Managing Director, New York
Highlights and Trends
With 13 enforcement actions totaling approximately $1.92 billion in sanctions, 2017 marked another strong year for FCPA enforcement by the DOJ and SEC. An analysis of the 13 actions brought by the U.S. regulators provides insight into some of the current trends and key developments in FCPA enforcement. Among these trends and highlights we note:
One particularly notable takeaway from our analysis is the apparent nexus to Latin America, specifically Brazil. While Latin America and Brazil have been familiar faces for FCPA activity, in recent years the U.S. and other global enforcement agencies have shifted their focus to active enforcement in China.5 However, it appears the focus has once again returned to the Latin American region, which accounted for approximately half of the 2017 enforcement actions. With a total of 46 and 36 disclosed and open investigations in Latin America and Brazil, respectively, as of the end of the first quarter 2018,6 this focus on active FCPA enforcement is expected to continue through 2018.
Over the past four years, Brazil has found itself in the grips of an ever-growing corruption crisis that has thrown the country into political turmoil. In the wake of numerous high-profile scandals and investigations involving individuals, private and public companies, politicians, and even the Olympics and FIFA World Cup, the question of how to address corruption risk remains a key consideration for organizations choosing to operate in Brazil.
The Business Environment
Compounding the complexity of the Brazil business environment are the country's recent economic and political woes. While Brazil maintains the world's 8th largest economy, it is experiencing its worst recession in two decades. Annual GDP growth contracted by 3.8% and 3.6% in 2015 and 2016, respectively, before finally returning to a positive 0.7% in 2017.7 Further, the annual rate of unemployment in Brazil has been on the rise and was reported at 8.5%, 11.5%, and 13.4%, respectively, during the three years from 2015-2017.8 Politically, Brazil has been tormented by an ever-expanding list of politicians accused of wrong doing, including allegations against two former presidents, the current president, at least five members of the cabinet, the current and former heads of both houses of Congress, and dozens of regional lawmakers. Brazil's bleak economic and political outlook has largely been attributed to ongoing investigations and the political and economic uncertainty associated with doing business there.
Extent of Corruption
Few sectors, industries, and institutions in Brazil have been unaffected by corruption, resulting from issues with the institutionalized government, complex regulations, and the presence of numerous government-controlled industries. However, activities involving public procurement, the use of third parties or agents before the government, and interactions with the tax authority, judiciary system, and police have been particularly affected and carry a significantly elevated risk of corruption. Companies operating in Brazil have consistently indicated that the solicitation or payment of bribes and other forms of irregular payments are commonplace within these sectors.
Looking deeper, we see that the anti-corruption efforts in Brazil have touched a wide-ranging and diverse group of industries, including construction and engineering, meat processing, logistics, mining and utilities.
Clearly, the anti-corruption efforts in Brazil have indiscriminately targeted a multitude of industries, but perhaps the industry most exposed has been oil and gas. Inherently subject to an elevated risk of corruption due to its involvement with public procurement and interactions with government officials, Brazil's oil and gas industry has recently been heavily scrutinized in large part due to the investigation into state-owned behemoth Petrobras. The investigation, known as Operation Lava Jato, has garnered international attention, shedding light on the extent of corrupt dealings within the industry. In response, the DOJ and SEC have signaled their intent to continue this focus, with two of the 13 enforcement actions in 2017 brought against oil and gas companies in Brazil.9 Additionally, of the 36 currently open investigations in Brazil, 13 are related to the oil and gas industry.10
Efforts to Combat Corruption
The apparent success of recent anti-corruption initiatives, like Operation Lava Jato, demonstrates that Brazil seems to be increasingly committed to fighting corruption. In recent years the government has established anti-corruption regulations and launched investigations, among other initiatives. For example, Brazil's landmark anti-corruption legislation, the Clean Company Act (Law. No. 12,846), has been instrumental in providing the government with the ability to hold a company responsible for the corrupt actions of its employees. Further, Decree No. 8,420 has provided additional guidance, including a list of 16 measures to be used by the government to evaluate the effectiveness of a company's compliance program.11 Targeted investigations and different operations such as Lava Jato, Zelotes, Carne Fraca, Bullish, Mister Hyde, and Timoteo further exemplify the reach of the anti-corruption enforcement efforts.
With Brazil now on the path to recovery, the costs and benefits of maintaining a strong compliance program for those with or considering operations in the region have never been clearer. The recent increase in enforcement activity and focus on risk are indicative of a fundamental shift in the region's attitude towards anti-corruption from one of tolerance to one of resilience. As Latin America and Brazil find themselves center-stage in the global fight against corruption, it is imperative that companies choosing to conduct business in the region reexamine their position and take steps to proactively mitigate their risk and exposure.