Overlapping jurisdictions in anti-corruption leniency agreements

Rafael Zabaglia 18/04/2019

Operation Car Wash had a grave impact on business for the largest Brazilian infrastructure conglomerates but there is an additional factor affecting them: legal uncertainty. Wrongdoers are not statutorily immune to legal action from other authorities despite having settled long ago with the Office of the Federal Public Prosecutor (Ministério Público Federal – the MPF) to clean their slate and resume business with the federal government. This contributes to the fact that these conglomerates have failed to make a splash in recent public auctions – to wit, the latest rounds of airport concessions, in 2017 and March 2019, were dominated by foreign bidders.

An intricate set of rules applies to federal procurement and governmental contracts. In total, four authorities are vested with the power and duty to investigate and punish wrongdoers at the federal level – but are not legally required to coordinate their actions:

(a) The MPF represents the public interest (the people) in court and may file civil and criminal lawsuits. The MPF is independent from the Executive.

(b) The Federal Accountability Court (“Tribunal de Contas da União” – the TCU) is an administrative tribunal for oversight and audit of governmental contracts and budgets. It too is independent from the Executive.

(c) The Office of the Federal Attorney General (“Advocacia-Geral da União” – the AGU) represents the government in court and may file civil lawsuits. The Attorney General is a cabinet member.

(d) The Office of the Federal Comptroller General (“Controladoria-Geral da União” – the CGU) is the Ministry in charge of preventing and punishing corruption internally. The Comptroller General too is a cabinet member.

Roughly speaking, the MPF may press criminal charges, both MPF and AGU may pursue civil claims, and both CGU and TCU may impose administrative penalties (such as temporary bans on wrongdoers from participating in federal procurement process). This institutional design has proven deeply troubling when it comes to leniency agreements in corruption probes under the Clean Company Act, which is the landmark statute on civil and administrative liability of companies for corrupt acts.

The Clean Company Act vests the CGU with standing to enter into leniency agreements. However, it lacks language to the effect that the CGU determination is binding upon the AGU, TCU and MPF, or that they must be consulted and sign off on the relevant draft agreements. That fundamental problem created a convoluted picture of competition – and not coordination – among authorities.

The MPF has settled a number of claims on its own within Operation Car Wash and other probes. It has named those settlements “leniency agreements”, and the media has referred to them as such. The MPF has affirmed its jurisdiction based on interpretation of an array of different rules. Meanwhile, both AGU and TCU have stated that they are not bound by the MPF or CGU initiatives because their respective jurisdictions have grounds on the Constitution.

The authorities have come to realize that this framework is dysfunctional, and efforts have been made towards much-needed voluntary cooperation. The CGU and AGU issued a joint directive in late 2016 with guidelines for drafting and negotiating leniency agreements together under the Clean Company Act, including the creation of a workgroup to handle each settlement offer and the need to have both Comptroller General and Attorney General determine whether to sign each leniency agreement. The first deal was cut in 2017 and other five deals ensued – including with local conglomerates Odebrecht and Andrade Gutierrez, both in 2018. Another breakthrough achievement was the execution of a “global” agreement with two advertising agencies that was executed in April 2018 by the CGU and AGU with the intervention of the MPF, after review by the TCU.

However, the TCU has taken a different stance at times. Back in 2015 it issued a directive setting forth that it must green-light ex ante each step of the anticorruption leniency program and that other authorities must submit all drafts, final agreements, reports and any supporting documentation to the TCU; this ruling was superseded in December 2018, but while those harsh provisions were removed, the new directive still requires other authorities to inform the TCU about any new leniency offer and to grant access to any pertaining information and documentation upon TCU’s request. Additionally, in 2018 the TCU threatened to suspend Odebrecht’s settlement with both CGU and AGU (it eventually did not).

The MPF and AGU also seem to be on different pages as of late. In the context of an ongoing debate on whether it is lawful that a private foundation receives and manages the money payable by Petrobras under its settlement with the U.S. Department of Justice and Securities and Exchange Commission, the AGU for the first time seems to consider Petrobras as a participant in, not a victim of, corrupt acts; according to the AGU, the federal government is the actual victim and as a result the MPF has no standing to settle with Petrobras on its behalf.

These recent developments show that despite some meaningful progress over the last couple of years, Brazilian anti-corruption leniency program is still threatened by tensions among the different authorities – and by the lack of clear rules ordering them to act in coordination.

Legal uncertainty arising from conflicting actions and agendas is detrimental in two different ways. First, it may subject wrongdoers to even more financial distress given the risk of additional punishment despite the settlements – and thereby hurt their ability to do more business and pay more taxes. Second, it may cause them to think twice before settling and collaborating with law enforcement authorities – thereby forcing these authorities to take legal action and depriving them of a relevant source of information to combat corruption. Watching large companies bleed and authorities fight may be great for newspapers - but is certainly bad for Brazil.

L&S Authors

Rafael Zabaglia

Rafael Zabaglia

Partner

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