Munich-based Siemens, the focus of an ongoing bribery probe in Brazil, is questioning if a new anti-corruption law that will take effect in Brazil on January 28 will work as intended. The company says the law could actually encourage graft among the very persons charged with enforcing it.
The Clean Companies Act allows corruption probes to be conducted by state and local governments, plus federal regulators. Fines could be as much as 20 percent of corporate annual revenue and these monies would be given to the government agency that handles the investigation.
Siemens is particularly troubled by the decentralized approach Brazil is taking with the corruption investigations and enforcement actions permitted by the law. In the United States, the federal government administers the Foreign Corrupt Practices Act through the Department of Justice and Securities and Exchange Commission.
What they are afraid could happen has been voiced by Brazilian legislators and can be summed up by Wagner Giovanini, the director of compliance for Siemens in Brazil, as quoted by the Washington Post. “Some institutions may use the law for extortion or corruption, saying ‘you give me a little money outside here, and I won’t apply the law.'”
Since many companies in Brazil depend on local and state government institutions as clients or get their financing from them, putting the law’s power into such hands could pose a significant risk for abuse.
Brazil scores 42 on Transparency International’s 2013 Corruption Perceptions Index, with “o” being “highly corrupt” and 100 being “very clean.”
The Washington Post references a 2010 study by the Industries Federation of Sao Paulo State, an association that represents 130,000 industries, which noted that graft costs Brazil’s economy as much as 69 billion reais ($29 billion) a year. The Post also refers to a report from the comptroller’s office that lists 4,000 companies among those suspended for misconduct in the past 10 years, 67 percent of which related to corruption.
Many people have come to the defense of the new law, arguing that the penalties are a great disincentive for companies to avoid getting into trouble and any concerns about local enforcement are premature if not overblown.
The bribery probe that began in 2006 encompassed at least 12 countries, including Brazil, and prompted Siemens to sue 11 of its former executives to collect damages associated with costs of the scandal, including its former CEO, Klaus Kleinfeld, who had moved on to head up Alcoa.
The law’s details are still being ironed out, prior to its rollout date later this month. Some of the concerns about decentralization should be addressed, along with how it will be applied by non-federal entities.
Julie DiMauro is the executive editor of FCPA Blog and can be reached here.