FCPAméricas Blog

Election Season in Brazil: Political Contributions and Anti-Corruption Compliance

Author: Carlos Ayres

Political contributions are often an area of anti-corruption compliance concern in Brazil. As highlighted by Lucio Rennó, Associate Professor in the Program on the Americas at University of Brasília, in his book Corruption and Democracy in Brazil: The Struggle for Accountability, “it is impossible to understand the Brazilian election without considering the impact of corruption.”

Given that Brazil is now in election season (elections for the Senate, Federal Congress and State Congresses took place on October 5 and the second round of voting for president and governor in some states takes place on October 26), this post provides a list of areas that compliance personnel should take into consideration with respect to political contributions here.

Pay attention to local law. Local legislation limits political contributions of companies to 2% of the gross of their revenue (or, for individuals, 10% of their income) of the year immediate before the election. A donor of political contributions above that limit is subject to a fine of 5 to 10 times the amount of the excess and debarment of up to 5 years. Donors must retain an appropriate receipt issued by the candidates or political party supporting any contribution. Oftentimes, issues can arise based on “unofficial” political contributions.

It is not just about financial thresholds and receipts. Many people think that, as long as their company’s political contributions are within legal thresholds and appropriate receipts have been obtained, no liability can apply. But the existence of a quid pro quo related to the political contribution can also cause the company to run afoul of anti-bribery laws. During anti-corruption due diligence, for example, it is not uncommon to discover that a third party or M&A target has provided a contribution in exchange for a business benefit. For example a mayor might expropriate a certain area of land and provide it to be used by a donor company.

Watch the contribution amount. In addition to ensuring that a contribution falls within the appropriate threshold, a receipt is obtained, and there is no quid pro quo, companies should also make sure that their contribution is reasonable and proportional. The contribution should not create the appearance of improper influence. Ethos Institute of Business and Social Responsibility recently published a comprehensive analysis of political contributions in Brazil entitled A responsabilidade das empresas no processo eleitoral (The responsibility of companies in the electoral process). The report revealed that, in the 2010 elections (the last federal elections), the top 10 contributors (all legal entities) made a total of approximately R$ 519 million (approximately U$ 308 million, per exchange rate of October 1, 2014) in political contributions. The analysis also found that top donors frequently make contributions to different parties and candidates, even to those that have different political agendas. Compliance risks go up when contribution amounts are high and rationales are questionable.

Have a written policy for contributions. Given the risks associated with political contributions, many companies operating in Brazil choose to prohibit them. According to a poll conducted by Ethos Institute with the signatories of its Business Pact for Integrity and Against Corruption, 82,6% of the entities surveyed did not make political contributions in the 2010 and 2012 elections and 58,7% of the total number of participants had written policies in place that prohibit political contributions. If a company chooses to  make political contributions, to mitigate risk it should have a written policy setting forth the criteria and limits for contributions. It should require that the company document a rational and pre-approve the contribution through appropriate corporate channels.

Be ready to explain your contributions. The vast majority of information related to political contributions is made publicly available on the Internet. With a few clicks, anyone can check who has contributed to which specific candidates or parties (for the 2014 elections, that information can be obtained here). Because of this, political contributions are often subject to intense scrutiny by the media, civil society and government authorities. Recently, federal authorities have stated publicly that federal regulations on anti-corruption compliance programs will include transparency in political contributions as an element of an effective compliance program (tough it is not clear what measures will be required).

It should be noted that the status of political contributions in Brazil’s future is uncertain.  There is now a case pending before the Brazilian Supreme Court that might determine whether or not companies will be able to continue to make political contribution (so far, the majority of Justices have voted in favor of the prohibition). There is also a draft bill pending before Congress that would prohibit political contributions by companies. Compliance personnel should stay abreast of these developments.

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.

© 2014 FCPAméricas, LLC

Carlos Henrique da Silva Ayres

Post authored by Carlos Henrique da Silva Ayres, FCPAméricas Contributor

Categories: Anti-Corruption Compliance, Brazil, Charitable Donations, English, FCPA

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