- FCPAméricas - http://fcpamericas.com -

Brazilian Clean Companies Act: Three Practices to Prevent Fraud in Public Procurement

Licitacao [1]

This guest post was written by Felipe Ferenzini, senior associate at Trench Rossi & Watanabe Advogados.

The long-awaited Brazilian Clean Companies Act entered into force on January 29, 2014 and set forth strict rules to prevent the corruption that has been plaguing the country. As a result of Brazil`s change of attitude toward enforcement of anti-corruption laws, the country is seeing unparalleled investigations in the past months. Among other things, it has led to the imprisonment of numerous top executives and investigations of approximately 50 politicians so far.

Recent massive protests against corruption involving public officials have driven the Brazilian Government to move forward with the pending regulation of the Clean Companies Act [2]. Decree 8420/2015 [3] was published on March 18, 2015 to fill such gap.

The new law extends beyond corruption to an area of misconduct that has been common in Brazil – fraud in public procurement. The new law also creates the potential for penalty reduction by companies that have effective mechanisms in place to prevent fraud in public tenders, public contracts, and interaction with Public Officials. Companies operating in Brazil should therefore adjust their local compliance programs to cover the specific local rules and market conditions/risks.

In view of this, below are three best practices for local policies to prevent fraud when dealing with the Brazilian Public Administration:

Controls around the definition of conditions in the Request for Proposals (“RFP”): As a rule, the Brazilian Public Administration has to procure goods and services based on a public tender procedure aimed at obtaining the maximum number of competitors and the best price possible. The tender rules are defined in the RFP. It is common for fraud to be committed  within the RFP specifications in a way that benefits a company or prevents other companies from competing. Since the procuring entity is responsible for defining the requirements of the purchase, companies should never draft the requirements on behalf of public officials. It should be noted that advertising the company`s capabilities and technologies is not forbidden, but certain controls should be implemented to mitigate risks. For example, companies can formalize that the data provided to officials is for information purposes only and that it shall not be copied into the RFP.

Vetting of “waiver and unfeasibility” in Public Tenders: The Public Administration must award contracts via a competitive tender procedure. The direct procurement (for waiver and unfeasibility) is an exception. Waiver cases can only be those that are defined in legislation (such as urgent cases arising from catastrophic events) and unfeasibility is only applicable when competitive bidding is impossible (e.g., single sourcing that cannot be specified under objective criteria). Since such exceptions allow the Public Administration to hire a supplier without competition, the mechanism can be used fraudulently. It is important to note as well that direct procurement is usually subject to increased scrutiny from Brazilian auditing authorities. Thus, whenever the Public Administration intends to procure based on these exceptions, the legal department of a company should be involved to evaluate if the conditions for a direct procurement are met. This will be a case by case analysis.

Avoiding of Bid rigging: Companies doing business in Brazil should put mechanisms in place to avoid collusive practices and bid rigging, since these practices  violate Public Procurement rules. For example, employees, especially those who deal directly with the Public Administration, should be periodically trained on public procurement rules and best practices in interactions between competitors.

The opinions expressed in this post are those of the author in his or her individual capacity, and do not necessarily represent the views of anyone else, including the entities with which the author is affiliated, the author`s employers, other contributors, FCPAméricas, or its advertisers. The information in the FCPAméricas blog is intended for public discussion and educational purposes only. It is not intended to provide legal advice to its readers and does not create an attorney-client relationship. It does not seek to describe or convey the quality of legal services. FCPAméricas encourages readers to seek qualified legal counsel regarding anti-corruption laws or any other legal issue. FCPAméricas gives permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author and to FCPAméricas LLC.

© 2015 FCPAméricas, LLC