Por: Rafael Federici
On January 29th, 2014, Statutory Law 12846 of August 1st, 2013 came into force, also known as the “Anti-corruption Act”. Inspired in international standards, the new law provides for accountability and strict liability of companies that commit certain unlawful acts against national or foreign governments’ best interests.
Range
The new law is very comprehensive and its consequences may reach any type of company, including foreign companies and unincorporated entities, such as informal partnerships. Likewise, its consequences may reach individuals who participate or commit such unlawful acts, even if they do not take office in the implicated company.
Strict Liability
Under said law, the companies are strictly liable – in compliance with Section 927, sole paragraph of the Brazilian Civil Code – which means that the liability is triggered irrespective of intent or fault, therefore only the unlawful act and its perpetrator need to be ascertained.
On the other hand, the Anti-corruption Act provides that the company officers’ specific liability will be ascertained insofar as they are found at fault. By virtue of this provision, it becomes clear that such law does not exclude fault assessment. It is open to debate whether the lawmaker has decided to set a classic fault-based liability – which depends on proof of fault, fact, result and causation – or just a rule for a tort liability gradation. The first case seems more logic according to Section 3, paragraph 1 of the Anti-Corruption Act, which states that the company shall be held liable regardless of individual liability.
The fact is that, even considering that strict liability is only applied to companies under the Anti-corruption Act, this is a sensitive subject, since companies cannot control all their employees the whole time. As the Anti-corruption Act does not require proof of company’s fault, it follows that any given company shall be held liable even if it has not agreed, authorized or been aware of unlawful acts by its officers or employees.
Corporate Transactions
The new law has relevant impact in corporate transactions when it states that the company’s liability shall survive contract amendments, conversion, merger, consolidation or spin-off. Although the term “contract amendment” is a generic concept – not applicable to corporations, for instance – it is clear that the lawmaker aimed at fending off possible attempts to dodge liability by using obvious subterfuge, such as changing the members or officers.
It is worth mentioning the limitation of liability created by such law under certain corporate transactions. In this sense, Section 4, paragraph 1 provides that in case of consolidation or merger, the successor’s liability shall be limited to being fined and paying full indemnity for the damage caused up to the transferred assets, and the remaining penalties set forth herein arising from acts and facts from before such consolidation or merger shall not apply, unless it is proved that such consolidation or merger was done to commit fraud or simulation. Therefore, it is possible to conclude that the law has limited the successor’s liability with a view not to interfere greatly in economic-corporate dynamics. Otherwise, the consequences of such law could hinder corporate motions that are natural in a globalized world where consolidated economic groups compete with each other.
Also, as an example of its extensive comprehension, Section 4 paragraph 2 predicts the joint liability of controlling, controlled and affiliated companies or consortium members in unlawful acts under the Anti-corruption Act. In this case, the law also limits the liability to being fined and full indemnity for the damage caused, but such indemnity is not limited only to the transferred assets, as provided for in the aforementioned provision.
Likewise, said paragraph 2 does not reproduce the wording from paragraph 1 that exempts from other penalties arising from acts and facts from before the aforementioned corporate transactions. It is arguable whether the lawmaker intended to give different treatment to both cases or it was just a flawed wording.
Also, regarding Section 4 paragraph 2, the controlling’s joint liability (in acts by the controlled company) seems understandable, given its influence and especially the will of strict liability under which such law has been conceived. However, such assessment is not that obvious when we have a look at the controlled company’s liability (in acts by the controller); in fact, it sounds rather unfair to hold a company liable for acts by its affiliates. Such distortion is even more visible under great economic groups that have interest in multiple and different economy segments through different companies (affiliated to each other), but without proximity of administration.
Thus, if on one hand the lawmaker seemed to take care not to interfere much in the economic-corporate dynamics when conceiving the limitation of liability in Section 4, paragraph 1, it doesn’t seem to have been the case with paragraph 2 of the same Section.
Criminalization of Unlawful Acts
The unlawful acts defined in the Anti-corruption Act are all those that are committed against national or foreign property, or violate government principles or commitments made by the Brazilian government, defined as follows:
I – directly or indirectly promising, offering or giving undue advantages to a public servant or third-party connected to a public servant;
II – is proved to have funded, sponsored or in any way enabled unlawful acts set forth herein;
III – is proved to have used an individual or company to hide or disguise the real interests or the identity of those who benefit from such practiced acts;
IV – regarding bidding processes and contracts:
a) hindering or frauding public tenders by arrangements, agreements or other means;
b) preventing, disturbing or frauding the performance of bidding procedural acts;
c) removing or attempting to remove bidders upon fraud or offering advantages of any nature whatsoever;
d) committing fraud in public tenders or awarded contracts;
e) setting up a company in irregular or fraudulent manner to engage in public biddings or to enter into awarded contracts;
f) obtaining improper advantage or benefit upon fraud in changing or extending government contracts without being consented by law, bid notice or the contracts; or
g) manipulating or frauding the economic and financial balance of the contracts entered into with the government;
V – obstructing investigation or inspection by government bodies, entities or agents, or intervening in their activities, including regulatory agencies and inspection departments of the national financial system.
Administrative Penalties
Statutory Law 12846/13 sets forth an administrative fine that goes from 0.1% to 20% of the gross revenue from the financial year immediately before the administrative procedure is initiated, excluded taxes. Fines will never be less than the advantage earned when its value can be ascertained and, in case it cannot be verified, fine shall range from BRL 6,000 to BRL 60,000,000.
The new law also provides for the special publication of the ruling, to be paid by the company. Such ruling shall be published in means of communication with great coverage in the area where such violation has occurred and where such company operates.
Said penalties may apply separately or cumulatively, and do not impair the obligation of full indemnity for the damage caused.
The Anti-corruption Act sets forth a few parameters or conditions precedent to apply such penalties. They are as follows:
- seriousness of the infraction;
- expected or obtained advantage by the wrongdoer;
- consummation of the infraction or not;
- degree of harm or danger of harm;
- the adverse effect caused by the violation;
- wrongdoer’s economic status;
- company’s cooperation to assess the violations;
- the existence of internal mechanisms and procedures of integrity, audit and incentive to tipping off violations and efficient application of codes of conduct and ethics within the company’s premises;
- the price of the contracts executed between the company and the aggrieved public entity.
It is worth pointing out item (viii) above, once it encourages companies to adopt, keep and apply such mechanisms, procedures and rules. Such legal provision shall be further regulated by the Federal Government.
Administrative Procedure
The jurisdiction to initiate an administrative procedure to assess liability belongs to the highest authority of each body or entity in the Executive, Legislature and Judiciary, which shall act on their own or upon request, observed the right to be heard and to present defense.
Within the Executive, at Federal level, the Office of the Federal Controller General shall have concurrent jurisdiction to initiate administrative procedures to hold companies liable, or to call up cases that have been initiated under the Anti-corruption Act, whether to assess their regularity or to correct them.
The administrative procedure shall be conducted by a commission appointed by the competent authority, and shall be composed of at least 2 civil servants with tenure. The deadline to present defense is within 30 days from notice and the procedure shall be concluded within 180 days from its start date. During the procedure, the competent authority may request any court measures deemed necessary to investigate and process the violations, including search and seizure.
Since the liability defined thereunder is strict, the initiation of an administrative procedure does not harm the immediate application of penalties set forth by law and those described hereinabove.
Piercing the Corporate Veil
In the same manner of Section 50 of the Brazilian Civil code, Statutory Law 12846/13 states that the corporate veil can be pierced whenever it has been abused to enable, cover or disguise unlawful acts set forth herein or to provoke property confusion, and all the consequences that applies to the company shall be extended to their officers and members with managing powers, observed the right to be heard and to present defense. Therefore, members without managing powers that have not contributed to such unlawful acts are held harmless from the consequences of such law.
Leniency Agreement
The new law regulates the leniency agreement, which can be executed between the highest authority of each competent government entity and the company that causes such acts, as long as the latter actually cooperates with the investigation.
The leniency agreement does not exempt the company’s liability to indemnify the damage caused in full, but it shall have the following consequences:
- the applicable fine shall be reduced by 2/3 at most;
- the company shall be exempt from causing the award to be published in the national coverage media;
- the company shall not be prevented from receiving incentives, grants, benefits, donations of loans from public bodies or entities, and from public or government-controlled funding institutions.
If the company is part of an economic group with many other companies, they may benefit from the consequences of the leniency agreement, as long as they accept to sign the document as well.
There is no doubt that the lawmakers want to encourage people to tip off unlawful acts with the leniency agreement, as lawmakers also extend the leniency agreement to unlawful acts set forth in the Bidding Act (Statutory Law 8666/93) in order to exempt or attenuate the penalties listed in Sections 86 to 88 of such Act. Therefore, the leniency agreement may also minimize penalties like default fines under government contracts; suspension of rights to engage in public tenders; and declaration of trustworthiness.
In order to be eligible for the leniency agreement, Statutory Law 12846 demands that the company collaborates with the investigations, and it is essential that such collaboration results in (i) the identification of others involved in the violation, when applicable; and (ii) promptly gathering of information and documents that prove the violation under investigation. Also, the law requires that:
- the company be the first to show interest in cooperating to assess the unlawful act;
- the company stop all the involvement in the investigated violation from the date the agreement is proposed; and
- the company admit its participation in the unlawful act and cooperate in full and permanently with the investigations and the administrative procedure, answering as requested to all procedural acts, at its own expenses, until its conclusion.
A rejected leniency agreement proposal shall not imply the acknowledgment of the unlawful act by the investigated company. It is worth pointing out that failure to comply with the leniency agreement shall prevent the company from entering into a new agreement for 3 years from the authority’s awareness of such failure.
Liability under the Judiciary
Also arising from the unlawful acts set forth in the Anti-corruption Act and described hereinabove, the company may also be held liable in court, under a lawsuit brought by Federal, State or Local Government represented by their Attorneys and the Prosecution. The lawsuit must comply with the procedures for public civil actions set forth in Statutory Law 7347/85.
Statutory Law 12846/13 provides for the following penalties to be enforced in court:
- forfeiture of goods, rights or amounts that represent the advantage or benefit directly or indirectly obtained under the violation, observed the rights belonging to the aggrieved party or third-parties in good-faith;
- partial suspension or prohibition of its activities;
- mandatory dissolution of the company;
- prohibition to receive incentives, grants, benefits, donations or loans from public bodies or entities and from public or government-controlled funding institutions from 1 (one) to up to 5 (five) years.
The aforementioned mandatory dissolution shall be determined when it rests proven that (i) the corporate veil has been used repeatedly to enable or promote unlawful acts; or (ii) it has been set up in order to hide or disguise unlawful interests or the identity of those who benefit from such acts.
It is worth pointing out that the Prosecution may request in court that property, rights or sums are seized to guarantee the fine or full indemnity of the damage.
National Database
The new law also created the National Convicted Companies Database – CNEP, which shall gather and disclose penalties applied by Executive, Legislature and Judiciary agents at all government levels based on Statutory Law 12846/13. CNEP shall also include the executed leniency agreements, but such records shall be erased once the agreement is fully performed.
Statute of Limitations
Violations under the Anti-corruption Act have a 5-year statute of limitations, counting from the date the violation is acknowledged or, in case of repeated and permanent violation, from the date it has ceased to be. In administrative or court procedures, the statute of limitations shall be interrupted upon the initiation of a procedure to assess such violation.
Preserved Jurisdiction
It is important to clarify that the provisions in Statutory Law 12846/13 do not exclude the jurisdiction of the Brazilian Antitrust Authority (CADE), the Ministry of Justice and Ministry of Finance to process and rule over violations to the economic order.
Likewise, the application of penalties provided for in the Anti-corruption Act do not impact the procedures to assess the liability and apply penalties arising from (i) administrative corruption pursuant to Statutory Law 8429/92; and (ii) unlawful acts under Statutory Law 8666/93 or other laws on bidding procedures and government contracts, including the special Public Contracting Regime – RDC created by Statutory Law 12462/11.
These are the relevant aspects of the Brazilian Anti-corruption Act that has introduced a new era of incentive to ethics and improvement of corporate practices in the national legal system, attuned to what is expected by the international community. The companies must certainly devote attention to the strict liability rule and the importance that this new law gives to internal compliance procedures.
This article has been written and disclosed exclusively for didactic and informative purposes; therefore it shall not be construed as a legal opinion or consultation under no circumstances whatsoever. For a specific opinion on the subject herein, please consult a lawyer.
