An anti-graft law by 2013 would be none too soon for Brazil, given the scale of investment flooding into Latin America's largest economy
Brazil’s House of Representatives might have delayed for the fifth time this week voting on a new anti-bribery bill. But lawyers, accountants and compliance officers in the United States aren’t wasting any time in getting into training for the new law.
Carlos Ayres, co-chairman of the Brazilian Institute of Business Law’s anti-corruption compliance committee, told a briefing for industry professionals in Washington, D.C., on Thursday the new law may not win passage until 2013, after local elections in October.
“But it is going to pass; it is a question of what is in the law,” said Ayres, an attorney at Trench, Rossi E Watanaba Advogados in Sao Paulo.
An anti-graft law by 2013 would be none too soon for Brazil, given the scale of investment flooding into Latin America’s largest economy.
Already Brazil is a leading destination for foreign direct investment. In 2011, $67 billion flowed into the country, a 37 percent increase from the previous year, putting it in fourth place after the United States, China and Australia, according to the Organization of Economic Cooperation and Development.
Fernando M. Caleiro Palma, compliance manager for South America at Archer Daniels Midland Co., said the FIFA World Cup soccer tournament in 2014 is expected to bring $77 billion in total investment, of which $49 billion will be infrastructure spending.
And the Rio Olympics in 2016 will unleash an additional $16 billion in investment and $50 billion in indirect spending.
Construction and sport are prime areas for corruption worldwide. Surveys show 35 percent of Brazilian companies report paying bribes and 15 percent of executives say they are willing to pay them, at an estimated cost to the Brazilian economy of 2.3 percent of GDP, said Palma.
For international companies operating in Brazil and subject to U.S. or U.K. anti-bribery legislation, the new law would help level the playing field with domestic Brazilian companies.
But there are some key differences. For instance, the standard of proof for corruption in Brazil would be lower, namely that “it is more likely than not” that fraud occurred, compared with the tougher U.S. legal standard of “beyond a reasonable doubt”.
The bill is built around two pillars - strong sanctions to punish corruption, and strong incentives for companies to act ethically and comply with the law, said Bruno Maeda, co-chairman of the business institute’s anti-corruption committee and a lawyer at Trench, Rossi e Watanabe Advogados in Sao Paulo.
Its key features include:
- Any legal entity in Brazil is covered, from corporations to charities and foundations; so too are all foreign entities including subsidiaries, branch offices or representative offices.
- Bribery of domestic and foreign officials is forbidden, along with fraud in public procurement, bid rigging and other corrupt acts.
- Fines between 0.1 percent and 20 percent of gross revenues over the past year can be levied on companies for violating the law, or 6,000 to 60 million Brazilian reals.
- Companies can be banned from access to public financing, such as state bank loans, for one to five years and debarred from bidding for two to five years; contracts with public entities can be cancelled; assets can be seized or confiscated; if a legal entity such as a subsidiary was formed for illegal purposes it can be dissolved.
- Companies that have strong compliance programmes and voluntarily disclose fraud before a proceeding has begun can receive leniency, reducing fines by as much as two-thirds.
Issues of concern to the Brazilian business community are how the sanctions in the bill would be calculated, as well as the “strict liability” provision, which would make a company legally liable if one of its employees engages in fraud or bribery.
Also under discussion is the “successor liability” clause, which addresses whether a company in a merger is responsible for the sins of the company it acquires, Maeda said.
The concept of corporate criminal liability is relatively new under Brazilian law, making this a hotly contested area, said Ayres. The OECD anti-corruption convention, which Brazil has signed, requires that if the legislation has no criminal liability provision, the civil sanctions should be “functionally equivalent”.
How effectively the law is enforced also is an area of concern, said Ayres. Overlapping laws and overlapping enforcement authorities at the federal, state and municipal level make this a thorny area.
“So this gives ground for even more corruption,” he said.
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