FCPAméricas Blog
Brazil: Waking Up to Anti-Corruption Compliance
11.28.2011
I have been traveling to Brazil for more than a decade now, most often for anti-corruption work, at times for fun.
On my latest trip, I saw something new. Brazilian companies and businesspeople might be beginning to wake up to the notion of anti-corruption compliance.
This observation is not based on any empirical data. It is purely anecdotal. But sometimes there is value in what one sees and hears on the ground. Consider the following:
The Embraer Subpoena. Brazilian professionals are asking questions about the U.S. Securities and Exchange Commission (SEC)’s investigation of Embraer for potential U.S. Foreign Corrupt Practices Act (FCPA) violations. They wonder the implications of Embraer’s retention of U.S. counsel and cooperation with the SEC and U.S. Department of Justice (DOJ). They question how it can be that their own companies and business people are subject to the jurisdiction of a country located in an entirely different hemisphere. They are learning about the multi-million dollar fines and jail time commonly associated with FCPA enforcement actions. And they are learning about the compliance procedures that might have helped Embraer avoid the investigation.
In particular, Brazilians are intrigued to hear about the guts of an actual FCPA subpoena. Subpoena question number one is usually something to the effect of: “Provide organizational charts for your company at the time that the transactions under review took place.” This is so that enforcement can determine, first and foremost, which executives were in charge at the time of the alleged wrongdoing. Question number two: “Provide a copy of the FCPA, international anti-corruption, code of ethics, and other relevant policies in place at your organization when the transactions under review took place.” This is so they can learn how serious the company was in handling FCPA compliance at the time. These details are new to most Brazilians.
Multinationals Conducting More Third Party and Acquisition Due Diligence. Compared to a few years ago, it is now more common to see local subsidiaries of foreign multi-nationals conducting due diligence on the third parties they use and the local companies they acquire. These subsidiaries demand audit rights from their agents. They imbed attorneys in the operations of their acquirees to facilitate the acquirees’ integration into their global compliance programs. I hear local counsel express frustrations about having to explain these compliance requirements to their local clients. Many local companies were family built and continue to be family owned and operated. It is understandable that these local companies might take personal offense at having to open up their books and business practices to outsiders. At the same time, these developments have the effect of sending a strong, consistent message to new participants in the global economy about standard compliance expectations. If a Brazilian family business wants to someday sell its operations in the global market, the business is wise to get its “compliance house” in order. As Brian Weihs, Associate Director for Corporate Investigations for Control Risks’ Brazil office, observes, “Brazilian companies active in the international capital markets are seeing the need (and benefit) of risk management processes to protect their reputation in attracting capital.”
Investors Conducting Due Diligence on their Investments. In 2010, Brazil was the country with the second highest level of foreign direct investment in the world. Some of the more sophisticated international investors, like the larger retirement funds, are beginning to hire law firms, investigative firms, and intelligence services to vet the Brazilian companies within which they are investing. These funds understand that, by not guaranteeing that their investment companies are compliant, their investments might be put at risk.
Local Firms Building FCPA Capacity. Three years ago, there were only a couple of law firms in Brazil with real FCPA compliance capabilities. They knew how to conduct trainings and build compliance programs based on U.S. enforcement standards. On my recent visit, I encountered at least a dozen law firms, investigative firms, and accounting firms doing aspects of this work. Some seem more qualified than others. Overall, the capacity is undoubtedly growing. Most firms also understand their limits in advising on a U.S. law. For example, Isabel Franco, who chairs the impressive FCPA practice at the São Paulo based law firm of KLA – Koury Lopes Advogados, says, “Many of our clients are multi-nationals. We help them with their FCPA programs and also know when to seek assistance on specific questions of U.S. law from our U.S. law firm partners.”
Awareness of Whistleblower Provisions. Brazilians are learning how the FCPA’s Frank/Dodd whistleblower provisions work. They are wondering the mechanics of a disclosure. They are asking whether the anti-retaliation protections would apply to them. Articles like this one from Brazilian attorney Carlos Henrique da Silva Ayres, from Baker & McKenzie’s local affiliate, that explain the provisions in relative detail are appearing in the press.
Strengthening of Brazil Anticorruption Laws. The OECD Working Group has recommended that Brazil bring its anti-corruption laws into compliance with the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Practices. The Brazilian Congress is responding. Legislation has been drafted and is being debated right now that will stiffen civil and administrative liability for corporations for corrupt acts. The final legislation could provide “credits” for companies that have internal compliance programs in place.
These trends are only beginning. The anti-corruption agenda has a ways to go. There is still overwhelming skepticism in Brazil that the institutionalized nature of corruption in this country can ever change. As FCPAméricas has written in previous posts, increased investment drives ever-more complicated schemes to hide improper payments. The latest scheme I discovered on the ground was how some companies are now using their own lawyers to help them obtain reduced tax liabilities by paying off government officials.
But globalization and increased enforcement might be slowly advancing the notion of compliance in a country that has barely known it.
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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© 2011 Matteson Ellis Law, PLLC
Post authored by Matteson Ellis, FCPAméricas Founder & Editor
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June 25th, 2012 at 5:31 pm
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