Compliance and Investigations Newsletter – May 2024

The Compliance and Investigations Newsletter aims to provide information on the main media news, trends, cases and legislation concerning compliance matters, in Brazil and abroad. This material is for informational purposes and should not be used for decision making. Specific legal advice can be provided by our legal team.

Enjoy reading!

Compliance and Investigations Team

Constitutional and Judicial Commission approves bill that criminalizes accounting fraud and establishes a reward for whistleblowers

On May 29, 2024, the Constitutional and Judicial Commission (“CCJ”) approved  Bill No. 2,581/2023, which criminalizes accounting fraud and encourages whistleblowers with protection and rewards to report criminal actions in the securities market or in publicly traded companies.

The bill proposes amendments to Law No. 6,385/1976 to criminalize the following offenses against the capital markets:

• Committing accounting fraud (up to 6 years of imprisonment);
• Inducing error in the capital market (up to 4 years of imprisonment); and
• Destroying documents to interrupt investigations or audit procedures (up to 8 years of imprisonment).

In addition, the bill provides for the protection of whistleblowers who voluntarily report crimes in the securities market or in publicly held corporations, and establishes the right to financial rewards when the information or evidence provided results in the successful investigation of irregularities.

The bill states that financial rewards will range between 10% and 30% of the amount of fines applied and recovered funds; or the amount relating to the accounting fraud or financial damage caused to the securities market, if such value can be calculated. The percentage and calculation basis of the reward will be established according to criteria such as the novelty and usefulness of the information, the whistleblower’s cooperation and the severity of the crime reported.

The bill was inspired by the U.S. Sarbanes-Oxley Act and the Dodd-Frank Act. It will be voted again by the CCJ and, if approved, will move forward to the Brazilian House of Representatives.

Find out more about Bill 2,581/2023.

CGU sanctions several companies for violations provided for in the Anti-Corruption Law

On May 23, 2024, the Brazilian Office of the Comptroller-General (“CGU”) punished five companies and dismissed motions for rehearing regarding two companies accused of crimes against several government authorities, such as the Ministry of Agriculture and Livestock (“MAPA”), the Brazilian Land Transport Agency (“ANTT”) and the Brazilian Federal Revenue Service.

The fines imposed in the administrative liability proceedings amount to BRL 193,085,171.81.

These proceedings address crimes such as:

• Fraud in bidding procedures aimed at combating the COVID-19 pandemic;
• Illegal sale of data extracted from the Ministry of Finance’s internal systems; and
• Offering of 2014 World Cup VIP tickets to public officials.

Find out more on the CGU website.

Tool developed by the CGU to track irregularities in bidding procedures now available to states and municipalities

The ALICE (Bidding Procedures, Contracts and Notices Analyzer) tool developed by the CGU is now available to states and municipalities. The platform was designed to detect irregularities and inconsistencies in bidding procedures, contracts, and public notices.

ALICE employs text mining and artificial intelligence techniques to perform daily automated analyses of public procurement procedures registered on Compras.gov.br (Federal Government), Licitacoes-e (Central Bank of Brazil) or in the Bidding Procedures System of the Caixa Econômica Federal bank. Potential risks and inconsistencies flagged by the tool trigger alerts that will enable swift preventive actions by authorities to combat corruption and other harmful acts to the government.

In 2023, ALICE analyzed more than 190 procurement procedures and the alerts triggered by the tool resulted in the cancellation or suspension of procurements worth more than BRL 2 billion.

States and municipalities can obtain free access to these results by establishing partnerships between state and municipal control bodies and the CGU.

Find out more about the ALICE tool.

Federal Supreme Court initiates trial of action against changes to the Administrative Improbity Act

The Brazilian Federal Supreme Court (“STF”) has initiated the trial of Direct Action for the Declaration of Unconstitutionality 7,236 (“ADI 7,236”), filed by the National Association of Prosecutors (“CONAMP”) against several amendments introduced by Law No. 14,230/2021 to the Administrative Improbity Act (Law No. 8,429/1992, “LIA”).

Part of these amendments had already been suspended by Justice Alexandre de Moraes in December, 2022.

Among other issues, Alexandre de Moraes ruled as unconstitutional the amendment restricted the loss of office to the position occupied by the manager at the time of the misconduct. Moraes also addressed the wording that impeded the processing of improbity actions if the manager had already been acquitted for the same crime, arguing that this would only be the case if there were no probable cause.

Following Moraes’ vote, the trial was suspended after Justice Gilmar Mendes requested a review of the records, which should be concluded within 90 days.

Find out more about ADI 7,236.