FCPAméricas Blog
The Unknowns of Brazil’s New Anti-Bribery Law (Part 2, How will the statute’s provisions be interpreted?)
8.16.2013
In Part 1 of this series, FCPAméricas discussed the unknowns related to eventual enforcement of Brazil’s new Anti-Bribery Law. In this post, we discuss questions related to how the statute’s provisions might ultimately be interpreted. In general, under Brazilian law, statutes are not interpreted as broadly as they might otherwise be in the United States. With this in mind, companies doing business in Brazil should take note of the following.
Will the law apply to non-Brazilian companies’ bribes outside of Brazil? Based on the Congressional debates leading up to passage of the legislation, many think that the application of the law’s prohibitions to non-Brazilian entities is limited to their bribes to Brazilian officials. But the plain language of the statute is less clear, causing some room for discussion. Article 1 provides: “This law applies to the business organizations and sole proprietorships, incorporated or not, regardless of the type of organization or the corporate model adopted, as well as to any foundations, associations of entities or persons, or foreign companies having an office, branch, or representation within the Brazilian territory, organized in fact or by law, even if temporarily.” Article 5 establishes a general prohibition of “wrongful acts against the domestic or foreign Public Administration,” failing to distinguish between Brazilian and non-Brazilian entities. This would suggest that a U.S. company that pays bribes to officials of another country and has a branch office in Brazil could be liable for bribery under the new Brazilian law. On the other hand, Article 28 states, “This law applies to illegal acts committed by Brazilian legal entities against foreign Public Administrations, even if committed overseas.” This provision suggests that the extraterritorial foreign bribery components of the law apply only to Brazilian legal entities and not to non-Brazilian entities with presence in Brazil. However, because the law does not explicitly exclude the applicability of extraterritorial jurisdiction to non-Brazilian entities, uncertainty still exists.
What is the scope of a parent’s liability for the actions of its subsidiary or affiliate? The new law makes parents liable for the actions of their subsidiaries and affiliates. Article 4, paragraph 2 provides, “Parent, controlled or affiliated companies, or, within the scope of the respective contract, consortium members, will be jointly responsible for the acts provided for in this law. This responsibility shall be restricted to the obligation to pay fines and full restitution for the damage caused.” In the original version of the bill, this was an independent clause. But in the final version of the statute, this paragraph was placed within the provision establishing successor liability in mergers and acquisitions. Article 4 reads, “The responsibility of the legal entity remains in the event of corporate changes, transformation, merger, acquisition or spin-off.” Thus, it is unclear from the plain language of the statute if parent liability applies only in the context of mergers and acquisitions or to other transactions as well.
What types of compliance programs will deserve credit? While the new law provides explicit credit for companies that have “effective” corporate compliance programs, it leaves it up to Brazil’s federal Executive Branch to develop specific guidelines for what this means. It is presumed that officials will look to standards that are now generally accepted internationally, like U.S. Foreign Corrupt Practices Act (FCPA) compliance best practices, the UK Ministry of Justice’s Guidance on the Bribery Act, and the 2010 OECD Good Practice Guidance on Internal Controls, Ethics and Compliance, as well as the standards that private industry has independently developed to address risk.
But these common standards might not be sufficient, since the new Anti-Bribery Law goes further than other foreign bribery laws by prohibiting other misconduct related to public procurement, like fraud, collusion, and obstructing public audits. The types of controls that would be needed to prevent employees from arranging complex price-fixing schemes with competitors or to keep business units from fabricating performance certificates in bids for public contracts are different from regular anti-bribery safeguards. Perhaps the World Bank’s Integrity Compliance Guidelines could serve as a helpful point of reference, as these standards address corruption, fraud, collusion and other prohibited practices. Given these issues, it is unclear the types of compliance programs that Brazilian officials will ultimately deem to be sufficient.
Will companies find successor liability loopholes? The notion of successor liability exists under the new law, but the liability extends only “up to the limit of the asset transferred.” It is unclear how this might affect corporate behavior in mergers and acquisitions. Will companies try to structure corporate deals in ways that minimizes successor liability by narrowing the “asset transferred”? Under the FCPA, where no such limit exists for successor liability, the way companies manage such liability is well established. They conduct anti-corruption due diligence on the entities they acquire and remediate any compliance issues uncovered. FCPAméricas has described the concept here. But under Brazil’s law, some companies could seek creative ways to circumvent liability. If this occurs, will Brazilian authorities be able to advance legal theories to thwart such efforts?
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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© 2013 Matteson Ellis Law, PLLC
Post authored by Matteson Ellis, FCPAméricas Founder & Editor
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