With major new anti-corruption law, Brazil takes aim at global companies and local businesses alike

In recent years, Brazil’s economic boom has transformed the nation into an emerging world power, and attracted a rush of multinational corporations and foreign investment. With the enactment of a major new anti-corruption law late last month, Brazil is entering a new class of nations – those that have imposed tough new measures to counter the bribery of government officials by corporations.

The Brazilian Clean Company Act prohibits bribery of public officials, both foreign and domestic, by companies and other legal entities formed within Brazil. It also extends to multinational entities with substantial connections within Brazil.

The law is likely to force companies operating in Brazil to bolster their anti-corruption programs, placing the burden on corporations to either revisit or create compliance programs that address the documentation of government deals, facilitating payments, and general anti-corruption.

The law, simply titled “Anticorruption law” in Portuguese, shares many provisions of the US Foreign Corrupt Practices Act and the UK Bribery Act, and went into effect on January 29, 2014. Brazilian President Dilma Rousseff signed the law just a month before the latest G20 Summit, which is focused in part on the damaging effects of corruption on international development.

The Clean Company Act (CCA) will impose strict civil and administrative penalties on legal entities, beyond those of pre-existing laws.  Interestingly, the law targets an entity’s revenues as an enforcement mechanism. Legal entities that violate the law will face sanctions ranging from 0.1% to 20% of gross revenue, depending on the severity of the violation. If an entity’s top management helps orchestrate a bribery scheme, for example, penalties would be substantially higher.

Despite similarities with FCPA, no criminal penalties in Brazilian law

Besides monetary fines, the law includes an element of public shaming. A company which violates the CCA will have to publish a notice in a Brazilian newspaper detailing the violation and the penalties they paid on their own expense.

Despite the potential for steep civil monetary penalties, criminal penalties are not applicable under the new law. However, the passage of the law right before the World Cup seems to be a sign that the Brazilian government is making a concerted effort to fight corruption before they fall under the global spotlight.

In a feature shared with the UK Bribery Act, a company can be absolved if they prove that they have a strong and defensible compliance program. This is a notable deviation from the FCPA, which makes no such promises to companies caught up in violations.

Law’s novelty means companies face murky compliance landscape

Though the law places the burden on corporations to revisit their anti-bribery and corruption compliance programs, the law is still so new that enforcement and regulation standards are still unclear.

For now, the Office of the Comptroller General (CGU), has stated that they will issue an official guidance on what constitutes an appropriate compliance program. As of the date of the law’s enactment, there was no cohesive decision on how companies will be assessed.

Once issued, the guidance will be the first federal guideline on how affected companies should proceed. However, Brazil’s municipal governments will be the ones in charge of enforcing the law on a case-by-case basis.

Law will reverberate beyond Brazilian boundaries

In a seminar conducted by the Brazilian-American Chamber of Commerce in Miami, experts stressed the effect of the law on multinational companies, to show its reach extended far beyond Brazilian entities.

Mona Clayton, a partner at PriceWaterhouseCoopers, said that most companies that already have to comply with the guidelines set by the FCPA or UK Bribery Act will automatically comply with the new Brazilian law. However, Clayton said that companies with entities or affiliates in Brazil that are unsure of how to comply with the new law should look to the rules set for multinational enterprises by the Organization for Economic Co-operation and Development (OECD). Those rules offer a more conservative set of guidelines for anti-corruption programs at corporations that will help ensure compliance with the Brazilian law.

For Brazilian regulators and enforcement agencies, the biggest challenge on the horizon is ensuring that companies know about the law, even before companies make any changes to their training programs.

For multinationals, small third parties remain greatest risk

The new law imposes a particular burden on companies to do their due diligence on their third party providers. Many Brazilian entities contract third parties, which are often small operations that don’t have compliance programs, to help negotiate contacts and arrange deals with the government.

Tony Dent, corporate counsel for the Latin American division of Harley-Davidson, said that these third party deals will be the most difficult to comb through with the implementation of this clean-up law. He said heightened due diligence on suppliers and training for new and old employees will be priorities for companies that fall under the BCCA.

“We will be working closely with our Brazilian advisors,” Dent said, after speaking on a panel for the BCCA seminar in Miami.

“Every year in Brazil we do compliance training. Those trainings are conducted by our local counsel and everyone participates; not just our managers but also our outward facing employees, people who might be dealing with suppliers and customers on a day-to-day basis.”

A study by the Industries Federation of Sao Paulo states that corruption costs Brazil’s economy BR$41.5 billion a year, or 1.38 percent of the country’s gross national product.