Surprise: Federal, state, and local agencies enforce Brazil’s anti-corruption law

Brazil’s federal prosecutors, judges, and Comptroller General (CGU) have become world-famous for enforcing Brazil’s anti-corruption laws. But few outside Brazil realize that interpretation and enforcement of Brazil’s flagship anti-corruption law, the Clean Companies Act, does not end with the federal government.

Both Brazil and the U.S. have federalist systems of government, where the authority to enact and enforce laws is distributed between the federal and state/local governments. FCPA enforcement authority lies exclusively with federal agencies (the DOJ and SEC). But Brazil’s Clean Companies Act grants federal, state, and municipal governments the authority to independently interpret and enforce this law. Given the widespread national competences of Brazilian states and municipalities to make administrative use of this law, looking only at the federal level does not provide a full picture of this statute’s effect.

The Anti-Corruption & Compliance team of Tauil & Chequer Advogados, in association with Mayer Brown, recently conducted empirical research about the administrative enforcement of the Anti-Corruption Law by the 27 Brazilian states — 26 states plus the Federal District — on its four-year anniversary. The research was coordinated by associates Luiz Santiago and Louise Dias from the Rio de Janeiro office.

As of the beginning of this year (when this research was conducted) 14 Brazilian states had enacted local regulations interpreting the Clean Companies Act. (Notably, Rio de Janeiro was not among them.) Out of those 14 states, 7 had opened administrative enforcement proceedings of the law during its first four years of validity, with a total of 87 proceedings against 177 legal entities.

Findings also showed that the construction and engineering sector represents more than one third of administrative enforcement proceedings opened by state authorities, but only 4.76 percent of the sanctioned legal entities.

Note that the Clean Companies Act also prohibits bid rigging. The research identified 72 administrative proceedings opened to assess suspicions of bid rigging and only 11 that expressly addressed suspicions of public corruption or bribery. The comparison is even more disproportionate with regard to concluded proceedings, with 17 mentions of bid rigging against only 2 references to public corruption.

When Brazil first enacted the Clean Companies Act in 2013, Brazilian companies expressed concern that sharing enforcement among federal, state, and local agencies makes compliance seem impossible. How can we monitor what literally hundreds of government agencies around the country may be doing to interpret and enforce this law? Brazil takes federalism to a whole other level. Defenders of federalism will say that it permits experimentation; these various agencies at the federal, state, and local levels are laboratories of governance. 

And so the Brazilian experiments continue.

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Luiz Santiago, pictured above right, is an associate in the Anti-Corruption & Compliance practice of Tauil & Chequer Advogados in association with Mayer Brown in the Rio de Janeiro office. Luiz specializes in white-collar crimes and criminal litigation, Anti-Corruption & Compliance and crisis management projects.

Andy Spalding, above left, chairs the Olympic Compliance Task Force. He is Professor at the University of Richmond School of Law (Virginia, USA), a Frequent Visiting Instructor at the International Anti-Corruption Academy in Austria, and Senior Editor of the FCPA Blog.