Reed Smith Client Alert

Authors: Arturo Muñoz Holguin Francisco Rivero

Type: Client Alerts

On August 1, 2013, in response to the Organization for Economic Co-operation and Development’s ("OECD") requirement that Brazil comply with the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the "OECD Anti-bribery Convention"), Brazil enacted the Lei Anticorrupção or Law #12.846 (the "BACL"). The BACL which will become effective January 28, 2014, imposes strict corporate liability for acts of both employees and agents, and is part of a growing trend of extraterritorial compliance measures recently enacted by Latin American countries. See e.g. Mexico’s recently passed Ley Federal Anticorrupción en Contrataciones Públicas.

The BACL applies to all legal entities with operations in Brazil, regardless of their organizational form or structure. Among other things, the BACL proscribes:

  • Directly or indirectly promising, offering, or giving an "improper advantage" to a foreign or domestic public official or a third person related to the same
  • Financing or sponsoring the commission of acts proscribed by the BACL
  • Using an intermediary to commit acts proscribed by the BACL
  • Obstructing official investigations and prosecutions of proscribed acts

With regard to public contracts the BACL prohibits:

  • Making the bidding process non-competitive
  • Preventing the completion of any part of the bidding process
  • Excluding bidders or bids by fraud or granting of an "improper advantage"
  • Executing economically and financially "imbalanced" agreements

The BACL imposes severe penalties of up to twenty percent (20%) of annual gross revenues, suspension or partial bans of company activities, dissolution, and bans on receiving government incentives, subsidies, or loans, for periods ranging from one to five years.

Critically, the BACL prohibits "facilitation payments" and imposes sweeping joint liability on parent and affiliated companies, subsidiaries, and members of the same consortium. Like the Brazilian Anti-trust Law, Law #12.529/2013, the BACL allows the government to sign leniency agreements with entities that self-report and cooperate. Notably, the BACL may provide for a reduction of penalties where a compliance program has been put into place.

Potentially foreshadowing the seriousness of official enforcement efforts, Brazilian President Rousseff vetoed a proposal to cap penalties at the value of the underlying contract or bid. The BACL marks a new chapter in the relationship between Brazilian public entities and all organizations with operations in Brazil. While some aspects of the law, such as the interpretation of operative terms and enforcement efforts, remain unclear, organizations that transact any type of business in Brazil should dedicate the resources and time necessary to ensure compliance. As with any anti-corruption measure, prevention is key.

 

Client Alert 2013-302