Five years of the Brazilian Clean Companies Act: lessons learned

Global Anticorruption Newsletter

The Brazilian Clean Companies Act (BCCA) is about to celebrate its fifth anniversary. The law passed in August 2013 and came into force in January 2014, adding a relevant tool in the fight against corruption to the Brazilian legal framework.

Differently from other laws in force to that date, the BCCA focused its provisions on private corporations and set forth strict civil and administrative liability for illicit conducts against domestic and foreign governments. The BCCA also innovated Brazilian law in its approach to corporate compliance programs, making them a mitigating factor for companies facing possible sanctions in case of violations.

Unprecedented corruption and fraud investigations, like the Car Wash and the Greenfield Operations, were launched  between 2014 and 2016. Brazilians witnessed revelations about several scandals involving traditional politicians, public companies and huge corporations; ultimately, many individuals and corporations that had gone untouched were subject to civil and criminal sanctions. The BCCA was the basis for leniency agreements entered into by corporations involved in such investigations.

The increment of law enforcement, however, increased the corruption perception in the country according to the Transparency International Corruption Perceptions Index of 2017. In comparison to 2012, first year in which the rank used the current parameters, Brazil has not shown much improvement on the corruption perception. Brazil's score in 2012 was 43 points, the country's highest number to date. In 2017, Brazil was downgraded to 37 points and is ranked as 96th out of 180 countries, falling far behind from other South American countries such as Uruguay (70 points) and Chile (67 points)1. The index confirmed, therefore, that Brazil still faces significant integrity challenges.

Despite the increase in the corruption perception, the balance of the BCCA's first five years is definitively positive and has assisted creating a better business environment.

The BCCA confirmed Brazil's leadership in the fight against corruption in South America. Other countries in the region later passed laws to meet OECD's Anti-Bribery Convention guidelines, as Colombia with the Transnational Corruption Act (TCA) and Argentina with Law 27.401.

The enforcement of the BCCA, furthermore, continues to send a message to the region that strong, independent and committed law enforcement agencies are essential for the effectiveness of any anti-corruption system.

The BCCA is now considered a landmark in the anticorruption framework and in the dissemination of ethics and best business practices in the country. In structural terms, the BCCA paved the way for many other related laws. Of particular note is the 2016 Public Companies Act, which sets forth requirements for corporate governance and compliance practices for all Brazilian public companies.

There is still, however, a long road ahead. One of the biggest challenges for private companies doing business in Brazil is how to track the multiple regulations and appropriately work with federal, state, and municipal government agencies that have BCCA enforcement power.

At the federal level, government agencies struggle to cooperate among themselves when it comes to enforcing the BCCA. Especially in leniency agreement programs, companies doing business in Brazil still face legal uncertainty. It is unclear which agency a company seeking leniency in the context of the BCCA should reach out to: the Federal Prosecutors Office (MPF), the Ministry of Transparency and General Comptroller's Office (CGU), the Federal Attorney's Office (AGU) or even the Federal Court of Auditors (TCU). If the offense refers to competition matters, the agreement may also involve the Administrative Council for Economic Defense (CADE).

Up to July 2018, CGU and AGU together had signed five leniency agreements based on the BCCA2:

Companies

Amounts involved
(fines, damages and disgorgement)

SBM Offshore

R1.22 billion

Odebrecht

R2.72 billion

MullenLowe and FCB Brasil

R53.1 million

Bilfinger

R9.8 million

UTC Engenharia

R574 million

 

The cases indicate that each leniency agreement is unique; the authorities conduct the negotiations on a case-by-case basis and the interested company must rely on legal support to mitigate exposure before the various agencies.

The repercussions of the law at the state level are also relevant. Of the 27 states in Brazil, 16 – including the Distrito Federal (the capital) – have issued state regulations on the BCCA's provisions and some of these states are already  in process of enforcing the law. Rio de Janeiro, Distrito Federal, and more recently Rio Grande do Sul, have gone farther, passing laws that require corporations that wish to do business with the state governments to establish a compliance program.

At the state level, therefore, the existence of an effective compliance program for companies doing business in Brazil may no longer be just an option but rather a requirement, depending on the location of the business. In a complex and fast changing legal framework, it is crucial for companies that intend to do business with Brazilian state governments to have proper legal support to assess and meet all new and upcoming compliance requirements.

At the municipal level, meanwhile, the CGU has been promoting the enforcement of the BCCA throughout Brazil. In 2017, it published a handbook aimed at local governments, offering suggestions of ways municipalities can properly regulate and enforce the BCCA. Only a few cities, however, have passed such regulations and the enforcement of the BCCA at the municipal level has yet to become a reality, as it is at the federal level and in some states.

Expectations for the successful enforcement of the BCCA and similar initiatives in the upcoming years are high. Brazil's social and political environments favor improving the country's anticorruption framework and encouraging corporations to put compliance initiatives in place.

The battle against corruption has been the center of the political debates in the current general elections and the results indicate that Brazilians will no longer tolerate old and dishonest practices without a good fight.

Find out more about the implications of the BCCA for your business, and about navigating the complexities of compliance and enforcement, by contacting any of the authors.

Campos Mello Advogados is a law firm based in Brazil, in cooperation with DLA Piper.



1 The Transparency International report uses a scale of 0 to 100, where 0 is highly corrupt and 100 is very clean.