Federal Decree 8.420/2015, the long-awaited executive decree issuing regulations under the Anticorruption Law, sheds light on questions that can guide companies in adopting policies to mitigate potential risks in their interactions with government agents.
One of the more important matters dealt with in the regulations is the criteria that compliance programs must meet in order to be taken into consideration when determining penalties, as provided for in article 7 (VIII) of the Anticorruption Law. The criteria consolidate best practices internationally and, for the most part, are based on the U.S.'s experience in fighting corruption.
According to the regulations, some of the main elements that contribute to an effective compliance program are: senior management's commitment to the program, implementation of policies and procedures to mitigate identified risks, which must be reviewed periodically, periodic training programs, due diligence checks on third party suppliers and prior to concluding corporate transactions, and the authority and independence of the internal structure responsible for implementing the program, which must not only be accessible by channels of communication, but investigate non-compliant conduct and impose disciplinary measures, if need be.
If these criteria are met, the compliance program can have a significant impact on fines applied under the Anticorruption Law, and both Federal Decree 8.420/2015 and the rules issued by the Office of the Brazilian Comptroller General (CGU – Controladoria-Geral da União) establish metrics that can guide authorities in calculating fines.
The Anticorruption Law provides for fines ranging from 0.1% to 20% of an offender's annual gross revenue. The uncertainty generated by this enormous range has been attenuated by the new regulations and the rules issued by the CGU.
CGU Instruction 1/2015, for example, states that the term "gross sales revenue" means gross revenue as defined under income tax legislation, less applicable taxes. In order to calculate the percentage fine (within the 0.1% to 20% range) based on the offender's gross revenue, the authorities must take a series of aggravating and attenuating factors into account. The attenuating factors can cut up to 10 percentage points off the fine, and compliance programs alone can result in a 4-point reduction. Moreover, if the offender can show that the company's management had no knowledge of the corrupt conduct and had made it clear that corrupt conduct would not be tolerated, and that the offender had not committed an offense of the same nature in the last five years, the fine cannot exceed 10% of gross revenue. A compliance program that meets all the criteria under the regulations can therefore reduce the fine from 10% to 6%, even before taking into consideration additional reductions for cooperation and spontaneously reporting the offending conduct to the authorities. Clearly, effective compliance programs can represent concrete benefits for the companies that adopt them.
In order to benefit from a reduction in the fine, companies must submit a Profile Report, containing a description of the company's internal structure, its interaction with government agents, and its shareholders, and a Conformity Report, describing in detail how the compliance program functions. Authorities can also conduct interviews and request additional documents.
The CGU recently reformulated its "Pro-Ethics" program (Pró-Ética). Under the new regulations, companies can sign up on an annual basis to have their compliance programs undergo a detailed assessment. Companies whose compliance programs achieve a "passing grade" are entitled to use the "Pró-Ética" seal for one year.
With the recently-issued rules and regulations, the uncertainties surrounding how compliance programs would be assessed have been largely eliminated, and the benefits of the programs are now even more apparent. These are challenging times in Brazil, and Brazilian authorities are making an effort to change the business culture. Companies that adapt quickly to the new climate will certainly come out ahead.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.