New Anti-Corruption Law Comes Into Effect

According to a study conducted by Fundação Getúlio Vargas (FGV) on the impacts of corruption in public policy in Brazil from 2002 to 2012, around BRL 40 billion were misused due to bad faith or bad management.

By the enactment of the new law, Brazil is now taking a stand against corruption. The new regulation, also called the "Clean Companies Act" abroad, will now change the way people do business and deal with procedures in Brazil.

This is due to happen because the law provides for the strict liability of the entities. This means that a company can be held liable for an infraction regardless of proven negligence or misconduct of their managers and officers.

This possibility will impose on companies the obligation to be very strict in relation to whom they contract with and how they do it. In this sense, several Brazilian companies are already adopting procedures to investigate their contractors, suppliers and clients before entering into new agreements, as it is already standard practice in multinational companies.

Heavy penalties

Abroad, the Brazilian statute has even been described as harsher than similar remedies elsewhere, due to the size of the penalties.

The penalties imposed by the new Law include fines of 1 to 20 percent of the gross revenues of the previous year. If it is not possible to calculate the fine based on such a criteria, the law decides that the fine shall range between BRL 60.000 and BRL 60.000.000. Other penalties may also be imposed. The company can be denied the chance to seek public financing or subsidies for one to five years. Another penalty is the suspension of the company's activities and even dissolution of the legal entity.

The government's intention is that the possibility of facing such severe penalties will make the companies see that investment in compliance with the law is more efficient than undertaking the risk of a reckless behavior.

Foreign companies

Another relevant aspect of the law, specially for foreign companies that are studying acquisitions in Brazil is that it even makes shareholders liable for any illegal conduct of the company before the acquisition, incorporation, merger or spin-off. The liability in such cases will however be restricted to the payment of fines and full indemnification for the damage caused. In this scenario, a detailed and careful due diligence process is required to identify possible violations or corrupt acts.

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