When the Brazilian Anticorruption Law came into force in 2014, pundits celebrated the enactment of a statute that finally authorized action against corporations and other legal entities involved in public corruption, and that provided for substantial penalties. The statute’s most important innovations, however, were not so much its substantive provisions but rather the procedural reforms it introduced, chief among them the Anticorruption Leniency Program, which, alongside the criminal plea bargains for accomplice cooperation created by the Organized Crime Act (enacted on the same day as the Anticorruption Law), authorizes enforcement agencies to settle corruption-related cases.
The Anticorruption Leniency Program largely reproduces the key features of Brazil’s Antitrust Leniency Program, which, in turn, was inspired by the amnesty program adopted by the U.S. Department of Justice’s Antitrust Division. To qualify for a leniency agreement, a company must be the first among those involved in a corruption scheme to state its interest in cooperating, admit its participation in the wrongdoing, cease any further involvement, cooperate fully with the investigation, and agree to pay compensation for any harm caused to the Public Administration. In exchange, the qualifying company can receive a significant reduction in the administrative fine, as well as protection against debarment or suspension from doing business with the Public Administration. (In contrast to the Antitrust Leniency Program, however, an Anticorruption Leniency agreement does not shield individuals associated with the qualifying company from criminal prosecution.)
Despite its importance in high-profile investigations such as the Lava Jato investigation (Operation Car Wash), critics have emphasized shortcomings of the Anticorruption Leniency Program. Coordination – or rather the lack thereof – between different enforcement agencies is often considered the most significant weak point of the program. However, I want to suggest a different source for the relative ineffectiveness (so far) of the Anticorruption Leniency Program: the requirement that, in order to be eligible for leniency, a company must admit its participation in the wrongdoing. Importantly, this requirement is not (merely) that the company accepts legal responsibility; rather, the program requires admissions of facts—facts that the company cannot subsequently dispute in other proceedings, which, from an enforcement standpoint, is precisely what creates the need for coordination between agencies. But such admissions can also entail additional collateral consequences:
- For one thing, a factual confession that the company engaged in specific unlawful conduct (such as paying bribes) exposes the company to the risk of shareholder class action suits. Such suits are still relatively rare in Brazil, but may increase soon, following the U.S. example.
- Furthermore, if the company entered into any private contracts that include anticorruption representations and warranties, these agreements would all be subject to review, penalties, and even termination if the company admits, as a required part of a leniency agreement, that it engaged in specified corrupt conduct.
- More generally, the corporation’s admissions will have an ongoing negative impact on its commercial relations with other parties. Many companies simply decide not to do business with a company that has admitted involvement in corrupt activity, as doing business with such companies inherently raises red flags, notwithstanding the fact that the company in question has supposedly resolved its liability.
The problem here is not simply that, in order to receive leniency, a company must acknowledge responsibility. Some of the above results might flow from that acknowledgement, but the real problem is the requirement that a company seeking leniency must acknowledge specific facts. The collateral consequences of doing so may be so severe that companies are deterred from admitting responsibility and seeking leniency, even in exchange for substantial reductions in fines and other government sanctions.
There are a few reforms that could redress this problem, while still preserving the core of the leniency program. One approach (which was actually in effect for 60 days pursuant to a provisional measure introduced in December 2015) would be to relax the “admission of wrongdoing” requirement such that a company seeking leniency would have to acknowledge its legal liability for its involvement in the misconduct specifically under the Anticorruption Law, but without admitting to specific factual allegations that could be used against the company in other proceedings. Another distinctive feature of the Anticorruption Law is that it is the only statute governing corrupt practices in Brazil that operates under a strict liability regime, so government agencies and other third parties could not merely replicate an acceptance of responsibility (instead of an admittance of facts) that does not include a finding of fault or intent that in other contexts is necessary to find liability.
Another option would go further by dropping the requirement that a company seeking leniency acknowledge responsibility in all cases, and instead leave the enforcement agencies with the discretion to negotiate with the company regarding what the company would need to admit or acknowledge in the particular case. (Brazilian enforcement agencies currently lack such discretion, which is an impediment to negotiating such clauses with companies.) Corruption-related settlements without acknowledgment of guilt are legitimate enforcement tools in other jurisdictions, and could adopted in Brazil as well.
To be sure, it might be socially and politically unpopular to allow a company to receive a favorable settlement without an acknowledgment of wrongdoing. Yet one must keep in mind that the purposes of the leniency program are to encourage voluntary disclosures (without which some corruption schemes might never be uncovered) and to allow companies to continue to exist, when the collateral consequences of shutting them down might fall mainly on innocent third parties. A stringent requirement that companies seeking leniency acknowledge specific factual allegations of wrongdoing are antithetical to that goal, and thus inhibit the effective and efficient functioning of the leniency program.
Your article raises some interesting questions. However, I think there are some issues in lowering the standard of the Brazilian Anticorruption Leniency Program regarding the “admission of wrongdoing”.
To lower this standard, in my point of view, is not coherent with the new legal regime inaugurated by the Brazilian Anticorruption Act, which is the administrative and civil strict liability of legal entities for acts of corruption.
Furthermore, it is necessary to bear in mind that the requisite of being the first legal entity to state its interest in cooperate has been weakened by the more detailed regulations regarding the leniency agreements, especially the Decreto 8.420/2015.
According to these regulations, the requisite of “first come first served” might be overlooked when the circumstances allow to.
Considering these facts, it might not be a good idea to lower the bar of “admiting wrongdoings”, because it may turn the leniency agreement into a mechanism of legitimizing acts of corruption or, worst, turn the fines paid in the agreement into just one more provision calculated in terms of risk and impact before the act of corruption, in order to preserve the positive bottom line.
Therefore, the leniency agreements may lose its’ important deterrence effect.
These are just some points I put into debate.
Hi Luiz! It might be not properly understanding a part of the post, but I was left with one question. Even if the company only admits legal responsibility of “X”, does not it mean at least the admission of certain legal facts that are necessary to make this admission of legal responsibility possible? Another solution that came to my mind was to leave those admission of facts confidential so that without lowering the relevance of the admission (let’s call it relevance) we could lower the costs associated to that for the confessing company (for example, regarding the shareholders potential suits). Would this option also depend on the bylaws and societally form the company takes?