The awareness of the importance of the culture of compliance in the corporate environment is considered recent in Brazil and has reflected in significant changes in the management of the companies. The global trend towards fighting corruption, the recent events in the country and the publication of legislation dedicated to this issue have made Brazilian companies turn their attention to the need to ensure conformity and integrity in developing their activities.
This culture – already mature in foreign companies, multinationals or ones that operate abroad, subject to legislation from other jurisdictions that already foresaw harsh sanctions against corrupt practices in the corporate environment – has evolved considerably in the Brazilian business environment, but there is still a long way to go. Despite the robust normative apparatus, besides the intrinsic ethical imperatives, it is still common to question the validity of creating new internal processes and allocate financial and human resources in developing compliance measures in companies.
The study Connected Compliance: The Global Case for Integration, conducted by the law firm Baker McKenzie, in strategic cooperation with Trench Rossi Watanabe, points out that, even in the face of a growing incentive to adopt compliance measures, there is some resistance from organizations to consider the issue as a priority when making strategic and commercial decisions.
The study heard over 1,300 managers of companies in seven countries and revealed that 74% of leaders in Brazil believe that compliance issues are the sole responsibility of the Compliance Department. In addition, only 18% of companies in Brazil claim to manage compliance in an integrated manner with the business areas. Still, despite the risk brought by the Brazilian Anti-Corruption Law (Federal Law No. 12,846/2013) regarding third-party conduct, 63% of Brazilian companies do not have established policies and procedures regarding their relationship with third parties.
In this context, despite the important advances, the Brazilian scenario still has the challenge of companies recognizing that the investment in compliance measures represents the sustainability of their business, and not a simple cost segregated from strategic decisions.
a) Evolution in the treatment of compliance issues in Brazil
In fact, the international movement towards integrity in the corporate environment, especially in combating corruption and bribery, is not new.
In 1977, the United States of America had already enacted the Foreign Corrupt Practices Act (FCPA), which prohibits bribery of foreign public officials by imposing sanctions on those involved.
The movement intensified in the 1990s, when several international actors formalized their intentions to fight corruption through multilateral treaties and agreements, with an emphasis on integrity in the establishment of trade relations. The signatories committed to criminalize bribery and other illicit practices and to impose strict sanctions on those involved, which resulted in creating legal diplomas and the adoption of a series of international instruments to repress such practices.
Even before the draft of a specific bill was initiated, Brazil ratified its commitment to combat corruption in 1997 by acceding to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
In 2013, the Brazilian Anti-Corruption Law (Federal Law No. 12.846/2013) was enacted, due to the commitments made by the country in the international agreements, bringing unprecedented mechanism and concepts of accountability of legal entities and the importance of implementing controls by companies in the fight against corruption and other illicit conducts in the corporate environment. By law, legal entities can be strictly liable for the occurrence of harmful acts foreseen in the law, practiced in their interest or benefit, and may be punished by the conduct of their partners, employees, representatives and third parties.
For the first time, compliance programs (or integrity, as stated in the Law) will bring benefits provided by law. Besides being instruments for risk mitigation and accountability, the Anti-Corruption Law established the existence of internal compliance mechanisms and procedures as one criteria for reducing the calculation of applying sanctions if violation occurs. Federal Decree No. 8,420/2015, which regulated the law, established the parameters of reduction, granting a greater percentage of reduction to companies that have and apply an effective compliance program, which can result in a reduction of up to 4% in the calculation of the fine to be applied.
What the Law establishes, therefore, is that the adoption of a properly structured and effective integrity program may prevent irregularities not only from being committed, but also may grant a higher discount in the administrative sanctions provided for if a violation occurs.
(a.1) Legislative progress on the matter
In addition to the provisions of the Anti-Corruption Law and Decree No. 8,420/2015, several other bills advance in this matter by offering advantages to companies with compliance structures installed and in effective application.
Most Brazilian states have already regulated the Anti-Corruption Law through laws or decrees to benefit the effective application of the Law at the state level – and the issue is under discussion in other states that have not yet done so.
The pioneering initiative of the State of Rio de Janeiro, in State Law No. 7,753/2017, which made mandatory the existence of compliance programs in companies that enter into contracts with the State Administration. The example was followed by the Federal District in Law No. 6,112/2018 and the States of Rio Grande do Sul (State Law No. 15,228/2018) and Amazonas (State Law No. 4,370/2018).
Federal Law No. 13,303/2016 (also known as the “General Law of State-owned Companies” or simply “State-owned Companies Law”) provides for the legal status of State-owned companies, government-controlled private companies and their subsidiaries, within the Union, the States, the Federal District and Municipalities. In this sense, the General State Law of State-owned Companies contains provisions on the modernization of the management of state controlled companies, seeking to inhibit the political influence on their administration with rules regarding corporate governance, compliance and transparency in their activities.
Converging on the importance of compliance, there are several bills that deal with the subject. Bill No. 429/2017, recently approved in the Senate and awaiting approval in the House of Representatives, determines the creation of a integrity program for political parties.
According to the proposed text, the parties will have to provide in their statutes an integrity program, which should contain a set of internal mechanisms and procedures for control, audit and incentive to report irregularities.
Furthermore, the Bill registered under No. 435/2016 in the Senate proposes modifications in article No. 7 of Law Federal 12,846/2013 to require not only the adoption of a compliance program, but also its certification by a manager designated solely for the compliance system. Other propositions, too, should be mentioned, such as Bill No. 7,149/2017, which determines that companies that enter into contracts with the Federal Public Administration must adopt a compliance program and Bill No. 303/2016 that proposes the adoption of compliance programs by the States, Municipalities and the Union so these entities can receive transfers of resources.
As seen, the legislative movement represents a trend that, more and more, implementing compliance programs is no longer optional when becoming a business partner, especially when there is involvement of a Public entity, demonstrating the progress in the search for integrity in commercial relations and public contracting.
(a. 2) – Regulatory guidelines related to implementation of compliance in business development
The importance of adopting compliance standards in business development, too, is perceived by regulatory agencies.
The prevention of crimes of money laundering or occultation of property, rights and values is regulated by Law No. 9,613/1998, which was amended by Law No. 12,613/2012. The regulation and discipline of the mandatory mechanisms for developing the activities of companies under this law, which was previously exclusive to the Brazilian money laundering enforcement council (Conselho de Controle de Atividades Financeiras – COAF), in the year 2012, was shared with regulatory agencies or business sector inspectors (for example, the Central Bank is responsible for financial institutions). Therefore, the elaboration of an effective policy to combat money laundering and terrorist financing should be based on the specific regulations of the organ regulating the business sector, and it is essential to analyze the risks of the business itself.
The Central Bank of Brazil published Resolution No. 4,595/2017, determining, among other rules, the elaboration of a compliance program by financial institutions in order to mitigate the risks of the business sector. Since banks can be held liable directly for the use of this money in corruption schemes, financial institutions have turned their attention to the correct use of the resources they provide to their customers. In addition, to protect their own interests, they began to require private companies to have a compliance program for the release of the intended resource.
In January of 2019, the National Bank for Economic and Social Development (BNDES) published Resolution No. 3,493/2018, which amended the rules of contracts signed by the bank. Therefore, BNDES began to require its financial agents to prove, whenever requested, the adoption of procedures aimed at complying with the rules about the prevention of money laundering and combating terrorist financing, in particular the ones provided by Law No. 9,613/1988 and its changes in the applicable regulations and in the policies and norms of BNDES, regarding the contracts signed with the final beneficiaries. Furthermore, it also required financial agents to prove the adoption of a compliance program, policies and procedures aimed at preventing and combating corruption, fraud and other irregularities foreseen in legislation, in particular in the Anti-corruption Law and its changes in the applicable regulations and in the policies and norms of BNDES.
Another entity to follow this trend is the Securities and Exchange Commission (CVM). The entity placed in public consultation, through the public hearing SDM No. 02/2018, a draft of an instruction regulating its sanctioning activity with a proposition that any public held company with an effective compliance program may have reduction in their fines. The text provides that “the effective adoption of internal mechanisms and procedures of integrity, auditing and incentives to report irregularities, as well as the effective application of codes of ethics and conduct within the legal entity” are mitigating circumstances in the new administrative process, reducing the penalty between 10% and 20%. After a favorable opinion, the edition of the definitive instruction integrates the CVM’s list of priorities for this year of 2019, according to the regulatory agenda of the Commission.
The Brazilian Office of the Comptroller General (CGU), maximum enforcement authority of the Anti-Corruption Law within the Federal executive branch, since January 2019, can rely on the Secretariat for Combating Corruption, responsible for, among other assignments, supervising, coordinating and guiding the action of the entity in combating corruption and other actions to ensure compliance in relations with public agents.
CGU plays a fundamental role in the dissemination of the culture of compliance in the Brazilian corporate environment. The organ, more than law enforcement, assumes activities to promote the adoption of compliance measures and provides guidelines to the entities wishing to implement compliance mechanisms. The “Integrity Program: Guidelines for Private companies” guide indicates the main pillars of a compliance program and what policies and procedures are necessary to detect evidence of illicit acts and mitigation of risks.
In addition, the CGU published, in September 2018, the Practical Manual for evaluation of Integrity Programs in Administrative Process of Accountability of Legal Entities, whose aim is to guide those responsible for enforcing the law about the evaluation of Compliance programs of legal entities submitted to the administrative accountability process due to violations. The material also helps companies to evaluate internally their own programs. By making its parameters public, the CGU seeks to ensure security and uniformity in its decisions.
Furthermore, along with the Public Ethics Committee, CGU issued Joint Normative Guideline No. 1/2016, issued to regulate the participation of federal public agents in events and activities paid by third parties. It establishes rules related to transportation, lodging, meals and enrolment for participation in events and, lastly, entertainment of federal public agents. The measure aims to avoid that benefits paid by individuals to civil servants, although with the appearance of legality are in fact a way of effecting any improper payment.
Another initiative of the CGU, called Pró-Ética, aims to promote the voluntary adoption of compliance measures by the companies, through the public recognition of those that, regardless of the size and industry, demonstrate that they are committed to implement measures aimed at the prevention, detection and remediation of acts of corruption and fraud. In a summarized way, companies provide information and documents to the CGU regarding compliance measures that were adopted. At the end of the process, companies that reach a certain score are considered “Pro-Ética companies”, an information which is disclosed to the market.
These are some regulations and guidelines given by the Brazilian regulatory entities, indicating, once again, the increase of normative movement towards the requirement of implementation of real policies and internal controls by companies.
(b) Compliance as a tool for sustainability of business and corporate excellence
The advantages of implementing a compliance program are not restricted to legal and regulatory issues. They can be a market differential and even represent a major competitive advantage for companies that adopt it.
An effective compliance program represents a risk reduction for the company, which directly affects the reduction of internal losses with irregular conduct, fines and penalties, judicial and administrative proceedings, lowering costs and increasing its reputational and market value.
In addition, by analyzing and evaluating its risks, the company expands its knowledge about its business and the market in which it operates, including its competitors and partners, generating a better allocation of resources, expansion of results and an environment conducive to innovation.
The adoption of an effective compliance program has become a criteria for selecting business partners (suppliers, service providers, subcontractors). This interest has not only originated in the search for commercial partners that share the same values, but is also motivated by the fact that several laws, both Brazilian and foreign, punish companies for illicit acts committed by third parties. It is getting very common for companies to hire partners who adopt effective compliance measures as a way to mitigate this type of risk. More than that, investors want to allocate their money in companies less exposed to the most diverse risks, so it is evident that companies that have solid controls will have better chances of receiving more investments than others who do not.
Moreover, the employees themselves gain with the effective functioning of the program. Often, it is in developing the core business of the company where the irregularities are perceived. Trained in a program of effective integrity, these employees will be key pieces for detecting and communicating irregularities, even committed by third parties that could not be perceived by the top management.
With this, they would be assuring the sustainability of the business and mitigating the risk of the company closing the doors due to the heavy sanctions provided by law.
Therefore, it remains evident that the adoption of internal mechanisms and procedures to ensure integrity and conformity in the corporate environment transpose the right/ethical duo to which we are all submitted. In the business world, maintaining a compliance program has become a vital business tool, representing a competitive advantage in any market.
In these terms, companies undergoing Brazilian regulations need to find a more appropriate balance between compliance and strategic growth, aligning compliance practices with business objectives, mitigating risks and increasing the value of its business.
Authors: Heloisa Uelze, Fernanda Casagrande, Alessandro da Cruz and Marcelo Ramos Leite
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