Brazilian Federal Law No. 12.846/13 (the “Anti-Corruption Law”), which became effective on Jan. 29, 2014, establishes the civil and administrative liability of legal entities for acts that are harmful to the public administration, and applies to both domestic and foreign entities. The new law applies not only to Brazilian legal entities, but also to foreign legal entities with headquarters, branches or representatives in Brazil, and will reach acts performed in Brazil and even acts harmful to the foreign public administration perpetrated abroad.
According to the Anti-Corruption Law, legal entities are strictly liable for acts performed to their benefit, whether it benefits the entity or the entity and a third party, without regard to whether the entity is at fault or their officers or employees are at fault. The new law gives several examples of what should be considered a harmful act for the purposes of the Anti-Corruption Law (e.g., promising, offering or giving, directly or indirectly, an undue advantage to a public agent, or to a third party related to it; making use of an intermediary individual or entity to conceal or disguise its real interests or the identity of the beneficiaries of the illegal practices; combine or use any other expedient aimed at frustrating or circumventing the competitive nature of the public bidding process). The penalties that might be imposed by government authorities in administrative proceedings include, besides the full compensation for the damages caused (“return to the status quo ante”), either or both of the following: (1) fine of 0.1 to 20 percent of the gross revenue of the year immediately before the commencement of the administrative proceedings (tax excluded), which shall not be less than the amount of the benefit; or a fine of R$ 6.000,00 (6,000 Brazilian Reals) to R$ 60.000.000,00 (60 million of Brazilian Reals);[1] or (2) publication in the press of a condemnatory note (measure of public disapproval).
The government and the Public Prosecutor’s Office can also file an action seeking full compensation for the damages that were caused and ask a competent court to impose one or more of the following sanctions: (1) loss of property, rights or values that represent the benefits that were directly or indirectly obtained from the practice; (2) suspension or partial interdiction of the legal entity’s activities; (3) compulsory dissolution of the legal entity; (4) prohibition to receive any incentives, subsidies, grants, donations or loans from public bodies and public financial institutions or from entities controlled by the public power, for a minimum of one year and a maximum of five years.
The strict liability imposed by the Anti-Corruption Law and the range of penalties that might be imposed on the legal entities creates an incentive for companies to establish ethics and good conduct guidelines, as well as adopt more transparent practices. The law comes at a crucial time in Brazil’s history and is an effort to address recent attacks on its reputation, such as its ranking as 72nd among 175 countries in the Corruption Perceptions Index for 2013 prepared by the NGO Transparency International.[2]
[1] As of May 5th, 2014, the Exchange rate was around 1 US dollars = 2,21 Brazilian Reals.
