Enforcement Anti-Corruption Trends: Bombastic Lessons From Brazil

Ever since the 2014 World Cup defeat, Brazilians have never felt so humiliated by embarrassing headlines all over the globe showing the corruption scandals in Brazil.

The huge corruption case swirling around Brazil’s state-run oil company Petrobras is being called the world’s largest. The bribery investigation known as “Carwash Operation,” which has already sent Petrobras into a tailspin, is spreading across the country’s largest construction companies and banks, dragging even multinational companies all over the globe tainting the ever immaculate image of even Norwegian and Swedish companies.
Multinationals with operations in Brazil are frightened by what seems  a climate of wild enforcement in Brazil. These enterprises are scrambling to assess whether they could get swept up in the probe since,  by just having business in Brazil, the likelihood that some probe will touch them in some way is very high.
It appears that only Brazil is a corrupt country but the list of names in the Panama Papers makes it pretty clear that corruption is not exclusive to Brazil. In fact, in at least one factor Brazil is being respected worldwide: in the conviction of individuals for crimes of corruption.

Despite intense spotlight, amid the heated discussions of the Carwash operation, the bankruptcy of its once flagship enterprise Petrobras, the outcry of daily demonstrations, political and economic disaster, rising unemployment, Brazil has been receiving several compliments for the notorious work of its federal police, federal prosecutors and the hero-like judge of the case, Sergio Moro. Brazil is publicly extolled for the pursuit of the corrupted individuals in a world that overwhelmingly punishes companies more than individual offenders.
The punishment of dishonest enterprises is commendable as an effective tool against corruption. However, in practice, the corollary has become a sad injustice, because who actually end up paying the bill of this punishment of the corporate world are the shareholders, stakeholders, consumers, and the ordinary citizen. This is the example of the United States and Europe, where less attention is given to the offending individual. And it is in this regard that Brazil has been giving a real fine example.

A brief history of the legislation to combat corruption using as tool the punishment to corporations starts with the United States, with its notorious FCPA - Foreign Corrupt Practices Act followed by OECD Anti-Bribery Convention that forced other countries to enact similar laws. Brazil was late in following suit. It took ferocious demonstrations against the government in 2013 for President Rousseff  to finally enact Brazil’s Clean Company Act.
The FCPA,  applied with more emphasis only since 2004, haunts bribe paying companies with million-dollar fines imposed by the U.S. authorities, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC).

In one emblematic example, Siemens in 2008 settled with the US authorities with fines of $450 million and $ 350 million as disgorgement of profits earned illegally in their business in several countries. In addition, Siemens paid about € 596 million to German prosecutors for the same crimes.

French multinational Alstom, which in late 2014 acknowledged paying bribes to public officials in numerous countries, agreed to pay to the US authorities $ 772 million in a settlement.

However, when a company is obliged to pay millions in fines, it always ends up finding a way to pass this cost, and often to the detriment of good-natured employees, who lose their year-end bonuses or even their jobs, and its shareholders, who see their dividend prospects vanish. But what about those individuals who planned, executed or consented to the practice of illegal acts to secure business? Are they not the ones who should be punished?

Just look at the case of Petrobras. By the FCPA, Petrobras will be prosecuted in the United States since it has  stock traded thereand millions in penalties are expected. Unfortunately, it will be the shareholders, the investment funds, the Brazilian drivers among other innocents, who will pay the bill for shenanigans unimaginable in their everyday world.

Thus, despite the significant results obtained by the DOJ and the SEC in securing fines and obtaining monetary reparations of companies involved in corruption, the aspect in which those authorities are not as successful - the criminal prosecution of individuals - have created these unfair distortions.

Concerned by this controversial reversal of punishment, the DOJ’s Assistant Attorney General, Leslie Caldwell, has made it clear since last November that one of the major objectives of the DOJ for the coming years is to focus on criminal prosecution of  the executives and other individuals involved in corrupt practices. This new strategy had already been outlined by the Deputy Attorney General Sally Yateswho in September 2015 announced that the DOJ would concentrate their firepower against individuals. Her memorandum, immortalized as the "Yates Memo" is taking the sleep of millionaire executives in the U.S.

The rationale of this new strategy makes sense, especially if we consider that, until October 2015, the DOJ and SEC had not even charged ten individuals for FCPA violations.

That is why the focus of the US authorities is to reach the executives who, by simple negligence or even willful misconduct, determine or consent to the bribe payments to public officials to obtain business. It is at the moment when an individual is sentenced to pay millions in fines with his assets and spends considerable time behind bars, that he begins to wonder if “bribery pays”. More importantly, the conviction of individuals produces a huge educational effect and it seems the most effective tool to prevent acts of corruption.

And this is where the US authorities are taking their hat off to the Brazil’s prosecution of individuals involved in the Carwash Operation. In contrast to the few individuals indicted in the United States for FCPA violations, in Brazil  until the end of  2015, 179 individuals were criminally charged for corruption  in acts related to Petrobras not to mention that several Brazilian government officials including former President Lula da Silva were summoned for interrogation for allegedly taking bribes.

And these bombastic numbers are likely to increase substantially in the near future.

Perhaps the brutal difference between the number of individuals indicted in the US and those indicted in Brazil has as its source a greater volume of corrupting practices in our country. However, there is no denying that the willingness to prosecute individuals, coupled with Judge Sergio Moro’s efficiency and speed in adjudicating cases, have produced exemplary results in criminal prosecution of those involved in corrupt practices.
Intolerance to corruption in Brazil has taken people to the streets daily demonstrating against corrupted politicians even claiming for the president’s impeachment. The rapidly changing business environment in Brazil is teaching harsh lessons to the whole world. Although Operation Carwash has ignited and brought attention to such changes, the operation itself is a consequence of a changed environment. Brazilian authorities are clearly indicating their intention and ability to implicate individuals in the private sector in criminal investigations, especially for acts related to corruption. Hopefully, this climate will be contagious and will encourage companies all over the world to adapt their business, risk-management and compliance practices to the new reality of global enforcement. 

Isabel Franco leads the Compliance, Investigation & White-collar practice team at KLA-Koury Lopes Advogados. She has been highly ranked in the Chambers and Latin Lawyer Directories. Ms. Franco has also been voted as #1 leading corporate counsel in Latin America in Anti-Corruption & Compliance by The Latin American Corporate Counsel Association (LACCA) in 2014 and 2015.  Also, she is one of the “One Hundred Women in Investigation” indicated by the Global Investigations Review (GIR) in 2015.

Ms. Franco was the Chair of the International Law Section of the New York State Bar Association in 2001, having also served on the Council of the American Bar Association.

Isabel can be contacted on (+55 11) 3799 8189 or by email at ifranco@klalaw.com.br