I. Corporate liability deriving from criminal activity (unlawful acts)
1. Nature of the liability (criminal, administrative) and basis (wrongdoings) for crimes committed by directors or representatives, in the interest of or for the advantage of the company
The same conduct may trigger several liabilities (such as criminal, administrative, civil and tax related). Each type of liability is assessed independently in Brazil, according to a specific law. However, the liability of legal persons is limited to the fields of civil and administrative law, which normally represent pecuniary penalties and indemnification of damages. In this regard, corporations are not liable for criminal penalties, and criminal charges are reserved for individuals only (with the exception of environmental crimes).
A crime committed by an employee or officer of the company may cause liability for the legal person if the act was committed in the interest of the legal entity itself. However, the liability of the company and the type of liability would be assessed independently according to the circumstances of each case.
Brazilian law provides for criminal liability of legal persons only in exceptional cases, such as those of environmental crimes. In all other cases, criminal liability only applies to individuals, not to companies.
Pursuant to Section 3 of Law No. 9,605/1998 (environmental crimes), criminal corporate liability is triggered when a crime is: (i) committed according to a decision of its legal representatives or board of directors; and (ii) committed in the company’s interest or for its benefit. In addition to criminal liability, environmental crimes may also result in administrative and civil liability. The Brazilian Supreme Court has recently decided that corporate criminal liability is independent of the criminal liability of the individual who committed, or somehow assisted, in the offense. This means that even if the authorities do not pursue the individuals involved in an environmental crime, the authorities can start criminal proceedings against the company if they consider that the legal requirements of Section 3 of Federal Act 9,605/1998 are fulfilled.
Under Brazilian law, in most cases there is no strict liability in relation to criminal matters. In order to be criminally liable, an individual has to act with mens rea or fault. The requirement of intent is crucial to determining both participation in the criminal offense as well as criminal liability. However, Law nº. 12,846/2013 (“Anti-Corruption Law”), Law No. 12,529/2011 (“Antitrust Law”) and Law 8666/93 (“Public Procurement Law”) are strict liability statutes.
Any crime committed by an officer or representative that benefits the company and that results in damages to third parties may result in a liability for the company to fully recover those damages. Civil liability is based on Article 927 of Law No. 10,406/2002 (“Brazilian Civil Code”), which establishes the duty to compensate damages caused to third parties.
A company may also be obliged to compensate damages caused to the so-called “diffuse interests.” Thus, if officers or representatives committed crimes against the environment, consumer relations or the economic order, the company may face a public civil action to compensate damages in those areas.
In both cases, civil liability is assessed independently, and generally, and the outcome of the criminal lawsuit is not relevant to the civil lawsuit.
Criminal conduct may also cause administrative liability. Again, such liability is assessed independently from other types of liability. Administrative liability under Brazilian law may result in high fines for the company.
For instance, the Anti-Corruption Law, as mentioned, establishes a strict liability regime, which means that a legal entity will be held administratively liable for corrupt acts committed by any of its employees or by its agents or third parties used for its business operations. Under the Anti-Corruption Law, there is no requirement of intent or proof that the company’s management had actual knowledge of or approved the specific improper acts. The authorities only need to prove that the illegal acts were committed in the interest of the legal entity. The Anti-Corruption Law states that fines arising out of strict liability may be mitigated by the existence of adequate procedures to prevent bribery, such as compliance policies in place within a company.
The Antitrust Law also provides for a strict liability regime. The company is administratively liable for antitrust infringements committed by its employees or officers regardless of the company management’s knowledge. There is no need to prove that the acts were committed in the interest of the company or even that they had any negative effects on the market.
Corruption and bid rigging generally cause liabilities under Law No. 8,429/1992 (“Improbity Law”) and the Public Procurement Law. These are specific administrative laws that include various sanctions as listed under I.2.
2. Types of crimes/administrative offenses from which, according to the legislature, corporate liability may arise
As stated above, with exception to environmental crimes, there is no corporate criminal liability. However, criminal acts of individuals may trigger administrative or civil liabilities for a company. The main crimes from which corporate administrative liability may arise are as follows:
Table 1. Most common crimes resulting in corporate liability
|Corruption-related crimes||The Brazilian Criminal Code sets forth active bribery, which is defined as the crime of offering or promising undue advantage to a public official in order to influence them to perform, hide or delay an official act within the scope of their duties. Meanwhile, the Anti-Corruption Law prohibits acts against the public administration. These include corruption, fraud in public tenders, hindering inspections by public authorities and, in any manner, financing any corrupt acts. Bribery and corruption may also be subject to liability under the Antitrust Law, Improbity Law and Public Procurement Law. For the two latter cases, the condition will come into being if the bribery occurred in the context of a public bid.|
|Public procurement crimes||The Public Procurement Law establishes as a crime any sort of fraud or unlawful agreement among competitors or between them and public agents that will hinder the competitive aspect of the bid. Collusion with competitors to win public bids may also trigger liability under the Antitrust Law. If public agents are involved, then this could also raise liability under the Anti-Corruption Law and Improbity Law. This type of illegal conduct may cause administrative and civil liabilities as well.|
|Crimes against economic order||Law No. 8,137/1990 defines cartel formation as a crime against the economic order. The Antitrust Law, which sets forth corporate administrative liability, has a broader definition and establishes as an antitrust violation any conduct aimed at limiting competition. These include cartels, abuse of dominance and sham litigation, among others.|
|Environmental crimes||Law No. 9,605/1998 sets forth five categories of environmental crimes: (i) crimes against flora; (ii) crimes against fauna; (iii) pollution crimes; (iv) operating without proper licenses; and (v) crimes against the cultural and social heritage.|
|Crimes against the financial system||Law No. 7,492/1986 defines the following as crimes: (i) running a financial institution fraudulently or riskily; (ii) providing false information to the competent authorities regarding securities or accounting records; (iii) issuing fake bonds or bonds without the proper license; (iv) having and dealing with assets without an accountancy register; and (v) running a financial institution without licenses. In addition, capital flight and maintenance of bank deposits abroad without the knowledge of the Brazilian Central Bank are classified as crimes under this law, which are usually associated with tax evasion and money laundering.|
|Tax crimes||Law No. 8,137/90 establishes that officers or representatives could be held criminally liable for tax evasion if they deceive tax authorities, fail to provide information, or provide false information to tax authorities; issue fake invoices; provide incorrect or untrue data; or neglect operations of any kind in a document or book required under tax laws. Another crime under the Brazilian Criminal Code is the defrauding of social security contributions, such as the failure to pass on contributions to social security in a timely manner or deceiving tax authorities in relation to the contributions due.|
|IP and unfair competition crimes||Pursuant to Law No. 9,276/93, individuals can be held liable for crimes such as patent, industrial design and trademark violations, and unfair competition.|
|Money laundering related crimes||Law No. 9,613/98 (“Anti-Money Laundering Law”) sets forth that it is a crime to conceal or dissimulate the nature, origin, location, disposition, movement or property of assets that originated, directly or indirectly, from any criminal activity. Anyone can be held criminally liable for using legitimate business assets that originated from criminal offenses or simply belong to a group, office or association while having knowledge that its main or secondary activities are related to money laundering.|
|Crimes against consumers||Law No. 8,078/1990 (“Consumer Protection Code”) establishes that individuals can be held criminally liable for acts against: (i) the right to information, eg, misleading information, absence of warning and information regarding harmful or unhealthy products and services, or not providing a manual of the product in Portuguese; and (ii) against fair advertisement, eg, misleading advertisement.|
Offering, displaying for sale or maintaining in deposit counterfeit, improper or unfit products, or rendering services under illegal conditions, are all considered crimes according to Article 7 of Law No. 8,137/1990.
Counterfeits related to pharmaceutical goods, or producing or selling pharmaceuticals without the proper licenses, are considered a heinous crime according to the Brazilian Criminal Code. The offender can be subject to imprisonment penalties of up to 15 years.
|Crimes against the rights of employees and occupational injuries||A representative or an officer may be criminally liable for failing to comply, through fraud or violence, with a labor right guaranteed by existing labor laws. In case of fatal labor accidents or bodily injuries involving employees, a police investigation will be launched to investigate if there has been noncompliance with the safety rules, or if any negligent act was committed by anyone in the company, raising criminal, administrative and civil liabilities.|
Several industries in Brazil are subject to regulations issued by regulatory agencies. Noncompliance with those regulations may result in corporate administrative liability.
3. Identification of companies and entities to which liability may apply
Administrative and civil liabilities do not depend on criminal prosecution of individuals. Liability generally applies to all companies, associations or entities of any type.
4. Corporate liability for crimes committed abroad by representatives or subsidiaries
As a general rule, Brazilian law applies only to crimes committed within Brazilian territory. However, the Brazilian Criminal Code establishes certain exceptions, such as crimes committed abroad that cause harm to the Brazilian public administration. In addition, the Anti-Corruption Law sanctions corruption committed abroad by entities based in Brazil, or by entities that have a subsidiary or affiliate in Brazil. Furthermore, the Antitrust Law is also applicable to any conduct that has or could have effects in Brazil.
5. Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)
Criminal liability only applies to the individual or, in the case of environmental crimes, to the company that committed the crime, and cannot be transferred according to the Brazilian Constitution.
Generally, civil, tax and administrative liabilities of the target company can be allocated between the parties contractually. However, the allocation will not always be enforceable against third parties, especially against public authorities. The buyer may be required to pay for the obligations it may inherit from the seller and then later request a reimbursement based on the pertinent contractual provision.
Specific legislation on each type of liability may limit successor liability.
II. Applicable sanctions
1. Types of sanctions applicable to the company
Sanctions applicable to the company vary according to each specific liability. Below are examples of such sanctions:
Table 2. Applicable sanctions
|Criminal sanctions for environmental crimes||· Fine of up to BRL 4,752,000.00|
· Partial or total suspension of its activities
· Temporary interdiction of the site
· Suspension of the execution of contracts with the government
· Suspension of tax incentives
· Obligation to sponsor environmental projects
· Obligation to recover areas
· Obligation to make contributions to environmental or cultural entities
|Administrative sanctions for environmental crimes||· Warning|
· Fine of up to BRL 50 million
· Partial or total suspension of the activity
· Interdiction of business activities
· Ban to obtain public lines of credit or prohibition to contract with public authorities
|Administrative sanctions established by the Anti-Corruption Law||· Fine between 0.1% and 20% of the gross revenue obtained by the company in the previous year|
· Fine between BRL 6,000 and BRL 60,000,000, if it is not possible to use gross revenue criteria
· Publication of the condemnatory decision
· Ban from receiving incentives and public financing from one to five years
· Seizure and confiscation of assets and gains
· Partial suspension or interdiction of its activities
· Compulsory dissolution of the legal entity
|Administrative sanctions established by the Antitrust Law||· Fine between 0.1% and 20% of the revenue obtained by the company in the year preceding the opening of the investigation, in the “industry sector” affected by the conduct|
· Ban to contract with public authorities, for at least five years
· Publication of the condemnatory decision
· Ban to contract with public financial institutions, for at least five years
|Administrative sanctions established by the Public Procurement Law||· Temporary ban from contracting with public authorities|
· Ban from contracting with public authorities
|Improbity Law||· Disgorgement of any unlawful gains|
· Full recovery of damages
· Fine of up to three times the advantage obtained
· Ban to contract with public authorities or receive tax or credit benefits for up to 10 years
|Administrative sanctions established by the Consumer Protection Code||· Fine ranging from BRL 500 to approximately BRL 7 million|
· Seizure or destruction of the product
· Suspension or cancellation of permits and authorizations
· Prohibition to continue activities
In addition to the sanctions above, infringements that result in damages to third parties or to “diffuse interests” may result in civil liability to recover damages, if committed for the benefit of the company.
2. Interim measures, cease and desist orders, bans and confiscatory measures
See response II.1 above.
3. Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime
Directors and managers may be criminally liable if there is evidence that they were aware that the company did not comply with regulations governing the company’s operations and such noncompliance resulted in a crime.
III. Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions
1. Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)
Compliance credit is available under anti-corruption and antitrust regulations:
- Anti-Corruption Law — If the company demonstrates that it had an effective compliance program in place when the illegal act was committed, the sanctions to be imposed on the company could be reduced.
- Antitrust Law — The Brazilian Antitrust Authority has recently issued guidelines on antitrust compliance programs. According to such guidelines, a robust compliance program may be considered as a mitigating factor, which leads to a lower fine, in the event the company violates the competition law. However, the guidelines do not explain in clear terms how any reduction in penalty would be calculated.
In addition, a corporate governance policy establishing the powers and duties of each employee in the company may help identify the person responsible for any illegal conduct.
2. Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)
As mentioned, Brazilian law grants credit for anti-corruption and antitrust compliance programs. There are several requirements that must be met in order to determine if the compliance program adopted by the company was robust and effective.
- Anti-Corruption Law — Decree No. 8,420/2015 provides guidance on what needs to be covered in an entity’s compliance program for that program to be considered effective. It also states that the compliance program must be individualized and structured pursuant to the characteristics of each legal entity and with the particularities of its activities, ie, there are no “off-the-shelf” compliance programs. Furthermore, Decree No. 8,420/2015 establishes 16 parameters according to which the compliance program will be evaluated: 1) top-level commitment; 2) standards of conduct applied to all employees and administrators; 3) standards of conduct applied to third parties; 4) periodic training; 5) periodic analysis of risks; 6) accurate accounting records; 7) internal controls; 8) specific procedures related to tender processes, execution of administrative contracts and interactions with the public sector; 9) independence in structure and authority; 10) appropriate channels to report irregularities; 11) disciplinary measures against violations; 12) procedures to suspend irregularities and timely remediate damages; 13) proper due diligence conducted prior to engagement and monitoring of third parties; 14) proper due diligence on mergers and acquisitions; 15) monitoring; and 16) transparency regarding donations to candidates and political parties.
- Antitrust Law — Very similarly, the Antitrust Authority’s guidelines on antitrust compliance programs set out the following features of a robust compliance program: 1) top-level commitment; 2) appropriate resources; 3) autonomy and independence; 4) risk analysis; 5) risk mitigation; and 6) review process of the program.
3. Monitoring: independent person or body to control/supervise, with the purpose of verifying the correct application of the “model”, mode of operation of such person or body
Decree No. 8,420/2015, which regulates anti-corruption compliance programs, highlights as one of the essential elements of effective compliance programs the “independence, in structure and authority, of the internal department responsible for enforcing the integrity program and monitoring its compliance” (Article 42, item IX).
The Brazilian Antitrust Authority’s guidelines on antitrust compliance, on the other hand, mention that there should be a person or a team dedicated to compliance, sufficiently independent so that their decisions get to the top management and are effectively considered.
IV. Judicial proceedings to determine corporate liability
1. Court competent to decide on the liability of and penalties applicable to the company
Court competence to analyze the liability and penalties applicable to the company varies, according to each type of liability.
The Anti-Corruption Law establishes that administrative sanctions can be imposed by the highest authority of the relevant agency or entity of the executive, legislative and judiciary branches. Judicial sanctions from this same statute may be assessed by federal or state courts, also depending on each case. Administrative liability relating to antitrust issues will be assessed by the Administrative Council of Economic Defense – CADE.
2. Possibility of the application of interim measures
Interim measures may be imposed depending on the type of liability and circumstances of the case. For instance, prosecutors may request to freeze company assets in order to assure payment of the fine or redress of damage in a corruption investigation. The Antitrust Law also establishes that antitrust authorities may impose interim measures to ensure that the conduct under investigation has been interrupted, and environmental law allows for the imposition of interim measures, eg, the partial suspension of the activities or temporary interdiction of the site.
3. Plea bargains and related effects on corporate liability
Under criminal law, plea bargains are available for all individuals who committed crimes that involve “criminal association,” when three or more individuals conspire to commit crimes. Plea bargains made by officers and representatives may indirectly benefit the company in relation to other liabilities caused by the same conduct.
Settlements are generally available in relation to civil liability. With regard to the civil liability for environmental issues, it is possible to execute a Consent Agreement with the authority committing to cease the unlawful conduct and, as a rule, to discuss the payment of environmental compensation.
It is also possible to enter into a leniency agreement under the Anti-corruption and Antitrust Laws. Requirements are similar in both cases. The company must cooperate with the investigation and help the authorities identify other entities or individuals involved in the wrongdoing. In addition, the company must be the first to come forward to the authorities. Admission of guilt is mandatory.
4. Imposition of sanctions against the company
See item II.1 above.
5. Permanence of corporate liability if the crime is extinguished
Some sanctions may be imposed for a certain time period, such as a ban from contracting with public entities or suspensions of tax incentives. See item II.1 above.
V. Corporate liability in multinational groups
1. Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company
Brazilian law establishes several instances for piercing the corporate veil in case of fraud or assets confusion between the parent and the subsidiary.
In relation to civil environmental liability — that is, the duty to indemnify for environmental damages caused — the direct/indirect quota holders may be held liable if the legal entity is deemed as an obstacle to the duty to indemnify, such as when the Brazilian company is unable to pay for the indemnification. Brazilian courts have for many years imposed the rationale of civil liability to administrative liability in environmental matters, but a recent court decision of the Superior Court of Justice of Brazil has recognized the need to prove the guilt of the party causing the environmental damage to impose an administrative sanction.
The National Environmental Policy Law establishes that a polluter (defined as an individual or a legal entity, private and public, that is directly or indirectly responsible for an activity that causes environmental damage) is required to indemnify or repair the damage it causes to the environment and to the public regardless of its fault, degree of care or intent (strict liability regime). A polluter’s successor or whoever contributes to the damage, directly or indirectly, may also be liable for damages, as civil environmental liability is considered joint liability.
There are also other specific laws establishing joint liability of the parent or economic group for certain liabilities.
The Anti-Corruption Law establishes joint liability of parent, controlled and affiliated companies, and, within the scope of contract, consortium members. It also establishes joint liability of all companies composed of the same economic group.
2. Basis of liability and applicable sanctions
Sanctions applicable are the ones listed in item II.1 above.
VI. Significant case law concerning corporate liability arising from crimes and draft laws under discussion
1. Significant case law, if any
2. Proposed or contemplated new legislation