FCPAméricas Blog

What Brazil’s Anti-Corruption Law Could Mean for Brazilian Companies and Compliance

Author: Matteson Ellis

Now that the Brazilian House of Representatives has approved a version of Anti-Corruption Bill 6.826/2010, corporate anti-corruption compliance in the country is positioned to take on a new level of importance. The legislation establishes direct civil liability for corporations and makes them liable for the corrupt acts of their directors, officers, employees, and agents under the theory of respondeat superior (see more here and here). It also gives companies credit for the compliance programs they have in place.

Brazilian corporations and individuals already subject to the U.S. Foreign Corrupt Practices Act (FCPA) probably understand the implications of corporate liability and credit for compliance. This group includes employees of Brazilian subsidiaries of U.S. companies, major Brazilian companies that are publicly listed on U.S. stock exchanges, Brazilian agents of U.S. companies that have been subject to due diligence reviews and asked to adopt compliance measures, and Brazilian companies that have been acquired by U.S. companies and, in the process, subject to anti-corruption vetting. These persons are learning that anti-corruption compliance expectations are becoming well developed in the global economy.

Now other Brazilian companies and businesspeople will have their own incentives to heed compliance – local law. To understand the value of corporate compliance better, Brazilian companies need only consider recent FCPA enforcement actions. The U.S. Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC) have adjusted their enforcement treatment of companies based on the nature of compliance practices a company has in place at the time that a violation occurs.

Consider, for example, U.S. authorities’ different treatment of Morgan Stanley and one of its China executives in April 2012. The firm’s former managing director for real estate in China, Garth Peterson, now sits in a U.S. federal prison. U.S. authorities charged him with conspiring to evade internal accounting controls that the FCPA required Morgan Stanley to keep. U.S. enforcement officials claimed that Mr. Peterson oversaw a secret scheme to pay almost $2 million to himself and a Chinese official, and to help the official acquire valuable land in Shanghai. In addition to serving jail time, Mr. Peterson agreed to pay $250,000 in disgorgement and forfeit $3.4 million in Chinese real estate.

But, in that case, U.S. authorities chose not to hold Morgan Stanley liable for any misconduct, despite the existence of SEC violations. This was because Morgan Stanley’s compliance program was strong. Enforcement officials saw the firm as a compliant organization and its executive as a rogue employee.

What exactly did Morgan Stanley do to avoid liability? It met the basic compliance expectations of U.S. enforcement officials at the time that violations occurred. It had policies in place, trained personnel on those policies, obtained certifications, and monitored the program’s implementation. The Chief of the SEC’s FCPA unit said that Morgan Stanley went “out of its way” to ensure that its policies were being followed.  According to the DOJ press release:

– Morgan Stanley maintained a system of internal controls meant to ensure accountability for its assets and to prevent employees from offering, promising or paying anything of value to foreign government officials.

– Morgan Stanley’s internal policies, which were updated regularly to reflect regulatory developments and specific risks, prohibited bribery and addressed corruption risks associated with the giving of gifts, business entertainment, travel, lodging, meals, charitable contributions and employment.  

– Morgan Stanley frequently trained its employees on its internal policies, the FCPA and other anti-corruption laws.  Between 2002 and 2008, Morgan Stanley trained various groups of Asia-based personnel on anti-corruption policies 54 times.  During the same period, Morgan Stanley trained Peterson on the FCPA seven times and reminded him to comply with the FCPA at least 35 times. 

– Morgan Stanley’s compliance personnel regularly monitored transactions, randomly audited particular employees, transactions and business units, and tested to identify illicit payments.

– Moreover, Morgan Stanley conducted extensive due diligence on all new business partners and imposed stringent controls on payments made to business partners.

The Morgan Stanley case is not unique. The Deputy Chief of the Fraud Section of the DOJ’s Criminal Division recently stated that declinations to enforce the FCPA occur on a “regular basis.” The DOJ and SEC have offered examples of declinations in their FCPA Guidance. With a new anti-corruption law that explicitly offers credit for compliance, Brazilian authorities could also be positioned to extend similar incentives to companies operating there.

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.

The author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author.

@2013 Matteson Ellis Law, PLLC

Matt Ellis

Post authored by Matt Ellis, FCPAméricas Founder & Editor

Categories: Anti-Corruption Compliance, Brazil, Enforcement, FCPA, FCPA Guidance

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2 Comments

Comments

2 Responses to “What Brazil’s Anti-Corruption Law Could Mean for Brazilian Companies and Compliance”

  1. Carlos Says:

    I believe that prior to this discussion, we need to complain the differences between brazilian´s civil law against USA´s common law.
    On the structural purpose may lay some of the biggest misunderstanding about Brazil´s market.

  2. Corruption Currents: From CFPB’s First Referral to Not Guilty of Sexual Bribery – Coffee Talk Shop… Says:

    […] a disclosure. The FCPAProfessor notes a surprising origins of those charges. The FCPAmericas blog explains what Brazil’s anti-corruption check could meant for Brazilian companies. Mike Volkov talks about […]

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