To Advance its Anticorruption Agenda, Brazil Must Reform its Conflict of Interest Laws

In the past five years, Brazil made significant advances in its anticorruption agenda, including both an aggressive effort to prosecute high-level politicians and business executives, and also a series of legislative reforms. But Brazil has not yet done enough to regulate conflicts of interest within the public administration.

One good example of the weakness of current regulation is the controversy involving the appointment of Leticia Catelani—a businesswoman who supported President Bolsonaro’s election campaign—to the Executive Board of Apex, the Brazilian Trade and Investment Promotion Agency. Apex is a state-owned entity in charge of promoting Brazilian exports. Ms. Catelani owns a company with a significant export business, raising concerns that she might use her Apex position to improperly favor her own business. (A group of Apex employees have filed a lawsuit challenging her nomination, and a formal complaint has also been filed with the Ethics Commission of the Presidential Office (CEP) asking for her removal.) Though this is but one recent illustration; the issue is much more general, and indeed it is likely that under the Bolsonaro administration concerns about conflicts of interest will increase.

Unfortunately, the existing mechanisms for controlling conflicts of interests in the federal administration—principally the 2013 Conflicts of Interest Act (COI Act) are inadequate and must be reformed. The COI Act applies to senior officials and ministers of state within the federal government. The Act lists a number of situations that trigger conflict-of-interest concerns, and it also requires public officials to file annual reports about their private assets and activities. The Act empowers the CEP to investigate cases, issue guidelines, clarify doubts, and grant waivers. But the current system is inadequate in several respects, and the overall system for dealing with conflicts of interest is in urgent need of reform. Three points in particular should receive special attention:

  • First, Brazil should establish a preventive (ex ante) clearance system. Under the current COI Act, individuals appointed to public offices are not scrutinized for possible conflicts before assuming office; possible conflicts of interests are only addressed when the official is already serving. This is contrary to practice in other countries (such as the United States), and contrary to the OECD’s recommendation that countries adopt mechanisms for initial disclosure of possible conflicts of interests upon appointment. If the appointment of an individual to a public office would trigger conflict-of-interest concerns, the potential conflict should be assessed, and appropriate remedies put in place, before the appointee becomes involved in the office’s activities. Granting a conflicted individual full access to the office before knowing precisely the extent of the concerns jeopardizes the core purpose of the conflict-of-interest laws. It’s true that under existing Brazilian regulations, sufficiently senior public officials must submit a detailed declaration of their private assets and activities to CEP within 10 days after the commencement of their official duties. But when coupled with the lack of a deadline for CEP to decide and a very limited set of legal remedies, the current legal framework is unable to prevent and remedy situations of conflicts of interests in a timely and effective manner. A better system would to enable the CEP to assess possible conflicts before the appointee assumes office, in order to craft appropriate remedies in advance—or, if doing so is not possible, to block the appointee from taking office.
  • Second, Brazil should expand the set of tools that the CEP can use to deal with conflict-of-interest problems. The COI Act provides for only a limited range of remedies with a generic reference to “measures for preventing and eliminating the conflict of interests.” There is little clarity on which legal tools other are available, and the Act only makes express reference to a dismissal-from-office remedy. Exclusive reliance on dismissal limits the effectiveness of the system. Dismissal is an extreme measure that should be reserved to willful violations of laws. In many situations international experience (as reflected in the OECD recommendations) indicates that softer remedies, such as recusal (with appropriate monitoring), screening or divestment, could ensure the preservation of public integrity. If, for instance, the appointee is a shareholder in a company that is directly affected by the agency she will be joining, divestment could be an alternative for resolving the conflict of interest, or the official could be screened off from any decisions that affect the company in which she owns shares. Allowing conflicts of interest to be resolved through mechanisms short of dismissal avoids pervasive legal uncertainty (since under Brazilian law decisions made by an official subsequently found to have a conflict of interest may be declared void) and also encourages appointees to be proactive in proposing solutions for their possible conflicts rather than adopting an entirely defensive stance.
  • Third, Brazil needs to grant the CEP the more power and independence. In particular, the CEP should have the power to block nominations that do not meet the COI Act standards unless the conflict is properly remedied. Furthermore, the CEP needs stronger safeguards for its independence, as demonstrated by the fact that earlier this year 16 out of its 17 members were dismissed by the new administration. Without a strong enforcement mechanism, even the best laws on the books concerning conflict of interest will not make a practical difference.

Given that Brazil continues to struggle with massive and unsolved corruption investigations targeting some of it most prominent officials, implementing what may seem like marginal changes to its conflict of interest rules may not seem like a high priority. The turbulent political environment likewise makes such changes more difficult. Yet if we’re serious about the oft-repeated statement that fighting corruption requires prevention, not just investigation and punishment, we must recognize that these sorts of reforms are necessary.

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