The beginning of the year allows us to look back at recent developments in the white collar front involving Brazil and the United States, and prompts us to consider what to expect going forward, especially in light of the election of President Jair Bolsonaro and the appointment of former judge Sergio Moro as Minister of Justice.
Lava Jato, Carne Fraca, and Zelotes are among the Brazilian anti-corruption operations that have echoed in the United States over the last few years. Intensified cooperation between authorities in the two countries has fueled countless investigations, settlements, convictions, and related civil litigation. U.S. criminal enforcement also has reverberated in Brazil, with the FIFA prosecutions being perhaps the most headline-making example.
2018 enjoyed its share of dramatic anti-corruption developments. For example, Petrobras agreed to pay massive amounts as part of a historic settlement with investors in connection with a Lava Jato-related securities class action brought in New York. Petrobras also entered into separate settlements with enforcement authorities in Brazil and the United States. In addition, a U.S. court sentenced two former SBM Offshore executives to prison and ordered them to pay fines, after they pleaded guilty to bribing government officials in Brazil and other countries. Another U.S. court sentenced former CBF president José Maria Marin to four years’ imprisonment and ordered him to pay a fine and forfeit benefits, following his 2017 conviction in New York in the FIFA matter.
Bolsonaro’s election and Moro’s appointment as Minister of Justice are among the factors generating the expectation that anti-corruption enforcement, market awareness of corruption-related issues in Brazil, and related interplay between local and U.S. authorities might well persist in the coming years.
In significant part, Bolsonaro was elected based on popular calls for combatting corruption. Moro became Minister of Justice with the express goal of implementing a strong anti-corruption and anti-organized crime agenda. The expansion of the Ministry of Justice’s powers, including as to money laundering, should increase the ability to accomplish this mission. Moro has already introduced a bill containing additional anti-corruption measures that a partially renewed Congress with potentially closer ties to the government has greater odds of approving. Even if only some of these plans and promises materialize, anti-corruption enforcement operations in Brazil should be expected to continue to make the headlines, even if controversies involving members of the government may deter potential advances and generate distrust by the electors.
Companies and their investors also have become increasingly aware of corruption-related risks. In recent years, that is especially so with transactions involving businesses operating in Brazil. Such sensitivity very well may increase going forward, given expectations around enforcement and the possibility that Bolsonaro privatizes certain state-owned entities. The prospect of such privatization – and the likelihood that some of these entities may be entangled in corruption allegations – has the potential to drive even greater efforts by investors to identify and remediate improper practices that may obstruct their deals.
Anti-corruption authorities in Brazil and the United States already have developed a close relationship based on trust and respect over the last few years. They are known to communicate and cooperate often, as evidenced by the recent coordinated settlements involving both jurisdictions. Even greater cooperation may follow, including because Bolsonaro and his allies have stated publicly their desire to work more closely with the U.S. government, consistent with public signals from officials of both countries that they are largely aligned on such matters. In addition, Moro and several members of the Lava Jato task force, in particular, have acknowledged drawing inspiration from U.S. practices, techniques, and case law. For example, plea bargain agreements, which have become extremely prominent in corruption-related cases in Brazil in recent years, have long been a fixture of U.S. law enforcement. As a judge, Moro has cited U.S. court decisions as a basis for his own Lava Jato rulings. Just before becoming Minister of Justice, he has illustrated his plans to fight organized crime in Brazil with reference to tactics employed by U.S. authorities against the mafia in the 1980s.
The last few years also have shed light on certain steps that businesses and their investors can take to help prepare for this brave new environment and better address issues that may arise. First, companies should ensure that their compliance programs are tailored appropriately to the risks presented and that these programs actually are working in practice as intended. Second, responsible investors should conduct risk-based due diligence on counterparties and business partners, and address potential compliance issues in the relevant contracts. Third, companies should consider crafting a crisis management response plan, to be in a position to react promptly to a potential dawn raid of their headquarters or an unexpected, early morning investigative report implicating them in wrongdoing. Fourth, companies hit with corruption allegations should conduct tailored internal investigations to understand the relevant issues, determine their real exposure, and ultimately assess the best path forward. And finally, companies and executives negotiating leniency or collaboration agreements in Brazil should consider if and when to pursue similar efforts in the United States or other jurisdictions, and vice-versa. This can help address the challenge of avoiding duplicative punishment for the same conduct by regulators in different countries.
Bruce E. Yannett is the Deputy Presiding Partner and Chair of the White Collar & Regulatory Defense Practice Group, David. A. O’Neil, Andrew M. Levine, and Kara Brockmeyer are partners, and Daniel Aun is an associate of Debevoise & Plimpton LLP’s White Collar & Regulatory Defense Group in New York and Washington, D.C., and have worked extensively on investigations and enforcement matters involving Brazil and the United States, among other jurisdictions.
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