If the CEO of a corporation operating in Brazil learns that her company has committed an unlawful act of corruption, should she order the corporation to self-report and negotiate a leniency agreement with the Brazilian authorities under Brazil’s 2013 Clean Company Act, which authorizes such settlements? In most of the cases, the corporate legal department would probably advise against it. Indeed, the number of leniency agreements based specifically on Brazil’s Clean Company Act has been much smaller than expected.
Several factors drive companies away from cooperating with Brazilian public authorities under the Clean Company Act:
- First, corporations are unsure which public authority they should negotiate with. The Clean Company Act provides that the Office of the Federal Comptroller General (CGU) is the body responsible for negotiating leniency agreements with legal entities that committed violations that harmed the Federal Executive Branch. As settling with corporations involves many legal questions, the Office of the Attorney General of the Union (AGU) cooperates with the CGU in the negotiations. However, over the course of Operation Car Wash, the Federal Public Prosecutor’s Office (MPF) has signed similar deals, which proved to be essential for those investigations. In this context, which of these public agencies should a company contact to start negotiations?
- Second, under the framework established by the Brazilian Constitution, several different public bodies, all independent from each other, are in charge of enforcing anticorruption statutes. For example, all of the public agencies mentioned above may take legal or administrative measures to punish companies involved in acts of corruption. If a company signs a leniency agreement with one of these agencies, there is no guarantee that the others will abide by it as well. In addition, a General Accounting Office oversees the terms of the leniency agreement signed by the Executive Branch, and firms that negotiate a leniency agreement with one or more of the enforcement agencies run the risk that their leniency agreement will not be approved by the General Accounting Office. Moreover, Brazil has a federal system, and a company that negotiates a leniency agreement with federal authorities may still face prosecution by state or local authorities (and vice versa), as there is no system to coordinate prosecutions at different levels.
- Third, even if the company manages to sign a leniency agreement under Brazil’s Clean Company Act, the company must fully repair the damage it has caused. While this requirement is sensible in principle, in practice corporations find it very difficult to predict the financial burden they will bear. Additionally, even firms that receive leniency may still have to pay significant fines, and may also face tax consequences. Thus, companies may consider that the possible legal benefits of negotiating a leniency agreement are insufficient to outweigh the costs of reporting violations that otherwise might remain unnoticed by the authorities.
- Fourth, a leniency agreement signed under the Clean Company Act does not protect the individuals involved in the offenses from potential criminal prosecution. Indeed, the Act requires, as a condition of a leniency agreement for the company, that the firm identify all the natural persons who also took part in the misconduct, and provide the public authorities with the information and documents necessary to hold those offenders accountable. Considering that many large Brazilian companies are family-owned and that those who may be held personally liable oftentimes are still influential in the company, a conflict of interest may arise. Individuals are unlikely to produce evidence against themselves just to benefit the corporation.
- Finally, corporations are aware that, without their cooperation, law enforcement authorities may not be able to detect the offense or to obtain sufficient evidence to bring a successful prosecution. Thus, the likelihood of being punished by the government on its own does not appear to be high enough to overcome all the legal uncertainty noted above.
It’s true that Federal Prosecutors involved in the so-called Car Wash Operation have made extensive use of cooperative mechanisms, and have succeeded in concluding some leniency agreements with corporations. But these leniency agreements rest on somewhat shaky legal grounds, and to justify them, Federal Prosecutors have advanced an innovative interpretation that involves combining many different statutory provisions. While the prosecutors’ argument is plausible, there is no guarantee that Superior Courts will ultimately accept this reasoning. It would be far better to reform the leniency agreement provisions under the Clean Company Act to address the deficiencies noted above. While comprehensive reform will be challenging, there are a few steps Brazil could take now to encourage companies to self-report more frequently.
- First, Brazil must encourage effective coordination among the different public agencies potentially involved in negotiating leniency. Considering that the most important bodies responsible for anticorruption measures have their own constitutional duties and responsibilities, the law should encourage collaboration and joint negotiation, which would also end the risk of multiple prosecutions for the same offenses.
- Second, the law should allow leniency agreements also to provide leniency to individuals who want to self-report jointly with the company. This would avoid conflicts of interest within the firms. Similar regulation already exists in Brazilian law concerning the leniency agreements signed under Brazil’s competition law and this same principle should be extended to the anticorruption context.
- Finally, and more generally, Brazilian companies will not have a sufficient incentive to voluntarily disclose corrupt practices unless they face a serious risk of detection and punishment. This implies the need for more general reforms to improve the effectiveness of Brazilian anticorruption enforcement. Leniency agreements can be a powerful tool, but they only work if companies have a sufficient fear of getting caught.