FCPAméricas Blog
Boom Times in Brazil, Part 2 (Managing corruption risk in a high-opportunity / high-risk environment)
10.31.2011
This blog post is the second of a four-part series. Part 1 outlines corruption issues to look out for when operating in Brazil’s high-opportunity / high-risk environment. Part 2 (below) gives guidance to companies that are expanding operations into Brazil on ways to manage the country’s unique risk. Part 3 gives guidance (in Portuguese) to Brazilian companies expanding internationally on the basic prohibitions and jurisdictional elements of the FCPA. Part 4 discusses developments in Brazil that may signal a sea change in corruption reform.
Brazil presents unique corruption risks to companies making investments there, some of which are discussed in Part I of this blog series. The country has spawned numerous actions of the U.S. Foreign Corrupt Practices Act (FCPA), nicely summarized here by attorney Michael Volkov.
Because Brazil is a large country with its own self-contained business ecosystem, foreign companies working there must learn to operate successfully within its particular culture while managing FCPA risk in an era of heightened enforcement.
In deferred prosecution agreements and opinion releases, U.S. enforcement officials have articulated minimum compliance expectations for companies, and the United States Federal Sentencing Guidelines also provide guidance. Below I offer suggestions on how compliance strategies can be applied in Brazil, in particular, to mitigate its unique corruption risk.
1. Know Brazil: Your compliance team should be familiar with Brazil and its culture, or should use experts who are. To effectively communicate compliance guidelines, train employees, vet third party intermediaries, and conduct internal investigations, your team should include Portuguese speakers and people familiar with Brazilian customs. Effective compliance programs are the best protection against risk. If an issue does arise regarding your operations in Brazil, it will be good to show U.S. enforcement that you have thoroughly trained your employees and agents on the ground. It will be even better to show that you have trained them in their own language. In fact, a recent FCPA lawsuit suggests that bilingual trainings might now be emerging as a best practice of compliance.
2. Do Your Due Diligence: Due diligence on third party intermediaries should be a basic component of a company’s compliance program. In Brazil, it is a must. Some business practices might be tolerated in Brazil that are not in other parts of the world. Companies must therefore take a proactive approach to understanding the business of the local companies that represent them and provide services to them. A diligent program mitigates risk.
3. Keep Your Guard Up: Brazil is experiencing massive long-term changes that have created the potential for significant corruption reform in the country (see Part IV of this series). But cultural change in business is a slow process. Therefore, companies should regularly review their compliance programs and their implementation to ensure that they adequately address risk as operations and business climates change. Without constant attention, improper business practices that are tolerated locally can reassert themselves, especially when U.S. regulators seem far away. Periodic review is also a basic expectation of U.S. enforcement officials.
4. Don’t Get Phased by Boom-Time Mentality: While opportunities in Brazil are plentiful right now, economic booms (and busts) come and go in Latin America. The FCPA’s statute of limitations, however, lasts five years. Remember that practices that occur now could be subject to enforcement action for years to come. To adequately manage risk during periods of growth and contraction, companies are smart to take a measured, long-term approach to prioritizing compliance.
5. Hire Local Counsel: While local counsel might not be able to provide expertise on the FCPA, it can provide guidance on Brazil’s regulatory environment. These rules – frequently complex and difficult for outsiders to penetrate – give rise to corruption risk. Understanding these rules will help you determine which opportunities may have hidden costs.
Patrick Kelkar, a partner and FCPA practice leader at the James Mintz Group, an international investigative firm, says his team regularly conducts due diligence and internal investigations in Brazil for clients across a number of key sectors. He states, “Be careful not to lump Brazil with other Latin American countries. Based on our experience, it is crucial that your team understand the uniqueness and complexity of operating in Brazil.”
The FCPAméricas blog is not intended to provide legal advice to its readers. The blog entries and posts include only the thoughts, ideas, and impressions of its authors and contributors, and should be considered general information only about the Americas, anti-corruption laws including the U.S. Foreign Corrupt Practices Act, issues related to anti-corruption compliance, and any other matters addressed. Nothing in this publication should be interpreted to constitute legal advice or services of any kind. Furthermore, information found on this blog should not be used as the basis for decisions or actions that may affect your business; instead, companies and businesspeople should seek legal counsel from qualified lawyers regarding anti-corruption laws or any other legal issue. The Editor and the contributors to this blog shall not be responsible for any losses incurred by a reader or a company as a result of information provided in this publication. For more information, please contact Info@MattesonEllisLaw.com.
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© 2011 Matteson Ellis Law, PLLC
Post authored by Matteson Ellis, FCPAméricas Founder & Editor
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