Compliance in Brazil

Editor’s note: TozziniFreire Advogados’ Shin Jae Kim is a driving force in compliance, featuring in Band 1 since the compliance rank was introduced five years ago. A first choice for many companies undergoing internal investigations or under monitorship to comply with leniency agreement demands, especially following the Car Wash probe, Jae Kim is widely admired by her peers and clients. She heads TozziniFreire’s Band 1 compliance team and is also admired for her team leadership. Jae Kim has co-authored the following article with also respected partner Renata Muzzi, who is ranked in Band 3. Among the most respected full-service firms in Brazil, TozziniFreire features in Chambers’ rankings across contentious and transactional areas, topping some rankings such as Compliance and Competition. The firm is also noted for its commitment to social responsibility. Compliance in Brazil has been in the spotlight in the last few years following the introduction of new legislation and the prominence of the Car Wash operation. As the main anti-corruption probe in the history of Brazil fades out, the authors write that anti-corruption enforcement is likely to continue strongly, although focusing on key areas, including healthcare, following the surge in public procurement and government contracts amid the pandemic. 

Compliance in Brazil post-Car Wash operation and amid pandemic

The year 2020 has been marked by a once in a century health crisis. With profound and abrupt changes happening often and business continuity at risk, compliance officers had to navigate an environment of high risks and growing pressure for more flexibility. If the challenges required resilience, it also showed to companies that having a well-structured compliance program may not only protect the business from difficult times, but also assist in the recovery.

Last year has also shown that anti-corruption enforcement continues to be on the radar of Brazilian authorities. Although the number of leniency agreements signed by authorities dropped from 23 in 2019 to eight in 2020, the Comptroller General’s Office (CGU), the Federal Prosecution Office (MPF) and the Federal Police (PF), among other bodies, have led strong anti-corruption enforcement to fight crises and scandals in connection with the Covid-19 crisis and other corruption scandals in the country.

There is no indication of a lower enforcement in 2021 – on the contrary. Despite the end of Operation Car Wash in the beginning of 2021, the anti-corruption enforcement scenario in Brazil is expected to continue its historic rise, especially as the effects from the pandemic persist. In fact, authorities have already launched the first investigation operations stemming from the now extinct operation. A relevant leniency agreement has also already been announced this year.

Enforcement is expected to continue, especially through prosecutors’ Special Action Groups to Combat Organized Crimes, called GAECOs, which should replace Operation Car Wash’s task forces, and through the important work carried out by State Prosecution Offices in general (such as Rio de Janeiro’s, which continues its relentless work in the fight against corruption in the state).

With the end of Operation Car Wash, enforcement should continue its trend of focusing efforts in specific sectors and areas, in opposition to Operation Car Wash’s broad and diffuse scope. With vaccination in early stages, and the fight against the pandemic seemingly set to last at least until the end of the year, the purchase of healthcare products by public entities and hospitals is expected to remain on the authorities' radar. And even after the pandemic is finally over, the healthcare sector will continue to be in the spotlight for a few years, as society in general has increased awareness about the importance of this sector and as healthcare companies have strengthened their compliance programs in light of the growing scrutiny.

Enforcement should also continue to focus on the infrastructure sector as authorities are expected to follow new investigation threads arising from Operation Car Wash and from the many leniency and collaboration agreements signed by the CGU and the MPF with legal entities and individuals. Moreover, new laws issued in 2020 or in advanced approval stages are expected to increase investments in infrastructure from local and foreign companies. Examples of some of these laws include the New Legal Framework for Basic Sanitation, enacted in July 2020, the Cabotage Bill, under Congressional review, and the new Public Bidding Law, which is at the final stage for review and approval. Under the bill of the Public Bidding Law, RFPs for major construction or services will require the bid winner to implement a compliance program within six months after the public contract is signed. This initiative reflects the growing scrutiny of public contracts for compliance, antitrust and regulatory violations. Privatizations of federal government-owned and mixed-capital companies are also expected. The State and the City of São Paulo have also been adopting privatization policies.

These initiatives, along with other important economic reforms expected for 2021, such as broad administrative and tax reforms, are hoped to beef up the economy. With the expected incoming investments – and regulation-intensive areas, such as the infrastructure, healthcare and education sectors – the amount of ABC pre-acquisition due diligence should increase in 2021, which brings particular challenges in Brazil given its broad range of (sometimes overlapping) government authorities on different levels (federal, state and municipal). IPOs have also been trending in Brazil following the spike in the numbers of investors and amounts in the Brazilian capital market.

At least when it comes to anti-corruption enforcement, 2021 should consolidate the trend initiated last year of an enhanced coordination among the different competent authorities. The trend follows the execution of the Technical Cooperation Agreement (TCA), coordinated by Brazil’s Supreme Court, aiming at enhancing coordination among authorities that negotiate leniency agreements to avoid conflicts and facilitate the possibility of a single solution between companies and federal authorities. The TCA was signed by four relevant authorities (the Attorney General’s Office, the Federal Court of Accounts and the Ministry of Justice), but it has not been signed by the MPF.

Other anti-corruption cooperation initiatives in Brazil included several local agreements executed by State Public Prosecution Offices with either the state police departments, the state governments or other State Public Prosecution Offices. Cooperation has been particularly noticed in scandals related to the Covid-19 crisis, where wide task forces have been created, reaching even the most remote areas in Brazil, bringing light on bid riggings and government contracts.

As anti-corruption and white-collar enforcement have been growing steadily in the country, applicable laws and rules which have not been sufficiently tested or argued before the court yet have been constantly brought into discussion by legislators, courts and commentators. In this sense, 2020 has brought relevant legal discussions, including through jurisprudence and guidelines from enforcement authorities. The CGU and the MPF have continually published guidelines to help interpret the Brazilian Clean Companies Act (Law No. 12,846/2013 – BCCA) and other relevant laws. A good example is CGU’s Technical Note No. 671/2020 clarifying certain limits for applying the BCCA in violations before January 2014. Another example is the MPF’s Technical Note 01/2020 with guidelines for individuals on how to adhere to leniency agreements signed by companies.

The initiatives were not restricted to the CGU and the MPF. The Ministry of Infrastructure issued the “Selo Infra + Integridade” (Integrity and Infrastructure Stamp), a certification for some infrastructure companies with best practices in corporate governance, compliance, integrity, social responsibility, fraud and corruption prevention and environmental sustainability, to be awarded in the second semester of 2021.

The Brazilian Securities and Exchange Commission (CVM) has also been focusing on compliance. In 2020, the CVM signed a Technical Cooperation Agreement with the MPF for sharing sensitive data and databases. In February 2021, the CVM issued orientations for minimal compliance requirements for traders and regulated financial entities.

The new rules and guidelines are expected to continue and evolve on multiple fronts. The increasing cooperation from authorities along with continued discussions, decisions and development of anti-corruption rules and laws in Brazil brings more legal certainty to the table and continues to help companies to navigate the Brazilian anti-corruption landscape.