Brazil to increase benefits to whitleblowers in cartel investigations and give CADE more access to financial information
There have been important developments in the legislative that will greatly impact the activities of the national competition authority (the Administrative Council for Economic Defense, or “CADE”) and private damages claims:
- the first Bill proposes significant changes to the Brazillian law regarding damages claims arising from competition-related infringements, setting forth double damages in cartel cartels; and
- the second Bill aims to expand CADE’s access to the Federal Revenue’s database, which will impact investigations of anticompetitive conducts and merger review proceedings.
We present below a summary of the most relevant aspects of these important legislative changes, which should be sanctioned shortly by the Brazilian President.
1. Senate Bill No. 11,275/2018
1.1Bill No. 11,275 amends the legal provision that regulates damages claims arising from competition-related infringements in the following terms:
1.1.1 injured parties will be entitled to double compensation for losses suffered as a result of a cartel or related competition infringements (e.g., aiding and abetting);
1.1.2 leniency beneficiaries (whistleblowers) cannot be subject to payment of double damages and are excluded from joint liability for the infringement;
1.1.3 the pass-on defense will not be presumed in cartel damage claims, and the defendant who alleges it will bear the burden of proof; and
1.1.4 CADE’s decision will be deemed sufficient as evidence in private damage cases.
1.2 These legislative changes – highlighting the double damages and the possibility for the Courts to make a preliminary finding based on CADE’s decision – aim to encourage the filing of private damages claims by people harmed by competition offenses.
1.3 At the same time, it seeks to make the collaboration more advantageous in view of the competition claims, since the collaborators (i) will not be affected by the obligation to indemnify the double damages, (ii) will not be joint and several debtors, and (iii) they will have a legal guarantee that the confession of the conduct will not lead to the presumption that there was an increase in prices.
1.4 In the same context of encouraging private claims and protecting CADE’s collaborators, Bill 11,275 better regulates the limitation period applicable to damage claims, clarifying their respective initial dates:
1.4.1 the statute of limitation period for private damages will not run during CADE’s investigation;
1.4.2 the claim to damages compensation caused by anticompetitive practices will expire in five years; and
1.4.3 the statute of limitation period initial term for the private claims is the “unequivocal knowledge of the wrongdoing”, and the publication of CADE’s final decision is considered as the trigger to such knowledge.
1.5 In addition, Bill 11,275 amends the Law so that collaborators in Cease and Desist Agreements (TCC) also have the obligation to submit to arbitration proceeding to settle disputes regarding damage compensation, in cases in which the aggrieved party takes such route.
1.6 The aforementioned Bill was approved by the Constitution and Justice Committee of the Chamber of Deputies on July 12, and, if there is no appeal from the Chamber’s Plenary, it should soon go to presidential sanction.
2. Supplementary Bill 523/2018
2.1 On June 29, the Commission for Economic Development, Industry, Commerce and Services approved a Bill that will allow CADE to access Federal Revenue databases, through an amendment to the National Tax Code.
2.2 Article 198 of the National Tax Code, to protect fiscal secrecy that derives from the constitutional guarantee of the inviolability of the right to private life and intimacy (art. 5, X, of the Federal Constitution), prohibits the disclosure of tax information about the economic or financial situation of people, as well as information that deals with the nature and state of business or activities, except in the following situations: (i) judicial authority’s request; or (ii) when there is a regular administrative proceeding.
2.3 The amendment proposed by PLP 523 introduces, in the aforementioned article 198 of the National Tax Code, a paragraph that exempts the general prohibition and determines that CADE will have access, without financial burden, to the Federal Revenue databases, regardless of the opening of a specific investigative process, safeguarding the confidentiality of such information before third parties.
2.4 Thus, the legislative amendment will significantly expand CADE’s access to information from the RFB database, and it may also use such information in the context of a preparatory procedure or even before the initiation of any formal procedure.
2.5 According to the author of the proposal, Deputy Hugo Leal (PSD-RJ), the suggested flexibility would be necessary to improve the available instruments to CADE for the investigation of anti-competitive conducts. This would reduce the social cost within the scope of CADE’s activities, by quickly accessing data not only from the investigated company, but also from the entire market.
2.6 In addition, in theory, the new rule could also facilitate CADE’s performance in the merger analysis. Currently, to enable its analysis in the context of mergers processed under the ordinary proceeding, CADE as a rule officiates third-party market agents to obtain sales and billing data that, many times, are already included in the RFB databases. This measure could speed the processing of mergers, whose maximum legal period for analysis is 330 days.
2.7 The progress of the proposal takes place in a context of strengthening RFB and CADE relation, as the latter has been requesting, with greater frequency, data on investigated companies and individuals, as well as on bids potentially affected by cartels within the scope of the proceedings under its competence.
2.8 PLP 523/18, approved by the Economic Development, Industry, Commerce and Services Commission, pursuant to the Opinion of Rapporteur Sidney Leite (PSD/AM), will still be analyzed by the Finance and Taxation Comission (“CFT”) and by the Constitution and Justice and Citizenship Comission (“CCJC”).
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|Jose Carlos Berardo
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