FCPAméricas Blog
Further Comments on the Regulations on the Clean Companies Act
5.07.2015
On March 18, 2015, President Dilma Roussef signed Decree 8.420/2015, which regulates certain features of the Clean Companies Act. The highlights of Decree 8.420/2015 are available here. On April 7, 2015, the Office of the Federal Comptroller General (“CGU“), issued four new regulations related to the Clean Companies Act, highlights of which are available here. To better understand how these legal instruments will operate, below are four points for consideration.
Binding instruments. Both the Decree and the regulations (collective referred to as “Regulations”) are binding legal instruments (although most aspects of the regulation are not mandatory at State and Municipal levels, they should still serve as guidance in those jurisdictions). This means, that they create rights, substantive and procedural, that are enforceable under the law by any company in any administrative or judicial matter. For example, if the federal administrative authority fails to examine the parameters of a company’s compliance program in accordance with the elements and procedures described in the Regulations, the company can challenge it. The Regulations are different from the Resource Guide to the FCPA, which is a non-binding document – the information contained there does not constitute rights and regulations.
Calculation of fines is focused on contracts with public administration. As described here, to calculate the fines, authorities will have to considering a number of factors. If all “aggravating” factors are present, the maximum fine will be 20% of the gross revenue of the legal entity from the year before the commencement of the administrative procedure. If the legal entity has no contract with the public administration (and the action is therefore unlikely to result in interruption of public services, another “aggravating” factor set forth in the Regulations), the maximum penalty possible would be 11%. To reach the 11%, the violation would have had to continue over time (which would add up to 2.5%), management would have to be aware of the violation (which would add up to another 2.5%), the company would have to be a repeat offender (which would add up to another 5%), and the company would need to have a positive solvency rate (another factor set forth in the Regulations which would add up to another 1%). Considering this, a company that pays a bribe to obtain a license in only one instance without the knowledge of management may receive a an insignificant fine. This is a feature that is sure to call the attention of the OECD Working Group on Bribery in the next evaluation of Brazil’s implementation of the OECD Anti-Bribery Convention.
FCPA compliance programs may require adjustments. A substantial part of the prohibited acts set forth in the Clean Companies Act are related to public tenders and public contracting (not necessarily linked to corruption) and general interactions with the public administration. As highlighted in the Regulations, one of the elements of compliance programs is “specific procedures to prevent fraud and illicit acts within tender processes, the execution of administrative contracts or in any interaction with the public sector, even it is intermediated by third parties, such as the payment of taxes, inspections, or obtaining authorizations, licenses, permits and certificates”. Such procedures are important not just because they are required by the Regulations but also because oftentimes employees commit wrongdoing when there are no clear guidelines on how to respond to difficult situations, especially in public procurement where the lines between what is permissible and what is not permissible are not always clear. Companies’ current FCPA compliance programs that have been designed to prevent bribery may not cover such aspects and need to be updated.
CGU has a team specialized in evaluating compliance programs. CGU has a qualified technical team specialized in anti-corruption matters and evaluation of compliance programs. The team has acquired expertise evaluating compliance programs with the Cadastro Empresa Pró-Ética, educating CGU’s team in top level courses in Brazil and abroad, interacting with its peers in other countries, and participating in public events. The agency has also been involved in discussions about the Clean Companies Act and its Regulations since the early stages. It is familiar with their key features. Given CGU’s centralized approach and specialized expertise, one expects it to apply the law in a coherent way. This means that companies that have a well designed and implemented compliance program should expect their programs to be closely analyzed by educated reviewers. In particular, companies should not expect that CGU to give credit for “paper programs”. At the Municipal and State levels, authorities are also starting to build this expertise. The city of São Paulo has recently provided training to its employees on compliance and evaluation of such programs.
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
Post authored by Carlos Henrique da Silva Ayres, FCPAméricas Contributor
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May 8th, 2015 at 7:56 pm
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