FCPAméricas Blog
Highlights of Brazil’s Regulation on the Clean Companies Act
3.23.2015
Brazil’s Clean Companies Act (an unofficial translation of the law into English is available here), in force since January 2014, requires the Brazilian Federal Government to issue a regulation on compliance programs. On March 18, 2015, President Dilma Roussef signed Decree 8.420/2015, regulating certain features of the Clean Companies Act. The Decree is now in force.
As predicted in earlier posts (see here and here), the regulation is not limited only to describing the criteria for evaluation of compliance programs. Its 53 articles also address other areas like administrative proceedings and sanctions, calculation of fines, leniency agreements, and lists of sanctioned entities. Four main features of the regulation are highlighted below. Future posts will discuss the new regulation in greater detail.
Compliance programs. The Decree provides a substantive list of 16 elements that will be taken into consideration when authorities evaluate a company’s compliance program. They are:
- commitment of high management and board members to the program;
- policies and procedures applicable to everyone at the company;
- policies and procedures applicable to third parties;
- periodic training;
- periodic risk assessment;
- accurate and complete books and records;
- internal controls to assure the reliability of financial statements;
- specific procedures related to public procurement and interaction with government officials;
- independence, structure and authority of the compliance function;
- channels to report irregularities openly and broadly disseminated among employees and third parties, and mechanisms to protect good-faith whistleblowers;
- application of disciplinary measures in case of wrongdoing;
- procedures to immediately stop irregularities detected and to take measures to remediate damages caused;
- due diligence on third parties;
- due diligence in corporate and M&A transactions;
- continuous monitoring of the program; and,
- transparency in political contributions.
When evaluating these elements, the following aspects of the legal entity will be taken into consideration:
- number of employees;
- complexity of the company and number of different areas;
- use of third parties;
- industry in which it operates;
- countries in which the company operates, directly or indirectly;
- level of interaction with the public sector;
- number and location of companies of the same economic group; and
- whether or not the entity is a small size company (these entities are not required to have items iii, v, ix, x, xiii, xiv and xv mentioned in the previous paragraph).
Criteria for the fine. The Clean Companies Act sets forth that fines will range from 0.1% to 20% of the gross revenue of the legal entity from the year before the commencement of the administrative proceeding against the company (or from R$ 6,000.00 – around USD$ 1,850.00 – to R$ 60,000,000.00 – around USD$ 18,505,000.00 – if not possible to use the gross revenue criteria). The concept of “gross revenue” was not defined in the regulation. Rather, the Decree sets forth that it will be defined in a regulation to be published by the head of the Federal Comptroller General (“CGU“). The regulation, however, provides the criteria that will be used to determine where the fine will fall within that range. This is most likely a response to current concerns over the fact that the existance of an extraordinary number of enforcement authorities (see post about it here) could lead to potential abuses, especially at the local level.
To calculate the fines, authorities will apply the following percentages to the gross revenue of the legal entity from the year before the commencement of the administrative proceeding against the company:
- 1% to 2.5% if the wrongdoing continued over time;
- 1% to 2.5% if management of the legal entity tolerated or was aware of the wrongdoing;
- 1% to 4% if the wrongdoing resulted in the interruption of public services or the execution of the project contracted;
- 1% if the solvency rate of the company was positive in the year before the commencement of the administrative proceeding;
- 5% in the event of reoccurrence;
- 1% to 5% according to the amount of the contracts obtained or sought with the public administration (ranging from 1% for contracts above R$ 1.500.000,00 – around USD$ 462,000 – to 5% for contracts above R$ 1 billion around USD$ 308 million).
From that amount authorities will exclude other amounts, based on the application of the following percentages to the gross revenue of the year before the commencement of the administrative proceeding against the legal entity:
- 1% if the wrongdoing was not consummated;
- 1.5% if the legal entity restitutes the damages caused;
- 1.5% if the legal entity collaborates with the investigation of the wrongdoing, regardless on whether or not a leniency agreement had been reached;
- 2% if the legal entity spontaneously reports the wrongdoing to the authorities before the commencement of the administrative proceeding;
- 1% to 4% if the legal entity has a compliance program in accordance with the requirements of the Decree.
Further clarification on leniency agreements. The Clean Companies Act allows authorities to enter into leniency agreements with legal entities, provided they effectively collaborate with the investigations and with the administrative proceeding; that such collaboration results in the identification of the ones involved in the violation, when applicable; and that information and documents proving the illegal acts under investigation are rapidly obtained (this post discusses factors to consider before entering into leniency agreements in Brazil). The regulation sets forth that leniency agreements can be signed at any time until the report of the administrative proceeding is prepared by the authorities. Moreover, companies can back out of leniency agreements any time up to the agreement is signed in which case authorities have to return the evidence and cannot use it unless they come to it independently.The regulation also sets forth that, among other things, leniency agreements should have provisions relating to the adoption, application and enhancement of the legal entity’s compliance program.
Administrative proceeding. Articles 8 to 15 of the Clean Companies Act sets forth some basic procedural rules for the application of administrative sanctions. Among other things, the regulation sets forth that the condemnatory decision should also be published on the main page of the company’s website for thirty days if this sanction is applied. The regulation further details the procedural rules in order to provide more certainty about them. For example, it sets forth that the Sanctioning Administrative Proceeding must be concluded within 180 days from the date of its initiation, but may be extented by a determination by the authority that initiated the procedure.
Most aspects of the regulation are not mandatory at State and Municipal levels, but they should still serve as guidance in those jurisdictions.
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
Comments
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