June 27, 2023
Statute #12,846, of August 1, 2013 (also known as Brazilian Anti-Corruption Act or LAC) is close to reaching its 10-year milestone. At the same time, Transparency International Brazil (TI Brazil) submitted a report to the Organization for Economic Co-operation and Development (OECD) in 2022, on the "systematic dismantling of the structures created over the last few years to fight corruption in the country”.
Without discussing the accuracy of the report, it is a fact that four years after the enactment of the most recent anti-corruption convention, Brazil introduced Draft Bill #6,826/2010, which became Statute #12,846 on August 1, 2013, three years later. Since then, there has been a significant increase in the number of administrative procedures (also known as PARs) against companies involved in actions harmful to the Public Administration, as established by the LAC.
Led by the Brazilian Office of the Comptroller General (CGU), the monitoring agencies have taken advantage of the strict liability introduced by the LAC, which allows for the imposition of severe sanctions (such as fines of up to 20% of their revenues and the publication of the condemnatory sanctions) without the need for the prosecuting body to gather extensive evidence beforehand. Such sanctions have the potential to make a company go out of business.
Contrary to the implications of the TI Brazil report, what has been observed in the realm of administrative sanctions is the resurgence of the government's punitive authority. The PARs sphere has witnessed a significant surge in sanctions, with a 296% increase between 2020 and 2021 (according to CGU data). However, the Judiciary has had no opportunities to thoroughly examine the extent and potential exceptions to the implementation of punitive strict liability on companies, which has been occurring at least in a constitutionally unsystematic way.
Undoubtedly, the LAC has emerged as a crucial instrument in combating corruption that may pose a threat to both national and foreign Federal Governments. Nevertheless, it is important to acknowledge that its punitive inclination has the potential to result in excesses and unintended consequences that may undermine the intended safe environment and economic growth.
The adoption of internal measures and norms to address corruption in Brazil was driven by three significant international commitments: the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions; The Inter-American Convention Against Corruption (OAS Convention); and The United Nations Convention Against Corruption, enacted respectively in 2000, 2002, and 2006.
Following these agreements, LAC was established in 2013 amid political pressure for the prosecution and punishment of individuals and companies who had engaged in a series of corruption scandals. The result was the approval of an Act endowed with two particularly powerful provisions that grant significant punitive authority: the "strict liability of legal entities"  and the so-called "inapplicability of mandatory double charging" . For the first provision, the legal entity can be held liable and punished without the need to demonstrate intent or guilt by any individual. And for the second provision, the legal entity may be held liable regardless of charges filed against the individual at the same or another court.
Regarding strict liability, it is often claimed to be simply a direct import of the principles found in the Foreign Corrupt Practices Act (FCPA), from USA, and in the UK Bribery Act (UKBA), from United Kingdom, but liability in these acts is quite different. In short, FCPA requires standards of proof beyond a reasonable doubt, whereby the intention of the corrupting agent must necessarily be demonstrated for the penalty stipulated by law to be applied to the employee and to the company in criminal proceedings. In turn, the UKBA accepts the exclusion of liability in case the company proves that it has an effective integrity program (that it has adopted all possible preventive measures for a culture of integrity, and that the employee's conduct was an isolated situation).
In the FCPA hypothesis, what we have is punitive liability that does not fail to assess subjective elements of corruptive conduct (intent beyond any reasonable doubt). The UKBA, on the other hand, at least provides for means to assess the strict charging for the harmful result attributed to the legal entity, as it admits the possibility of liability exclusion due to the company's performance within the risk allowed or not legally disallowed (assessment of the strict charging for the result according to compliance with all the norms aimed at preventing corruption); or the liability exclusion due to the company's conduct under the principle of trust, as longs as it operates in accordance with the rules of integrity. Therefore, without having to monitor the compliance of third parties with whom it eventually interacts with in order to accomplish its goal.
LAC does not have the FCPA and UKBA limitations, although they could be provided through legislation and, presumably through the courts, which could at least establish parameters that are more in line with the constitutional order regarding the adoption of strict liability. This is because, one cannot lose sight of the fact that the strict liability addressed in the LAC is not intended to establish compensation for material and moral damages arising from unlawful acts in mandatory contractual and property relationships, in which one party is clearly disadvantaged compared to the other.
In the case of Article 2 of Statute #12,846/2013, what we see is the application of strict liability aimed at imposing true and more severe punishments. Under PARs: a fine of 0.1% to 20% of the revenues earned during the last year prior to the filing of the PAR, excluding taxes, which will never be less than the benefit earned, when it is possible to estimate it; and extraordinary publication of the condemnatory decision (Article 6). And under lawsuit: loss of the assets, rights, or valuables; partial suspension or interdiction of company activities; compulsory dissolution of the legal entity, and prohibition from receiving incentives, subsidies, grants, donations, or loans from public agencies or entities and from public financial institutions or government-controlled entities, for a period of one to five years (Article 19).
The rationale behind the LAC's more severe liability compared to the foreign laws that served as its inspiration is the intention to eliminate the burden of proving that the corrupt official acted under the company's support or knowledge, or that the company failed to ensure compliance within its employees. This would make it easier to define the illegal action and to effectively punish it.
However, it is not appropriate to base the justification solely on utilitarian and functional grounds, such as the passivity or admitted incompetence of public agencies to effectively gather evidences of illegality. It is important to consider the true nature of legal institutions and the necessary guarantees to ensure the legitimacy of imposing such severe sanctions.
It is evident that the sanctions imposed, whether at the administrative or judicial spheres, have a direct impact on the assets of the legal entity and its freedom to operate, exist and hire, which is unavoidably guaranteed by the due process of law (Article 5, item LV, of the Brazilian Constitution ), which includes the necessity of assessing the violation beyond simple causation or full risk.
However, what has been observed in the PARs is that the commissions that conduct such processes (often composed of civil servants without legal training) take strict liability for full liability, as they recommend imposing sanctions even without sufficient evidence of an act of corruption by an employee of the company under investigation.
The provision of "inapplicability of mandatory double charging" for assessing legal entities' liability within the scope of the LAC (Article 3, caput and Paragraph 1), is another indicative of the predominantly punitive nature of LAC. It closely resembles the model of criminal liability for legal entities, albeit covertly applied only in the administrative and civil spheres of the LAC, as if to escape the explicit constitutional restriction that limits criminal liability for legal entities only to the realm of environmental crimes.
The issue lies in the fact that the LAC did not adopt strict liability in the same context as civil liability, where it serves to establish compensation for damages resulting from unlawful acts in cases of unequal power dynamics between parties. Instead, the LAC applies strict liability with a clear punitive intent. It is strict liability for punitive purposes in the sphere of administrative sanctioning law, even if via two different paths, namely, the administrative (Article 6) and the judicial (Article 19) spheres. The fact that Statute #12,846/2013 provides for a judicial process to apply the penalties in Article 19 does not convert the punishment established therein into mere compensation for an unlawful act. In this case, it remains evident that the public administration focuses on one aspect of the proceeding, establishing the LAC judicial process as a punitive measure against acts of corruption in favor of the government.
Unfortunately, even as the LAC approaches its ten-year mark, these and other issues persist without a thorough assessment of its unmistakably punitive nature. It calls for a treatment that aligns with the list of guarantees outlined by the Constitution and derived from general principles of law, particularly criminal law. Such an approach would ensure a legitimate and appropriate application of punitive measures under the LAC.
Up until now, only a few proceedings have been brought before the courts, and in most of them, after realizing the slim chances of mounting a successful defense, the companies have decided to accept strict liability to take advantage of the summary judgment system (CGU's Ordinance #19 of 2022). The system offers benefits such as reduced fines, removal from the list of convicted companies, and non-publication of the condemnatory decision. However, by opting for this route, companies abandon the opportunity to present a substantive defense that could potentially uphold their fundamental rights and guarantees.
After ten years in effect, the LAC has been setting new records in terms of sanctions imposed on companies, particularly in PARs. Nevertheless, while awaiting the judgment of the ADI #5261 under the jurisdiction of Justice André Mendonça (which addresses the constitutionality of the LAC's strict liability), it is crucial that specific cases be brought before the courts. This will allow for a deeper examination of two key aspects: firstly, the determination of LAC's administrative sanctioning nature, and thus, its consequent adherence to explicit and implicit constitutional guarantees and principles, capable of ensuring the enforcement of due process of law; and secondly, the presence of a questionable strict liability concept within a punitive sphere, lacking the necessary criteria for strict enforcement that aligns with the limitations imposed on any punishment by government bodies.
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