Author Archives: Rodrigo Telles de Souza

Improving Brazil’s Whistleblower Regime

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Because corruption is usually conducted in secret, without readily identifiable victims, effectively tackling corruption often requires evidence from insiders. Therefore, providing adequate protections and incentives to whistleblowers is crucial. Brazil, like many countries, does not have a strong tradition or culture of whistleblowing, making it all the more important that the legal system provides sufficient protections and incentives for insiders to provide material information about corrupt schemes. In the past few years, Brazil has made important progress in this area, but much remains to be done.

Two years ago, a specific statute introduced the practice of rewarding people who furnished information about criminal conduct. This legislation provided that Brazilian states could establish telephone hotlines for reporting unlawful activities, and also authorized all levels of government to establish rewards for whistleblowers who provide information that lead to the prevention, detection, and punishment of crimes and administrative offenses. That statute, while a good first step, was vague and incomplete. Near the end of last year, Brazil took another important step in the direction of modernizing its whistleblower laws with the enactment of the 2019 Anti-Crime Act. This Act requires that national, state, and local governments, as well as their agencies and companies, establish an ombudsman office to ensure that all people can report crimes against public administration (including corruption), administrative offenses, and any action or omission damaging to the public interest. The law further provides that whistleblowers cannot be held criminally or civilly liable for the report (as long as the information was not provided falsely and maliciously), that whistleblowers are entitled to the protection of their identities, and that whistleblowers are entitled to the same protections against retaliation as are witnesses and victims. Violation of the prohibitions on retaliation against whistleblowers can entitle the whistleblower to double damages and punitive damages. The new law also includes a clearer provision on financial rewards for whistleblowers, expressly providing that if a whistleblower who provides information leading to the recovery of proceeds from crimes against public administration, the corresponding government can grant to whistleblowers financial rewards of up to 5% of the recovered assets.

Despite this progress, though, the legal framework on whistleblowers in Brazil still suffers from a number of important deficiencies, and needs further improvements:

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The Continuing Controversy Over the Destination of the Petrobras Penalties: The Coronavirus Crisis Has Ended One Debate, But May Start Another

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As most readers of this blog are likely aware, the Brazilian state-owned oil company Petrobras has been at the center of a massive bribery scandal in Brazil, and the main focus of Brazil’s so-called Car Wash (Lava Jato) Operation. That Operation uncovered evidence that between 2006 and 2014, corporations paid kickbacks to senior Petrobras officials for inflated contracts, and the Petrobras officials funneled a substantial portion of those illicit proceeds to the political parties in the government’s coalition. These revelations lead to legal actions not only in Brazil, but also in the United States. Because Petrobras issued securities in the U.S., and because U.S. law imposes criminal liability on a corporation for the conduct of the corporation’s employees, Petrobras was potentially liable under the U.S. Foreign Corrupt Practices Act (FCPA), because Petrobras officers had facilitated corruption abroad (that is, in Brazil). In September 2018,Petrobras signed a non-prosecution agreement (NPA) with the United States Department of Justice, according to which the company would pay over US$850 million in penalties. But, crucially, only 20% of that penalty would be paid to the United States; the remaining 80%, according to the terms of the NPA, was to be paid by Petrobras “to Brazil.”

This provision sparked great controversy and debate in Brazil over the destination of that money—a debate that seems to have been ended (for now) by the coronavirus crisis. The root of the problem is that under Brazilian law, Petrobras (the corporate entity) was considered victim of the bribery scheme, not a perpetrator. So, from a Brazilian perspective, it was hard to comprehend why the company should be obligated to pay for crimes that harmed it. Indeed, in many of the Car Wash cases resolved in Brazil, penalties recovered from other entities (such as the firms that paid kickbacks) were transferred to Petrobras. But under the NPA with U.S. authorities, Petrobras was required to pay over US$650 million to Brazil. What Brazilian entity or entities should get that money? And who should decide on the allocation?

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The Brazilian Courts’ Indefensible Double Standard: The Disparate Treatment of Harmless Procedural Errors in Corruption and Non-Corruption Cases

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Before Brazil’s so-called Lava Jato (“Car Wash”) Operation, almost every attempt to prosecute high-level corruption in Brazil failed. Many cases were never investigated or prosecuted, but even in those cases where prosecutors started investigations, identified crimes, and brought charges, appeals courts ended up nullifying the proceedings, often before trial, on technical grounds for failure to comply with procedural rules (see, for example, here, here, here, and here). The result was a culture of impunity, in which grand corruption thrived. The Lava Jato Operation has been hailed as a historic breakthrough not only because of the breadth of the corruption it uncovered, but also because the convictions secured by prosecutors had, by and large, been affirmed on appeal. Unfortunately, there are troubling signs that the Brazilian judiciary is reverting to its old ways. Last October, for example, the Brazilian Supreme Court issued a procedural ruling  concerning the sequence of closing arguments that the Court held required the nullification of two Lava Jato convictions (so far), and may end up doing more widespread damage. The larger issue here, though, is the double-standard that Brazilian appellate courts seem to have embraced: adopting an (excessively) stringent and unforgiving view of even minor technical procedural noncompliance in corruption cases involving elite defendants, while at the same time relying (properly) on “harmless error” doctrines to excuse similar sorts of procedural noncompliance in cases involving other sorts of crimes, such as drug trafficking. Continue reading →

The Continuing Struggle Over Brazil’s Financial Intelligence Unit and Its Contribution to the Anticorruption Fight

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The successful investigation and prosecution of high-level corruption crimes often requires access to detailed financial intelligence, which in turn requires close cooperation and information-sharing between law enforcement officials and financial intelligence units. This has certainly been the case in Brazil, where the Lava Jato (Car Wash) investigation—considered the most successful anticorruption operation in Brazilian history—has been made possible in large measure by the reports supplied to federal prosecutors by Brazil’s financial intelligence unit,  known as the Counsel of Control of Financial Activities (COAF). COAF, created in 1998, has provided Brazilian federal prosecutors with suspicious activity reports on potential targets of the Lava Jato investigation, including politicians, high-level public officials, corporations, and business executives. And in the early days of the administration of President Bolsonaro, who positioned himself as an anticorruption champion during the election, there were some signs that COAF’s role in supporting law enforcement efforts would be strengthened. President Bolsonaro, for example, proposed transferring COAF from the Ministry of Economy to the Ministry of Justice—a signal that COAF would continue to work in the support of law enforcement activities—though the Congress rejected this proposal. President Bolsonaro’s Justice Minister, Sergio Moro, also nominated an auditor of the Brazilian Internal Revenue Service who worked in Lava Jato to be the new COAF chief.

But over the course of the last year, the ability of COAF to support anticorruption investigations has been jeopardized, partly by a judicial ruling, but also by other less visible efforts by the administration to undermine the unit’s autonomy.

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Amazonia Is Burning. Corruption Is One of the Reasons.

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Amazonia is the largest tropical rainforest in the world, spread over nine South American countries (Brazil, Bolivia, Colombia, Ecuador, Guyana, French Guyana, Peru, Surinam, and Venezuela), with approximately 60% of the forest (over four million square kilometers) located in in the north of Brazil. Brazilian Amazonia is home to around 45,000 different plant and animal species. This rainforest is also crucial to the global environment, especially with respect to climate change. During the past several months, an increase in the number and extent of forest fires in Brazilian Amazonia has triggered great concern, much of it focused on whether the Bolsonaro Administration’s policies are partly to blame for the widespread fires. While that conversation is no doubt important, it is also crucial to recognize that environmental crimes in Amazonia—including those related to the fires—are in part the product of widespread corruption, and that addressing Amazonia’s environmental crisis will require addressing Brazil’s governance crisis as well.

To understand how and why corruption is contributing to the destruction of the Amazon rainforest, a bit of background is in order. The greatest environmental threats in this region are the illegal harvesting of timber and the illegal clearing of land (often through burning) to prepare the land for commercial use for agriculture and livestock. (Between 70% and 80% of the deforested area in Amazonia has been used to create pasture for breeding cattle to produce meat for domestic and international consumption.) To be sure, Brazil has laws in place to protect Amazonia from over-exploitation and other forms of environmental damage. About 80% of the land in Amazonia is publicly owned; on this public land, the forest may not be exploited or burned. The remaining 20% of Amazonia is private land owned by individuals or corporations; even for this privately owned land, Brazilian law requires that the owners keep between 50% and 80% of the area intact and unexploited. The Brazilian government is responsible for enforcing these rules and for regulating and overseeing the extraction, transportation, and commercialization of timber from Amazonia. The regulatory system involves government approval of forest management plans, the issuance of permits for timber harvesting and land clearing, and the tracking of timber to ensure that it was not illegally removed from public lands or from the protected areas of private lands.

That’s how it’s supposed to work. But in practice, private companies collude with corrupt public servants—forest wardens, police officers, and others—to evade these rules. As a result, substantial quantities of timber are illegally extracted from public lands and protected private areas, and agricultural and livestock interests illegally burn and clear irreplaceable forests. The corrupted public servants not only turn a blind eye to these environmental crimes, but they also warn the infringers about possible inspections by other agents.

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International Scholars, Stay in Your Lane: The Risks of Uninformed Foreign Commentary on Corruption Cases

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Last June, a group of international scholars and jurists published an article in the French newspaper Le Monde arguing that former Brazilian President Luiz Inácio Lula da Silva (known as Lula), who was convicted and imprisoned in a case related to the Lava Jato (Car Wash) anticorruption investigation, did not receive a fair trial, and was the victim of political persecution. A couple months later, a slightly revised version of the article, styled as an open letter to the Brazilian people and Supreme Court, appeared in the Brazilian media, where it made quite a splash. The letter, which was republished on GAB last month, was signed by prominent US scholars, including Susan Rose-Ackerman and Bruce Ackerman, as well as lawyers, professors, and former judges from numerous Latin American and European countries. Echoing accusations leveled by The Intercept and other media outlets, the letter claimed that presiding judge Sergio Moro (now Justice Minister) conducted the proceedings in a partial fashion and directed the prosecution “in contempt for fundamental rules of the Brazilian procedure.” Judge Moro, the letter asserts, “manipulated substantial assistance plea bargaining mechanisms, oriented the prosecution service works, required the substitution of a prosecutor, and directed the prosecution’s public communication strategy.” Furthermore, the letter states that the Judge “wiretapped Lula’s lawyers” and “disobeyed an order from an appeal judge to release Lula”. The letter also contended that there was no material evidence of Lula’s corruption, and that his arrest, prosecution, and conviction were all prompted by the illicit political motive of excluding him from the 2018 presidential elections. In light of all this, the letter asserted that the Brazilian Supreme Court has a duty to release Lula and nullify his conviction.

These accusations are largely baseless, or at least presented in an extremely one-sided fashion that parrots what have become the standard talking points of Lula’s supporters. The Car Wash prosecutors effectively debunked the texts’ main arguments in a rebuttal also published on this blog. (The blog also published a response from Lula’s lawyers that rehashed the same talking points and alluded to as-yet-undisclosed evidence, but that didn’t otherwise counter the prosecutors’ clear documentation of the open letter’s many errors.) What most troubled me about the original article and the open letter was less the fact that these arguments were being advanced—again, by now they’re familiar pro-Lula talking points—but the fact that the texts were signed not only by lawyers, but also by renowned law and political science professors. Lawyers are expected to act as advocates. But scholars are supposed to be more judicious, more scrupulous about evidence, and more circumspect about making bold, aggressive claims on subjects whose factual and legal particularities they don’t fully understand. Continue reading →