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ACI’s FCPA & Anti-Corruption for the Life Sciences Industry

Esther Flesch

Partner

Trench, Rossi e Watanabe Advogados

Anti-Corruption in Brazil

April 28-29, 2014

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1. Corruption in Brazil

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Corruption in Brazil

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Corruption Perception in Latin America Corruption Perceptions Index – 2013 (Transparency International)

Position Country Grade

1 New Zealand / Finland/ Denmark 9,1

19 United States 7,3

22 Chile 7,1

72 Brazil 4,2

80 China 4,0

83 Peru 3,8

94 Colombia 3,6

94 India 3,6

106 Argentina 3,4

105 Mexico 3,4

127 Russian Federation 2,8

160 Venezuela 2,0

175 Afghanistan / Somalia / North Korea 0,8

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Fight against Corruption in Brazil

• Increasing number of arrests for crimes against the Public Administration between 2008 and 2012 – 133%

• In 2013, the Brazilian Federal Police conducted 296 special operations in which 1,785 individuals were arrested

• Significant increase in cooperation with foreign authorities

• Approval of new anti-corruption laws, including: “money laundering law” (2012); Law no. 12.846, and “conflict of interest law” (2013)

• Brazil is signatory of 3 important Anti-Corruption Conventions: OECD, UN and OAS

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Corruption in Brazil – Real Example

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Corruption in Brazil – Real Example (cont.) • In March 2012, an important TV show in Brazil

(“Fantastico”), broadcasted a story of companies circumventing public tender processes at a Public Hospital in Rio de Janeiro. A reporter posed as the head for the Hospital Procurement Department.

• Footage of employees of four companies, who rendered services to the Hospital (such as collection of hospital waste, vehicle rental services, etc), was shown. All companies offered bribes to the head of the Procurement Department in order to secure contracts.

• Companies also clearly manipulated the bidding process. It was shown that company “x” would invite other companies to participate in the public tender. Such companies should offer higher prices for the same services, thus making sure that company “x” would be the winner of the public bid.

• After the story was broadcasted, the Federal Police started four police investigations.

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Sport Events in Brazil • World Cup (2014)

• Olympic Games (2016)

• Many companies use these events to forge commercial ties, by providing tickets and hospitality to certain events.

• Prices of such events are sometimes lavish, and tickets are hard to obtain due to the large quantity of people looking for them

• Such big events also bring media attention.

• Must be careful to not infringe anticorruption laws in connection with offering hospitality and entertainment related to such events to HCPs and public officials in general.

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2. Criminal Code

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Anti-corruption Laws in Brazil – The Brazilian Criminal Code

• Offer or the promise to offer to public officials any benefit that relates to an express or implied request or suggestion that the public employee performs or refrains from performing, or even delays any act within the scope of his duties

• Criminal intent is a necessary element of the crime of bribery

• Offer or promise alone is sufficient

• Facilitating or “Grease” Payments are also bribes in Brazil

• Penalty: from 2 to 12 years of imprisonment

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Anti-corruption Laws in Brazil – The Brazilian Criminal Code

• Public Employees: not only individuals that render services in governmental offices or agencies, but also employees that carry out a public function, job or office, even on a temporary basis or without remuneration (or includes doctors and employees of public hospitals, professors of public universities)

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3. Context and key features of Law no. 12,846

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Context: OECD Anti-Bribery Convention • Ratification: August, 2000

- 2002: Brazilian Criminal Code amended to prohibit corruption of foreign public officials

• Phase 1: September 2004

• Phase 2: December 2007 (examining countries – Chile and Portugal)

- recommends that Brazil “take urgent steps to establish the direct liability of legal persons for the bribery of a foreign public official”

• Phase 3: 2014 (examining countries – Belgium and Portugal)

– Concentrates on the following pillars:

progress made by on weaknesses identified in Phase 2

changes in domestic legislation since Phase 2

enforcement efforts and results

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Law no. 12,846 – Key Features • Published: August 2, 2013

• Effective: January 29, 2014

• Civil and Administrative Liability – More easily applied than criminal liability

– Standard of proof not as high as for criminal cases

– New law applies only to legal entities; liability of legal entities does not depend on and does not exclude the liability of individuals

• Subjected Persons – Business organizations and sole proprietorships, legally incorporated or not

– Any foundations or associations of entities or persons

– Foreign legal entities with office, branch or representation in the Brazilian territory

• Strict Liability – Government need only to show that bribes were paid/promised.

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Law no. 12,846 – Key Features

• Prohibited Acts

– Committed against either the local or foreign Public Administration, either in Brazil or abroad

– Include: bribery of public officials, fraud in public procurement settings, bid rigging and other illegal conducts

– Specific prohibited acts:

I. To promise, offer or give, directly or indirectly, an undue advantage to a public official, or third person related to him;

II. To finance, defray, sponsor or in any way subsidize, in a proven way, the performance of the wrongful acts provided for in this law;

III. To make use of an individual or legal entity interposed to conceal or dissimulate its real interests or the identity of the beneficiaries of the acts performed, in a proven way;

IV. To hinder the investigation or assessment activity of public agencies, entities or officials, or interfere with their work, including within the scope of regulatory agencies and supervisory bodies of the national financial system

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Law no. 12,846 – Key Features • Prohibited Acts

– Specific prohibited acts (cont.):

V. Regarding public tenders and contracts:

a. To thwart or defraud, through an adjustment, arrangement or any other means, the competitive character of the public tender procedure;

b. To prevent, disturb or defraud the performance of any act of public tender procedure;

c. To remove or try to remove a tenderer by fraud or by an offer of any type of advantage;

d. To defraud a public tender or a contract arising therefrom;

e. To create, in a fraudulent or irregular manner, a legal entity to participate in a public tender or enter into a contract with the Public Administration;

f. To gain an undue advantage or benefit, in a fraudulent way, of modifications in or extensions to contracts made with the Public Administration, without legal authorization, in the act inviting to the public tender or in the respective contractual instruments; or

g. To manipulate or defraud the economic and financial balance of the contracts made with the Public Administration.

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Law no. 12,846 – Key Features • Sanctions

• Successor Liability in the event of amendments to the articles of incorporation, transformation, merger, acquisition or spin-off of a company.

Administrative Judicial

fine of 0,1% to 20% of the gross revenue of the previous year

R$ 6,000 to R$ 60,000,000 (if not possible to use gross revenue criteria)

publication of the condemnatory decision

Prohibition to receive incentives and public financing from 1 to 5 years

Seizure and confiscation of assets and gains

Partial suspension or interdiction of its activities

Compulsory dissolution of the legal entity

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Law no. 12,846 – Key Features • Factors to be taken into consideration in applying sanctions

– The seriousness of the offense

– The advantage gained or intended by the offender

– Whether the offense was fully completed or not

– The degree of damage, or risk of damage

– The negative effect produced by the offense

– The offender's economic situation

– The cooperation of the legal entity in the investigation of the wrongdoing

– The existence of internal mechanisms and procedures of integrity, audit and incentive for the

reporting of irregularities, as well as the effective enforcement of codes of ethics and of conduct

within the scope of the legal entity

– Evaluation criteria will be established by the Federal Executive Branch

– The value of the contracts held by the legal person with public agency or entity damaged

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Law no. 12,846 – Key Features • Leniency Program

– Fines can be reduced up to 2/3

– All the other sanctions (excluding restitution) are excluded

– Collaboration must result in:

the identification of the ones involved in the violation, when applicable; and

rapid obtaining of information and documents proving the illegal acts under investigation.

– Requirements of the Leniency Program (cumulative)

Legal entity is the first one to come forward

Legal entity completely ceases its involvement in the investigated infringement

Legal entity admits its participation in the offense and fully cooperates

– Importance of an internal investigation and attention to the conflict of norms.

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Law no. 12,846 – Key Features • Enforcement Authority

– Cases involving foreign public administration: CGU

– Other cases “... highest authority of the relevant Agency or entity of the Executive, Legislative and

Judiciary …”

– Criticisms

Lack of specialized expertise

Excessive fragmentation of efforts

Potential conflict of interest

Other

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Enforcement of Law no. 12,846/2013

• CGU – Office of the Comptroller General:

− Presence in all states

− 2,689 employees

− Budget of more than R$ 770 million

− Active participation in the legislative discussion related to Law 12,846/13

− Employees trained by the SEC/DOJ

− Cooperation with local and foreign authorities

• State and local authorities

• Comptroller Office of the State of São Paulo

− Created in 2013

− very active

− Cooperation with local and foreign authorities

CGU Employees

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Regulation

• Few states already have issued a regulation for the law

− São Paulo

− Tocantins

− Paraná

• Focus on centralizing the authority to determine illicit acts and sanctions

• CGU offered technical support to the states for the development of the regulations.

• Expectation that federal regulation will influence states and municipalities.

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What to expect from the upcoming regulation

• Definition of required elements of a compliance program − Importance of the tone at the top

• Definition of local officials − Definition of the Brazilian Penal Code

• Calculation of gross revenue − May be calculated based on the “line of business” involved in the wrongdoing

• Clarify who the enforcement authorities are

• Clear criteria for the fines

• Detailed administrative procedure

• Further clarification on leniency agreements.

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4. Comparison with the FCPA and UKBA

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Comparison: FCPA x UKBA x Law no. 12.846 FCPA UK Bribery Act Brazil`s Law n. 12.846

Enforcement Mechanisms / Liability

Criminal and Civil Criminal and Civil Civil and Administrative

Bribery of foreign officials Yes Yes Yes

Bribery of local officials No Yes Yes

Extraterritorial reach Yes Yes Yes, but not as broad as under under the FCPA and UKBA

Books and Records Yes No Silent, but covered on certain existing laws

Other prohibited acts No No Yes, include other acts against the Public Administration

(e.g., fraud in public tender processes, bid rigging)

Exception for facilitation payments

Yes No No (prohibited in Brazil)

Corporate criminal liability Yes Yes No

Corporate strict liability Only under the accounting provisions Yes, for "failure to prevent

bribery" Yes

Corporate fines

Anti-bribery violation: up to US$ 2 million per violation / Accounting violation: up to US$ 25

million per violation. Twice the benefit obtained or sought

Unlimited Up to 20% of the company's gross revenue of the previous

year or up to R$ 60 MM (around U$ 27 MM) if gross revenue cannot be determined

Other corporate "sanctions”

Debarment, monitors, derivative lawsuits, etc. (applicable under other

U.S. laws and legal features) Debarment Prohibition to receive incentives, suspension, etc.

Credit for compliance programs

Yes (U.S. Sentencing Guidelines, FCPA

Guidance, etc.)

Yes (can be full defense for

corporate offense of "failure to prevent bribery")

Yes (amount of credit not determined)

Credit for self-disclosure / cooperation

Yes (Principles of Federal Prosecution of

Business Organizations, FCPA Guidance, etc.)

Yes, but limited Yes

(under the leniency program, fines can be reduced up to 2/3 and all other sanctions can be excluded)

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Thank You!

Esther Flesch

Trench Rossi e Watanabe Advogados

Av. Dr. Chucri Zaidan, 920

13º floor - Market Place Tower I

04583-904

São Paulo, SP – Brazil

+55 11 3048 6940

esther.flesch@bakermckenzie.com