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The new guidelines of the Brazilian Clean Company Act

rodrigo carril compliance brasil

By Isabel Franco and Cláudia Massaia

Finally, after more than a year of the enactment of the Brazilian Clean Company Act (BCCA), the guidelines explaining various provisions of the statute have been issued by the Brazilian government via a decree. Decree 8,420/15 came into force on 18 March after a number of major demonstrations by the general public in the country’s main cities. The country has expressed its indignation toward all of the administration’s corruptions scandals, particularly the current one dubbed ‘Petrolão’ which involves the state controlled oil and gas company Petrobras, infamous all over the globe as one of the largest corruption scandals of this century.

These recent nationwide demonstrations were very similar to the ones recorded in 2013. Two years ago Brazilians went out to the streets to complain about corruption in the current administration, and the economic crisis allegedly resulting from their incompetence. As before, the Brazilian government decided to take some action to respond to the nation’s overwhelming pressure. Thus, Decree 8,420/15 was enacted only three days after the March demonstrations.

Compliance experts in Brazil were anxiously awaiting the publication of this decree, since, as expected, it encourages the adoption of compliance programs, and sets forth the requirements of an effective scheme. Before these guidelines the BCCA was rather vague about the programs and Brazilians, who were not used to the idea of compliance measures at all, now understand that they are practically mandatory.

The first requirement established by the guidelines is the commitment of the company’s senior management (the tone at the top) followed by the requirement to implement codes of ethics and conduct for all employees, including equity holders, and third parties.

Another noteworthy point of Decree 8,420/15 is the unexpected inclusion of a provision relating to books and records as a requirement of a robust compliance program. This item was a surprise for experts in Brazil, since the BCCA never contained any mention of books and records. Now companies in Brazil must make and keep their books, records and accounts accurate and fairly reflect the transactions and dispositions of the assets of the company.

As the BCCA applies to legal entities and other types of organisation including foundations, associations or foreign companies with an office, a subsidiary or any type of representation in Brazil, the inclusion of a books and records provision is a significant innovation.

In addition, the decree details the administrative liability of legal entities for acts against the direct or indirect public administration, Brazilian or foreign, and it specifies the general parameters for the application of administrative sanctions. More importantly, the guidelines provide for important rules on the controversial leniency agreements. Finally, the guidelines bring rules on the public lists of companies that are debarred (Cadastro Nacional de Empresas Inidôneas e Suspensas (CEIS)) and punished by corruption (Cadastro Nacional de Empresas Punidas (CNEP)).

These public lists will be a powerful tool for compliance experts performing research on the background of companies during the due diligence phase of mergers, acquisitions or spins-offs, and for hiring and supervising third parties, such as suppliers, service providers and agents. In fact, vetting third parties is another clear requirement of Decree 8,420/15.

The CEIS and CNEP lists will be available through a site controlled by the Union’s General Comptroller’s Office (CGU), which is already the public authority responsible for the transparency portal that provides information on government expenditures. Also, this portal makes public the names of the individuals who are government officials and their current status in the government. This is also important because it simplifies checks on whether a third party is a government official, an exercise that could be quite arduous in a country with so many civil servants.

Subsequently, right after the enactment of Decree 8,420/15, the CGU published four guidelines on 9 April which further detail the anti-corruption statute and guidelines. Norm #909 is specific about the assessment of compliance programs, and clarifies how authorities will verify the effectiveness of the programs of companies investigated by the authorities during the administrative liability process.

Similarly, Norm #909 clearly establishes that superficial and non-effective compliance programs, and those programs implemented after the occurrence of an illicit act against the public administration, will not be taken into consideration by the authorities for the mitigation of penalties under the BCCA. This guideline will certainly encourage Brazilian legal entities to implement real, effective and robust compliance programs.

Along with Norm #909, the CGU issued Norm #910 which complements the BCCA and Decree 8,420/15, creating a general threshold for the application of administrative sanctions in the administrative liability process. Norm #910 also reinforces rules for leniency agreements and establishes the CGU’s exclusive competence for the execution of these agreements in the Federal Executive Branch level.

At the same time, the CGU also released a normative instruction regarding the information that will be made public by CEIS and CNEP. Similarly to the BCCA and Decree 8,420/15, this normative instruction determines the type of information on companies that the CGU will make available in the portals in an attempt to frighten companies into avoiding having their names included on these lists.

The following information will be in CEIS and CNEP: (i) name of the individual or corporate name of the legal entity sanctioned, and their respective taxpayer number; (ii) type of sanction; (iii) legal grounds for the penalty; (iv) case number; (v) duration of the penalty; (vi) name of the agency or authority responsible for the enforcement of the sanction; and (vii) fine amount, if any. Along with the above-mentioned norms, a normative instruction was released by the CGU stating the method for ascertaining gross revenue for the purpose of calculating the fine amount. It is important to remember that the fine under BCCA is based on the gross revenue earned in the financial year prior to the year in which the administrative liability process began, if applicable. In other cases, the amount of the fine will range from approximately US$2000 to US$19m.

Another definite clarification of Decree 8,420/15 is that it expressly allows the CGU to publish further guidelines about the BACC, which will probably occur soon, since there are several aspects of the law that must still be clarified.

In fact, there is a clear self-interest of the Brazilian government in enacting more and more guidelines. President Dilma’s administration is striving to appease the nation in the wake of the Petrobras scandal, and her agents are running against the clock to offer and sign leniency agreements with the construction companies involved as they may be barred from future contracts with the government. This debarment is already weakening the financial health of those companies, as well as the country’s economic strength. Thus, the rules contained in the BACC have to be clear and solid when applied.

Brazilian people are determined not to make president Dilma’s life easy. It is one protest after the other. Thus, the Dilma administration appears keen to show her efforts to combat corruption with new measures as a response to constant internal and external pressure.

Publicado por RISK & COMPLIANCE: JUL-SEP 2015

Isabel Franco
Partner
KLA-Koury Lopes Advogados
T: +11 3799 8189
E: ifranco@klalaw.com.br

Cláudia Massaia
Associate
KLA-Koury Lopes Advogados
T: +11 3799 8188
E: cmassaia@klalaw.com.br

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