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• 14 December 2021

The New Brazilian Administrative Misconduct Law

On October 26, 2021, the Brazilian Congress passed the new Administrative Misconduct Law[1], introducing significant changes to the anticorruption legal framework in Brazil.

The previous Administrative Misconduct Law[2], passed in the context of the scandals involving former President Fernando Collor in the 1990’s (that ultimately led to his impeachment), had recently been subject to strong criticism amongst the Brazilian Legislative and legal scholars. Supporters of changes to the former law argued it allowed an exceedingly broad interpretation in disfavor of government agents, supposedly leading to abusive and unnecessary prosecution by the courts – especially after its use as the main prosecution tool in high profile government probes, such as the Car Wash investigation.

Some of the most noteworthy changes include (i) an increased burden of proof for the prosecution in administrative misconduct cases, with the introduction of the requirement of wrongdoer’s “specific intent”; (ii) the narrowing of the definition of the acts that are listed as administrative misconducts; (iii) the introduction of successor’s liability in case of corporate restructurings; and (iv) the reduction of fines and sanctions applicable to wrongdoers (especially to individuals).

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 in this regard[3].

Despite the significant efforts in the recent past, Brazil still faces difficulties in having an unified – or, at least, organized – anticorruption system. Rather, the enactment of anticorruption laws was largely in response to specific public demands, resulting in a myriad of different laws and regulations. Under this system, legal entities may be subject to a broad variety of repercussions in the civil and administrative spheres[4], often involving simultaneous prosecution and the piling-on of penalties in the federal, state, and local levels.

In this complex system, which is often hard to navigate, the two main applicable laws with respect to corruption and administrative misconduct are the Administrative Misconduct Law and the Anticorruption Law (Law 12,846/13).[5] Under the previous legal framework, legal entities charged with corruption or administrative misconduct concerning the same set of facts could be subject to prosecution under both laws, resulting in piling-on proceedings and fines calculated based on two different systems. Adding on its complexity, acts committed before 2014 were subject to the Administrative Misconduct Act, while after 2014 the Anticorruption Law would apply. Not to mention substantial differences in calculating fines and disgorgement amounts under both laws.

In this regard, the new Administrative Misconduct Law determines that, when a legal entity is investigated or charged with an illegal act that is both subject to the Administrative Misconduct Law and the Anticorruption Law, the applicability of the latter will prevail.

Although this initiative represents a positive step in terms of legal certainty – not to mention an unprecedented and bold move – it may also represent more severe penalties and stronger enforcement actions for companies. This is because, unlike the Administrative Misconduct Law, the Anticorruption Law provides for (i) the strict liability of legal entities, (ii) the joint and several liability of companies belonging to the same group, (iii) higher fines (of up to 20% of the companies’ revenues) and (iv) enforcement against Brazilian companies engaged in conducts against foreign governments.

Overall, introducing the non bis in idem principle for companies underscores that the government is working towards simplifying the legal framework on anticorruption in Brazil – which is aligned with international best practices. However, legal entities must be mindful that these changes may introduce stricter prosecution and harsher punishment.

On the other hand, with respect to individuals, the increased burden of proof for prosecution, associated with less severe penalties and the possible retroactive application of the new law with respect to provisions that benefit wrongdoers may decrease enforcement actions. This has been the interpretation of Brazilian courts so far. In a recent decision ruled on December 5, 2021, a federal judge in São Paulo decided to extinguish the claim against a government official based on the new Administrative Misconduct Law, arguing that his conduct was insufficient to prove “specific intent” and that the provisions of the new law that are favorable to the wrongdoer should be applied retroactively. As an attempt to change this overall impression, the 5th Chamber of Public Prosecutors[6] issued recent guidelines on the interpretation of the new Administrative Misconduct Law, highlighting that the retroactive application is neither automatic, nor mandatory. Rather, as the new law does not provide for retroactivity, the guidelines indicate that the new provisions could only apply to previous facts – i.e., facts that occurred before the new law came into force – in cases of continuous infringement.

These are only some of the numerous changes introduced by the new Administrative Misconduct Law, after all, only two articles of the previous law were not modified. These and many other issues that are still unclear will likely be subject to intense debate by the courts in the next years.

^[1]    Law n. 14,230/2021, which amended Law n. 8,429/1992.

^[2]      Law 8,429/1992.

^[3]      For example, on November 26, 2021, the OECD updated its guidelines on the global anticorruption enforcement and, amongst its most relevant changes, it included a recommendation regarding the reduction of piling-on procedures in non-trial resolutions (settlements).

^[4]      In Brazil, legal entities are generally not subject to criminal liability, except for certain limited circumstances.

^[5]      Other laws, such as Law n. 14,133/2021 (the Public Procurement Law) and Law n. 9,613/1998 (the Money Laundering Law) may frequently apply together with the Anticorruption Law and the Administrative Misconduct Law, as corruption related wrongdoings often involve money laundering and

^[6] The 5^th Prosecutors’ Chamber is responsible for the standardization and coordination between the public prosecutors in corruption enforcement in Brazil. The guidelines are available at file:///C:/Users/jdaniel/Downloads/Orientacao%2012-2021%20-%20PGR-00413785.2021.pdf

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