Crisis in Brazil - Where Does Corporate Compliance Go From Here?

Crisis in Brazil - Where Does Corporate Compliance Go From Here?

Aug 16, 2016
By: Laura Tulchin, Director

Only three years after Brazil started to get serious about cleaning up its reputation for endemic corruption, the state of corporate compliance in Brazil is in disarray. In the wake of political and economic crises, the very idea of combatting corruption has become a partisan concept, with a president displaced and awaiting an impeachment trial, a major recession, and a bitterly divided population.

Only a year ago, compliance was a bright spot in a souring economy, with domestic and international companies dedicating new resources to internal integrity and compliance programs. Today, the very word “corruption” is apt to set off an intense political debate and the future of these programs is uncertain. In light of the current political environment, how should companies operating in Brazil proceed?

With the passage of the Clean Companies Act in 2013, Brazil signaled a commitment to enforcing a robust anti-corruption and anti-graft framework. The Clean Companies Act stated in no uncertain terms that the private sector would be held accountable for creating and maintaining a strong culture of compliance. For the first time, it seemed that Brazilian corporations would be on the line for their role in the country’s history of graft. The concept of a robust compliance program in major companies, long neglected or overlooked, started gaining steam.

It was in this context that one of the largest corruption schemes in history began to be revealed. The Lava Jato investigation, as the scandal is known, has uncovered decades and billions in secret payments, rigged public bids, lavish gifts, and semi-legal contracts through shell companies. In the two years since the investigation began in earnest, Lava Jato has revealed meticulous details about the web of connections between high-ranking politicians and some of the country’s most powerful executives, providing the public with a front-row seat to years of corrupt dealings in some of the country’s most significant infrastructure projects.

While the first phases of Lava Jato were seen as Brazil flexing its muscles in the fight against graft, today the story is very different. The “fight against corruption” has become a euphemism for a bitter political divide between supporters of the government of ousted President Rousseff and those who favored impeachment. Although the charges against Rousseff are not related directly to Lava Jato, most supporters of impeachment see her government as inherently corrupt and impeachment as a victory against endemic graft. Rousseff’s replacement—whose own party is also mired in Lava Jato and who nominated several politicians directly implicated in the scheme to his cabinet—has reacted by dissolving the government’s anti-corruption agency and passing those functions onto another ministry.

In such an atmosphere of allegation and instability, how should corporations operating in Brazil react? Is the possibility of enforcement of the Clean Companies Act—and the ensuing promise of corporate accountability—no longer to be taken seriously?

The answer to these questions is a resounding no, for several reasons. First and foremost, companies operating in Brazil must take a long-term view. Despite ongoing political tumult, the pendulum in Brazil is still swinging towards strong regulatory regimes and strict compliance measures. Brazil is a major player in global trade and, as the 7th largest global economy, it has more incentive than ever to play by the rules. Growing international attention on compliance regimes and corruption crackdowns have been prompted in large part by recognizing that corruption scandals, like Lava Jato itself, can no longer be contained to one country. Corruption webs are increasingly global in nature. In this way, the private sector in Brazil can distance itself from current political instability by creating robust compliance and anti-corruption programs that comply with the toughest international standards, which have been embraced by both the left and right globally.
 
Secondly, in the short-term, multinational companies operating in Brazil can shield themselves from instability by investing in compliance. Today, enforcement of anti-bribery and corruption legislation is unpredictable, and it’s quite likely that any future government may choose charges against companies in the private sector as a way to deflect attention from allegations within their own party but still seem strong on corruption.
 
Thirdly, the lack of corporate enforcement of the Clean Companies Act in the three years since the law’s passage does not mean that enforcement isn’t coming. In the U.S., there were nine instances of enforcement of the Foreign Corrupt Practices Act between 1977 and 2000. Since then, there have been 139.[1] The UK Bribery Act, passed in 2010, has also been slow to get off the ground, but enforcement has been on the uptick, with the first conviction in 2015.[2] Furthermore, the legislation itself is strong and robust, with clearly defined fines for non-compliance and strong incentivizes around being able to demonstrate a strong corporate integrity program.
 
Finally, the private sector in Brazil has the opportunity to contribute to a mature, non-partisan culture of compliance in the country. While it’s true that the reigning optimism in Brazil a few years ago has all but disappeared, its progress in fighting corruption does not have to. As national politics are embroiled in accusations of bribery and political wrongdoing, the private sector has a chance to set an example by taking Brazil’s anti-money laundering and anti-corruption legislation seriously. In this case, the responsibility for building a mature, non-partisan culture of compliance transcends regional legal obligations. It is a matter of building a business environment that can continue to compete on the global stage, regardless of partisan politics.

This article was originally published in Compliance Week on August 16, 2016. Please click here to read the original post. 

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