On September 19, 2007, the Administrative Council for Economic Defence (CADE) in full session concluded that various security services companies were guilty of acting as a cartel in their participation in public bidding procedures for government contracts. Not only did CADE impose fines of up to 20% of the security companies' revenues, it also fined the individuals involved. Without going into the merits of CADE's decision, the case is particularly interesting for two reasons.
CADE's decision in the security services cartel case is the first in an investigation initiated by means of the Leniency Agreements provided for under the Competition Defence Law. When CADE determined that the Leniency Agreement had been fulfilled, it declared that the cooperating company and its officer were no longer subject to punishment, releasing them from criminal and administrative liability, and thus conferring a certain degree of legal security on Leniency Agreements. The second reason the case attracts the interest of those who follow CADE's decisions is that it reflects a significant change in the council's position on the liability of individuals for corporate offences.
In previous cases, Brazilian antitrust authorities would only impose penalties on individuals who had personal involvement in anticompetitive practices (ranging from cartels to exclusivity contracts), regardless of whether the individuals were formally occupied the position of officer or director of the company found guilty of anticompetitive conduct. Thus, directors, officers and legal representatives would find themselves implicated in investigations and subject to administrative sanctions only if the authorities were able to prove (unusually beyond doubt) that they were personally involved in the anticompetitive conduct.
In this case, however, upon finding that the participation of certain companies in a cartel to defraud government contracting procedures, CADE imposed penalties on both the entities and their officers, even though the administrative proceeding did not produce any evidence that the officers had been personally involved in the illegal practices. The main argument put forward to support this new position is that a company is a legal fiction and as such could not have committed an illegal act except through a natural person, and accordingly the natural person must be held liable.
This decision, together with the debate among the councillors at the session, marks a change in direction for CADE: it appears that corporate officers and legal representatives will now be held personally liable for the illegal acts of their companies, even in the absence of proof of their involvement in the anticompetitive practice. The decision reverses the burden of proof, and officers face having to prove that they were not involved in the conduct in order to escape liability.
The Competition Defence Law does not contain any specific provision that could furnish a definitive answer to the question of executives' liability, and the silence of the legislation on this point is likely to feed continuing debate and challenges of administrative decisions imposing liability on executives in the absence of proof of their direct involvement, especially given the presumption of innocence contained in the Federal Constitution and the principle of due legal process.
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