Corporate Ethics: A New Facet Of Legal Due Diligence In Corporate Transactions

Decree 8.420/2015, which contains regulations under Brazil's Anticorruption Law (Law 12.846/2013), gives new importance to due diligence investigations in mergers and acquisitions, broadening the scope of the potential risks and liabilities to be identified and dealt with before the companies involved in the potential transaction decide to go ahead with the deal.

Under the Anticorruption Law, corporate transactions can make one company liable for the corrupt acts of another. The parties to the corporate transaction can take steps to avoid exposure to penalties under the Anticorruption Law, and the most important of these steps is a careful legal due diligence investigation.

When conducted prior to implementing a corporate transaction, a legal due diligence investigation will assess, among other factors, the potential for corrupt acts by reason of a company's business activities, and the existence of an effective compliance program to prevent and mitigate unlawful conduct.

With this assessment in hand, the companies involved in the proposed transaction and their legal advisers can decide on a strategy to deal with the question of corruption and put an end to any undesirable practices that may exist.

The strategy can include actions such as: appropriate treatment in the transaction documents for identified risks and liabilities, improving or implementing internal procedures and mechanisms to avoid the occurrence of corrupt actions, and voluntary disclosure to authorities to obtain the benefit of reduced penalties for the corrupt practices identified in the due diligence investigation.

The Anticorruption regulations also provide that the existence and effective implementation of a compliance program can be a mitigating factor in determining the penalties that will be imposed on offenders.

According to the Anticorruption regulations, a compliance program is a set of internal mechanisms and procedures, audits, and whistle-blowing incentives, and the effective application of codes of ethics, codes of conduct, policies and guidelines, all directed to preventing, detecting and stopping corruption involving government agents.

One of the criteria listed in the regulations for...