21 answers on the Anti-Corruption Law and Lava Jato

Translated from the original.

Lawyer and professor Fábio Medina Osório is Brazil’s foremost authority on Administrative Sanctioning Law. A former prosecutor in Rio Grande do Sul, author of several books and president of the International Institute of State Law Studies, Medina agreed to prepare, together with JOTA, an interview-format guide on the Anti-Corruption Law and the administrative developments of Operation Car Wash.

Read the interview:

1. What is the main novelty brought by the Anti-Corruption Law?

Strict civil and administrative liability of the company that commits the harmful act. Thus, it is not necessary to prove that the officers or owners of the companies intended to harm the administration, nor that the benefit generated by the unlawful act was actually obtained. Strict liability, however, does not exclude the importance of examining causation. And the causal relationship — this is a legitimate doctrinal construction to be made — may be severed by the existence of an effective integrity program, considering the “independence, structure and authority of the internal body responsible for applying the integrity program and overseeing compliance with it.” The legal regime of the new Law is that of administrative sanctioning law, with a peripheral interface with other branches of law. The Law is not criminal in nature, much less civil law.

2. What is the effect of holding companies liable on the liability of the individual involved in the act of fraud or corruption?

The company's liability tends to reinforce the prospect of liability of individuals, but they are independent spheres. However, proof is required that a predicate offense has occurred, that is, one committed by an individual, in order to hold the legal entity strictly liable for some kind of culpability for defective internal organization. The legal entity is held liable under two prerequisites: a) proof of an unlawful act committed by an individual in its interest and with some kind of representation link; b) a defect in the legal entity's internal organization (mismanagement), which may derive from intentional or negligent conduct (it does not matter), embodied in the absence of an integrity program. For this reason, the Law may be called the Corporate Probity Law. It aims not only to prevent acts of public corruption, but to curb the existence of companies lacking internal mechanisms of ethical sustainability.

3. When did the Anti-Corruption Law actually begin to take effect?

Since January 29, 2014, the Anti-Corruption Law has been in force, for facts occurring under its effect. Now that the law has been regulated, it will be necessary to distinguish two levels of rules: substantive sanctioning rules and punitive procedural rules. Once the distinction is made, it should be noted that, with regard to substantive rules, there is no room to speak of more burdensome retroactivity. As for procedures, they apply immediately. I understand that the wrongdoing is governed by substantive rules, which already exist and are set out in the Anti-Corruption Law.

In most Brazilian States and Municipalities there is still no regulation at all. The exception is the State of Espírito Santo, which seems to stand out as one of the most committed, at present, to implementing the Law. In addition to regulating the Law, it created a Secretariat of Control and Transparency with a strong material and operational structure.

4. Does the Law apply only to the investigation of harmful acts against the national public administration?

The Law reaches legal entities that commit harmful acts against national or foreign public administration. It therefore applies to Brazilian companies operating in Brazil or abroad, and to foreign companies operating in Brazil. The curious thing is that, abroad, Brazilian companies are equally exposed to the principles and rules of the foreign Public Administration.

5. What sanctions are possible under the Anti-Corruption Law?

Under Law 12,846/2013, a fine and extraordinary publication of the sanctioning administrative decision are sanctions applicable by municipal, state or federal administrative authorities, always depending on regulation. In the case of administrative violations involving Law 8,666/93, the legal entity is also subject to restrictions on its right to take part in bidding processes or to enter into contracts with the Public Administration, which can be applied directly by contracting authorities.

6. What sanctions can Cade, the CGU, the TCU, and the CVM impose on companies?

Both these administrative authorities and the Judiciary itself are empowered to apply Administrative Law sanctions to companies. These are sanctions governed by the legal regime of Administrative Law and, therefore, fall within the scope of Administrative Sanctioning Law. The concept we introduced into Brazilian law regarding administrative sanction is the following: “the content of a sanctioning act, judicial or administrative, consisting of the harm or punishment imposed on the person subject to jurisdiction or to administration, in a general manner and pro futuro, in accordance with the rules and principles of Administrative Law, as a consequence of the commission of an administrative offense by act or omission, translated as a deprivation of rights or an imposition of duties, excluding the freedom to come and go, with the exception of military disciplinary penalties, within the administrative or judicial proceeding, whose purpose is the repression of unlawful conduct, as a legal reaction to the occurrence of prohibited behavior˜.

The greatest novelty of this concept, which I formulated under the supervision of Professor Eduardo García de Enterría in 1999, lies in the conceptual separation proposed: the separation between the theory of sanction and the theory of procedure. In short, administrative sanctioning law does not require the unavoidable presence of the Public Administration on the punitive side. The late Oswaldo Aranha Bandeira de Mello, one of the greatest administrative law scholars in Brazilian history, already said that Administrative Law has a procedural dimension, insofar as it interacts with other branches of law. What we did was to show the substantive dimension of Administrative Law in dealing with the punitive claim and the theory of sanction, together with its formal or procedural dimension.

Having made these preliminary clarifications, which appear in our studies, I note that the Anti-Corruption Law (Law 12,846/13) and the Administrative Improbity Law (Law 8,429/92) establish wrongdoing governed by rules and principles of Administrative Law. They therefore belong to the field of Administrative Sanctioning Law. Facts that fall within them, however, call for the simultaneous action of multiple institutions, which creates scenarios of uncertainty and insecurity. The Lava Jato Operation case is emblematic, as it probably engages the jurisdiction of numerous administrative and judicial institutions.

Immediately, I identify the following bodies: criminal judge; judge of the improbity actions; judge of any popular actions or actions for annulment; Federal Government Ministry; Petrobrás; Securities and Exchange Commission – CVM; Administrative Council for Economic Defense – CADE; Office of the Comptroller General – CGU; Federal Court of Accounts – TCU.

CADE, a federal agency linked to the Ministry of Justice and responsible for preventing and repressing infractions against the economic order, faced with facts amounting to unlawful acts against the Public Administration, and within its sphere of powers, may impose an administrative fine ranging from 0.1% (one tenth of one percent) to 20% (twenty percent) of the gross revenue obtained by the offender (company, group or conglomerate) in the fiscal year prior to the opening of the administrative proceeding, in the line of business in which the violation of the economic order occurred. If this infraction can be measured, the sanction may not be less than the advantage obtained by the offender.

Depending on the seriousness of the violation of the economic order, other penalties may also be imposed, in addition to the aforementioned sanction, either individually or cumulatively. They are: a) publication, at the offender's expense, in a newspaper indicated in the decision, of an extract of the conviction decision, for 2 (two) consecutive days, for 1 (one) to 3 (three) consecutive weeks; b) prohibition on contracting with official financial institutions and on participating in bids for the acquisition or sale of goods, public works and services, and public service concessions, in the federal, state and municipal Public Administration and that of the Federal District, as well as in indirect administration entities, for a period of no less than 5 (five) years; c) registration of the offender in the National Consumer Protection Registry; d) recommendation to the competent public bodies that a compulsory license over intellectual property rights held by the offender be granted, when the infringement is related to the use of that right; or that the offender not be granted installment payment of federal taxes owed by it, or that tax incentives or public subsidies be canceled, in whole or in part; e) corporate split-up, transfer of corporate control, sale of assets or partial cessation of activity; f) prohibition on engaging in commerce in one's own name or as a representative of a legal entity, for up to 5 (five) years; or g) ordering any other act or measure necessary to eliminate the harmful effects on the economic order.

It is worth recalling that offenses related to cartels and breaches of the economic order can and should be investigated by Cade, whose members are chosen from among citizens over 30 (thirty) years of age, of notable legal or economic knowledge and unblemished reputation, appointed by the President of the Republic after approval of the nominees by the Federal Senate. The members of Cade’s Administrative Tribunal serve a term of 4 (four) years and may not be reappointed.

As for the CGU, considering that the companies involved in Operation Car Wash were contracted through bidding procedures, it is possible, in theory, to apply the administrative sanctions provided for in Law No. 8,666/93, specifically in its art. 87, namely: a) a fine, under the terms of the administrative contract; b) temporary suspension from participating in bids and a prohibition on contracting with the Administration; c) a declaration of unsuitability to bid or contract with the Public Administration for as long as the reasons determining the punishment persist, or until rehabilitation is obtained before the very authority that imposed the penalty.

It should also be noted that, had the facts investigated in Operation Car Wash occurred after Law No. 12,846/13 came into force – and this is a subject that lacks study on figures such as continuing offenses, permanent offenses, consummation and exhaustion – the Law would also radiate its effects over the construction companies. After the Federal Government regulated the Law by decree, the CGU can now impose sanctions of a fine of 0.1% (one tenth of one percent) to 20% (twenty percent) of the company's gross revenue in the fiscal year prior to the opening of the administrative proceeding, extraordinary publication of the conviction decision and inclusion in the National Registry of Punished Companies – CNPE. Besides the CGU, the Federal Government Ministries are likewise empowered by the Decree. The administrative sanctioning proceedings must be aligned with the Decree.

The registry referred to in the Law will be maintained by the Federal Executive Branch and will contain information transmitted by the authorities regarding the sanctions they have imposed in accordance with the Anti-Corruption Law (date of application and end date of the limiting or impeding effect of the sanction, where applicable) and regarding the corporate entities punished. However, I must recall that regulation is a necessary condition for the exercise of the punitive claim of the administering State, which has not yet occurred in the overwhelming majority of Brazilian States and Municipalities, as it will detail administrative procedures, rights of the accused, “compliance” requirements and their relevance to causation and the mitigation of possible penalties.

The TCU, for its part, once the fraud is proven, may impose a fine of 100% (one hundred percent) of the damage caused to the public treasury and declare the business companies involved ineligible to bid and contract with the government for a period of five years, and this is not an application of the anti-corruption law, but the exercise of the TCU’s specific powers under the legislation governing bidding and contracts.

By virtue of any infringement of the CVM Law (Law No. 6,385/76), the Corporations Law (Law No. 6,404/76), the CVM Resolutions and other rules whose enforcement is entrusted to the authority supervising the securities market, the latter may impose the following sanctions: a) a fine of up to R$ 500,000.00 (five hundred thousand reais); b) suspension of the authorization or registration to carry out the activities regulated by Law No. 6,385/76; c) revocation of the authorization or registration to carry out the activities regulated by Law No. 6,385/76; d) temporary prohibition, for up to a maximum of twenty years, from engaging in certain activities or operations, for members of the distribution system or of other entities that depend on authorization or registration with the Securities and Exchange Commission; e) temporary prohibition, for up to a maximum of ten years, from acting, directly or indirectly, in one or more types of operation in the securities market. The CVM has a strong culture of knowledge about good governance and ˜compliance˜, which will certainly influence the formulation of the Federal Government's punitive public policies.

7. With regard to the Car Wash (Lava Jato) cases, what other bodies may, in theory, be called upon to investigate the case administratively?

In principle, the following may investigate administratively, within the scope of their competences: the CGU, the MPF, the Ministries, CADE, and Petrobrás itself, under, respectively, Law No. 10,683/03, Complementary Law No. 75/93 and Law No. 12,846/13 and the legislation governing their respective attributions.

There are those who argue that state-owned companies may apply the sanctions of Law 12,846/13 (with caveats, aiming at reasonableness), which would legitimize PETROBRÁS in the plaintiff’s position. The thesis is based on the premise that the Administrative Sanctioning Law regime of the Bidding Law already authorizes the exercise of controls and punitive claims by the contracting parties. That is, state-owned companies may apply administrative sanctions to contractors under that normative model.

However, I think it would not be prudent to accept that, without express reference in the Law, state-owned companies, which compete in the private market, could impose Anti-Corruption Law sanctions on contracted companies. There is a legal gap, which should not be filled by analogy, in matters of Administrative Sanctioning Law. It is a matter of strictly observing the principle of legality and a restrictive hermeneutics in this area.

It is for the CGU to investigate the facts uncovered in Operation Car Wash, since it is entrusted with the defense of public assets, internal control, public auditing, oversight and discipline, the prevention of and fight against corruption, ombudsman activities and the enhancement of management transparency within the Federal Public Administration. Without regulation of Law 12,846, what it is barred from doing is applying that Law. The CGU was created in 2001, by virtue of Provisional Measure 2,143-3; its Minister-Chief is appointed by the President of the Republic, while its civil servants are appointed after approval in a public competitive examination of tests and credentials. It is a body that tends to be technical. The ideal is for the CGU to act as an authentic regulatory agency in this field.

The MPF, for its part, has competence to conduct investigations, because it is charged, under art. 127, caput, of the Constitution of the Republic, and art. 1 of LC No. 75/93, with the defense of the legal order, the democratic regime and inalienable social and individual interests. The Anti-Corruption Law expressly grants standing to the Brazilian MP.

Petrobras, a mixed-capital company that was the target of the criminal activity investigated in Operation Car Wash, must also carry out administrative investigations through its internal corporate integrity bodies, even though, in my view, it does not have the competence to apply the Anti-Corruption Law. By acting in this way, the state-owned company demonstrates its commitment to ethical sustainability (compliance), presenting itself to investors as an adequate environment for receiving capital contributions. It is worth mentioning that on 25 November 2014 the Board of Directors of Petrobras created, by unanimous vote, the Governance, Risk and Compliance Department, which will be responsible for executing the compliance policies.

8. If an administrative improbity action is upheld on the merits, what punishments can be applied to companies?

Following a judgment upholding the claims in a possible administrative improbity action, the following sanctions appear likely to apply: a) loss of the assets or values unlawfully added to one’s estate; b) full reimbursement of the damage caused to the public treasury; c) payment of a civil fine; and d) prohibition on contracting with the Government or receiving tax or credit benefits or incentives, directly or indirectly.

9. What non-custodial sanctions can a criminal action upheld on the merits impose on the owners of construction firms, with direct repercussions on the companies’ businesses?

A fine is a non-custodial penalty prescribed for the criminal offenses investigated in Operation Car Wash, among which one can see concealment of assets, rights and values (art. 1 of Law No. 9,613/98), illegal currency evasion (art. 22 of Law No. 7,492/86), criminal association (art. 288 of the Criminal Code). The media reports are not clear, but it could be the crime of criminal organization – art. 2, Law No. 12,850/13 –, whose maximum penalty prescribed in the abstract is 8 years, bid fraud (art. 90 of Law No. 8,666/93), active corruption (art. 333 of the Criminal Code) and passive corruption (art. 317 of the Criminal Code). There are many variables in applying these penalties, with possible incidence of aggravating circumstances, enhancements or mitigating causes.

The amount of the fine will be set at the time of sentencing, within the limit of 360 day-fines. However, if any of those investigated is sentenced to a custodial penalty of no more than four years, it may be replaced by another restricting rights, consisting of a) pecuniary payment, b) forfeiture of assets and values, c) community service or service to public entities, d) temporary disqualification of rights or e) weekend limitation.

Moreover, a final criminal conviction obliges the convicted person to compensate the damage he caused, results in the forfeiture of the proceeds of the crime or of any asset or value constituting a benefit obtained by the agent through the commission of the criminal act, and imposes the suspension of political rights for as long as the effects of the criminal judgment last.

One should highlight the possible consequences of this conviction, including the entry of the contractors’ executives in the registry of individuals with criminal records for as long as the sentence is being served, drawing the attention of investigative institutions to the activities of these companies and their representatives. Should this occur, it will become easier for the authorities to infer wrongdoing from future situations, often of minor relevance, going too far in seeking sanctions and in persecuting the contractors and their managers because of their record of convictions.

In this sense, the registration of business entities on the list of unfit companies should also not be overlooked, as it prevents the execution of new contracts with the Government and reduces competitiveness.

The only normative basis found for the existence of a criminal record registry was Normative Instruction No. 005/2008-DG/DPF, which in truth merely states that the criminal record certificate is issued on the basis of the information contained in the Federal Police's computerized databases. Currently, there is no rule regulating the entry of criminal records of individuals. In the Code of Criminal Procedure, the only mention made of the registration of criminal records provides that “in the certificates of record requested of it, the police authority may not mention any notations regarding the opening of an inquiry against the applicants.

Brazil needs to improve its registry systems and regulate the concept of “prior record.” There are several registries that can coexist.

10. Even with administrative improbity and criminal actions already filed, could the same facts of Operation Car Wash (Lava Jato), in theory, give rise to actions for violation of the Public Procurement Law and the Anti-Corruption Law? If so, what punishments can be applied?

Given the object of the Anti-Corruption Law – the strict administrative and civil liability of legal entities for acts against the Public Administration, domestic or foreign -, it is possible that business companies may suffer administrative and judicial sanctions arising from its application to facts after January 29, 2014 or through continuity of wrongdoing, or even through permanent wrongdoing.

Along these lines, if the commission of acts harmful to the Public Administration is proven, the following penalties may be applied administratively: a) a fine of 0.1% (one tenth of one percent) to 20% (twenty percent) of the gross revenue of the fiscal year prior to the opening of the administrative proceeding and b) extraordinary publication of the conviction decision.

In the judicial sphere, without prejudice to administrative punishment, the following sanctions are provided for: a) forfeiture of the assets, rights or values that represent an advantage or benefit obtained, directly or indirectly, from the violation, subject to the right of the injured party or of a good-faith third party; b) suspension or partial prohibition of its activities; c) compulsory dissolution of the legal entity; and d) prohibition on receiving incentives, subsidies, grants, donations or loans from public bodies or entities and from public financial institutions or those controlled by the government, for a minimum period of 1 (one) and a maximum of 5 (five) years.

If the authorities of the Executive Branch fail to act, including with regard to regulation, administrative sanctions may also be applied in court. In practice, the Law is fully in force and may apply, depending only on initiatives before the Judiciary. In that context, the Law, in this particular respect, and by force of its own provisions, creates risks for companies, insofar as the lack of regulation does not prevent its application by judicial authorities.

11. As can be seen from the previous answers, there are many similar sanctions within each sphere (administrative, civil and criminal) and among the three spheres. There has never been a case of the magnitude of Operation Car Wash (Lava Jato). How should all the bodies relate to one another?

It is for the authorities to engage in interinstitutional dialogue and strategies in pursuit of proper management of the punitive system. It must not be forgotten that a decision issued by one body may have repercussions in another. If the TCU acquits, or there is an administrative decision by the CGU examining the merits, obviously there may be repercussions in the field of Criminal Law or of Administrative Sanctioning Law handled in improbity actions. The core of the typicality of the conduct may be affected by an institutional decision issued by a public authority, since the unity of the unlawful fact demands minimum levels of coherence and legal certainty in the exercise of the State's punitive claim.

12. Did the Mensalão scandal leave any lesson for the different bodies to work together in investigating unlawful acts?

Several administrative improbity actions were filed in the Federal Capital in relation to the facts of the Mensalão (2007.34.00.029.881-0 [8th Federal Court], No. 2007.34.00.029883-7 [14th Federal Court], No. 2007.34.00.029880-6 [20th Federal Court], No. 2007.34.00.029882-3 [6th Federal Court], 2007.34.00.031029-0 [9th Federal Court]).

Such proceedings are assigned by dependence to AIA No. 2007.34.00.029879-6. That action, in turn, was not admitted with respect to the protagonists of the Mensalão case (REsp No. 1305905). The case has had no movement since 04/29/2009, when the remittance of the records to the TRF-1 was ordered. It appears that the improbity actions in the Mensalão case did not move with the same speed as the criminal action, which is curious, since civil actions normally move faster.

In Special Accounts Review No. 019.018/2005-0, which investigates the occurrence of damage to the public treasury as a result of the volume bonus clause in an advertising contract entered into by Banco do Brasil, a collegiate decision was issued approving the accounts with reservations. The decision was the subject of a request for reconsideration by the Public Prosecution Service before the TCU, which has not been decided to this day. And it raised an important debate in the STF Plenary.

I consider the exchange of information among the authorities, and consistency in the exercise of the State’s punitive claim, increasingly important.

13. Could the MPF alone conduct the negotiation of companies' leniency agreements?

It cannot, since the conclusion of a leniency agreement is the responsibility of the highest authority of each public body or entity, as the opening part of the caput of art. 16 of Law No. 12,846/13 provides. In the case of Operation Car Wash, it falls to the CGU, under art. 16 of the same statute, which may be done in line with the implementing Decree.

However, I recall that a bill authored by Senator Ricardo Ferraço (PMDB – ES) creates an obligation for the MP to take part in leniency agreements, which seems healthy and productive. I also believe it would be important to include individuals as signatories of the agreement, since a legal entity can hardly admit wrongdoing committed by third parties.

It should be noted that, under TCU Normative Instruction No. 74, of February 11, 2015, the TCU will oversee the procedures for entering into leniency agreements that fall within its jurisdiction. Moreover, leniency agreements entered into by the Federal Public Administration that have not been submitted to the TCU do not preclude the exercise of the constitutional jurisdiction of that External Control Institution, nor do they prevent the application of the sanctions established in Law No. 8,443/92.

14. Can the MPF include the withdrawal of an improbity action it filed as part of a leniency agreement or plea cooperation agreement

a?

It should be noted that Law No. 8,429/92, in its art. 17, § 1, prohibits settlement, agreement or conciliation in improbity actions. Therefore, it would not be viable for this withdrawal to be the subject of a leniency agreement or plea cooperation agreement, on a more literal reading of the Law.

Law No. 12,850/13, which addresses cooperation in criminal organizations, contains no mention of the content of the agreement or of what may or may not be the subject of negotiation among the police authority, the representative of the Public Prosecution Service, the accused and his defense counsel.

A scenario of high legal uncertainty may arise if there is no room for coherence and a reasonable interpretation of the legal system. If the same holder of the criminal action is the holder of the improbity action, and has entered into agreements, I think it is possible to build a pragmatic and consistent solution from a normative standpoint. Criminal Law is, in theory, more serious than Administrative Sanctioning Law, notably in those offenses that carry custodial sentences. In those cases, it does not seem reasonable to suppose that a cooperating party would be granted a judicial pardon in the criminal actions and remain exposed to improbity actions, if the parties agree that an agreement is possible. In any event, it is a subject that requires in-depth study and does not yet admit a definitive position, given its complexity.

15. In what scenario could it be worthwhile for a company to enter into a leniency agreement, if none of its executives agrees to enter into a plea cooperation agreement?

The leniency agreement exempts the legal entity from the sanctions of extraordinary publication of the conviction and of the prohibition on receiving incentives, subsidies, grants, donations or loans from public bodies or entities and from public financial institutions or those controlled by the government, for a minimum period of 1 (one) and a maximum of 5 (five) years; reduces the amount of the fine by up to 2/3 (two thirds); relieves the legal entity of the obligation to make full reparation for the damage caused; and may be extended to the legal entities that belong to the same economic group, provided that they also sign the agreement.

The execution of a leniency agreement is still permitted in relation to the commission of unlawful acts provided for in the General Law on Public Procurement and Administrative Contracts, with a view to exemption from or mitigation of the sanctions provided for in its arts. 86 to 88.

The difficulty here lies in the fact that the company intends to admit unlawful acts committed by third parties, that is, by individuals.

16. If a leniency agreement is entered into during the course of the investigations, before any of the bodies mentioned above, can it be annulled in the future by judicial action? What would be the possible grounds for annulment?

A leniency agreement, being an administrative act, may be annulled, within a five-year statute of limitations period, by the Public Administration itself when tainted by a defect of legality, under arts. 53 and 54 of Law 9,784/99.

A popular action may also be filed, by any citizen, seeking the annulment or declaration of nullity of a leniency agreement that is harmful to public assets, as permitted by art. 1 of Law No. 4,717/65. In this case, the act will be declared null if it a) was performed by an incompetent authority, b) did not observe the form prescribed by law, c) involves an unlawful object, d) is based on facts that do not exist or are legally inadequate to the result obtained, e) was performed with misuse of purpose.

17. A model is being stitched together in which the MPF, Cade and CGU negotiate leniency agreements and the TCU approves them. What is your opinion of this construction? Weak and strong points?

The Anti-Corruption Law does not prohibit joint action by the oversight bodies, merely assigning to the CGU competence to conclude leniency agreements within the Federal Executive Branch and when the harm is done to a foreign Public Administration, subject to administrative due process.

“OF THE LENIENCY AGREEMENT

Art. 16. The highest authority of each public body or entity may conclude a leniency agreement with the legal entities responsible for committing the acts provided for in this Law that effectively cooperate with the investigations and the administrative proceeding, provided that this cooperation results in:

I – the identification of the other persons involved in the violation, where applicable; and

II – the prompt obtaining of information and documents that prove the wrongdoing under investigation.

1. The agreement referred to in the caput may only be entered into if the following requirements are cumulatively met:

I – the legal entity is the first to express its interest in cooperating in the investigation of the unlawful act;

II – the legal entity completely ceases its involvement in the investigated infraction as of the date the agreement is proposed;