The ABCs of Anti-Corruption and Bribery Law: What Preceded Brazil’s “Operation Car Wash” and What Comes Next?

Corruption, embezzlement, fraud, these are all characteristics which exist everywhere.  It is regrettably the way human nature functions, whether we like it or not.  What successful economies do is keep it to a minimum.  No one has ever eliminated any of that stuff.

Alan Greenspan

BACKGROUND

No one knows when a government official was first bribed, but as far back as 1754 B.C. the Code of Hammurabi prohibited the practice.  As for the U.S., the first Congress passed the Federal Crimes Act which prohibited some forms of Bribery.  Traditionally bribery laws around the globe looked inward – at the subordination of domestic officials.  Virtually no attention was paid to another form of bribery – the citizens of one country bribing the officials of another to obtain business or other improper benefit.  Indeed, such practice was not only ignored, but often condoned by granting tax deductions for such payments.

Fast forward to 1977, when the U.S. Congress, in the wake of embarrassing revelations during the Watergate hearings, enacted the Foreign Corrupt Practices Act (“FCPA”).  In essence, the FCPA prohibits U.S. Persons from corruptly giving or promising anything of value to foreign governmental officials (broadly defined) in order to obtain business or other unfair advantage.  It casts a wider enforcement net by requiring covered Persons to keep accurate books and records and reliable auditing systems.  At first, there was a great wailing and gnashing of teeth by U.S. companies who claimed the FCPA would place them at a great disadvantage against less scrupulous foreign competitors.  Over time, however, many such critics learned to live with its provisions and even laud its purpose and cite its benefits.

For decades, the U.S. fought its anti-corruption and bribery (“ABC”) crusade alone.  Through pressure from the U.S., the OECD adopted the Anti-Bribery Convention in 1999 (“OECD Convention”), which requires member states to enact laws prohibiting bribery of foreign officials by their nationals (“ABC Laws”).  The Convention spawned ABC Laws, most notably the U.K. Bribery Law.  This Law goes beyond the FCPA by (i) prohibiting private bribery; (ii) extending vicarious liability, and (iii) specifically prohibiting “facilitating payments”.  Not to be outshined, many non-OECD countries significantly revamped their domestic corruption laws.[1]

BRAZIL

Like its global counterparts, Brazil has, since the turn of the century, significantly modified its ABC Laws and more significantly, dramatically enhanced their enforcement.  To understand where she is, we must understand how she got there.

Operation Car Wash (Operação Lava Jato)

Often, reality outdoes fiction.  Indeed, a Hollywood scriptwriter would have been hard pressed to surpass this historical bombshell for drama and suspense.[2]  What began as a money laundering investigation of literally a car wash in Brasilia, eventually morphed into a massive purge of corruption at the largest state-owned Brazilian company, involving many members of government and the Labor Party.  By the time the dust settled, political institutions had been shaken to their core and many prominent officeholders found themselves disgraced and behind bars.

The Brazilian Anti-Corruption Law (“BAL”) is the nation’s primary anti-corruption legislation.  It came into effect in January 2014, slightly before Operation Car Wash (“OCW”) was launched.  The BAL, together with its enabling regulations, establishes how and when legal persons may be prosecuted for corruption or other specified acts considered detrimental to either a national or foreign government.  It also expressly recognizes the existence of effective compliance programs and internal controls as mitigating factors in the calculation of the sanctions.

The BAL is based on a strict liability.  Thus, liability may be found based on prohibited actions alone, without proving actual knowledge or corrupt intent on the part of the perpetrators or their management.  Prosecutors need only show that the prohibited acts were committed to benefit the legal entity.

Anticorruption enforcement has blossomed since 2000.  Between 2003 and 2016, Federal Police investigations increased by over 300%.  During that period in respect of OCW alone, (i) 1450 search warrants were issued; (ii) dozens of former officials, including an ex-President was jailed; (iii) 280 criminal convictions were obtained; (iv) dozens of leniency agreements were signed and (v) the equivalent of billions of U.S. Dollars in fines were paid.

The election of Jair Bolsonaro as President in 2019 and his appointment of a new Prosecutor General significantly dampened the ABC enforcement fury.  Indeed, in October 2020 Bolsonaro announced the end of OCW, vowing that there would be “no more corruption” in the government.  In February 2021, the OCW task force was dismantled and its former members became part of the GAECO – Grupos de Atuação Especial de Combate ao Crime Organizado (“Organized Crime Specialized Task Force”) – within the Federal Prosecutor’s Office.

The public perception of OCW was tarnished by press revelations in 2019 and 2020 of alleged collusion between Sergio Moro (then a federal judge in charge of  many of the OCW)[3] and members of the OCW Task Force.  The alleged collusion consisted of improper messages between Moro and prosecutors regarding dates, procedures, summoning of witnesses, and political actions.  For many, these allegations showed judicial and prosecutorial bias against former President Lula – which was recently confirmed by the Federal Supreme Court (STF), which vacated all convictions.

Despite these setbacks, the Federal Government continues its fight against corruption, most notably through: (a) the Anti-Corruption Plan designed to improve the prevention and detection of corruption and enhance the enforcement of ABC Laws; (b) imposition of significant fines on several large companies under the BAL for improper advantages given to public servants, and (c) execution of several leniency agreements with ABC Law violators.

Perspectives and Future

Critics of the Brazilian ABC Law regime often note that a single transgression may trigger multiple proceedings by various enforcement agencies.  For better or worse, this practice ensures that ABC Law enforcement will remain viable, despite the temporary OCW setbacks.  However, some agencies may fare better than others.  On one hand, the Federal Prosecutor’s Office has been tarnished, and possibly weakened, by persistent abuse of powers allegations.  On the other hand, the public perception of other agencies, including the Comptroller General (CGU), Attorney General (AGU), General Auditor (TCU) and State prosecutors, remains high and they are all expected to continue their effective anti-corruption efforts.

In the long run, regardless of who occupies the Presidency, the BAL and its aggressive enforcement of ABC Laws are here to stay.  Much is owed to OCW which, despite its flaws, exposed massive and pernicious corruption schemes and arguably has fomented more ethical business practices.  Such progress, however, should not compromise basic due process rights of citizens under the Constitution.  The recent STF decisions send a clear message that effective ABC Law enforcement must respect those rights or risk judicial annulment.

REFLECTIONS

Juxtaposing Alan Greenspan’s quote above, corruption is a bit like Covid19 – it is here to stay, but successful countries must strive to keep it to a minimum.  Why? According to the Preamble of the OECD Convention, bribery (i) raises serious moral and political concerns, (ii) undermines good governance and economic development, and (iii) distorts international competitive conditions.  It is hard to quantify the extent to which international ABC Laws have reduced international business-to-government corruption.  Without a doubt, however, they have raised awareness of the problem.  And often merely shedding light on abuses helps curb them.  As to Brazil, only naiveté would conclude that OCW uncovered an incipient bribery scheme.  To the contrary, the investigation revealed that the infamous car wash, located in the nation’s capital, was but the tip of a massive sordid iceberg, which has only begun to melt.  Only time will tell whether the ice retreats further, or through inattention, is once again allowed to fester.  Hopefully, the courage and perseverance of the OCW operatives, bolstered by recent legislation, will result in cleaner government, economic prosperity, ethical business practices and an even playing field.

[1] See, for example, the case Angola:  Where there’s a will there’s a way:  making Angola’s probity laws work, Norman Nadorff and Carlos Feijó, Journal of World Energy Law & Business (Oxford Press/AIPN), Vol. 7, Issue 3, Pages 183-201.

[2] The authors highly recommend the Brazilian-produced miniseries “The Mechanism” (o mecanismo) for dramatic portrayal of the complex investigation and the events that preceded and follow it.  https://www.google.com/search?riz=1C1GCEA_enUS942US942&lei=d_M_YOmILYnjtQaxxo2gDw&q=the%20mechanism%20trailer&ved=2ahUKEwipvZeG_ZTvAhWJZMOKHTFIA_QQsKwBKAB6BAhREAE&biw=1920&bih=937.

[3] Moro was also Bolsonaro’s previous Minister of Justice and Public Security.