Compliance and Investigations Newsletter No. 19 – July 2023

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 lawyers.

Enjoy reading!

Compliance and Investigations Team

Brazilian Supreme Court allows the use of plea bargain agreements’ information within improbity misconduct actions

The Brazilian Supreme Court (“STF”) unanimously ruled, on June 30, 2023, that plea bargain agreements (colaboração premiada) can be used against improbity misconducts within the context of actions brought by the Public Prosecutor’s Office. Before the ruling, the prevailing position was that evidence obtained through plea bargain agreements were to be used only in criminal proceedings, considering the plea bargain agreement mechanism was established by Law No 12,850/2013 (Criminal Organization Act).

The decision was rendered within an improbity misconduct action against a tax auditor and twenty-four other individuals, among which three defendants signed plea bargain agreements with the State Prosecutor’s Office of Paraná.

Due to STF’s ruling, evidence obtained through plea bargain agreements can now be considered within improbity misconduct actions, which is a civil proceeding. For this purpose, Justice Alexandre de Moraes, the Justice-rapporteur, established the following thesis:

• The judge must examine the regularity, legality and willful nature of the agreement;
• The plea bargain must include evidence to support the report;
• The obligation to reimburse the Government for damages cannot be subject to negotiations or agreements, except for payment conditions;
• The damaged legal entity must partake the plea bargain agreement signed with the Prosecutor’s Office; and
• The STF ruling does not affect previous plea bargain agreements already signed only with the Public Prosecutor’s Office, provided that these agreements establish full compensation for damages, are approved by a judge and are duly fulfilled by the defendants.

Click here to access the Press Release and here to access the Vote of Justice Alexandre de Moraes (reporting judge of the case).

Brazilian Federal Audit Court rules that corporate control shift prevents disbarment

The Brazilian Federal Audit Court (“TCU”) ruled, on July 21, that companies cannot be disbarred by the Government in case of corporate control shifting after the committed misconduct.

The decision was rendered within a bid-rigging proceeding related to events occurred between 2014 and 2015. However, prior to the initiation of the proceeding, a foreign company acquired 80% of the investigated company shares, shifting its corporate control.

TCU argued that, since the fraud occurred before the shares acquisition and the new controlling shareholders acted in good faith, they should not be punished with the disbarment of the acquired company. TCU also stated that, considering the acquisition took place before the proceeding was even opened, there was insufficient information available for the buyer’s due diligence regarding the risk exposure of the target company, despite the existence of media reports available regarding the police operation that gave rise to the TCU proceeding.

Click here to access the TCU decision.

Brazilian Office of the Comptroller-General terminates disbarment penalty for six-year time limit expiration

The Brazilian Office of the Comptroller-General (“CGU”) terminated a disbarment penalty imposed against two companies, under Law No. 8,666/93 (“Former Public Procurement Law”), that were unable to enter into new government agreements due to irregularities committed in previous contracts executed with the Federal Government.

On April 01, 2021, Law No. 14,133/2021 (“New Public Procurement Law”) entered into force to replace the Former Public Procurement Law, which will be effectively repealed on December 30, 2023. During this period, the competent entities can opt to comply with either one of both laws.

The two companies were disbarred under the Former Public Procurement Law, which does not provide for a time limit for the termination of the disbarment. On the other hand, the New Public Procurement Law establishes that the disbarment penalty must be valid for a period between three and six years. Therefore, CGU applied the New Public Procurement Law by analogy and determined the termination of both companies’ disbarment, considering the six years since the penalty was imposed.

Click here to access the CGU Press Release.

Supreme Court Justice accepts claim to review leniency agreements in connection with Operation Car Wash

On July 25, 2023, the Brazilian Supreme Court (“STF”) Justice André Mendonça ordered the examination of the Claim for Non-compliance with a Fundamental Precept (“ADPF”), which aims at reviewing the criteria adopted in leniency agreements executed between the State and companies within the scope of Operation Car Wash.

In summary, the political parties that filled the ADPF – PSOL, Solidariedade and PCdoB – claim the leniency agreements executed before the Technical Cooperation Agreement of August 2020 should all be reviewed, because the companies would have signed the agreements under alleged pressure and coercion by members of the Operation Car Wash task force.

Justice André Mendonça requested the submission of a statement, within 10 days, by the Federal Prosecutor’s Office and the Technical Cooperation Agreement signatories (Office of the Comptroller-General, Office of the General Counsel for the Federal Government, Ministry of Justice and Federal Audit Court). In addition, the Justice also determined that the ADPF be analyzed directly on the merits, by STF’s sitting en banc, without prior analysis of the injunction.

Click here to access the STF Press Release, here to access the ruling of Justice André Mendonça, and here to access the Technical Cooperation Agreement.