to criminal charges. Instead, they are given civil and administrative penalties only, although these penalties can still be severe. Depending on the nature of its transgression, an organization can be forced to pay a fine equal to 0.1 percent to 20 percent of its gross revenue for the previous year. In the event the company had no revenue in the year prior to the violation or if the revenue cannot be determined, the organization can be subject to a fine between US$3,000 and US$30 million.5 Penalties are not limited to fines, however: violators may face other civic sanctions, such as suspension or dissolution of their respective 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 shown in this brief overview, the Brazilian Clean Company Act requires special consideration if you plan to do business in Brazil. Tailoring your compliance program to account for the new law and having it translated so that your associates in Brazil clearly understand your company’s policies can save your organization time, money, and hits to its reputation as its dealings in Brazil increase. Enlisting the services of a language service provider that has professionals specializing in regulatory compliance and legal translations will help to ensure that your project is completed as accurately and quickly as possible, allowing you to conduct business in Brazil with confidence.

References

1 Kevin M. LaCroix, “The Brazilian Clean Companies Act,” LexisNexis Legal Newsroom, December 11, 2013, Website (accessed July 8, 2014).

2 Ed Silverstein, “Brazilian Law Counters Bribery, Corruption Among Officials,” InsideCounsel, April 18, 2014, Website (accessed July 8, 2014).

3 Michael Martinez, “What Anti-corruption Developments in Brazil and Latin America Mean for You,” InsideCounsel, June 25, 2014, Website (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, Website (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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