Cartel prosecution in the context of the ‘Lava Jato’ corruption probe
March 2017 | EXPERT BRIEFING | FRAUD & CORRUPTION
Recent enforcement decisions by the competition authority, especially with respect to the calculation of penalties applicable to informers, as well as interactions between the several different bodies with powers to pursue and to remediate bid-rigging conduct, are shaping anti-cartel enforcement in Brazil, and the courts are likely to have a voice in these matters only years from now.
The Lava Jato or ‘Car Wash’ probe against corruption at Petrobras, and its numerous spin-offs (Zelotes, Eficiência and Calicute, among others) have towed along a number of different bid-rigging investigations involving engineering and construction companies – an industry which had not been subject to thorough antitrust review over the last few decades.
Figures disclosed by the local competition authority – the Administrative Council for Economic Defence (CADE) – indicate there might be at least 20 different bid-rigging investigations, with accusations including sectors as diverse as industrial construction contracts in oil refineries, railways, World Cup stadiums and even the modernisation of nuclear power plants. Although no final decision has been issued on the merits of any of those investigations, so far a number of companies have either admitted wrongdoing or have engaged in settlement conversations. Most, if not all, of these cases have started by means of leniency (immunity) applications.
Bid rigging can be prosecuted in Brazil as both an administrative infringement and a criminal offence. However, since there is no proper criminal liability for corporate entities in Brazil, the CADE, an agency in the federal government, concentrates most of the anti-cartel enforcement activity, and has powers to impose penalties on both companies and individuals for cartel and other antitrust infringements. Following the finding of an infringement, CADE must impose fines on for-profit corporate entities of up to 20 percent of their revenues: (i) in the sector of activity affected by the infringement; and (ii) in the year prior to the formal start of an investigation. These fines, however, cannot be lower than the benefit obtained from the infringement, if this benefit can be estimated.
The authority has been extremely active in pursuing cartel cases. In 2016 alone CADE issued decisions that add to more than $295m in penalties and contributions, mostly resulting from its anti-cartel enforcement activity. Leniency applications in the same year peaked at 11 new cases, and 61 settlements, also a record, have been entered into with infringers.
Leniency (immunity) applications can eliminate exposure to fines for companies that inform the authorities of an offence and can provide immunity from criminal prosecution, and settlements can reduce the amount payable for infringements substantially – from 60 percent to 25 percent, depending on the circumstances. To receive immunity, a company or individual, in addition to informing the authorities, must confess an infringement that is not yet known by the authority and collaborate with the investigation by submitting information and documents about the infringement and other infringers. When leniency applications are not available, settlements are available for infringers willing to, simultaneously, acknowledge facts under investigation, collaborate with the authority and pay a penalty.
Despite CADE’s extensive know how in dealing with leniency applications and settlements, mainly in international cartels, the Lava Jato cases seem to be more challenging, because of at least three factors. First, the number of defendants – a single case might involve more than 50 different defendants, among companies and individuals. Second, the number of different investigations running in parallel vis-à-vis the authorities’ limited staffing. Third, and perhaps most importantly, the fact that bid rigging activity is not only a criminal offense (for individuals) and an administrative antitrust violation, but it is also a punishable offence in connection with at least three other statutes – namely, the Clean Companies Act, effective as of 2014, the Public Procurement Act, in force since 1993 and the Administrative Misconduct Act, effective since 1992.
CADE has so far responded very well to these challenges, despite the slow pace – in comparison to the criminal proceedings involving corruption accusations – of its investigations, even if there is room for improvement.
For instance, although there has been a genuine effort from the authority and officials to make discussions about the calculation of penalties in settlements as transparent as possible, strict confidentiality rules protecting defendants’ revenues information makes it difficult to identify – as a third-party – the proper revenue basis upon which penalties are calculated. One can rely only on the existing rules and guidelines for the assessment of the applicable discounts on expected fines, which relate both to the timing of the settlement and the contents of the collaboration. Maximum discounts, therefore, are available to early settlers that provide substantive assistance to the investigation or new investigations, in leniency-plus types of collaborations.
On another front, the CADE has also been very active in its cooperation with other authorities, especially with public prosecutors all over the country. The number of authorities entitled to investigate and punish bid rigging and related violations can reach, in addition to the competition authority, at least three other government entities, each with their own expertise and focus. Coordination among all these entities is far from trivial and requires a lot of energy from defendants, especially those interested in collaborating with the authorities, to make sure all the stakeholders are properly addressed.
The efforts led by CADE and prosecutors toward rationalising the activities of each authority are still incipient, but will surely take a better form over the next couple of years. The issue is that, until those efforts pay off, there is a high risk that non-coordinated decisions among different authorities may hinder the effectiveness of investigations – for instance, on the basis of double-jeopardy (ne bis in idem) arguments, or because of misstated facts among the different governmental spheres.
Higher courts should have a say in these matters, and it is likely that possible definitive judicial decisions might still take a long time. Up until then, CADE’s and the parties’ practice, together with the efforts from prosecutors and other authorities, will dictate the shape of the law and the extent of the applicable penalties.
José Carlos Berardo is a partner at Lefosse Advogados. He can be contacted on +55 11 3024 6244 or by email: firstname.lastname@example.org.
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José Carlos Berardo