Brazilian companies face heavy fines with new corruption law; Country worse than Namibia and Ghana for fraud

Last updated: February 18, 2014 6:52 pm

Brazilian companies face heavy fines with new corruption law

By Joe Leahy in São Paulo

The period before Brazil’s annual carnival in late February is normally short of news. But this month, the nation’s media has been buzzing with the case of a man who fled the country after being convicted in Brazil’s biggest corruption case.

Henrique Pizzolato, the former marketing director of Banco do Brasil, the state-controlled bank, was allegedly found living in his nephew’s apartment in Maranello, Italy, by Italian police and is facing possible extradition.

He disappeared from Brazil last year after being sentenced to more than 12 years jail for his role in the Mensalão case, in which some of the nation’s most senior politicians were found guilty of vote-buying in Congress using public money.

While Brazil has long prosecuted for corruption individuals such as Mr Pizzolato, now their employers will have something to fear too.

A new law that took effect at the end of last month makes companies for the first time liable for corruption, punishable by heavy fines.

The law brings a country ranked by Transparency International as worse than Namibia or Ghana for corruption (but better than China, India or Russia) closer into line with Organisation of Economic Cooperation and Development conventions on corporate fraud.

“Honestly, I didn’t think this law was going to be approved,” said Eduardo Sampaio of FTI Consulting. “I did not believe the large corporate lobby in Brazil would allow this law to be passed in Congress. I am glad that I was wrong.”

Like the Foreign Corrupt Practices Act of the US and the UK Bribery Act, the law applies not only to Brazilian companies, trusts and foundations but to businesses from abroad with an office in the country.

Corruption is not an abstract problem for foreign companies in Brazil. Germany’sSiemens is among a group of foreign contractors for São Paulo’s metro that is embroiled in a long-running corruption case. Aside from any damages that could originate from the case itself, the affair has meant endless headlines about alleged bribe-paying to public officials and politicians.

The law prosecutes “harmful acts” by companies, such as offering undue advantage to a public servant or party related to government officials, especially any attempts to subvert or defraud a bidding or public procurement process. The public servant can be a foreign government official in another country.

A guilty company can be fined between 0.2 per cent and 20 per cent of its gross revenue plus damages. In addition, companies can be suspended or have their assets confiscated and placed on a national public register of corporations found guilty of corruption in their dealings with government.

The conviction of a company does not mean exemption for directors or other officials from personal liability.

“In Brazil, corruption is a crime and the individuals are liable for corrupt practices under Brazil’s criminal code,” said Mariana Tavares de Araujo, of Levy & Salamão Advogados law firm in São Paulo.

Implementation of the bill will be more difficult, however. Some of the language is vague and the government has yet to issue guidelines on its implementation, Mr Sampaio said.

In addition, federal, state and municipal governments and their departments will be given powers of investigation under the law and will be able to impose sanctions. This potentially opens up situations in which the corrupted will be in charge of investigating the corruptor.

The law allows a degree of leniency for those companies that have in place strict compliance guidelines against corruption and can prove that any incident was an aberration rather than standard practice. But the concern for directors will be whether this leniency programme extends to them personally or just the company.

Similarly, a company could admit to an act of corruption by an employee in the hope of gaining leniency only to find that the country’s antitrust agency, Cade, might accuse it of uncompetitive practices.

“The fact that someone puts down a marker for leniency with respect to corruption, that doesn’t mean they are immediately protected from antitrust rules under Cade,” said Ms Tavares de Araujo.

She said it would take some time for the law to filter down and result in the first sentences. But she said the message for companies operating in Brazil was clear: “Prevention is the best strategy.”