Brazil’s 2013 Clean Company Act, the country’s first anti-bribery statute applicable to companies, has grabbed Brazilians’ attention due to its recurrent use in the context of the so-called Car Wash operation. The Clean Company Act has provided the main legal basis for Brazilian public authorities (especially federal prosecutors) to sign leniency agreements with construction corporations whose top executives stand accused of bribing officials in exchange for contracts from Petrobras, Brazil’s state-owned oil giant. Under the Act, Brazilian authorities may enter into a leniency agreement as long as the company admits its participation in the illicit act, ceases any further participation, provides full restitution for damage caused, and cooperates fully and permanently with the ongoing investigation. In exchange, the fines can be reduced by up to two-thirds and, more importantly, the cooperating company may be exempted from judicial and administrative sanctions, including suspension or debarment from public contracts. Over the course of the Car Wash investigation, Brazilian authorities have already signed five leniency agreements with some of Brazil’s largest engineering firms, and at least twelve more companies are currently negotiating leniency deals with Brazilian authorities.
But do these sorts of leniency agreements provide for sufficient deterrence of corrupt behavior? And are they consistent with the interest in punishing those companies that have committed a serious crime? Those who defend Brazil’s increasing use of leniency agreements emphasize that a similar approach has proven to be effective in countries like the United States, one of the most successful countries in the world in the fight against corruption. Indeed, the leniency agreements authorized by the Clean Company Act were modeled on the Non-Prosecution Agreements (NPAs) and Deferred Prosecution Agreements (DPAs) used by US authorities in white-collar criminal law enforcement. However, Brazil is following the US model precisely at a time when the widespread use of NPAs and DPAs is becoming more controversial, in part because of concerns that these sorts of agreements fail to deter economic crimes and allow high-ranking executives to escape accountability for their crimes (for a summary of the criticisms of those agreements, see here and here). Perhaps more importantly, even if one views the US experience with NPAs and DPAs as successful overall, there are several reasons why this model might be more problematic in the Brazilian context.
- First, the prospects for leniency agreements to effect genuine and long-lasting changes in corporate culture are less promising in Brazil than they are in the US. True, Brazil’s leniency agreements require the company to implement anticorruption compliance programs, but the effective implementation of such sophisticated new programs (to “rehabilitate” companies through structural reforms) requires continuous monitoring by independent auditors, who, in turn, must report periodically to prosecutors or to other public authorities. Considering the current profile and capacities of the existing Brazilian anticorruption institutions, such as the Ministry for Transparency, Monitoring, and Control and the Federal Prosecution Office, it seems that, at least at the moment, none of them have the resources and expertise (in business, corporate governance, management, and organizational theory) needed for overseeing these compliance programs. Unless these resources and expertise are promptly acquired, it is unlikely that these institutions will be able to seriously evaluate the effectiveness of the structural reforms that make up most of the compliance programs. And if not properly evaluated, such programs will end up being nothing more than cosmetic compliance.
- Second, an enduring change in a corporation’s culture goes beyond merely elaborating new rules and policies; it encompasses a shift in the mindset and behavior of its employers and employees. This shift can be especially challenging in the case of the companies implicated in the Car Wash operation. Indeed, this operation has exposed the dynamics of Brazil’s political system, pervaded by a stable and long-standing relationship between economic groups (of which the companies involved in the Car Wash Operation are part) and the government, mostly maintained through the offer of kickbacks in exchange for overcharged public contracts. Given this institutionalized corruption, in which unethical corporations and corrupt politicians each play equally relevant roles, a genuine shift in the culture of these companies is unlikely to occur if the behavior of the political actors remains unchanged. That is, unless the main political forces in Brazil are truly committed to real change, the effectiveness of the leniency agreements concerning their compliance programs is questionable.
- Third, some of the leniency agreements in the Car Wash operation are being negotiated by the Ministry of Transparency, Monitoring, and Control, a federal agency directly linked to the federal government. Notwithstanding the historical relevance of this ministry in the fight against corruption, its direct connection to the federal government may compromise the seriousness and credibility of the leniency agreements. In this regard, it is worth noting that these companies are among the largest donors to PMDB, the political party of Michel Temer, Brazil’s current president. Moreover, PMDB has been accused of receiving bribes from many of the same companies now negotiating leniency agreements with the Ministry of Transparency due to their implication in the Petrobras scandal. The relationship between these companies and President Temer’s political party, combined with the lack of autonomy and independence of the Ministry of Transparency, may generate distrust and lead Brazilians to question whether the leniency agreements currently under negotiation are in the public interest.
- Finally, in addition the above issues regarding the efficacy of leniency agreements in achieving their immediate goals, there is a more general concern about public perception. One can predict that, after signing leniency agreements and paying high fines, the companies involved in the Car Wash operation will go back to working on public contracts, receiving large sums of public money. Of course, allowing the companies to continue to thrive after resolution of the criminal investigation is part of the point of a leniency agreement. But if Brazilians end up perceiving leniency agreements as a formula for maintaining the impunity of the powerful, then the broader social change that many hope will be a positive consequence of the Petrobras scandal might be jeopardized.
None of this is to say that leniency agreements in the context of the Car Wash operation should be strictly avoided. Rather, these issues should be taken into account in deciding whether or not to negotiate leniency agreements with companies implicated in the Car Wash operation. Thus, before taking the NPA and DPA as the main paradigm for designing leniency agreements, and before signing a new batch of leniency deals with some of the biggest Brazilian companies, Brazilian authorities should not only weigh the pros and cons of the US experience with DPAs/NPAs, but should also evaluate critically whether the positive aspects of the US experience with NPAs and DPAs can possibly be replicated in Brazil, in light of the specific characteristics of Brazilian political and economic institutions.