With a large amount of political and economic uncertainty, many companies operating in or seeking to operate in Brazil are reviewing their options.
FRA’s Edward Nkune, Director, reflects on the insights given by speakers Isabel Costa Carvalho, Hogan Lovells, Geert Aalbers, Control Risks, Marcos Casarin, Oxford Economics and Keith Moor, Itaú BBA International Plc on how companies can capture opportunities whilst managing investigations and corruption risk.
Key insights from the seminar included:
- Brazil is currently benefiting from a global economy and a weak US dollar; there is a 70% correlation between the US dollar and LatAm, and the world economy is enjoying synchronized upturn causing world trade growth.
- GDP per capita is increasing in Brazil – recovery is broad based and gaining momentum ahead of elections. The next president (elections in October 2018) will inherit an accelerating economy with record low inflation and historically low interest rates.
- Risk – there is a large amount of political uncertainty and if combined with a hawkish Fed and NAFTA breakup, this could be detrimental. Further, Brazil’s unresolved fiscal problems and as many as 13 million people unemployed.
- The Petrobras investigation and World Cup demonstrations led to populist anti-bribery law, including a new Clean Company Act with Decree no.8. These laws are against the interference with public biddings and with investigations, and a requirement for companies to have compliance programs. Violations of the Act can be sanctioned with administrative fines of as much as 20% of gross revenue in the year preceding the beginning of the investigations.
- A problem with working on investigations in Brazil is that there is a lack of infrastructure and information security is very relaxed. For instance, a preservation order in Brazil means that spoliation is not a crime (i.e. hiding information or lying). Further, the use of pen drives and personal computers is prevalent; there is a lot of email data and no discovery laws.
- The first dual monitorships have already begun in Brazil – the US Securities Exchange Commission (SEC) and their Brazilian counterpart the Comissão de Valores Mobiliários (CVM); along with the US Department of Justice (DOJ) and their Brazilian equivalent the Ministério Público Federal (MPF) on Embraer then Odebrecht.
- Compliance culture going forward will change investigations and there will no doubt be an increase in FCPA investigations.
Acts of corruption are no longer seen as a subject that should be ignored or intrinsic and essential to economic activities. Companies operating or seeking to operate in Brazil should focus on the implementation of effective compliance programs and perform due diligence on third parties.