An opportunity to improve the enforcement of the Clean Company Act

The comprehensive anti-crime package recently submitted to Congress by Justice Minister Sergio Moro, which focuses mainly on criminal law, could also become an opportunity to tackle problems with the enforcement of Brazil’s Clean Company Act.

This law was enacted in 2013 and represents an important institutional development for Brazil. Its enforcement has been improving as a result of the efforts by the Office of the Federal Comptroller General (“Controladoria-Geral da União” – the CGU), which has the authority to investigate acts affecting the federal government and foreign governments. Still, its impact remains uncertain.

As discussed by Rafael Zabaglia in his article, there are problems arising from the overlaps of the Act with other statutes, such as the Public Probity Act, the Competition Act and different statutes regulating public bids. All feature their own set of sanctions and different authorities with enforcement powers. This tends to lead – and indeed has led over the past few years – not only to a disorganized process of investigating and punishing wrongdoings, but also to excessive punishment that may hamper the fight against corruption.

Another important problem, which remains to be addressed, is the number of authorities with power to apply the Clean Company Act itself. The sanctions it provides for can be applied by any government body affected by the relevant wrongdoing; this means thousands of federal, state and municipal bodies with different features, from traffic agencies to municipals secretariats. In addition, prosecutors may also file judicial claims to ensure that sanctions are applied if they believe a government agency is acting with negligence.

The vast majority of government bodies lack the structure and expertise to conduct investigations. This entails the risk of insufficient enforcement of the Act, albeit mitigated by the action of federal, better-structured, authorities. On the other hand, there is a concrete risk of distorted application of the law due to the current high-level of awareness about the Act and the temptation of fame: fighting corruption, as recent years have proven in Brazil, ensures high visibility to whoever promotes it.

The Act could even be used to promote political objectives – either to persecute political opponents, or to obtain prestige before public opinion – disregarding basic due process guarantees. In that case, private parties subject to abuses will have to resort to courts, with all the related costs and efforts.

This scenario does not, needless to say, advance the cause of fighting corruption in Brazil. Thus, the discussion about improving the legislation to fight corruption, which the Moro package set in motion, could revisit the fragmented distribution of enforcement power under the Clean Company Act. A model that centralizes the authority to investigate and apply sanctions could be adopted instead.

There is no single or ideal solution to address this matter. One possibility would be to centralize in CGU the power to apply the administrative sanctions of the Clean Company Act, while at the same time granting it more independence. Another option would be to require states and municipalities to centralize this power in an independent body created for this purpose within each jurisdiction. In the latter option CGU could receive power to establish general guidelines regarding how these local agencies should act and also provide specialized support.

The design of the solution can follow different paths. What is certain is the necessity to modify the current fragmented framework.