Brazil

Brazil Corruption Report

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Snapshot

Brazil_230x158.pngCorruption represents a constraint to business in Brazil. Corruption is especially likely in the tax administration, public procurement and natural resource sectors. A recent large-scale corruption scandal holds the state-run oil company Petrobras at the center. The Clean Companies Act is one of the toughest anti-corruption laws in the world, but its enforcement is inconsistent. Under the Act, bid rigging and fraud in public procurement, direct and indirect acts of bribery, and attempted bribery of Brazilian public officials and of foreign public officials are illegal. The Act holds companies responsible for the corrupt acts of their employees and introduces strict liability for those offences, meaning a company can be liable without finding of fault. Brazilian law makes no distinction for facilitation payments, meaning companies could be at risk for engaging in such practices. Giving gifts is illegal and not necessary when doing business and establishing relationships. Businesses are advised to consider the Portal's compliance guide for Brazilian laws.

Clean Companies Act Summary
Compliance Guide

Last updated: November 2015
GAN Integrity

Judicial System

Companies operating in Brazil are likely to encounter corruption at local levels of the judiciary (BTI 2014). Corruption is a problem in this sector as judges are often bribed (BTI 2014). At local levels, the judiciary is subject to external influence from political and economic groups (BTI 2014). While the Brazilian judiciary is constitutionally independent (BTI 2014), it is heavily overburdened and bureaucratic, leading to lengthy processes and a backlog of unheard cases (ICS 2015; HRR 2014). The regulatory system to settle disputes and challenge regulations is considered inefficient (GCR 2015-2016).

Police

Companies should note the risk of corruption and external influence in Brazil's police sector. The police force is entrenched in corruption, violence and acts with impunity (FitW 2015). Companies find the police moderately reliable but state business costs can arise due to crime and violence (GCR 2015-2016). Powerful landlords in remote or rural areas of the country have a significant influence on the police (BTI 2014), and the state police are considered to be excessively violent at times (HRR 2014). The police is an active institution in the fight against corruption and has arrested several high-profile officials and investigated various cases of corruption (HRR 2014). Recently, Brazil's police are investigating major cases such as corruption in the state-owned oil company Petrobras, along with fraud and overpricing allegations against construction companies involved with the world cup stadiums (BBC, Aug. 2015).

Public Services

Inefficient and excessive bureaucracy, as well as bribery, are moderate risks for companies when acquiring public services in Brazil. Companies report government regulations to be burdensome and inefficient (GCR 2015-2016). Both for foreign and domestic businesses, regulations require considerable documentation and bureaucracy in day-to day operations (PwC 2013). Starting a business in Brazil is less costly than elsewhere in Latin America but takes more time, with 54 days in Sao Paolo and 102 days in Rio de Janeiro (DB 2015). Bribery incidences are twice as high in the large metropolitan area of Rio de Janeiro than on country average (World Bank 2014).

Land Administration

There is a high risk of undue influence in the land administration in some rural areas of Brazil. In these areas, there are powerful landlords who have strong influence on the local judiciary and police forces, and who violently counter attempts at agrarian reforms and other legal activities (BTI 2014). Despite this, property rights are well protected and foreigners can purchase land and property (BTI 2014). Registering property takes 25 days, which is less than half the time of the Latin American average (DB 2015). Brazil requires the company to go through more administrative steps than the regional average (DB 2015).

Tax Administration

There is a high risk of corruption in Brazil's complex tax administration. Companies identify tax rates to be the biggest obstacle to doing business in Brazil (GCR 2015-2016). Even though there is a comparable low number of necessary tax payments, companies have to spend 2600 hours per year on preparing, filing and paying taxes compared to 178 hours in OECD states, and 366 hours in Latin America (DB 2015). In what is considered one of the most onerous and complex tax systems in the world, opportunities for corruption and bribery are plentiful (WSJ, Apr. 2015). Seventy-four companies and 24 individuals are under investigation for engaging in bribery in exchange for reducing their liabilities in corporate tax disputes (WSJ, Apr. 2015). The investigation series, which is called "Operacao Zelotes" (i.e. "Operation Zealots"), is seen as largely independent and a positive step in breaking widespread corruption (ICS 2015).

Customs Administration

There is a low risk of corruption at the Brazilian borders when importing and exporting (GETR 2014). Companies assess the border administration to be moderately efficient and transparent (GETR 2014). Irregular payments and bribes are occasionally exchanged but less than 5 percent of surveyed businesses find corruption at the border to be an obstacle when importing and exporting (GETR 2014).

Public Procurement

Companies may encounter favouritism and corruption in Brazil's public procurement. While government procurement is open for both domestic and foreign companies, domestic companies will be preferred if two equally qualified vendors are considered (ICS 2015). Foreign companies may find it difficult to participate in public procurement without significant in-country presence, as a local representative is commonly required (ICS 2015). Companies assess that public funds are commonly diverted and that government officials frequently show favouritism to well-connected firms and individuals when deciding upon policies and contracts (GCR 2015-2016). Amidst the widening Petrobras scandal, several firms are implicated into a corrupt kickback system of bidding and awarding contracts. The federal police is currently investigating numerous foreign firms who paid bribes to obtain contracts with Petrobras, including South Korea's Samsung Heavy Industries Co Ltd, Swedish builder Skanska AB, Danish oil and shipping group Maersk, and British engineer Rolls-Royce Holdings (Reuters, June 2015). As cartelization is suspected to have spread to other organs of public administration, the state-run electronuclear company Electrobras is also under investigation (WSJ, July 2015). Brazilian prosecutors have started to investigate Odebrecht, Latin America's biggest construction company, whom allegedly engaged in bribery of public officials, overpricing and unfair competition over the construction of the 2014 world cup stadiums (BBC, June 2015). Companies are recommended to implement special due diligence procedures to counter the likelihood of encountering corruption in the procurement process.

Natural Resources

Companies should be aware of illegal trade and corruption in Brazil's natural resources sectors. State-owned oil company Petrobras is facing allegations of being at the center of a massive corruption scandal. Starting with an investigation into money laundering, a sophisticated system of corruption and cartelization came to light and unfolded into one of the world's largest kickback scandals (Bloomberg Business, May 2015). For every contract awarded, Petrobras diverted around 3 percent for bribes, amounting in several billion dollars of irregular payments (Economist, Jan. 2015). The scandal implicated the ruling Worker's Party, who is said to have received money from bribes (Reuters, Mar. 2015). Several top-executives have already been sentenced with considerable jail time (BBC, Aug. 2015). Illegal logging and timber trade is another strain on Brazil's natural resource governance. In a "wood laundering" process, companies use fraudulent paperwork to bring illegal wood from protected or otherwise critical areas of the Amazon to be processed and exported (Greenpeace, June 2015). 

Legislation

The anti-corruption legal framework in Brazil is among the toughest in the world, but lacks consistent enforcement (ICS 2015). Corruption is addressed in the Penal Code and in specific federal laws. The Penal Code contains provisions establishing penalties for misconduct, such as embezzlement of public funds, extortion, public graft, breach of public duty, passive and active bribery, bribery in international business transactions, and violation of confidentiality of an offer tendered in competitive bidding. The Brazilian Clean Company Act holds companies responsible for the corrupt acts of their employees and introduces strict liability for those offences, meaning a company can be liable without a finding of fault. Corrupt practices include financing or subsidising the performance of a prohibited act, bid rigging, fraud in public procurement, and direct or indirect acts of bribery and attempted bribery of Brazilian public or foreign public officials. The act provides strict civil and administrative penalties, such as fines of up to 20 percent of the annual corporate turnover, barring from public grants or from carrying out economic activities (CMS 2014). The Penal Code establishes domestic criminal offences with penalties of up to 12 years imprisonment for individuals (CMS 2014). Companies are recommended to read the portal's compliance guide for the Clean Company Act. Whistleblower protection is minimal as it goes little beyond the standard protection of witnesses in criminal cases (TI 2014).  Brazil is signatory to the OECD Anti-Bribery Convention and the United Nations Convention Against Corruption (UNCAC).

Civil Society

Brazil has a vibrant democracy with strong, constitutionally guaranteed civil rights. The Internet in Brazil is considered free (FoN 2014), and the press is rated "partly free" due to threats of violence and impunity together with judicial censorship (FoP 2015). Freedoms of association and assembly are generally respected, as is the right to strike (FitW 2015). Nationwide protests against political corruption, poor public services, high taxes and living costs were peaceful as of late, with some instances of police brutality (FitW 2014). NGO's take an active role in highlighting concerning issues such as corruption (HRR 2014).

Sources

Topics: The Americas