Author Archives: João Victor Freitas

How Anticorruption Enforcement Can Undermine Antitrust Amnesty Programs, and What To Do About It

Posted on by
Reply

One of the most important law enforcement techniques that has emerged in the last few decades to combat cartels (anticompetitive collusion between competitors) is the use of programs that promise automatic amnesty to the first member of a cartel to self-report the illegal enterprise. These amnesty programs enable law enforcement authorities to gather the evidence they need to build strong cases against other members of the scheme, and, perhaps more importantly, these amnesty programs destabilize cartels—and might even deter their formation—by taking advantage of the incentive that individual cartel members have to cheat on each other. Since the 1990s, after the success of the amnesty program pioneered by the Antitrust Division of the U.S. Department of Justice (DOJ), antitrust amnesty programs have been replicated in many jurisdictions, leading some to declare a “leniency revolution” in competition law.

But the existing amnesty programs have a weakness They usually only offer protection for violations of antitrust laws, leaving even the firm that self-reports the antitrust violations potentially liable for other unlawful conduct that the cartel members engaged in as part of their anticompetitive scheme. And many of these anticompetitive schemes turn out to involve corruption, especially in the public procurement context. Cartels often bribe the official in charge of the procurement process, because a corrupt official can monitor and punish defections from the cartel, facilitate the exclusion of non-aligned competitors, and ensure an equal distribution of cartel profits. A firm that hopes to take advantage of an antitrust amnesty program might have to report all of this to qualify for amnesty, as often the programs require, as a condition for amnesty, reporting on the involvement not only of other cartel members, but of any public officials who may have facilitated the collusive conduct. But the fact that a self-reporting cartel member is not guaranteed amnesty from prosecution for corruption or other associated wrongdoing (such as money laundering) complicates the operation of antitrust amnesty programs, because this lack of guaranteed amnesty weakens the incentive of cartel members to self-report in cases where the cartel has engaged in bribery. The problem is especially pronounced when the penalties for bribery are much more severe than those typically imposed in cartel cases.

This is less of a problem in jurisdictions where anticorruption and antitrust authorities are departments of a single agency, as with the US Department of Justice (DOJ). But in many other jurisdictions, such as the EU, Brazil, and Mexico, competition law enforcement—and administration of the antitrust amnesty programs—are handled by enforcement agencies that do not have authority to prosecute corruption cases. From a potential self-disclosing company’s perspective, this poses a challenge: Disclosing participation in a bribe-paying cartel to the competition authority may also trigger an enforcement action by the separate agency responsible for prosecuting corruption, meaning the company will have to negotiate with both agencies, with the anticorruption agency not bound by the antitrust amnesty program. Indeed, in many countries anticorruption agencies may not have the same authority as antitrust agencies to grant leniency to self-reporting companies. In Brazil, for instance, though an antitrust amnesty program has been in place since 2000, settling corruption cases only became possible in 2014. In Mexico, the antitrust amnesty program was created in 2006, but a program for self-reporting bribery cases only entered into force in 2016. In both countries, although there is an established process for settling corruption investigations, there is no immunity provision for self-reporting; a discount in the applicable fines is often the best a firm can hope for. And even when both the antitrust agency and the anticorruption agency have authority to settle and grant leniency, the mere fact that a company knows it will need to enter into two or more separate negotiations increases the uncertainty and costs associated with self-disclosure, undermining the effectiveness of the amnesty program.

How should this problem be addressed in those countries where merging authority over antitrust and anticorruption enforcement in a single agency is not feasible or desirable? There are several possibilities:

Continue reading →

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

Posted on by
Reply

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:

Continue reading →

A Plan To Share FCPA Penalties with Brazil has Been Thwarted… by Brazil: The Supreme Court’s Invalidation of the Lava Jato Foundation

Posted on by
7

A frequent criticism of how the US Department of Justice (DOJ) enforces the Foreign Corrupt Practices Act (FCPA) is that the fines recovered typically go to the US Treasury, rather than being used to make reparations for the damages caused by corruption in the countries where the bribery took place. Those who hold that view were likely encouraged by the non-prosecution agreement (NPA) that the DOJ concluded with Petrobras, the Brazilian state-owned oil company, in September 2018. The US enforcement action against Petrobras is a development of the so-called Lava Jato (Car Wash) investigation, in which firms paid off some Petrobras’ senior employees to benefit them in the contracts they had with the oil company. Such senior employees also shared a portion of the briber of politicians and political parties. In Brazil, Petrobras (and its shareholders, including the Brazilian federal government) are considered the victims of this scheme, but the US DOJ considered Petrobras a perpetrator (as well as a victim), because Petrobras officials had facilitated the bribe payments, in violation of the FCPA. Thus, the DOJ brought an enforcement action against Petrobras, and the parties settled via an NPA that required Petrobras to pay over US$852 million in penalties for FCPA violations. But—and here is the interesting part—the NPA also stated that the US government would credit against this judgment 80% of the total (over US$682 million) that Petrobras would pay to Brazilian authorities pursuant to an agreement to be negotiated subsequently between Petrobras and the Brazilian authorities.

This unusual agreement was the result of unusually close cooperation between U.S. and Brazilian authorities, especially the Lava Jato Task Force (group of federal prosecutors handling a series of Petrobras-related cases). After the conclusion of the NPA between the DOJ and Petrobras, the Task Force then entered into negotiations with Petrobras and reached an agreement under which Petrobras would use US$682 million that it would otherwise owe to the US government to create a private charity, known unofficially as the Lava Jato Foundation, with the Foundation using half of the money to sponsor public interest initiatives, and the other half to compensate minority shareholders in Petrobras. According to the agreement, the Foundation would be governed by a committee of five unpaid members from civil society organizations, to be appointed by the Task Force upon judicial confirmation. Once created, the Task Forcewould have the prerogative to have one of its members sitting at the Foundation’s board.

This resolution of the Petrobras case seemed to be a win-win resolution and a promising precedent for future cases: The US imposed a hefty sanction for violation of US law, but most of the money would be used to help the Brazilian people, who are arguably the ones most harmed by Petrobras’s unlawful conduct. Yet this arrangement has proven extremely controversial in Brazil, both politically and legally. Indeed, the issue has divided the country’s own federal prosecutors: The Prosecutor General (the head of the Federal Prosecutor’s Office, from which the Lava Jato Task Force enjoys a broad independence) challenged the creation of the Foundation as unconstitutional. She prevailed on that challenge in Brazil’s Supreme Court (Supremo Tribunal Federalor STF), which suspended the operation of the Foundation.

What, exactly, was the legal argument against the creation of the Lava Jato Foundation, and what are the implications of the STF’s ruling for this approach to remediating the impacts of foreign bribery going forward?

Continue reading →

Brazil’s Supreme Court May Have Ended the Lava Jato Operation as We Know It

Posted on by
2

This past March, Brazil’s Supreme Court (the Supremo Tribunal Federal, or STF) issued an opinion that is considered one of the most significant defeats yet to the anticorruption effort known as the Car Wash (or Lava Jato) operation (see here and here). The case involved allegations that the former mayor of Rio de Janeiro and his campaign manager received roughly USD 4 million from the construction firm Odebrecht that was used for a campaign slush fund, in exchange for business advantages in connection with certain construction projects. The particular legal claim on which the defendants prevailed concerned not a substantive issue, but rather a jurisdictional question: whether the case was brought in the wrong court. In Brazil, the ordinary federal courts adjudicate ordinary federal crimes, but there are also special electoral courts that handle violations—including criminal violations—of Brazil’s Electoral Code. The use of slush funds, though not expressly listed as one of the actions criminalized under the Electoral Code, could be prosecuted under the Electoral Code’s prohibition on false statements, because doing what the former mayor allegedly did would entail failure to report funds used in an election campaign. Such charges would ordinarily be heard by the specialized electoral courts. But taking illegal contributions to a campaign slush fund in exchange for political favors could also be charged as bribery (or associated crimes like money laundering) under Brazil’s Criminal Code—crimes that would typically be adjudicated by the regular federal courts. Given that the same wrongful transaction might entail violations of both the Electoral Code and the Criminal Code, which court (or courts) should hear the case?

This is the question that the STF had to resolve, and it had, roughly speaking, three options. First, the STF could have ruled that the whole case (both the electoral crimes and the ordinary crimes) should be heard by an ordinary court. The second option would be to require that the special electoral court adjudicate the whole criminal case, including the ordinary criminal charges. Third, the STF could have held that the case should be split, with an electoral court dealing with the alleged violations of the Electoral Code and an ordinary court handling all the other charges. In a 6-5 decision, the STF went with the second option, holding that whenever an ordinary crime is committed in connection with an electoral crime, the whole criminal case must be decided by an electoral court.

This is hugely significant for the Lava Jato operation, because many of the cases the operation has uncovered involve potential violations of the Electoral Code, in the form of illegal or undisclosed campaign contributions made in exchange for political favors. (The newspaper Folha de Sao Paulo estimates  that almost 30% of Lava Jato’s rulings touch discussions of illegal campaign finance.) But although some cases related to Lava Jato have gone to the electoral courts, most of the cases, including all of the main criminal cases, have been prosecuted in the ordinary courts. Federal prosecutors, especially the Lava Jato task force, are very concerned about the STF’s decision and have criticized it as a significant blow to Brazil’s anticorruption efforts.

They are right to be worried. Although some have maintained that there is no serious cause for concern, in fact the STF’s decision poses a very serious problem, for several reasons.

Continue reading →

Fighting Corruption in Brazil Requires More Than Tough Talk—Does the New President Have the Necessary Skills?

Posted on by
11

Much has already been written, on this blog and elsewhere, about the what the election of Jair Bolsonaro as President of Brazil means for the future of the anticorruption agenda in that country. (See, for example, here and here.) Bolsonaro’s appeal rested in part on the Brazilian electorate’s disgust with the entrenched corruption of the Brazilian political elite in all the major parties. Bolsonaro promised a rejection of “old politics,” positioning himself both as a “disruptive” figure and as someone who would and could “get tough” on corruption—a new sheriff in town, as it were, who would put the bad guys behind bars.

Yet fighting corruption is not just about “toughness” or making fiery speeches or enforcing laws (though strong enforcement is certainly necessary). In a country like Brazil—a complicated multiparty democracy desperately in need of significant institutional reform—an effective anticorruption agenda requires the President and his senior ministers not only, or even primarily, to be the merciless watchdogs cracking down on wrongdoing, but rather the country’s political leaders need to take the lead in articulating a coherent vision, mobilizing and coordinating with multiple stakeholders both in and out of government, and negotiating with other power centers in order to ensure not only the independence and cohesion of law enforcement efforts, but also to promote the necessary legal and institutional reforms. Promoting public integrity requires a broader set of skills, ones that have unfortunately become associated with “old politics” in a negative way: building coalitions, negotiating with different interest groups, and coordinating multiple stakeholders.

There are at least three sorts of coordination, engagement, and negotiation that Brazil’s new president must undertake if his purported commitment to fighting corruption is to yield results:

Continue reading →

Let Them Speak: Why Brazilian Courts Were Wrong to Bar Press Interviews with an Incarcerated Ex-President

Posted on by
2

In July 2017, Brazil’s former President Luiz Inácio Lula da Silva (“Lula”) was convicted on corruption and money laundering charges. His appeal was denied in January 2018, and he started serving his sentence in April 2018. Although Lula was in jail, his party (the Workers Party, or PT) attempted to nominate him as its candidate for the October 2018 presidential elections. But pursuant to Brazil’s Clean Records Act (which Lula himself signed into law when he was President), individuals whose convictions have been affirmed on appeal cannot run for elective offices. Though Lula and his defenders argued that he should be allowed to run anyway, his candidacy application was denied; ultimately, as most readers of this blog are likely aware, far-right candidate Jair Bolsonaro defeated the PT’s alterative candidate, Fernando Haddad, in last October’s election.

Perhaps less well known, at least outside of Brazil, is the fact that in the run-up to the election, Lula received several invitations from the press to give interviews. Although there is no clear rule on whether prisoners are allowed to give interviews in Brazil, past practice has been to allow the press to reach out those in jail under the authorization of the prison management. After the prison denied several requests by media organizations to interview Lula, those media outlets turned to the courts, asking for the right to interview Lula. The courts said no. The Brazilian Supreme Court, in an order by Supreme Court Justice Luis Fux, issued a preliminary injunction blocking the interviews stating (in a free translation from Portuguese): Continue reading →