Brazil’s Clean Companies Act: Ineffective for Combating Local Corruption?

In January 2014, the Brazilian Clean Companies Act (CCA) came into effect. Under the CCA, Brazilian companies and foreign entities with a Brazilian registered office, branch, or affiliate can be sanctioned (civilly and administratively) for the bribery of domestic or foreign public officials, with penalties up to 20% of a company’s gross billings. The Act may be cause for optimism that Brazil is going to get serious about the corruption that has hampered its development, undermined trust in government, and provoked riots.

But despite the CCA’s tough sanctions and sweeping provisions, there are reasons to doubt whether the law will be effective at combatting corruption at the local level (as opposed to national-level officials).  Even if the CCA might go some way toward dealing with corruption at the national level, the new law fails to to adequately address local-level corruption in Brazil — and this is a major limitation, because local corruption in Brazilian business dealings is especially rampant.  There are at least two reasons why it is questionable the CCA will effectively combat local corruption.

First, in contrast to the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act, responsibility for enforcing the CCA is decentralized, with enforcement authority assigned to the highest-level government authority affected by the bribery. This means that if a bribe implicates a local government official, the local government (rather than the national government) would be responsible for enforcement. As other commentators have also noted, this decentralization of enforcement may undermine the CCA’s efficacy. Investigating and penalizing a Brazilian or foreign corporation will be resource intensive and possibly beyond the means of many local governments. Additionally, there could be an imbalance in the enforcement against local and foreign businesses in a way that could be unfavorable to foreign entities. The local government could use its resources to prioritize penalizing foreign businesses for corruption as opposed to Brazilian businesses.

Second, the political context of the CCA’s passage suggests that there will be much stronger incentives for the Brazilian government to deal with national-level, rather than local-level, business corruption.  Although the Brazilian government had been negotiating the terms of the CCA for years before it became law, it appears that the government finally passed the Act only because of a number of highly publicized corruption scandals and public protests. This suggests that public perception, and public pressure, may continue to influence CCA enforcement. As a result, the government might have more incentive to combat corruption at the national level as opposed to the local level. After all, prosecuting a few high-profile anticorruption cases at the federal level may convince the public that the Brazilian government is diligently combating corruption, even if under-enforcement at the less visible state and local level remains a pervasive problem.

So while the CCA may be a step forward, it may not have nearly as much of an impact as one might think from its sweeping provisions on liability and sanctions.

2 thoughts on “Brazil’s Clean Companies Act: Ineffective for Combating Local Corruption?

  1. I believe the two arguments presented by Maryum in this post are flawed.

    Regarding the critique to decentralized enforcement, I would point out that the highest authority is only responsible to pursue administrative level proceedings, and that municipal and state level regulations published to date have centralized administrative enforcement authority on specialized enforcement and oversight agencies. In addition to that, Brazil has federal and state prosecutors nationwide who are qualified and active on pursuing criminal and civil anti-corruption cases in court. If the local government fails to properly enforce the Anti-Corruption Statute, prosecutors are vested with legal rights to step in and enforce administrative sanctions in civil proceedings, in addition to civil sanctions and claims for damages. Needless to say that public prosecutors are fully independent from the legislative, executive and judiciary powers.

    In what concerns the second argument which touches upon public opinion incentives, please note that Brazil is structured as a federation with direct elections for the federal, state and municipal government spheres. Therefore, candidates and political parties are equally interested in uncovering corruption schemes at all spheres of government, in order to gain an edge over competitors in upcoming elections. Of course national-level probes are put on the spot, but state and municipal enforcement also receive wide attention from the media.

    Hope this comment helps readers to understand Brazil`s anti-corruption and anti-bribery enforcement scene a little better (it is way more complicated, actually).

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