Saturday, July 16, 2011
Brazil and Corruption
Brazil is frequently identified as one of the most attractive countries for investment and expansion. Brazil is one of the world’s leading economies: one of the top-10 in the world based on GDP.
The country is rich in opportunities and more foreign companies are looking to expand into Brazil because of its potential lower costs for business operations. Economic opportunities abound well beyond oil and minerals.
But Brazil suffers from a reputation for corruption – Transparency International Ranks Brazil 69th of 178 in the World in Its 2010 Corruption Perceptions Index, with an Index of 3.7 out of 10, which is slightly above China and well above Argentina.
Brazil’s government structure and culture make it susceptible to corruption. Brazil has a large, decentralized government, consisting of a federal system, 26 states and thousands of municipalities. The government plays a large role in the energy sector. Government employees are underpaid at almost every level. The business culture includes many customs of providing personal favors in business and government business interactions.
The Justice Department has aggressively pursued FCPA violations occurring in Brazil. Many of the significant enforcement actions included violations in Brazil, including Panalpina (2010), Nature’s Sunshine Products (2009), Control Components (2009), Bridgestone (2008), Tyco (2006) and Baker Hughes (2001).
Based on these enforcement actions, the principal risks include:
Types of Activities: Importing (Panalpina, Nature Sunshine); Government Procurement (Tyco); Corporate Reorganization (Baker Hughes);
Types of Customers: State-Owned Enterprises (CCI, Bridgestone); Municipalities (Tyco)
Sectors of Economy: Energy (CCI, Bridgestone); Infrastructure (Tyco); Consumer Goods (NSP);
Types of Actors: Management (NSP, CCI); Subsidiaries (Panalpina, NSP, Tyco); Agents (Bridgestone, Baker Hughes)
Brazil is trying to tackle the problem. Give the country credit for its efforts – the Brazilian Office of the Comptroller General, the Federal Police and other leaders are ramping up their enforcement efforts. For example, in 2009, the Brazilian Office of the Comptroller General published a list of over 1,000 companies punished for committing fraud related to public tenders. The Federal Police, meanwhile, has conducted increasing numbers of special operations in the past few years to combat corruption, money laundering, and related crimes. As a result, over four thousand individuals were arrested, and a number of foreign multinationals –including U.S. and other companies subject to the FCPA – were implicated. Some Brazilian businesses have been implicated in domestic and foreign corruption activities while serving as agents or distributors for major multinational corporations, raising concerns of FCPA liability for those multinationals – and their directors, officers and other personnel.
At present, Brazil does not recognize criminal liability for corporations. There are administrative penalties, however, such as asset forfeiture, debarment from public tenders, and other serious sanctions by which companies can be held liable for the making of corrupt payments. In contrast, individuals face criminal penalties – including imprisonment of up to twelve years – for making corrupt payments to foreign public officials. Therefore, while corporations do not presently face criminal liability, individual employees, officers, directors, and legal representatives may be held liable for participation in bribery on behalf of the companies they serve. Furthermore, the Brazilian Criminal Code provides for criminal liability for deliberate – but not negligent – omissions, as well as overt acts related to corruption – meaning that individuals may face criminal liability for willful blindness to acts of bribery or to circumstances that suggest improper payments are likely to be made.
Brazil is considering a number of proposals to strengthen its anti-corruption laws. As Brazil’s economy grows, the situation is likely to improve and anti-corruption enforcement activities will increase.