Requiring Public Contractors To Have Anticorruption Compliance Programs May Sound Like a Good Idea—But Not When Government Capacity Is Lacking

Five years ago, in a thought-provoking post, Rick Messick proposed that developing states should demand that firms doing business with them have an anticorruption compliance program. At the time Rick wrote his post, he wasn’t aware of any developing state that had imposed any such requirement. A couple of years later, some Brazilian subnational jurisdictions, such as the state of Rio de Janeiro and the Federal District, adopted legislation in this spirit, requiring that companies awarded a public contract, or participating in a public-private partnership, above a certain value must establish an anticorruption compliance program. These initiatives seem to be of a piece with a broader trend in Brazilian anticorruption law, which has sought in various ways to create stronger incentives for companies to adopt effective compliance programs. (For example, Brazil’s 2013 Clean Company Act holds companies strictly liable for corrupt conduct, but companies that have a so-called “integrity program” may get a penalty reduction.)

Nonetheless, despite the importance of corporate compliance policies as a component of any effective anticorruption strategy (see here and here), demanding that contractors to establish such programs as a condition of doing business with Brazilian government entities is unlikely to achieve the intended goals.

The main problem is that requiring contractors to show that they have an adequate compliance program will impose substantial information burdens on the public administration. After all, if the government imposes such an obligation on companies, then the government must be able to verify whether a given company’s compliance program is satisfactory. But evaluating a compliance program is a complex task, and Brazilian public officials have limited experience or expertise in dealing with such issues. The State of Rio de Janeiro may serve as a cautionary example: Under the State’s law, the evaluation of a contractor’s integrity program is to be performed by the public official responsible for the contract—typically an ordinary civil servant with no special training to perform complex compliance programs assessments. (The State Comptroller Office—the local public agency which could supposedly help with this task—has just recently been created and can barely perform all of its ordinary functions.) It is thus unlikely that the local public administration has the capacity to truly fulfill the task of evaluating the effectiveness of corporate anticorruption compliance programs. And this, in turn, gives rise to the risk that requirements such as this will lead firms to invest only in “window-dressing” compliance programs, sufficient to realize the legal benefits (qualification to engage in public contracting), but not genuinely effective. There will still be costs associated with creating these compliance programs, but those costs may well be passed along to the state (and the taxpayers), with the government paying more for the goods and services it purchases in order to underwrite a window-dressing compliance program that the government has decided to require from contractors.

It is an appropriate time for Brazil to take a harder, more critical look into this topic. Proposals requiring government contractors to have compliance/integrity programs, or at least making such programs relevant criteria in bid evaluation, are being presented in Congress in the context of more general discussions regarding reforms to the rules on government procurement. It is possible that the informational burden of dealing with corporate compliance programs may soon be imposed on all federal entities in the country, even on the most disadvantaged states and municipalities. It is unlikely that such requirements will lead to anything other than a proliferation of cosmetic but largely ineffective compliance programs, and substantially higher administrative costs for resource-constrained government entities.

A requirement that firms doing business with governments have an anticorruption compliance program might work in other places, and might be suitable for Brazil at some point in the future. But as long as the public administration is not sufficiently prepared to evaluate the genuine effectiveness of such programs, imposing them by law is likely to generate unnecessary costs and frictions without producing meaningful substantive improvements in corporate policies or culture.

1 thought on “Requiring Public Contractors To Have Anticorruption Compliance Programs May Sound Like a Good Idea—But Not When Government Capacity Is Lacking

  1. The requirement of adoption of anticorruption compliance programs by corporations that take part in public procurements and contracts has another problem. In this approach, the evaluation of compliance programs is made before (ex ante) the commitment of unlawful acts. However, the American experience demonstrates that compliance programs are better assessed after (ex post) the perpetration of offenses. During an anticorruption investigation, prosecutors analyze if the involved corporation has a compliance program and if it is effective in preventing, detecting, punishing and remedying corruption. According to the situation, the corporation receives more or less credit to reach a softer or harsher criminal resolution. See Principles of Prosecution of Federal Business Organizations (https://www.justice.gov/jm/jm-9-28000-principles-federal-prosecution-business-organizations). That is a posture similar to that adopted by the Federal Sentencing Guidelines, which provide for penalty reduction to corporations that have effective compliance programs and were copied by Brazilian Clean Company Act. Thus, I think that Brazil should concentrate efforts in the repression of corruption, which is meaningfully weak in the country. Through repression, the implementation of compliance programs could be more efficiently stimulated, in an ex post perspective. Those ex ante dispositions seem to be mere idle appearances.

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