Brazil: Compliance

In the past two decades, there has been a considerable improvement in antitrust policy in Brazil, a phenomenon that can be explained by a combination of several factors. The reform of the legal basis in 1994 was the starting point for the introduction of significant changes. Law No. 8,884 brought new definitions and established an organised control of structures and conducts, aiming to restrict the abuse of economic power and to protect market competition. As a result, the institutional structure of the Brazilian System for Protection of Competition (SBDC) has undergone a consolidation process and today the three agencies responsible for competition policy are considered reasonably mature. It is important to point out the gradual construction of a ‘competition culture’, not only between agencies and entities within the government but also among the market players, which now assume competition as one of their management pillars.

Despite the current state of competition policy in Brazil and its performance in the fight against cartels, we can say that today the implementation of compliance programme by economic actors is incipient in the country. Neither the antitrust authorities nor the companies by themselves are making use of this instrument. This type of policy to prevent violations of competition still has a narrow application, regardless of its educational and preventive vital role.

The antitrust literature, in large part, is a consensus about how programmes of compliance should be outlined in order to substantially reduce the risk of a possible condemnation by the authorities. Factors commonly quoted by the studies in this field include: the determination of sectors and employees that are more likely to practise violations; educational programmes to employees; and the establishment of means of detection of misconduct. On the other hand, the steps to be performed and the consequences of a misconduct detection within the companies are still unsolved issues, despite its considerable importance.

In this article, we present a brief overview about the SBDC understanding and the adoption of the compliance programme as a preventive measure against infringement of the economic order. Then we discuss the hypothesis of the detection of a bad apple by a compliance programme and what to do in this case.

Compliance programme in the Brazilian system for the protection of competition

The Brazilian antitrust authorities have very recent experience with the institute of compliance programme. The subject is still restricted into an ordinance and a few pairs of decisions.

In 2004, the Secretariat of Economic Law (SDE) - an agency of the Ministry of Justice and charged with the investigation of the processes that proceed through the SBDC - issued ordinance No. 14, which sets general guidelines for development of Prevention Programmes on Economic Order Offences (PPI), and establishes requirements and conditions for the issuance of Certificate of Deposit. By this ordinance, the Secretariat established a system of certification of compliance programmes made by companies. Thus, firms can deposit their PPI and, if approved, receive a certificate in securing a reduction of penalty if condemned by the Administrative Council for Economic Defense (CADE).

Although very precise regarding the procedures for filing and approval of the PPI, the ordinance presents only a few lines about the general content of the compliance programme. The statute specifies that the programme should contain:

  • standards and clear procedures for compliance with the antitrust laws;
  • an appointment of the responsible manager for coordinating the programme;
  • the degree of power of the leader;
  • a list of commercial agents with which the applicant negotiates;
  • disciplinary mechanisms for the punishment of officials involved in harmful practices to competition;
  • a description of educational materials to be used in the educational programme for employees;
  • a contract with external auditors; and
  • certificates of employees declaring knowledge of the conditions of the programme.

The certification process of the compliance programme in SDE is a difficult and expensive path towards approval, due to the fact that SDE imposes a great number of other conditions, besides being extremely stringent in their appreciation.

CADE’s decision-making has rarely used the compliance programme to re-educate agents who were convicted. The jurisprudence of the Council has brought only a few cases1 of imposition of such measures in the past four years. In 2009, the Council signed a Cessation of Practice Agreement (TCC) with companies of credit and debit cards, together with the operators of processing payment transactions. The Secretariat understood that the exclusivity clauses between the cards brands and the payment operators created artificial barriers to the market, as many establishments served only one flag. Besides predicting the end of exclusivity clauses, the TCC prescribed the establishment of a compliance programme to the prosecuted firms. The Council approved the agreement and closed the case.

Despite being an instrument usually recommended to conduct investigations, curiously, in August 2008, CADE made use of the compliance programme in merger control. Firms in the chemical and petrochemical industry signed an agreement to set up a joint venture creating a recycling and plastic processing company. Counsellor Paulo Furquim understood that there was a risk of exchange of information. Thus, the Council deemed it necessary to conclude a Performance Commitment Agreement (TCD) to, among other measures, establish a compliance programme for the joint venture.

Parallel to the imposition of the measure by CADE, the second way of establishing a compliance programme is the voluntary adoption by companies. In this case, in order to avoid a future condemnation by the authorities, the firms themselves seek to anticipate and adapt their operating practices and business standards to competition laws.

Nevertheless, it seems that the implementation of spontaneous antitrust compliance programmes is not a completely widespread practice in the Brazilian market, although there are many enterprises sharing this conscience that have already created some mechanisms to implement it.

Prevention tools: forecasting and mitigation of risks

As important as the repression of harmful practices to competition is the adoption of policies to reduce risks. The manuals and international literature2 converge and establish some good practices for successful compliance programmes to be adopted by the agents concerned about the legal adequacy of the rules of competition.

The first element of the policy adjustment to antitrust standard is the company’s internal investigation about sectors and employees that are more likely to practise violations. For example, the business and commodities acquisition sectors (ie, purchases and sales), as well as the marketing sector, are strategic areas in direct contact with other agents or with the consuming public. Although the company should be considered as a whole, in fact the compliance policy should be more effective in those pre-selected domains.

Similarly, it is advisable for companies to establish rules of conduct and principles in a written document. The written form clearly expresses the behaviours to be abolished, facilitating compliance and control. The recycling process of continuous education of employees must be periodic in order to create habits pro-competitive in the environment of the firm. Courses, lectures and documents should be regularly offered so that new employees can inform themselves and the company policy becomes consolidated.

The legal counsel, whether internal or independent, has a role of great importance. In business organisations, the legal department will be responsible for clarifying any doubts about certain behaviours and counselling about the business choices to be made. The department will also receive complaints from employees regarding the conduct of others, treating them confidentiality. Externally, an office should be responsible for impartial contract audits, eventually simulating a possible investigation by the authorities. Their conclusions will be the starting point for evaluating the efficiency of the compliance programme adopted.

Detection of anti-competitive practice: what to do

Even after taking all precautions to guide their employees and provide mechanisms for risk-reduction, the company may be faced with a situation where there is competition infringement by their employees. In fact, were this hypothesis to be verified, in principle one can say that there was a failure to implement the compliance programme. It needs to be rethought, especially at the point of periodic training and dissemination of knowledge. Nevertheless, there are some steps to be performed in order to protect the company against a conviction for antitrust authority.

Before approaching them, we must examine the legislative instrument we have in Brazil on the matter. With ordinance No. 14, SDE introduced a certification system for PPI, and its article 4 (the documents that must accompany the application) can be read as follows: ‘description of the PPI, which should contain, among others, the following: [...] effective mechanisms to identify and punish those involved in actual or potential violations of the economic order’. From the text, we might conclude that it prescribes some generic actions to be taken after the detection of wrongdoing. Would the mere correction by sanction (punishment) of an employee be an alternative more suited to a policy of risk mitigation of sentencing and recidivism?

The TCCs CADE signed with companies engaged in anti-competitive practices, in turn, do not bring more detailed steps to be followed in case of detection of a bad apple. The agreement entered into with the card companies states that the firm should ‘promote and enhance its Compliance Programme, adopting disciplinary penalties consistent with their internal policies and procedures in order to encourage the commitment of its employees with the programme’.

In fact, as being an instrument recently implemented in Brazil and with little use by economic agents, CADE, to date, has not had the opportunity to analyse or judge any case of anti-competitive conduct in which a bad apple was detected.

The foreign antitrust authorities have shown concern and a commitment to signal to the market how to detect and treat wrongdoers. The Department of Justice of the United States (DoJ)3 asserts that the purposes of a compliance programme are basically to prevent and detect. In this sense, the company must act as soon as possible upon discovery of any employee offender in order to reduce potential damage.

Considering the US Sentencing Guidelines of 1 November 1991, chapter 8, which treats of the reduction of the sanction of agents who adopt a compliance programme, the US antitrust agency has consolidated an understanding on certain practices to be implemented by companies. They are:

  • Clearly established compliance standards.
  • Assigning overall responsibility to oversee compliance to high-level executives within the company.
  • Exercising due care not to delegate responsibility to employees who have a propensity to engage in illegal conduct.
  • Taking reasonable steps to communicate standards and procedures effectively to all employees.
  • Taking reasonable steps to achieve compliance with standards.
  • Consistent enforcement of standards through appropriate disciplinary mechanisms.
  • Taking reasonable steps when an offence occurs to respond and to prevent future violations.

The DoJ warned that as soon as the discovery of the occurrence of the tort is made, internal investigations should be initiated and the authorities should be notified. This is because the amnesty only benefits the company that first denounces the practice (celebrating a leniency agreement). Similarly, the company must find some way of compensating injured consumers. Obviously, having been a system failure, it is evident that the compliance programme adopted must undergo review.4

In Brazil, as seen above, there is no decision of the Council on cases of detection of conduct by employees. However, based on article 4 of ordinance No. 14, we can say that as it occurs in other jurisdictions, it is essential that the company act quickly, working on ceasing the practice as soon as they have been made aware of it. There are two immediate consequences of such diligence: first, it means that the eventual punishment by the antitrust authority will be smaller; and second, the enterprise’s good faith will remain evident, while not acting nonchalantly, leaving the practice to be extended with the aim of obtaining economic gains from it.

The second important measure is to consult a legal team from outside the corporate structure in order to evaluate the conduct and the damage it generates. A study will be needed regarding the possible disapproval of the conduct. Due to it, an independent office may do this study impartially, after analysing the relevant market and a possible offence to the market by the conduct verified. Therefore, it is important that the company fully cooperate, providing all documents relevant to the investigation.

Once the assessment of the potentially illegal fact has been investigated, external consultants and the internal legal department of the company should try to seek to reduce the effects of harmful practices to competition and, if appropriate, report the incident to the competitive court, seeking leniency.

Despite these emergency measures, the company should seek to assess what treatment ought to be dispensed to the employee, considering the perspective of corporate structure and reducing the possibility of recurrence. Although the punitive measures refer to ordinance No. 14, and aiming to not hurting the labour legislation, the enterprise can opt for alternative measures, avoiding to fine him or fire him. The relocation of the employee in another sector may be a good solution. Thus, depending on the structure of the company and the employee’s job, one can be transferred to a new work environment, with new tasks and under new supervision, in a different context from that in which the offence was performed.

Another useful tool is the employee’s layoff. The temporary interruption of the tasks of the employee can contribute to create new working conditions in the sector in which he was allocated. Anyway, whatever the alternative adopted by the firm, the employee must undergo a process of rehabilitation before being reinstated in the workplace. Educational programmes contained in the compliance programme adopted should be consolidated.

Conclusion

According to empirical observation, we find that in Brazil the practical implementation of compliance programmes is not yet a reality, either by companies on a voluntary basis or by CADE, as an alternative or additional measure to punishment for infractions against the economic order.

Having said that the use of this instrument is still precarious in the Brazilian context, we can extract a few direct consequences of it. First, we observe that companies, especially global ones, are more vulnerable to antitrust prosecutions, often due to ignorance on the part of its employees about the best practices. Consequently, the inexistence of programmes of prevention in companies means that the spread of competition culture in the private sector is mitigated, despite being one of the current objectives of the Brazilian competition authorities.As a side consequence of the lack of use of this instrument, there is still no approach to the Council about how companies should operate on the detection of anti-competitive practices in their internal structure.

Notes

* The author wishes to thank the academic André Luís M Freire for helping to write this article.

1
Application No 08700.004221/2007-56, Prosecuted: Lafarge Brasil SA, Counselor Rapporteur Paulo Furquim de Azevedo, judged on November 28, 2007, published on December 14, 2007; Administrative Procedure No 08012.005328/2009-31, Prosecuted: Companhia Brasileira de Meios de Pagamento - VisaNet and others. Statement signed on 16 December 2009; Act of Concentration No 08012.002148/2008-17, Counselor Rapporteur Paulo Furquim de Azevedo, applicants: Agricur Defensivos Agrícols Ltda. and others, judged on 23 July 2008, published on 8 August 2008. Statement signed on 23 July 2008. Public versions of the agreements available at www.cade.gov.br.

2
ABA Section of Antitrust Law, Antitrust Compliance: Perspectives and Resources for Corporate Counselors (2nd edition, 2010).

3
United States Department of Justice. Antitruste Compliance Programs: The Government Perspective. Trabalho apresentado na Corporate Compliance 2002 Conference, San Francisco, CA, 12 July 2002. Available on the website www.justice.gov/atr/public/speeches/. Last accessed in August 2011.

4
In the DoJ’s words: ‘Reasonable steps to respond to violations. When the worst happens and you discover that your company has committed a possible antitrust crime, it is also critical that the company respond promptly and energetically. This includes initiating an immediate investigation and reporting promptly to the agency. Remember: qualifying for amnesty can sometimes become a race with the first company in the door receiving the most lenient treatment. In addition to disciplining the employees responsible, the company should also take steps to make restitution to its customers, either through settling the inevitable treble damage actions or through commercial arrangements directly with the customers. The company should also re-examine its compliance programme in order to learn from its mistakes and should make whatever modifications are necessary to assure that future violations do not occur.’

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