Brazil's New Anti-Bribery Law: Compliance and Enforcement Trends - - PowerPoint PPT Presentation

Brazil's New Anti-Bribery Law: Compliance and Enforcement Trends

Navigating Key Provisions, Ensuring Compliance, Lessons From Recent Enforcement to Mitigate Legal Risks

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TUESDAY, OCTOBER 21, 2014

Presenting a live 90-minute webinar with interactive Q&A Roberto di Cillo, Partner, Di Cillo Advogados, São Paulo, Brazil Thaddeus R. McBride, Partner, Sheppard Mullin Richter & Hampton, Washington, D.C. Matthew Schreiber, Director of Legal Affairs and Assistant General Counsel, Juniper Networks, Sunnyvale, Calif.

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Anti-Bribery in Brazil: Compliance and Enforcement

Strafford Publications October 21, 2014 Roberto di Cillo Thad McBride Matt Schreiber

Agenda

• Introduction
• Brazilian Anti-Corruption Act (BAA) of 2013
• The U.S. Foreign Corrupt Practices Act

(FCPA)

• Compliance Challenges and Best Practices
• Questions

6

International Scope

• Cooperation among different countries and

jurisdictions (e.g., Siemens, Panalpina)

• Non-U.S. laws and enforcement on rise
• Transparency International

– Corruption Perceptions Index – Global Corruption Barometer

7

Brazil

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Brazil http://www.transparency.org/cpi2013/results

Key facts about Brazil

• Population c. 200 million
• World’s 7th wealthiest economy with a GDP of

US$ 2.223 trillion in 2012

• World Cup / Presidential and Other Elections in

2014

• Olympic Games in 2016
• Huge unexploited offshore oil reserves
• Primarily a civil law system

9

Why was the BAA needed?

• “Strict legality” principle (legal entities not liable

for corruption until then?)

• Domestic and international perception of

widespread corruption (Brazil ranked 72 (out of 174 countries) in TI’s Corruption Perceptions Index in 2013) while needing to keep attracting foreign investment and to keep people happy

• Signature of OECD, UN and OAS conventions

against bribery

10

Strict Legality Explained

• No statute (as in act of congress), no law
• No law, no enforcement
• Existing Anti-misconduct Act from 1992 rarely

enforced against companies

11

Perceptions

• Facilitated by social media and new technologies
• Transparency laws and investigative media
• More awareness?

>>> Widespread dissatisfaction?

12

Dissatisfaction

• With what?

– Quality of services

• NOT FIFA standard hospitals
• NOT FIFA standard schools

– How public funds are spent (social programs?) – Economic outlook for years to come – Accountability of government officials

13

Economic Outlook

• Brazil ranked 5 in 2014, down from 3 from 2010 to 2013,

in A.T. Kearney Foreign Direct Investment Confidence Index.

• “Brazil is home to an increasingly large number of

investors from other emerging markets.” - See more at: http://www.atkearney.com/research-studies/foreign-direct- investment-confidence-index#sthash.9uhsF7nh.dpuf

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FDI’s and the oil and gas industry

• Does Brazil have all that it takes to exploit oil and gas in

the pre salt?

• If there is no pre salt oil and gas exploitation, will Brazil be

able to feed the Social Fund with royalties?

• How will education and health develop without royalties

from pre salt oil and gas?

15

Accountability

• Arrest of senior officials (a new standard since

impeachment of President Collor de Mello in 1992), including former cabinet member

• Deferred prosecution agreement signed by Mr.

Costa, former senior official of Petrobras

• Possible signature of deferred prosecution

agreement by others

16

Costa’s Deferred PA

• Cooperation with investigations into money laundering,

corruption and other crimes at Petrobras (particularly work

• n refineries): 3% paid by contractors under the table as

contributions to campaigns?

• Combined c. 2 Million USD cash payment and donation of

assets worth c. 2 Million USD plus, all agreed as “damages” (setting the standard?)

• Disgorgement of 2.8 Million USD found in a Cayman

account and of 23 Million USD found in a Swiss account

• wned by relatives and expressly recognized illegal

17

International Conventions

• What if Brazil had not adopted the BAA or otherwise

enforced existing laws to prevent companies from bribing governmental officials?

18

Compliance Challenges

19

Compliance challenges

• Trade barriers to protect local industries
• Complex laws

– Difficult to comply – Incentive to pay to navigate administrative processes

20

Local Custom

• More relaxed attitude toward bribery than in U.S.
• Bribery may be accepted part of business
• Relationships built on trust

– Personal and family relationships – Resistance to formal written agreements

21

Third Parties

• Reliance on third parties in new markets

– Agents or other representatives – Local counsel, accountants – Customs brokers, a must in Brazil! – Distributors, dealers

• In some jurisdictions (Brazil included) / industries,

a local rep is required

22

The Brazilian Anti-Corruption Act

23

BAA Overview

• Prohibits bribes + to any official (local or foreign),

including State Owned Companies’ officials

• Gives opportunities for the public administration to (a)

investigate and apply fines and penalties and (b) coordinate legal proceedings with prosecutors

• Broad scope (i.e., any legal entity, branch, office, etc.,

whether domestic or foreign)

24

BAA Overview (cont’d)

• Enforcement policy is outlined in the Act.

– Rigid (as in not flexible) settlement policy with regards to settlement always with admission of guilt – No opportunity for administration to waive conditions for settlement agreements – More than 5,000 enforcement authorities (from the Federal Government to Small Town); local regulations

25

BAA Overview (cont’d)

• If violated, administration can apply:

– Fines will be directly applicable by the Administration:

• Fines ranging from 0.1% to 20% of the after-taxes

revenue earned in the year preceding the year when investigation or audit started or between $3,000 USD to

• c. $30 million USD if revenue of the investigated

company cannot be used; and/or

26

BAA Overview (cont’d)

• If violated, administration can further apply:

– Wide disclosure of the event depending on severity and

• ther standards (i.e., with added reputational risks)
• Regulations issued by local authorities have been issued

and in São Paulo (city) name of investigated company will be disclosed at an early stage

– Blacklisting

• Public financing;
• Tenders;
• Government Contracts

27

BAA Overview (cont’d)

• Administration plus prosecutors can also seek:

– At the Judiciary:

• Unspecified damages (no cap but no clear criteria either)
• Forfeiture of assets, rights or funds which stem directly or

indirectly from a violation

• Partial suspension or interruption of its activities
• Compulsory dissolution of the legal entity
• Prohibition from receipt of incentives, subsidies, subventions,

donations or loans from public bodies or entities and public or state-controlled financial institutions, for the minimum term of

• ne (1) and maximum term of five (5) years
• Freeze of assets, rights or funds

28

BAA Overview (cont’d)

• What else to worry about?

– The Judiciary can be slow and damages to reputation and other damages can be aggravated by a slow response from the Brazilian Judiciary.

29

Illegal bribes + under the BAA

• 5 categories of illegal actions:

– Promise, offer or gift of “illegal advantages” to official; – Funding “illegal advantages” and other illegal actions under the Act; – Use of an alter ego to conceal identity or interests; – Fraud in tenders or governmental contracts; – Blocking of governmental investigations.

30

Illegal bribes + under the BAA

(cont’d)

• Illegal advantages to official

– Directly or through official related party; – In exchange for what? Anything? – No break for facilitation payments.

31

Officials under the BAA

• A foreign official is defined as “whoever plays a public

role, job or function in state bodies, entities or diplomatic representations of a foreign country or in a legal entity controlled directly or indirectly by that foreign country or in international public organizations, even if on an interim or unpaid capacity”.

• But the BAA applies to local officials (of the Executive,

Legislative or Judiciary) and officials of Brazilian State Owned Companies.

32

Purpose under the BAA

• Strict liability: a company will be held liable if (a)

the fact, (b) the result and (c) the link between (a) and (b) are proven.

• If the link between a fact and a result is

reasonably clear (after governmental investigation is completed) = company will probably have the burden of proving legality of its actions

• What does reasonably clear mean?

33

Internal Controls

• Fines and sanctions should be lower if a company has

adopted “integrity internal mechanisms and procedures, audit and incentives to reporting and effective application

• f codes of conduct and ethics” (emphasis added). (VIII of

Section 7)

• Also: “Criteria for evaluation of the mechanisms and

procedures contemplated in VIII of Section 7 above shall be defined by regulation issued by the Federal Executive”.

34

Expected Enforcement

• The Act became effective in January 2014.
• Regulations still to be issued by the Federal
• Executive. Some States and Cities/Towns have

issued their own.

• Decentralized governmental investigations at

local and regional levels as a rule, except for foreign officials. Plenty of room for lack of consistency in enforcement of the Act.

35

Expected Enforcement (cont’d)

• Settlements are going to be possible under the

BAA even if the standard is strict liability, with some limitations, including as to a requirement “to take full responsibility” (as opposed to with no admission of guilt).

• But prevention is definitely the best way forward.

36

The Foreign Corrupt Practices Act

37

FCPA Overview

• Prohibits bribes to foreign officials
• Requires issuers to maintain:

– Accurate books and records – Robust internal controls

• Aggressive enforcement

38

Bribery

39

Foreign Official

40

Prohibited Purpose

41

Books & Records / Internal Controls

42

Recent Enforcement

• BizJet (2013)

– European airline’s U.S.-subsidiary that provides aircraft maintenance, repair, and overhaul services – Four executives, including CEO, allegedly bribed

• fficials in Mexico, Brazil, and Panama to secure

contracts – Paid directly and indirectly through shell company – $11.8mm settlement with DOJ

43

Brazil Enforcement

• Biomet (2012)

– Medical device manufacturer – Brazilian distributor bribed doctors at state-owned hospitals with 10-20% of the value of the devices – US executives and internal auditors discussed payments in communications – Company paid approximately $22.5 million in fines and disgorgement (and interest); had to engage monitor

44

Brazil Enforcement (cont’d)

• Panalpina (2010)

– Freight forwarder / customs brokering firm – Made payments to Brazilian customs officials (and to

• fficials in many other countries)

– Cooperated with DOJ and SEC – Paid approximately $70.6 million to DOJ; $11.6 to SEC in disgorgement

45

Brazil Enforcement (cont’d)

• Eli Lilly (2012)

– Sold drugs in Brazil (and elsewhere) through third party distributors

• Gave discounts based on likely sales volumes
• Granted large discount to distributor that sold to

government of one Brazilian state

– Distributor used portion of savings to bribe officials – Paid roughly $20.7 million to SEC in disgorgement and interest; approximately $8.7 million to DOJ; required to engage compliance consultant

46

Brazil Enforcement (cont’d)

• Misao Hioki (2008)

– General Manager with international group at Bridgestone – Agents made payments to employees of state-

• wned companies

– Hioki reportedly knew of / concealed / authorized payments – 2 years in prison; $80,000 fine for conspiracy to violate FCPA and rig bids / fix prices in violation of US Sherman Act

47

Brazil Enforcement (cont’d)

– US and non-US companies are paying severe monetary penalties for FCPA violations related to Brazil – In some cases individuals are going to jail – Lots of industries have been represented in these enforcement actions – And then there’s the cost: Wal-Mart Brazil is reportedly under investigation; Wal-Mart is paying more than $30 million per quarter on the investigation and compliance efforts

48

BAA v. FCPA

49

BAA vs. FCPA

• Many similarities but some differences
• BAA extends further than FCPA

– Strict liability except for limited situations – Offense to bribe local officials – Offense to hinder competition in governmental tenders – No exception for facilitation payments – Settlements are conditional on always taking full responsibility (no non-admission of guilt, no waiver of that condition possible)

50

BAA vs. FCPA (cont’d)

• Under the BAA, criminal liability of individuals

needs to be handled separately

• Under the BAA, in the event of a merger, the

liability of the surviving entity will be limited to fines and damages and further limited to the value of the subject assets (except in the case of fraud or clear intent to commit fraud, which must be proven).

51

BAA vs. FCPA (cont’d)

• Enforcement will be mostly decentralized at local

agencies.

• Whether or not an official contributes to an illegal

action, fines (and public disclosure), in principle, are not diminished or eliminated.

• Damages may/could theoretically be reduced by

contribution of an official to an illegal action under the BAA and despite vetoed language (and accompanying reasoning for the veto).

52

Compliance Best Practices

53

Culture of Compliance

• Consistent message from the top
• Clear overarching policy supported

by specific procedures

• Tangible commitment to compliance
• Reward / penalize personnel

54

Compliance Resources

• Designate capable compliance official(s)
• Budget to appropriately administer compliance

program

• Periodic reporting to Board

55

Training

• Communicate

standards and training

• TRANSLATE
• Train transaction

partners as needed

56

Due Diligence

• Obtain detailed information about partners

– Check references – Review public records

• Engage local counsel
• Consider additional steps if risk is high:

– Background check – Interviews – Require training

57

Internal Controls

• Recordkeeping

– Keep copies of training materials – Maintain complete files of due diligence

• Accounting

– Follow authority matrix when necessary – Require adequate approvals and supporting documentation before reimbursement – Train local accounting personnel – Monitor petty ca$h

58

Reporting

• Reporting

– Expect personnel to report issues that arise – Provide for anonymous reporting (including reporting tools that work AROUND THE WORLD) – Address and remediate issues that are identified

• No retaliation in case of a good faith report

59

Audit

• Reviewing and evaluating

– Periodic internal reviews of your policies / processes – Identify areas of weaknesses and strengths – Assign clear responsibility for compliance improvements Especially critical in landscape where laws conflict

60

Investigations

• Be prepared if the government knocks on your

door (or sends you a short, innocuous-seeming letter that requests lots of data)

– Document preservation and retention is critical – Work closely with IT personnel – Consider whether internal or external resources should lead the investigation – Halt any continuing harm; develop processes to protect against future harm – Make and follow a plan

61

Thank You!

Roberto di Cillo Di Cillo Advogados São Paulo, Brazil M: +55 11 9 8111 9753 O: +55 11 3045-4200 rdicillo@dicillo.com.br Thad McBride Sheppard, Mullin, Richter & Hampton Washington, DC M: +1 202 253-2518 O: +1 202 747-1925 tmcbride@smrh.com Matt Schreiber Director of Legal Affairs, Americas, Assistant General Counsel Juniper Networks, Inc. Sunnyvale, CA O: +1 408 936-4131 mschreiber@juniper.net

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