An Extraordinary Number of Enforcement Authorities Under Brazil’s New Anti-Bribery Law … and the Potential Negative Consequences
Under Brazil’s new anti-bribery law, the Office of the Federal Comptroller General (CGU) has authority to investigate and apply administrative sanctions for the illegal acts committed against foreign public administrations.
This is a good thing. As a central agency of the federal government, the CGU has a qualified technical team specialized in anti-corruption matters. The agency has also been involved in discussions about the new law since the early stages of its legislative process. It is familiar with the law’s key features. Given CGU’s centralized approach and specialized expertise, one expects it to apply the law in a coherent way.
But for acts committed against the Brazilian public administration, the anti-bribery law provides for enforcement by “the highest authority of each agency or entity of the Executive, Legislative and Judiciary” branches. Brazil has approximately 5,700 municipalities, many of which have very few people and limited resources. As a result, under the new law an extraordinary number of authorities – at the federal, state, and municipal levels – can investigate wrongdoing and apply administrative sanctions for the acts prohibited by the new law. These acts include not only bribery, but also fraud in public procurement settings, bid rigging, and other acts committed against public administrations.
The extraordinary number of enforcement authorities authorized to enforce the new law has been one of the main areas of concern (if not the main one) of legal and business communities. The Anti-Corruption and Compliance Committee of IBRADEMP (The Brazilian Institute of Business Law) submitted a report (available in Portuguese here) to the Congress in 2011 outlining problems with this approach. Some of the main concerns are highlighted below.
Lack of specialized expertise. Authorities in localities with little-to-no experience in dealing with matters addressed in the new law will be able to bring cases against any company doing business within their jurisdictions. This lack of specialized expertise could have negative consequences, especially with respect to the proper application of the penalties (i.e., fines of up 20% of a company’s gross earnings in the previous fiscal year and publication of the condemnatory decision) and the nuanced evaluation of compliance programs.
Problems achieving coherent outcomes. The extraordinary number of enforcement authorities also has the potential to undermine consistency in the application and interpretation of the law. Different municipalities, for example, may apply the law to similar facts in totally different ways. This is particularly problematic considering that certain aspects of the law (e.g., credit for compliance programs, leniency programs in bribery cases) are new in Brazil. With so many different enforcement authorities interpreting the law and making independent decisions, incoherent outcomes and bad precedents could develop. As a result, companies could face a great level of uncertainty.
Law as source of revenue. Article 24 of Brazil’s Anti-Bribery Law provides that the “fine and the loss of assets, rights or valuables applied” under the new law will be “allocated preferably to the public bodies or entities damaged.” Local business and legal communities are worried that this feature may stimulate local agencies or entities (which often have budget constrains) to bring frivolous enforcement actions against companies in an effort to collect huge fines that could be allocated to their public coffers.
Conflicts of interest. “The highest authority of each agency or entity of the Executive, Legislative and Judiciary” branches of the entities involved in the wrongdoing will have authority to enforce the law. But such authorities, especially in small agencies, entities, or municipalities, may have played a role in or had knowledge of the transaction under investigation. Also, enforcement authorities could have professional or personal relationships with implicated individuals. Moreover, considering that such authorities are authorized to enter into leniency agreements with legal entities (which can reduce fines by up to two thirds and exclude all other sanctions, except for restitution), this discretion in enforcement may create room for corruption.
In the case of bribery of local officials at the Federal Executive branch level, the CGU has concurrent authority to initiate administrative proceedings against legal entities and to examine and correct proceedings handled by other authorities. While this may serve to minimize the negative impact of the decentralized approach at the Federal level, it may not be sufficient. The CGU is not expected (and probably would not have the resources) to intervene in all cases.
The regulation for the new Anti-Bribery Law is expected to be released in January 2014. It will probably include measures to reduce the negative impact of the law’s decentralized approach. Certain aspects of the regulation may not be mandatory at State and Municipal levels, but they should still serve as guidance in those jurisdictions. Moreover, there are already regulatory developments at the state level – the State of Tocantins has issued regulations and the State São Paulo is also working on regulations to minimize the side effects of the decentralized approach.
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Post authored by Carlos Henrique da Silva Ayres, FCPAméricas Contributor