Alerts
- 20 January 2022
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2022: Another Record Year for Compliance and White-Collar Crime Regulatory Initiatives?
2021 was a busy year for the Compliance and Anticorruption agenda, and its regulatory and enforcement initiatives may provide interesting insights on what to expect for 2022. Recognizable trends, both domestic and international, include (i) coordination of prosecution efforts and information sharing among the authorities; (ii) an ongoing concern on determining jurisdiction over corruption related offenses while avoiding the “piling-on” of penalties; and (iii) a stronger focus on white-collar crime and anticorruption prosecution.
In this regard, certain important initiatives, both in Brazil and abroad – as well as their potential implications – should receive special attention.
- Court decisions and authorities’ understandings on the new Administrative Misconduct Law and the new Public Procurement Law are expected to be on the spotlight
Amongst last years’ most noteworthy regulatory initiatives in Brazil are the enactment of a new Administrative Misconduct Law[1] and of a new Public Procurement Law[2].
The new Administrative Misconduct Law, enacted on October 26, was completely reformulated, and introduced significant changes to the anticorruption legal framework in Brazil. Most importantly, the new law introduces the principle of the non bis in idem (or no double punishment for the same cause of action) with respect to penalties applicable to legal entities – which is aligned with international efforts. It also brings important concepts, some of which were already included in other laws, such as successor’s liability in case of corporate restructurings.[3]
Despite the promising changes, this Law also brings certain controversial provisions – to name a few, less severe penalties to individuals and a stronger burden of proof to the prosecution. It also gave rise to discussions concerning non-written principles, such as the possibility of retroactive application of the new law to favor the wrongdoer. In this regard, the 5th Chamber of the Public Prosecutor’s Office in Brazil (Ministério Público Federal – “MPF”)[4] has recently issued guidelines highlighting that its retroactive application is neither automatic, nor mandatory. It is expected that, during 2022, such provisions and interpretations will be subject to the higher courts’ scrutiny, potentially shedding more light on those divisive matters.
Notably, the new Public Procurement Law[5], enacted on April 1st, also introduces important changes from a compliance perspective. One of its highlights is the specific obligation imposed to the winner in public bids exceeding BRL 200 million (approximately USD 35 million) to develop a compliance program within six months of the execution of the contract with the government.
Further, the new Public Procurement Law establishes that administrative offenses that are punishable simultaneously under both such law and under the Brazilian Anticorruption Law shall be analyzed under the same legal proceeding. Similarly, plea-bargain agreements entered by wrongdoers based on the Brazilian Anticorruption Law will be considered for purposes of potentially applicable penalties under the new Public Procurement Law. These provisions demonstrate, yet again, the concern of the authorities in creating a more unified and coherent anticorruption legal framework in Brazil.
Finally, in a bold (and somewhat controversial) move, the new Public Procurement Law allows the piercing of the corporate veil of legal entities if they are used to defraud or to conceal illegal conducts without the need of a separate legal proceeding. The wording of the law does not specify which penalties could be transferred, potentially (and theoretically) allowing broader interpretations admitting non-monetary penalties (e.g., disbarment to contract with the government) to be transferred from one entity to another.[6]
- Authorities are expected to further discuss the scope, applicability, and effectiveness of Non-Prosecution Agreements in Brazil
Another important initiative adopted by the Brazilian government was the enactment, on July 19, of Ruling n. 18 issued by the Federal Attorney General’s Office (Advocacia Geral da União – “AGU”), which provides guidelines in non-prosecution settlements signed by the AGU and the MPF with respect to administrative misconduct wrongdoings.
The possibility of individuals and legal entities entering into non-prosecution agreements was first provided under Law n. 13,964/2019, enacted in December 2019, also known as the Brazilian “Anti-Crime Package”. This was one of many legal innovations introduced by this set of laws which needed additional regulation to be enforced. Under the previous regimen, these types of transactions (i.e., settlements with authorities agreeing not to prosecute certain violations in exchange of commitments by the wrongdoer) were subject to higher requirements and greater authorities’ scrutiny – which sometimes hindered any possibility of having a joint settlement by the legal entity and corresponding individuals involved in the wrongdoing.
According to the new ruling, for individuals or legal entities to be eligible for a non-prosecution agreement, they must confess the criminal charges presented against them, cooperate with the authorities, disgorge all benefits obtained with the illegal acts and agree to pay the applicable penalties. With respect to legal entities, they must agree to certain commitments established by the authorities, such as the improvement of their compliance programs.
There are, however, ongoing discussions on the effectiveness of the ruling. Considering that the new Administrative Misconduct law grants exclusive jurisdiction to the MPF with respect to administrative misconduct wrongdoings, it is possible that the validity of this ruling, that grants full authority to the AGU, will be challenged. Another related discussion is whether plea-bargain agreements – which have been until now used only in the criminal sphere – may be used in administrative misconduct claims, which are essentially civil claims.
These discussions are expected to loom court decisions during 2022.
- Discussions regarding the legal standing of Brazilian authorities to execute plea-bargain agreements are expected to continue
In May 2021, in a notorious case involving Rio de Janeiro’s state former governor, the Brazilian Supreme Court confirmed that police authorities have legal standing to negotiate and execute plea-bargain agreements, provided that these are later ratified by the MPF. Although there are no formal guidelines that indicate one authority with legal standing to execute such agreements, the MPF (sometimes together with the General Comptroller’s Office – CGU) has historically been appointed as the legal entity entitled to lead the negotiations.
It is true that the Supreme Court’s decision is not automatically applicable to all similar cases under scrutiny in the Brazilian system; however, it certainly sets a relevant precedent regarding the matter. It may also serve as a hint that the MPF may have to share its authority with respect to settlements with other competent bodies.
- Courts are expected to continue coordinating prosecution efforts to avoid the “piling-on” of penalties
On March 30 the Brazilian Supreme Court issued an important decision determining that the Brazilian Federal Audit Court (Tribunal de Contas da União – “TCU”) does not have jurisdiction to disbar companies from contracting with the government if these have already entered into plea bargain agreements with Brazilian authorities such as the MPF and the AGU. Under such decision, companies that were previously barred from contracting with the government based on TCU’s decisions were allowed to do so.
This decision, combined with the newly introduced provisions under the new Administrative Misconduct and Public Procurement laws, is aligned with the international trend to prevent the “piling-on” of penalties imposed by different authorities engaged in the fight against corruption.
Although this ruling was restricted to the TCU’s role, it does provide some clarity on higher courts’ understanding regarding the issue. For instance, the Supreme Court Justice Gilmar Mendes amended his vote to highlight the cooperation agreement signed in 2020 between several authorities[7] to coordinate the negotiation of plea bargain agreements and avoid the “piling-on” of penalties. This decision provides valuable assurances to companies that enter into plea bargain agreements with Brazilian authorities, as it prevents the TCU from seeking additional disbarment penalties from collaborating entities. Moreover, it provides additional insights on the higher court’s understanding regarding the TCU’s somewhat restricted role in the fight against corruption.
- Authorities are expected to strengthen their supervision on companies’ Anti-money Laundering and Know Your Client proceedings, that should follow a “risk-based approach”
On the Anti-Money Laundering front, between late 2020 and early 2021, three new rulings were enacted by the Brazilian authorities on money laundering and financing of terrorism – Ruling n. 3,987 of 2020 issued by the Brazilian Central Bank, Ruling n. 617 of 2019, issued by the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) and Ruling n. 612 of 2020 issued by the Brazilian Superintendence of Private Insurance (Superintendência de Seguros Privados – SUSEP).
These rulings introduce a new, more flexible approach on what companies and financial institutions will need to provide for in their policies and procedures to comply with the new requirements. Under the so-called “risk-based approach”, companies must assess their risk individually so that the adopted policies and internal controls are proportionate to the identified risks. This means that periodic risk assessments will have to be introduced as a part of each companies’ routines – now more than ever. This also means that “one size fits all” compliance programs will no longer be an option.
Similarly, the Counsel for Financial Activities’ Control (Conselho de Controle de Atividades Financeiras – “COAF”) has issued Ruling n. 36/2021, which also provides certain criteria for the adoption of policies, procedures, and internal controls with regards to anti-money laundering and terrorism financing by entities supervised by COAF (such as financial institutions, factoring and securitization companies, jewelry, and precious metals dealer companies, amongst others). Such ruling became effective on June 6, 2021.
In line with the Brazilian Central Bank, CVM and SUSEP’s rulings, the Ruling n. 36/2021 expressly provides that companies must adopt a “risk-based approach” and, with respect to Know Your Client or “KYC” proceedings, it provides that companies must identify the ultimate beneficial owners of their clients. Additionally, with respect to Know Your Employee or “KYE” proceedings, the COAF ruling determines that companies must seek relevant information not only with regards to their strategic partners, but also with respect to service provider partners. This will certainly increase the scope of the transactional due diligences conducted by those entities.
Besides, in November 2021 COAF issued the Ruling n. 40/2021,[8] broadening the criteria of Politically Exposed Persons (PEPs) by adding new categories of public officials and determining new proceedings to be adopted by companies with regards to those individuals.
Companies that do not comply with the ruling’s provisions will be subject to penalties established under Law n. 9,613/1998 (the Brazilian Anti-Money Laundering Law), that can amount to up to BRL 20 million (approximately USD 3.7 million).
These regulatory initiatives are aligned with domestic and international efforts in the fight against money laundering activities and establish severe penalties for wrongdoers. These efforts also evidence that authorities are closing the circle on AML wrongdoings, which means that companies will have to be even more vigilant with respect to its compliance related efforts.
- The offering of gifts and entertainment is expected to be closely monitored by the authorities
In December 2021, the Federal Government issued Decree n. 10,889[9], which provides for the disclosure of the federal government agenda and the acceptance of hospitality and gifts by federal public officials. The Decree sheds light to the usual concerns on conflict of interest, by establishing more strict requirements for the acceptance of gifts, for example, forbidding gifts from individuals that may have any interests in their decisions or in the decisions of the public body in which the agent participates.
For companies, this means that internal policies will have to establish clear rules on the offering of gifts and entertainment, as authorities are expected to be on the lookout for irregularities.
- Brazilian authorities are expected to strengthen enforcement over cybercrimes
In 2021 cyber-attacks increased by 40% as compared to 2020, potentially indicating that the remote work environment during the COVID-19 pandemic might have created vulnerabilities that fostered those attacks[10]. From an international standpoint, cyber fraud is the most common and threatening form of fraud, and its. substantial increase during the pandemic encourages stronger action by organizations in developing more effective digital governance programs.
Additionally, it also promoted government action to identify and punish wrongdoers. For instance, as a response to the increase in cyber fraud, on May 27, the Brazilian government enacted Law n. 14,155/2021, which modifies the Brazilian Criminal Code and the Brazilian Criminal Procedure Code to increase sanctions and broaden the scope of cyber-crime offenses, including figures such as electronic device hacking and electronic theft. The new rule also increases the criminal statute of limitation periods, allowing prosecution for a longer period.
Further, in December 2021, Brazil’s Senate approved the country’s alignment with the Budapest Convention of 2001 (“Convention”), the first international treaty on cybercrimes. This alignment complements previous legislative initiatives, representing an important step in the fight against cybercrime in Brazil. The Convention not only contributes to greater standardization between the various applicable legislations, but it also promotes international cooperation between authorities involved in cybercrime investigations. Because cybercrimes often involve multiple jurisdictions, Brazil’s adherence to the Convention should make investigations faster and more effective.
Additionally, as of August 1st, administrative sanctions provided by Law n. 13,709/2018 (the Brazilian Data Protection Law or “LGPD”) became effective and are being enforced by the Brazilian Data Protection Authority (Autoridade Nacional de Proteção de Dados – ANPD), as well as consumer protection entities and the MPF[11]. Amongst the potentially applicable sanctions, the LGPD establishes that data processing agents (e.g., controllers or processors) in violation of those rules may be subject to the interdiction to continue exercising their activities. Other potentially applicable sanctions are fines and suspension of the companies’ activities – evidencing that the authorities will strengthen enforcement actions towards wrongdoers.
- Foreign authorities are expected to strengthen enforcement to fight corruption and white-collar crime
Internationally, important steps have been taken during 2021 in the fight against organized crime and corruption.
The OECD updated its guidelines on the global anti-corruption enforcement, bringing significant changes with regards to non-trial resolutions, with a particular concern in reducing piling-on proceedings and penalties based on the same facts. The new guidelines also show a particular concern with the sharing of information and with the enhancement of the whistleblower’s protection, also including new standards for compliance programs and for internal controls. Additionally, for the first time, the OECD provided guidelines on the enforcement against public officials in corruption related matters.
Moreover, the US Department of Justice – DOJ recently revised its corporate enforcement policies[12], openly signaling a stronger approach to white-collar crime prosecution. Issues that had previously been “softened”, such as the imposition of corporate monitors, are now back under the authorities’ attention. Similarly, the White House has issued an open statement[13] signaling that, under the new administration, it will pursue stronger prosecution with respect to white collar crimes and the fight against corruption.
With respect to sanctions, in December 2021, the largest Brazilian drug cartel – Primeiro Comando da Capital or “PCC”– together with individuals and entities related to it, has been included in the list of sanctioned entities of the US Treasury Department, and it is now subject to US economic and business restrictions[14].
- What to expect for 2022?
While only time will tell how these recent developments will translate into enforcement outcomes and court decisions in Brazil, these initiatives provide a strong indication that the fight against corruption will not step back, and that enforcement action against wrongdoers is still on the agenda.
Even though Brazil has still a long way to go in terms of enforcement, the recent regulatory initiatives are overall promising and provide us with an indication on what to expect for 2022. The message is clear: the importance for companies to develop effective risk-based compliance programs has never been stronger and companies that fail to implement such a program will be exposed to enforcement action – both in Brazil and abroad.
For further information, please contact:
Juliana Daniel
juliana.daniel@lefosse.com
Tel.: (+55) 11 3024 6194
Ludmila Groch
ludmila.groch@lefosse.com
Tel.: (+55) 11 3024 6464
José Carlos Berardo
Tel.:(+55) 11 3024 6244
Astrid Rocha
Tel.: (+55) 11 3025 3203
Lucas Baptista
Tel.: (+55) 11 3024 6279
Vinícius Cim
Tel.: (+55) 11 3025 3368
[1] Law n. 14,230/2021, which amended Law n. 8,429/1992.
[2] Law 14,133/2021, which amended Law n. 8,666/1993.
[3] For example, successor’s liability was already included under Law 12,846/13 (the “Brazilian Anticorruption Law”).
[4] The 5th Prosecutors’ Chamber is responsible for the standardization and coordination between the public prosecutors in corruption enforcement in Brazil.
[5] Law nº 14,133/2021, which amended Law n. 8,666/1993.
[6] Under Brazilian law, the piercing of an entities’ corporate veil would normally require a reasonable justification (i.e., would not occur “automatically”) and would only be applicable for the transfer of monetary penalties (e.g., fines). However, in a recent decision issued by the Brazilian Federal Audit Court (Tribunal de Contas da União – TCU), an administrative court, it applied the disregard doctrine to pierce an entities’ corporate veil and to apply disbarment penalties to one of the company’s shareholders. Such decision is currently being analysed by the Brazilian Supreme Court (Supremo Tribunal Federal – STF), which has not ruled definitively on the matter yet. However, based on the courts’ prior rulings in other cases, administrative penalties such as disbarment to contract with the government may not be transferred from one entity to another.
[7] The Technical Cooperation Agreement (Acordo de Cooperação Técnica) signed on August 6, 2020, between the General Comptroller’s Office (Controladoria Geral da União – CGU), the Office of the General Counsel for the Federal Government (Advocacia Geral de União – AGU), the Ministry for Justice and Puiblic Safety (Ministério da Justiça e Segurança Pública) and the General Accounting’s Office (Tribunal de Contas da União – TCU).
[8] Ruling n. 40/2021 revokes ruling n. 29/2017.
[9] The Decree regulates the articles 5 and 11, both of Law n. 12,813/2013 (Conflict of Interest Law).
[10] In Brazil, there were about 967 attacks per week during 2021. Further information available in: https://canaltech.com.br/seguranca/ciberataques-semanais-contra-empresas-no-brasil-aumentam-62-em-2021-198095/, access on oct 21 2021.
[11] According to articles 18 and 45 of LGDP, the data subject also may refer to consumer protection bodies due to data violations in consumer relations. Since the law into force, the National Consumer Administration (Secretaria Nacional do Consumidor – SENACON) related several cases involving technology companies, retail and banks to the ANPD for possible sanctions related to LGPD.
[12] https://www.justice.gov/dag/page/file/1445106/download
[13]https://www.whitehouse.gov/briefing-room/statements-releases/2021/12/06/fact-sheet-u-s-strategy-on-countering-corruption/
[14] https://home.treasury.gov/news/press-releases/jy0535
