Over the last few decades, several anti-corruption laws have been enacted and passed by the United States, Europe and other developed countries, such as the Corrupt Practices Act of 1977 “FCPA” and the UK Bribery Act of 2010, as a means to hamper and prevent its citizens and corporations to directly or indirectly perpetrate and further acts of corruption in foreign countries. In this article we are going to see how these foreign anti-corruption laws have been affecting the way business is conducted in Latin America and in Brazil specifically.
Anti-corruption legislation is not new to the legal systems of the majority of the countries around the world. Roman law already provided for severe punishment against acts of corruption. Most of these laws had no enforcement, being mostly dead letters: According to Tacitus: “Corruptissima republica plurimae leges”-The more numerous the laws, the more corrupt the government.
The novelty brought by modern anticorruption legislation is the introduction of an international/transnational element which was triggered by the rapid globalization and interdependence of markets of the last decades. Especially with more efficient enforcement of these laws over the last years, American and European individuals and corporations who before felt no constraint when striking a corrupt deal in Latin America by granting/allowing an undue advantage to a corrupt public official now fear punishment in their homeland.
As the global effort against corruption intensified, the OECD countries entered into the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (“OECD Convention”) which set forth guidelines for combating international corruption/bribery offenses, including general provisions regarding definition of offenses, jurisdiction (specifically conferring signatories authority to prosecute its nationals for offences committed abroad), statue of limitation and standards for mutual legal assistance between member countries. Brazil, Chile, Mexico, Argentina and Colombia, the biggest economies in Latin America have also adhered to the Convention.
Concurrently and as a result there was growing pressure on the legislative bodies from general constituents in Latin America for passing more severe legislation against corruption/bribery offenses. In this context Law 20.393/ 2009 in Chile, Law 1474/2011 in Colombia, LFACP/2012 in Mexico and Law 12.846/2013 in Brazil “Brazilian Anticorruption Act” were recently enacted by their respective representatives.
The Brazilian Anticorruption Act, inter alia, brings the following changes:
1-Strict liability regime for application of civil and administrative sanctions.
Whereas prior to such law, companies could argue the offense was an isolated act of an employee/director avoiding responsibility, companies may now be held responsible even if they did not give cause to the offense. Company´s liability will not exclude personal liability of its directors/employees, or any other individual who has directly contributed to the offense.
2-As a consequence of the strict liability regime and unlike under the FCPA, companies cannot avoid liability by proving that they had taken adequate preventive and educative steps and diligently produced and enforced ethical codes of conducts. These actions, however, together with other factors such as the severity of the offense, economic situation of the offender and the fact that company cooperated with the authorities will be taken into consideration in the arbitration of the penalties by the authorities;
3-Penalties up to 20% of the relevant Year’s Gross Revenue (or R$6 million if Gross Revenue cannot be calculated for any reasons);
4-Strengthening of codes of conducts and compliance programs to ensure that employees are educated on anti-corruption policies and, in particular, with respect to public tenders and government contracts;
5-Explicitly providing that responsibility of the company survives any merger, acquisition, spin off, or any other restructuring operations.
It is notable the advance brought by the Brazilian Anticorruption Act to prevent corrupt/bribery offenses by providing both preventive (fostering anti-corruption policies/compliances) and repressive (administrative/civil sanctions) measures. Several companies have already taken concrete steps to be in compliance and to recognize potential risks of violation, including conducting investigation on employees.
In order to show transparency, internalize and consolidate ethical/moral values and show good faith and compliance with the anticorruption legislation before the competent authorities both in Latin America and in its European/American headquarters, multinationals started to produce Ethical Codes of Conducts setting forth goals and premises of the company and how its employees, directors and shareholders should act. Infringement of such codes may cause employees/directors to lose its jobs/benefits, as well as be held liable for any other crimes.
Likewise, U.S and European countries have been imposing the inclusion of anti-corruption/bribery wording when contracting with Brazilian companies, a practice which was not commonly found in a contract between two local entities. Violation of such provisions may be considered a breach of the agreement usually entitling the non-default party to early termination.
Another practical change is the growing emphasis on criminal due diligence and compliance with companies’ ethical codes of conduct before deciding to enter into any M&A operations or investment deals, since responsibility does not go away with the change of control/ownership.
Recent corruption scandals in Brazil involving big Europeans multinationals Siemens and Alstom signal that enforcement of anti-corruption legislation in domestic jurisdictions are having a positive effect on the other side of the Atlantic. These cases which are all under investigation by both Brazilian and foreign authorities came to light after self-reported accusations by these multinationals to avoid criminal charges. It is hard to imagine these companies initiating self-accusation procedures if they were not fearful of sanctions at home.
Multinationals serve as a paradigm to smaller companies. Their conduct and procedures are admired, studied and emulated which seems to be prompting a positive moral/ethical herd behavior in Brazil. It is increasingly common to find Brazilian companies following in multinationals steps and taking concrete action to prevent corrupt acts by its directors and employees. All the more, since corruption offenses perpetrated by Brazilian companies in Brazil may have grave consequences overseas: in the wake of recent scandals in Brazil involving Brazilian oil national company Petrobras, a class action was filed in a Federal Court in New York for allegedly contract fixing, bribery and kickback scheme that have inflated the value of the company's assets.
These proceeding may serve as a cautious omen to Brazilian companies operating or planning to operate abroad. Before expanding their business overseas, it is vital to undergo an overall change in mentality as well as to implement in-depth compliance procedures to avoid repeating the mistakes and offenses committed in Brazil.
It is widely known that corruption is a malaise that undermines trust in public institutions and the rule of law, causing general under-development and poverty. Brazil ranks 69th in the Transparency International´s 2014 Corruption Perception Index and research shows that corruption is responsible for losses of up to 2.4% of GDP.Corruption in Brazil is aggravated by the red tape culture which many claim to be endemic. Everything seems to be complicated with forms for everything that require even more forms, which need to be stamped and signed by the right authority.
The bureaucracy is even harsher on international companies or individuals trying to do business in Brazil. Since Brazil is one of the few countries of economic prominence which is not a signatory of the Hague Apostille Convention, all documents originated abroad (including powers-of-attorney and corporate documentation of foreign companies) need to be legalized at the Brazilian Consulate where the document was executed and notarized. After legalization, once in Brazil, the documents must then be translated into Portuguese by a local sworn translator and registered with the competent Registry of Deeds and Documents. In addition, any flow of capital into or out to Brazil is heavily controlled by the Brazilian Central Bank. Companies and individuals who fail to fully inform any remittance of money are subject to heavy fines.
With all this bureaucracy it is almost a miracle that Brazil managed to grow reasonably steadily over the last decade. Unfortunately the “mild economic burgeoning” seems to be part of the past. Economists forecast GDP growth in 2014 of a meager 0.2%.
Promising opportunities were not fulfilled. Some Brazilian billionaires have lost their fortunes overnight and have been under investigations. Many frustrated foreign investors have left the county with empty pockets promising never to come back.
Strict compliance with international anti-bribery legislation by multinationals mainly by fear of sanction at home, enactment of robust national anti-corruption legislation and promotion of corporate ethical culture have had positive impacts in the way business is conducted in Brazil. Nonetheless, these measures alone are not sufficient to promote the necessary shift that Brazil and other Latin America countries need towards becoming less corrupt and attracting foreign investment. Only with efficient, effective and fair law enforcement, and with concrete efforts towards curbing government red tape, these steps can thwart corruption and create the necessary environment for business to flourish and consequent development and welfare.
