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Brazil’s Anti-Corruption Law: Steps Towards Ethical Corporate Culture

Brazil’s Anti-Corruption Law: Steps Towards Ethical Corporate Culture

On July 4th, the Brazilian Senate approved legislation that imposes strict civil liability on corporations for corruption. The legislation has come to be known by several names, including the “anti-corruption law,” the “anti-bribery law,” and the “clean company law.”

By any name, the anti-corruption law imposes heavy penalties for corrupt business activities of both Brazilian companies and international companies doing business in Brazil. Many see the new law as a game changer because it focuses directly on creating an ethical business environment in Brazil.

The bill was introduced by former President Luiz Inácio Lula da Silva in 2010, but passage has been stalled for nearly three years. Once signed by President Dilma Rousseff, the law is expected to go into force in early 2014.

Important Provisions of the Anti-Corruption Law

The anti-corruption law imposes new civil liability on corporations for the acts of their directors, officers, employees and agents that violate the law. That’s why it’s important for both Brazilian businesses and international businesses with a presence in Brazil to understand the law and the penalties for violating the law.

Both domestic and international corrupt acts are expressly prohibited by the law. That includes bribery of foreign officials as well as Brazilian officials. The breadth of the anti-corruption law means that even foreign companies operating in Brazil are subject to penalties for bribery of Brazilian officials.

When enforcing the law, authorities only need to show evidence that a company benefited from an illegal act. Nothing else needs to be proven under this strict liability approach. Penalties include fines of up to 20% of gross revenue, loss of assets, suspension of business activities, and corporate dissolution.

The anti-corruption law doesn’t just focus on penalties. It also offers a major compliance incentive. When a corporation is charged with violating the law, it will have the opportunity to demonstrate that it had an effective internal compliance program. The existence of a compliance program is not a complete defense, but it will be taken into consideration by the court when determining sanctions.

Corporations may also receive lighter penalties by signing a leniency agreement with the enforcing body. To be able to enter into a leniency agreement, the corporation must be the first to self-disclose the violation, cease involvement in the investigated activity, and cooperate with the investigation. Also, the cooperation must result in the identification of those who violated the law and the rapid discovery of evidence.

The Cultural Shift Toward Ethical Corporate Behavior

The strict provisions of the anti-corruption law and the harsh penalties resulting from it have led some observers to believe that the law represents a major step towards the development of a more ethical corporate cultural.

Specifically, if a company seeks to decrease its liability under the anti-corruption law, it must provide evidence of the corruption of other companies. That single provision may cause corporate officials and their agent’s to rethink their behavior since their activities may be reported by companies seeking to reduce their own liability after a violation.

It will take time to reach a conclusion about the cultural impact of the anti-corruption law on corporate ethical behavior. However, it is clear that corporations must consider not only the risk of a public scandal, but now also the legal penalties for corruption.