Brazil passes tough anti-corruption law

Private equity firms and their portfolio companies found guilty of bribery in Brazil could face fines of 20 percent of their previous year’s gross annual revenue.

After a delay of more than three years, Brazil president Dilma Vana Rousseff signed the country's first anti-corruption bill into law. Consequently private equity firms and their portfolio companies could be suspended from operating, have assets confiscated or even be dissolved if found guilty of bribery under Brazilian law.

Other punishments for companies convicted of bribery could be fines of up to 20 percent of their previous year’s gross annual revenue or 60 million reais ($26.2 million; €17.4 million). Further punitive measures of the law include ‘blacklisting’ convicted companies which would ban them from receiving public lending and government subsidies. Government contracts to companies engaged in bribery could also be withheld for up to five years.

Prior to the law's enactment only individuals could be prosecuted for corruption in Brazil. But under the new law, civil liability is established against companies for any bribery acts made by its employees or a third-party acting on its behalf.

“In the past, it was only individuals that could be prosecuted for corruption, which saved companies from the kind of punishment that could threaten their operations,” said Leo Torresan of Amarribo Brasil, a Brazilian non-profit anti-corruption lobby group, in a blog entry for Transparency International.

Effectively, this means foreign companies and their employees operating within Brazil could be subject to penalties for the bribery of local officials and employees of Brazilian companies, including Brazilian subsidiaries of foreign companies. The legislation also covers the bribery of foreign officials by Brazilian companies.

The law includes incentives for companies to self-report instances of bribery. Legal sources are urging Brazilian companies to implement compliance programs capable of detecting and preventing bribery.

The legislation was required by the Organization for Economic Cooperation and Development (OECD). Although Brazil is not a member of the OECD, it is a part of the group's anti-bribery convention. Anti-corruption legislation is also required under the United Nations Convention against Corruption, which Brazil ratified in May 2005.

The law was published in Brazil’s official gazette last Friday, and will come into effect in January 2014.