Corporations warned over Brazil’s Clean Company Act

The Act was designed to be in compliance with anti-corruption protocol established by the Organization for Economic Co-operation and Development (OECD), and holds companies doing business in Brazil liable, for the first time, for an employee's corrupt actions. Furthermore, liability can be applied without proving corrupt intent. Simply promising a bribe is enough to constitute wrongdoing, said Marsh. In addition, fines under Brazil's anti-corruption law are not capped by the amount of the offence. This increases the risk for both domestic and foreign firms since the law applies to those headquartered in Brazil as well as firms that have subsidiaries, branch offices, or other representation there, Marsh's report explained. Penalties, restrictions and sanctions "As developing countries like Brazil continue to take a more active role in policing the activities of foreign companies doing business within their borders, it is critical that multinationals operating in the country review their risk management programmes to ensure they meet the new standards," said Machua Millett, a senior vice president in Marsh's FINPRO Practice, and author of the report. "Failure to do so could result in penalties and other restrictions and sanctions."hideThe Clean Company Act is similar to the US Foreign Corrupt Practices Act (FCPA) and the UK's Bribery Act, which makes it an offence where a person "offers, promises or gives a financial or other advantage to another person," and the person "intends the advantage to induce a person to perform improperly a relevant function or activity, or to reward a person for the improper performance of such a function or activity." Brazil's law is broader in scope, with more penalties and wider regulatory oversight. The Clean Companies Act can have liability applied without actually proving corrupt intent by employees, company management, or directors. Simply promising a bribe is enough to constitute wrongdoing. Only individuals can face criminal liability for an act of bribery or corruption, though companies can be held accountable for civil and administrative liability. A proper line of defence against bribery and corruption should include an effective insurance solution, said Marsh. "In addition to having the right compliance protocols and policies in place, multinationals are advised to also evaluate their insurance programmes to ensure they are tailored to the specific realities of the new anti-corruption law," the report noted. It went on: "Legal and other fees can quickly add up if a company finds itself under investigation by a foreign regulator. Companies need to take a top-down approach to their insurance coverage and involve senior managers in their decision-making whenever possible. They should be proactive in considering the available insurance options and how they can be tailored to meet corporate needs." Coverage explained The Marsh report explained that potential insurance coverage for the costs of responding to anti-corruption investigations and enforcements actions generally comes in two forms: Limited coverage included within broader insurance policies, such as directors and officers liability (D&O) and errors and omissions (E&O) insurance policies; and Standalone policies specifically tailored to the realities of FCPA, UK bribery, and other anti-corruption laws. According to Marsh: "The recent legislation in Brazil reinforces that companies doing business internationally should evaluate both the extent to which their existing insurance policies can be enhanced to provide broader coverage for anti-corruption investigation and enforcement costs, but also whether they should consider purchasing a separate anti-corruption investigation costs insurance policy." The report said that factors to consider include: Is your insurance properly tailored to the specific realities of how anti-corruption investigations take place? Is the definition of 'claim' constructed to include civil, criminal, administrative, and/or regulatory investigations? Are other definitions crafted to accurately describe the insured entity, what is meant by a 'wrongful act', and what kinds of investigation costs are included? Does the coverage extend to all costs of an investigation, not just the legal fees? Determine if the coverage is worldwide or limited by jurisdiction (either by the terms of the policy or under local laws). Marsh said that the Brazilian legislation is part of an ongoing trend toward increased oversight concerning anti-corruption and a host of other issues by foreign regulators. "Brazil and many other developing countries continue to take a more active role in policing the activities of foreign companies doing business within their borders. This trend underscores the importance for multinational companies to periodically and systematically review their legal, compliance, and insurance protocols surrounding their cross-borders business practices," Marsh concluded.

Corporations warned over Brazil’s Clean Company Act

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