MANAGEMENT

MITIGATE RISKS
AND UNDERSTAND
COMPLIANCE
IN BRAZIL
2 ND E D I T I O N
 American Chamber of Commerce for Brazil - AMCHAM
International Affairs Department
Brazil, 2017/2018

*This guide is part of the project

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The American Chamber of Commerce for Brazil, being the largest Amcham
outside the United States is serving its members building bridges for
Brazilian businesses worldwide. Our foreign investment attraction efforts are
a key mission for Amcham. The “How To” guides published by Amcham
Brasil are part of this initiative. With the support of some of our members and
Brazilian States and cities, we are putting together strategic information on
the most various aspects of doing business in Brazil and its opportunities. As
part of BRICS (Brazil, Russia, India, China and South Africa) and representing
the 9th largest economy of the world, and the 7th largest destination for
foreign investment, Brazil has an intrinsic importance for the global market.
More than ever it is a strategic time for businesses opportunities in Brazil.
We welcome you and hope that the information you are about to read will
contribute to your commercial and investment decisions linked to Brazil.

Deborah Vieitas - CEO, Amcham Brasil

Brazil is one of the main destinations for foreign investments in the world.
In order to provide the market with more safety, it has developed a set of
rules to fight corruption in all sectors of its economy, including private and
public entities. As those are complex and specific rules, investors must pay
attention to avoid and mitigate risks in their investments in Brazil. Having this
in mind, the Zilveti Advogados law firm, in a partnership with Amcham Brasil,
has developed this guide to help its readers understand Compliance and
how it applies to the specificities of the Brazilian market, thus ensuring the
prosperity of their businesses in Brazil.

Fernando Zilveti – Managing Partner, Zilveti Advogados

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 CONTENT
01 INTRODUCTION 05

02 THE TROPICALIZATION OF COMPLIANCE PROGRAMS: BRAZIL 09

03 COMPLIANCE PROGRAM 18

04 ABOUT THE SPONSOR 33

4
 .01
INTRODUCTION

During the first decade of the 21st century, the

world felt the blow of several deep economic
crises, systemic corruption and large-scale
terrorism. These factors have motivated the
creation of a number of rules in the name of safety,
a value that has been gaining strength daily.
The difference between the current situation from
what we saw over the last century is an inexorable
fact: globalization. Due to this worldwide juncture,
no political or legislative insulation remains immune
to contemporary disturbing events. Rules of
conduct are important to mitigate the disruptive
effects of globalization, which has made the world
a more dangerous place.

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 Forty years ago, during the Cold War and the Pressed by the US, in 1999 the Organization
economic polarization, the first legal diploma for Economic Co-operation and Development
to fight corruption was created. At a time of (OECD) established the OECD Convention on
extremes, a need for conduct control procedures Combating Bribery of Foreign Public Officials
was felt. in International Business Transactions, which
demands member States to commit with the
Thus, in 1977, the US established the Foreign
creation of national laws and ways of punishing
Corrupt Practices Act (FCPA), which has
companies involved in international bribery of
basically two chapters. The first chapter defines
public agents. Since then, local legislations
punishments for practicing corruption and
to fight corruption started to be developed
the second discusses the accuracy of the
by countries aligned with foreign trade, in
information presented by companies in their
accordance with the concept of protecting
fiscal books and records.
private investments.
This legislative initiative was approved by the
Under the influence of economic crises and the
American Congress after the famous Watergate
presence of terrorism in a globalized environment,
case, where the authorities unearthed bribes that
in 2010 the United Kingdom established the UK
were being paid by north-American companies
Bribery Act, which is considered the strictest
to foreign officials in order to do business abroad.
legislation regarding national and transnational
Due to Watergate, legislators realized that it made
bribery. The idea behind this normative initiative
no sense to only penalize corruption schemes
was to show the world a response in the fight
of agents inside the US, since acts of corruption
against terror and the protection of markets.
abroad could also unbalance international
Many of the subsequent legislations, such as the
commercial relations.
Brazilian Anti-Corruption Law, were inspired by
the UK’s Act.
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In the path of legislative evolution and
facing transnational corruption cases, Brazil
understood the relevance of aligning itself to
global anti-corruption standards, via a gradual
process which evolved as the country began
to execute international Acts, such as the
OECD Convention on Combating Bribery of
Foreign Public Officials in International Business
Transactions, the Inter-American Convention
against Corruption (IACAC), adopted by the
member countries of the Organization of
American States (OAS), and the United Nations
Convention against Corruption (UNCAC).
Brazil published the first version of its anti-money
laundering law in 1998. According to this law,
the main financial institutions would then have to
report any transactions considered suspicious
to the Council for Financial Activities Control
(Conselho de Controle de Atividades Financeiras
- COAF), created with the purpose of avoiding the
use of the economy for money laundering.
Subsequently, in 2013, Brazil edited Law 12846,
commonly known as the Anti-Corruption Law or
Clean Company Law, a legislation developed
with the purpose of repressing the practice
of illegal activities involving public agents and
governmental bodies.
This law allows companies to be objectively held
responsible for injurious acts against the national
or foreign Public Administration. As an attempt to
encourage the transparency and ethics of those
operating the economy, a special treatment is
offered to companies that have a Corporate
Compliance and Transparency program in
place; besides, it is possible for defendants to
collaborate with the Public Administration during
the investigation of torts, with the benefit of a
reduced sentence through leniency agreements.
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 With quick popular acceptance – a result of the
disclosure of several of political scandals involving
expressive economic groups in the country –
the word Compliance has finally become part of
the Brazilian corporate vocabulary, something
that constrained businesspeople in Brazil to
act proactively regarding risk analysis, and to
implement specialized teams for this purpose.
Compliance is now an indispensable part of
corporate responsibility in Brazil, and it is not
restricted to directors and managers; it is now
part of the whole organizational structure and
reaches every staff member, from C-level to
factory-floor personnel.
8
Although there are some peculiarities in the
Brazilian normative system, businesspeople
have several tools at their service to manage
issues of this nature, being able to structure an
ideal compliance program for their company in a
global level.
The purpose of this guide is to demonstrate
to investors the practical effects of the
implementation of Compliance instruments,
considering the peculiarities of the Brazilian
market and presenting the main practices,
regulations, investigation methods and ultimately,
how to react when problems are found.
 .02
THE TROPICALIZATION OF
COMPLIANCE PROGRAMS: BRAZIL
A program developed abroad often requires adaptations in order to be functional in the Brazilian
corporate environment. Without the adequate care, internal compliance standards may conflict with the
Brazilian legislation and jeopardize operations and investments. It is crucial for the company proposing
the implementation of an integrity plan for a Brazilian business to be ready to adapt it to the local
context, taking into consideration the political environment and all the bureaucratic and ethical aspects
of its introduction.
Some questions are very common when adapting a foreign integrity program, such as:

How to regulate The particularities The practices when Managing company

the activities of of Brazilian law and contracting with policies for
those relating with the administrative public or private workers without
the government, organization of the companies; and conflicting with
as Brazil does not Brazilian State; labor legislation,
have a legislation particularly
about the matter; regarding privacy
(communication
with public agents,
e-mail access, etc.)
 GETTING TO KNOW THE BRAZILIAN
ADMINISTRATIVE STRUCTURE
Any foreign investment requires attention, and in
Brazil this is not different. Many factors influence
the performance of corporate activities, and
a careful assessment of operational risks is
needed. The success of an economic activity
directly relies on the proper understanding of the
regulatory environment in which the company
is placed, as well as on the relations with public
bodies responsible for controlling corporate
activities in Brazil.
Firstly, it is important to understand the
administrative subdivision in Brazil. Brazil is a
federative republic divided in three administrative
levels: the municipalities – which are autonomous
units that correspond to towns and cities; the
states – which comprise regions formed by a set
of municipalities; and the Federal Union – which
represents the entire country. Legal entities
that perform corporate activities in Brazil must
relate directly to the three levels of government.
Because of this governmental administrative
structure, any company can be subject to several
possible risks.
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Corporate activities are regulated by a set of
national policies coordinated by the Special
Office for Micro and Small Enterprises
(Secretaria Especial da Micro e Pequena
Empresa - SEMPE), responsible for opening and
closing legal entities, linked to the Ministry of the
Government Office. This activity is performed
by the Boards of Commerce, administrative
divisions of SEMPE in a regional scope. In order
to register a legal entity in Brazil, it is crucial
for a foreigner to point a legal representative
residing in the country to bind the company with
controlling bodies and agencies.
From a fiscal point of view, the company must
be registered with the respective bodies of
each public administration level, i.e., with the
Brazilian Federal Income Office, the State
Treasury and Taxation Office, and the Municipal
Treasury and Taxation Office. The registration
of a legal entity in these bodies also requires
the presentation of the company’s corporate
shareholding chain up to the final controller, or
the person on behalf of whom a transaction is
conducted, regardless of nationality.
Brazilian corporate legislation has several
complementary structures that support the
instrumentalization of actions against corruption,
money laundering and cartels, and that regulate
the market, which is why it is mandatory to
comply with them.
MANDATORY LAWS
Internally, Brazil invested efforts to implement
legislation to fight corruption, including laws about
administrative improbity, fiscal responsibility,
money laundering and anti-corruption.
Such measures to prevent and fight corruption
have proved to be efficient in their purpose
and they continue to be discussed in the
Brazilian parliament. Some of these measures
are considered polemic, as they confront
individual rights and warranties protected by
the Constitution; others are considered positive
as they intend to turn administrative and legal
processes into inquiries of illegal practices.
Below, some of the laws created to prevent and
fight corruption which must be observed for an
effective compliance program are presented:
» Penal Code (Decree-Law 2484/40)
Corruption activities, either passive or active ones,
are considered autonomous crimes in the penal
legislation. The Penal Code sets forth punishment
exclusively for individuals involved in them.
– Passive corruption: to request or receive
improper advantage or the promise
of such advantage for themselves or
someone else – directly or indirectly, even
if not in a public position or before taking
such position, but because of it.
– Active corruption: to offer or promise
improper advantage to a public agent in
order to make them omit, accelerate or
slow down an act of duty.
» Tax evasion (Law 4729/65) and crimes
against the fiscal order (Law 8137/90)
Tax evasion is brought by a specific law,
established to punish crimes against the
economic fiscal order and against consumption
relations. With such law, it is possible to punish
partners and administrators of a company
wherein the evasion took place, as well as public
agents who perform activities that contribute to
tax evasion practices.
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 » Money laundering Law (Law 9613/98) This law was also responsible for the creation of
the Financial Activity Control Council (Grupo de
In its original text, the law regarding money Ação Financeira contra a Lavagem de Dinheiro
laundering and misrepresentation of assets, rights e o Financiamento do Terrorismo - GAFI/FATF),
and values stated the need of a preceding crime which has the role of enforcing administrative
related to terrorism funding or drug trafficking. penalties, receiving, examining and identifying
Due to the report on the panorama of the capital suspicious claims of illegal activities, as well as
laundering fight, drafted by the Financial Action regulating the mechanisms of the mentioned law.
Group against Money Laundering and Terrorism Among the mechanisms, there is the creation of
Funding (Grupo de Ação Financeira contra a the KYC (Know Your Client - a mechanism widely
Lavagem de Dinheiro e o Financiamento do used by financial entities) and the obligation of
Terrorismo - GAFI/FATF), Brazil began punishing reporting any operation considered suspicious to
the autonomous crime of capital laundering, that the COAF.
is, the misrepresentation or dissimulation of the
nature, origin, location, moving or ownership
» Information Access Law
of goods, rights or values deriving from penal
(Law 12527/2011)
infractions, regardless of the precedent crime.
Effective since 2011, the information access law
Such law states that financial institutions and
enables common citizens to query and access any
other legal entities with activities related to
public document, which is an excellent external
capital laundering (stock, commodities or future
power control tool. The Ministry of Transparency,
exchange markets, insurance companies,
Inspection and General Controlling of the Union
credit card companies, e-payment companies,
follows up with states and municipalities to ensure
leasing and factoring companies, luxurious
the enforcement of this law.
goods, jewelry, precious metals and gems
retailing companies, and others) are facilitators in
laundering crimes; thus, a series of mechanisms
was created to control the activities developed by
such dealers, under the penalty of administratively
responding with fines and the suspension of
activities in case of omission.
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 » Conflict of Interests Law (Law 12813/13)
Effective since 2013, the law for conflict of
interests is essential to fight corruption inside
public agencies. This law states that the public
agent must go through a quarantine period
before performing on their new position. For
compliance purposes, hiring an employee with
a public agent background represents a risk that
can be mitigated by the quarantine process. The
company must be careful to precisely define the
scope of the employee’s functions.
» Law to define standards for elections
(Law 9504/97)
Election campaign funding is a sensitive point
of compliance in companies. Most of the
donations made to winning candidates would
come from companies, which generated a
commitment by the elected candidates towards
their campaign’s sponsors.
As part of the policies to fight corruption and
lobbying – a forbidden practice in Brazil –
the rules of campaign funding have been
significantly modified. The change that had the
largest impact was the prohibition of donations
by legal entities.
Campaign funding is currently allowed only
for individuals, who may donate up to 10% of
their raw income in the previous year. Such
donation can be made directly to candidates or
to political parties who transfer the amount to
the candidate’s campaign. Individuals may also
donate up to BRL 80,000.00 in assets.
Campaigns are also funded by the resources
of the Special Fund for Financial Assistance
for Political Parties (Party Fund), made up of
individuals’ donations, fines collected by the
Election Court and governmental resources.
The parties and candidates, however, are
not allowed to receive donations from foreign
entities or governments, direct or indirect public
administration agencies, unions, non-profitable
legal entities receiving foreign resources, religious
entities and sports entities.
The new rules for campaign funding were applied
in the 2016 municipal elections and might be
improved for the next elections.
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 FOREIGN CORRUPT – Companies with securities registered in
PRACTICES ACT - FCPA the Exchange or in the US Securities and
Exchange Commission (SEC);
Despite being an US federal law, the FCPA must
be followed and understood when structuring a – Any entity or individual whose main
compliance program in Brazil, notably because business area is in the US or under
there are strong civil, administrative and penal American law;
sanctions to repress its crimes, particularly those
– Foreign citizens and entities performing
regarding transnational corruption.
financial transactions within the US; and
The FCPA basically has two main provisions,
– American citizens who have directive
the ones regarding Accounting and the ones
positions in companies outside
regarding Anti-Bribery. The first is about the
their borders.
accounting transparency requirements under
the 1934 Security Exchange Act, and the Unlike the Brazilian order, where the standard
second makes illegal to pay bribes to foreign inspection and enforcement is normally
public agents with the purpose of obtaining or done by one single agency, the SEC and the
maintaining business. US Department of Justice (DoJ) are jointly
responsible for the enforcement of the FCPA,
It is notable that the concept of payment used by
eventually adding other federal agencies
this law is not limited to the delivery of amounts,
responsible for the US constitutional order into
but it also embraces the donation of assets,
the negotiations, in order to promote a fair-
presents and gifts.
game field for companies all around the world.
Precisely because it intends to repress the
practice of international bribery, the law covers
a series of individuals inside and outside the
country, such as:
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Regarding its provisions, the SEC may start
actions of civil and administrative execution
against issuers, directors, employees,
shareholders, and agents for violating the FCPA’s
anti-bribery and accounting provisions. When
enforcing the standard, the agency may dissolve
illegally obtained earnings, and apply interests
and substantial civil fines.
The DoJ has civil and criminal execution
authority over subjects who fail to comply
with any of the rules. For each violation of the
anti-bribery provisions, the act states that the
corporation and other corporate entities are
subject to fines of up to USD 2 million, and
individuals are subject to fines up to USD
250,000 and up to five years of jail time.
It is important, however, to point out that if the
individuals involved in illegal actions execute a
collaboration agreement with the authorities,
the sentences and fines may decrease
exponentially with the presentation of new
relevant information capable of repairing the
correlated damages.
THE BRAZILIAN ANTI-CORRUPTION LAW
One of the greatest challenges of “tropicalizing”
compliance programs may be the investors’ fear
of the kind of liabilities set by the Anti-Corruption
law. Unlike the FCPA, which does not impose
an objective responsibility, and the UK Bribery
Act, which applies only in cases of failure to
prevent bribery, Brazilian legislation defines, for
all the situations, the objective responsibility of
companies which are conniving with actions
of their employees or legal representatives that
cause harm to the Public Administration nationally
or multinationally.
The objective responsibility has the purpose
of holding the company liable for repairing the
damage and answering to the authorities for the
practice of any corruption activity, regardless of
intent or negligence.
According to the law, managers or administrators,
on the other hand, can be held liable for
practicing illegal activities in the extent of their
culpability, that is, negligence or intent must be
proven present, when the offense against the
public administration takes place, in order for the
penalties to be applied, thus characterizing the
agent’s subjective responsibility.
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 Among the harmful activities, we can highlight
the most common corrupt practices performed
by companies in order to obtain businesses or
advantages in their relationship with the Public
Administration, such as:
– Offering, promoting or giving, directly or
indirectly, improper advantage to a public
agent or a third party related to them;
– Funding, sponsoring or paying
for illegal activities;
– Frustrating or defrauding, upon
arrangement, deals or any other means,
the competitive nature of public
bidding procedures;
– Defrauding public bids or contracts
arising from them;
– Obtaining improper advantage or benefit,
in a fraudulent manner, from modifications
or extensions of contracts executed with
the Public Administration without the due
authorization; and
– Hindering investigation or inspection
activities by public bodies, entities or
agents, or intervening in their performance.
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For the practice of the illegal activities mentioned
above, the companies are subject to various
administrative sanctions, which may constitute:
– fines from 0.1% to 20% of the raw income
of the last calendar year; and
– the disclosure of the sentence to the
mass media.
It is important to highlight that the fine does not
exclude the company’s obligation to fully repair
the related damages.
The infracting companies may also be held
judicially responsible, being subjected to
sanctions such as:
– loss of assets, rights or values that
represent the directly or indirectly obtained
advantages from the infraction;
– suspension or partial interdiction
of its activities;
– compulsory dissolution of the legal
entity; and
– prohibition to receive loans and incentives
of any kind from public bodies or entities
or from financial institutions controlled by
the public power for up to five years.
Additionally, the companies’ legal personality
may be disregarded whenever it is used with
abuse of right, to facilitate, cover or dissimulate
the practice of the illegal activities mentioned in
the law, as well as in cases of asset confusion,
which is characterized by the absence of a clear
division between the company’s assets and the
partners’ assets.
Thus, with the characterization of abuse of
right or asset confusion, the agency in charge
of judging the administrative responsibility
process, may promote the disregard of the legal
personality and, as a direct consequence, hold
the partners and administrators themselves
responsible, to whom all the sanctions
applicable to the legal entities may apply.
Conversely to the severe administrative and civil
sanctions, Brazilian legislation, inspired by the
legal experiences in other jurisdictions, has come
up with the possibility of collaboration between
the companies and the authorities as a way of
softening the applicable penalties, which is when
the proof of preventive compliance measures is
usually shown by companies.
The integrity program set forth in the law is
nothing but a specific compliance program
for companies that maintain relations with the
national or foreign public administration; and
its purpose is to detect, avoid and correct
deviations, frauds or irregularities in the relation
with such public agencies.
This framework is one of the pillars to build a
compliance program; thus, it deserves the same
attention during its development, as we’ll further
describe below.
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COMPLIANCE PROGRAM
PREVENTION
The Prevention step must be understood as a
set of internal mechanisms created to ensure that
employees and partners know the company’s
position, publicizing its moral and ethical values
when running its business. With the purpose of
ensuring that those values are widely known, as
a general rule, the institutions rely on the following
internal policies:
RISK ASSESSMENT
Risk analysis is the main point and the first step to
implement a compliance policy. The assessment
must consider the particularities of the company,
as well as the general characteristics of the
market in which it operates.
.03
The OECD and the DoJ, along with regulating
agencies of the American capital market
(Security and Exchange Commission – SEC), in
their guidelines, highlight that every organization
must constantly analyze its risks, considering
their nature, severity, the local culture and state
regulation level.
After ranking them, it is necessary to assess the
risks’ levels, considering their probability, financial
impact, and the exposure the company could be
subjected to. With this mapping, it is possible to
develop specific mechanisms to accept, control,
mitigate or eliminate the risks.
CODE OF ETHICS AND CONDUCT COMMUNICATION AND TRAININGS
Through a Code of Ethics and Conduct, the Communication and training are important tools
company makes it clear for its employees, to spread the knowledge about the company’s
partners, managers and directors which actions policies and ensure the effectiveness of the
and behaviors are expected from them. The prevention program.
text must, therefore, detail hypothetical routines
In order to ensure that it is widely known by
capable of foreseeing possible compliance
every staff member, the Code of Ethics and
failures and offering solutions so that the staff
Conduct, as well as any other document part of
behaves in accordance with the company’s
the Compliance Program, should be available
commitment to transparency.
through different communications channels in
The dissemination of ethical values among the company.
employees, partners, suppliers and customers
Specific trainings, online or in person, are
depends on the company’s efforts and
recommended to emphasize the risks and
actions to promote the engagement of the
consequences of the anti-corruption legislation, in
professionals involved with the rules for any sort
case of frequent contact with public authorities.
of business or transaction.
It is important for the company to define the target
The policy’s success will also rely on the
audience for each type of training and ensure
directors’ commitment to adhere and comply
the assimilation of the presented content through
with the established rules, thus showing the
tests and monitoring.
engagement from the highest hierarchical levels
to the operational levels and service providers
(“tone at the top”).
Despite being written, the code must also be
dynamic, easy to access by all employees, and
frequently revised, since it will only produce the
expected results if it is easily understood. After
structuring the company’s conduct, it is possible
to develop the institution’s internal policies,
which shall always be subject to the social and
economic evolution.

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 REPORT CHANNELS
With a well-built Code of Ethics and Conduct
disseminated among the employees, there
shouldn’t be many questions left on how to
behave in the company. At the same time, in
order to detect any possible noncompliance to
the rules, it is important to offer report channels
to identify any failing actions.
Such a tool enables partners and customers to
report events that deviate from normality, whether
regarding compliance with the law, the company’s
principles or internal regulations.
Report channels can exist in several different
formats, such as a specific link on the internet,
an e-mail address, direct contact with the
compliance team, even boxes where written
statements may be placed in and, most
commonly, a toll-free telephone number.
Confidentiality and anonymity are indispensable
for the success of the report channel and, as
a consequence, for the compliance program.
Without those warranties, the trust on the tools is
lost and they become ineffective.
On the other hand, the reporter may choose to
be identified and, in this case, the company must
ensure that he or she will not suffer any sort of
retaliation inside the institution.
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KNOW YOUR BUSINESS PARTNER
Policies for knowledge and acceptance of
clients (Know Your Client/Customer - KYC) and
suppliers (Know Your Supplier - KYS) have the
main purpose of mitigating possible risks to the
company’s reputation and revenue potentially
caused by third parties.
For the success of such tools, the company must
ensure that all customers regularly go through
the KYC process and present documents and
information to demonstrate their financial and
asset situation, the regularity before governmental
agencies, the absence of their registration as
dishonest or corrupt companies, an indication of
their final beneficiary, a statement that the company
is compliant with the anti-corruption law, etc.
Such recommendations must be followed
considering the risk factors that will define the
partner’s ranking. Risk factors are inherent to the
company’s business, therefore each company
must consider the characteristics of their
customers and suppliers in order to come up with
a list of risks and requirements.
The list, however, shouldn’t demand far-fetched
requirements hardly met by third parties.
Requesting unusual or unreasonable information
makes the tool unfeasible to assess the honesty
of commercial partners. Consequently, it may end
up harming business.
The list of documents and information to asses
a customer may be adapted to the company’s
or the customer’s profile, and it is crucial that
the company identifies the most assertive way
to effectively protect itself against the risk of EFFECTIVENESS MONITORING
being linked to criminal activities practices by
Monitoring the activities is critical for the
its customers.
sustainability of the compliance program.
It permits the assessment of how effective
COUNCIL FOR FINANCIAL ACTIVITIES
and efficient the controls enforced by the
CONTROL - COAF
compliance program are, and it must be
COAF, a regulating agency of the Ministry of done frequently in order to quickly identify any
Finance, has the purpose of fighting money breaches, deviations or failures on the process
laundering by regulating, analyzing and identifying and, then, correct them.
the suspicious indications of illegal activity and
By monitoring activities, it is possible to detect
defining its respective administrative sanctions.
misconducts, point out the origin of the failures
To some segments of the economy, such as the and have a quicker and more effective response
financial market and the high-standard retail, the in order to resume good practices.
law has attributed the responsibility of identifying
clients, maintaining a registry of operations, and
mandatorily reporting to COAF any suspicious
operation it eventually detects.
Failing to comply with such obligations leads
to severe fines, the annulment of the business
license and other administrative sanctions.

21
 DETECTION
Despite all this caution, procedural failures may
be eventually detected. At this moment, the
compliance department will analyze the relevance
of an investigation.
WHAT SHOULD BE INVESTIGATED?
For Compliance, any actions that violate
applicable rules, standards or laws are
investigated, as well as procedural mistakes in
usual practices of the company and its members.
This way, any deviations that are brought to
attention ought to be analyzed, regardless of
the hierarchical level of the people involved. The
objective of the investigation, however, must be
well defined, as well as the potential responsible
agents for the investigated facts.
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FACTORS THAT MAY ORIGIN
INVESTIGATIONS
Internal investigations may arise from different
sources, such as whistleblowers reports
via different communication channels, the
detection during internal or external audits,
interviews with employees, legal procedures,
media or even by chance, when other
conducts are being investigated.
In 2016 the Association of Certified Fraud
Examiners (ACFE) made a global research with
more than 2,400 cases of fraud in 114 countries
in order to understand the most efficient ways to
detect fraud schemes:
 2016 2014 2012
Initial Detection of Occupational Frauds
39.1%
Tip 42.2%
43.3%
2016 2014 2012
16.5%
Internal Audit 14.1% 39.1%
Tip 14.4% 42.2%
43.3%
13.4%
Management Review 16.0% 16.5%
Internal Audit 14.6% 14.1%
14.4%

5.6% 13.4%
By Accident 6.8%
Management Review 16.0%
7.0% 14.6%

5.5% 5.6%
Account Reconciliation By6.6%
Accident 6.8%
7.0%
Detection Method

4.8%
5.5%
5.5%
Account Reconciliation 6.6%
Other 0.5%
Detection Method

4.8%
1.1%
5.5%
3.8% Other 0.5%
Document Examination 4.2% 1.1%
4.1%
3.8%
Document Examination 4.2%
3.8% 4.1%
External Audit 3.0%
3.3%
3.8%
External Audit 3.0%
2.4% 3.3%
Notified by Law Enforcement 2.2%
3.0% 2.4%
Notified by Law Enforcement 2.2%
3.0%
1.9%
Surveillance/Monitoring 2.6%
1.9% 1.9%
Surveillance/Monitoring 2.6%
1.9%
1.3%
IT Controls 1.1% 1.3%
1.1% IT Controls 1.1%
1.1%
1.3%
Confession 0.8% 1.3%
1.5% Confession 0.8%
1.5%
0% 5% 10% 15%
0% 20%
5% 25%
10% 30% 20%
15% 35% 25%
40% 30%
45%35%
5… 40% 45% 5…
Percent of Cases Percent of Cases

© 2016 Association of Certified Fraud

© 2016 Examiners,
Association Inc. AllFraud
of Certified rightsExaminers,
reserved Inc. All rights reserved

23
http://www.acfe.com/rttn2016/detection.aspx
 The same study highlights the importance of the reporting and communication channels, since they
are the main source to start investigations – 51.5% of them come from employees’ tips – hence the
efficiency of the internal preventive channels.

Source of Tips

Employee
51.5%
Competitor
1.6% Customer
Shareholder/ 17.8%
Owner
2.7%

Vendor
Anonymous
9.9%
14.0%
Other
12.6%
REPORT TO THE NATIONS ON OCCUPATIONAL FRAUD AND ABUSE 2016

https://s3-us-west-2.amazonaws.com/acfepublic/2016-report-to-the-nations.pdf
24
Besides whistleblowing, as mentioned above, HOW TO CONDUCT AN INVESTIGATION
other usual detection methods are internal audits
Regardless of the channel used to report the
and activity reviewing by managers. That is why
investigated fact to the investigation team, there
preventive mechanisms are so important: internal
are several prior procedures to be followed in order
audits and reviews must take place regardless
to ensure the investigation’s proper conduction.
of the management bodies’ will; otherwise the
principle of compliance itself could be broken. After receiving a report on a compliance breach
that requires an investigation, it is necessary to
When the investigation comes from an external
stablish a methodological line to start analyzing
provocation, such as the direct or indirect
the facts.
involvement of the company in illegal practices,
it must take the crucial role of improving its
prevention mechanisms and, most of all,
managing its reaction before the public and
private entities involved in the issue.
It might be beneficial to nominate an external
counselor to lead the detection process, who
will be able to lead an independent investigation
to confirm the reported fact and involved parties,
following the required procedures to preserve
the evidences.
When the investigation implies communication
with authorities, it is mandatory to follow the
procedural cautions to collect and preserve any
evidence related to the investigated fact.

25
 In general, the usual steps are:

a. Screening of the b. Analysis of the investigated c. Evaluation of the

topic reported to the persons in order to check if involvement of the
responsible team and it is an isolated issue or if it company’s board
verification of the feasibility may be the indication of a of directors;
of an investigation; systemic behavior;

d. Definition of the e. Definition of the f. Taking the required

investigation team; investigation scope; measures to preserve
information and documents.
26
 After collecting documents to preserve data and make the initial decisions regarding the
procedure to be followed, the investigation starts.
It is recommended that the following path is followed:

1 2
ANALYZING DOCUMENTS INTERVIEWS

4 3
INVESTIGATION`S CONCLUSION MATERIAL CONFRONTATION

After analyzing documents and leading interviews,
the investigation team will issue a technical report
about the investigation, which shall present the
following elements:
– description of the investigated facts;
– people involved in the investigated conduct;
– methodology used to lead
the investigation;
– synthesis of what has been investigated,
describing if the conduct in fact took place
and, if so, comments on the authorship
and materiality, if possible; and
– analysis of the company’s exposure risk.
The assessment of risk exposure is crucial to
indicate the possible consequences of the verified
breach, such as damages to the company’s
public image and potential financial damages. It
also guides partners and administrators on their
due reaction to address the issue.
The investigation team’s final report must also
point out which failures in the company’s internal
processes contributed to the misconduct. This
indicator is critical to improve the company’s
internal procedures in order to avoid the repetition
of the illegal activity.
27
 REACTION
REPORT TO PARTNERS/INVESTORS
Regardless of the method chosen by the
company and used during the investigative
process, the team responsible for analyzing the
case must be in direct contact with the project
manager who will report their findings to the
partners and investors.
In case of meaningful compliance breaches,
investigation leader, together with the company’s
CFO and CEO, must choose the best way to
present the results of the investigation to the
partners and investors.
As it is a sensitive topic for the corporate
structure, the report aims on comforting the
stakeholders, clarifying specific aspects of the
identified deviation and presenting measures to
mitigate or extinguish the risks the company has
been exposed to; thus, the maintenance and
prosperity of the investments are ensured.
28
LENIENCY AGREEMENT
Common to all the authorities mentioned below,
the leniency agreement consists in a collaboration
commitment between the investigated legal entity
and the offended authority, in order to identify
other involved parties, including public agents,
as well as to present documents and information
that may prove the infraction under investigation.
In return, the relevant authority may soften the
sanctions foreseen by law, dismiss the publication
of the sentence in the media or allow the
company to resume its contract with the Public
Administration. This way, companies willing to
both repair the damages caused to society and
ensure its market presence can carry on with its
activities while it corrects the compliance failures
that led to irregularities.
As a general rule, the agreement can only
be granted to the first who shows interest in
collaborating, completely ceasing its involvement
with the investigated infraction.
It is important to highlight that the agreement
does not exempt the party of fully repairing the
harm done.
On the other hand, the authorities also benefit,
since the agreement allows the collection of new
information and documents that allow them to
investigate and prosecute further and better, making
the administrative investigation processes on acts of
corruption much quicker and less costly.
However, as there is no single legislation
regulating leniency agreements, there are several
doubts on how and with whom the commitment
terms may be executed.
In this scenario, the evident solution to ensure
minimum safety and predictability in such cases
would be to call all relevant authorities to the
negotiation table, so that the damage repairing
is guaranteed and eventual unexpected legal
repercussions are avoided.
29
 CONTACT WITH BRAZILIAN AUTHORITIES or creating cartels, by applying corrective
measures, such as fines and other penalties
The result of the investigations may reveal fraud
that can ultimately annul the entire corporate
practices or corruption schemes that, due to
structure of the companies that fail to comply
their nature, generate both civil and criminal
with the legislation or perform antitrust activities,
responsibilities to the company, its administrators,
acts of illegal concentrations and crimes against
managers and any person that participated
the economic order (cartels, gun jumping, etc.),
actively on the illegal conduct.
without any prejudice to eventual criminal and
One of the possible solutions to mitigate such risk civil actions.
is the collaboration with the offended authority,
For a leniency agreement to be signed with the
with the purpose of obtaining benefits to the
CADE, the collaborator must present elements
perpetrators by presenting relevant information
capable of helping the agency to better detail the
regarding the authorship and materiality of the fact
misconduct, while also committing on ceasing
object of the investigation.
any illegal behavior practiced by the company.
Based on legislation from other jurisdictions
Should the company not fit in the common
– mentioned hereinabove – many Brazilian
leniency procedures, it can also execute the
inspection authorities have created negotiation
so-called “Leniency Agreement Plus”, where
channels with the offenders in order to legally and
benefits are granted to those who, during
quickly gain access to specific information and to
investigations, collaborate with the agency by
protect the legal asset.
reporting the existence of a new cartel case.
The most relevant channels are mentioned below.

»A
 dministrative Council for Economic
Defense - CADE
CADE guides, prevents and inspects the
economic order by investigating infractions and
other actions aiming on eliminating competition
30
 » Central Bank of Brazil
Bound to the National Monetary Council, the
Central Bank of Brazil is responsible for ensuring the
currency stability as well as the good functioning of
the national financial system.
The Central Bank controls foreign currencies
entering the country with the registration of foreign
capital and national capital abroad. By monitoring
the market, it is possible to track and detect
resources coming from illegal activities in order to
fight money laundering.
Infractions committed by companies are
investigated by administrative procedures led
by the institution, and were aggravated after the
edition of the Provisional Measure 784 of June
2017, which also raised personal penalties that
restrain the offender’s activities.
There are two ways to collaborate with this
institution: the leniency agreement and the
term of commitment.
The Central Bank may execute leniency
agreements with individuals or legal entities. To
do so, the investigated party must confess the
infraction and identify the other parties involved
in the action by proving frauds and possible
corruption schemes.
There is also the possibility of executing a term
of commitment, until the administrative decision
is delivered.
In this term, the investigated party commits to
cease the irregular investigated practices, correct
the irregularities and comply with the agreed
provisions. Unlike other collaboration instruments,
the term of commitment does not imply the
confession neither the acknowledgment of the
illegal conduct.
31
 » Securities Commission - CVM
The relation between the companies listed in the
Stock Market and their investors is a critical point
in the financial and capital market in Brazil. The
regulation is essential to protect shareholders
and ensure the transparency of institutions,
providing safe elements for stakeholders to
make strategic decisions.
For that reason, the role of the Securities and
Exchange Commission (Comissão de Valores
Mobiliários - CVM) – a government authority
linked to the Ministry of Finance, which main role
is to secure an integral and efficient functioning
of the capital market – becomes of utmost
importance, when it promotes a balance between
fundraising by the invested companies and
protecting investors.
The sanctioning power of the CVM has been
exponentially increased by the Provisional
Measure 784, which, besides granting the
agency with the competency to execute Terms
of Commitment and Leniency Agreements,
has increased the limit of applicable fines to
BRL 500 million.
» Ministry of Transparency and
Comptroller General of the Union
The Ministry of Transparency and Comptroller
General of the Union ((Ministério da Transparência
e Controladoria-Geral da União – CGU) is the
government agency responsible for dealing with
irregularities committed by public agents. Because
of the Anti-Corruption Law, the agency is now
responsible for executing leniency agreements with
legal entities involved in irregularities caused by
contracts with public agents.
The leniency agreement executed with this
agency demands that the company ceases
illegal misconducts and cooperates with the
authorities by providing information to help
revealing how the infraction took place and/
or its authors. If the agreement is executed,
the involved party may be discharged from
publishing the fact, have the fines reduced by up
to two-thirds, and might as well continue issuing
contracts with the public administration.
IMPROVING PREVENTION PROCESSES
One of the roles of a Compliance team is to review
and improve internal prevention processes.
We should highlight that reviewing such
processes does not mean to discredit them, but
to improve and update such policies according
with recent times and culture, aiming to adjust
inadequate processes and even to clarify some
point that may raise procedural questions.
The reviewing of such processes must translate
and embrace the values, mission, strategies and
ways of doing businesses, constantly reaching
out for prosperity and granting the company’s
sustainable growth.

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well as providing consulting for Brazilian investors
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By comprehensively analyzing and studying their
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 FOR MORE INFORMATION, PLEASE CONTACT:

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