On December 9, 2024, the Brazilian federal government published Decree No. 12,304/2024 (Decree), which regulates Brazilian Law No. 14,133/2021 (known as Brazilian New Procurement Law). This law, in effect since April 2021, contains provisions mandating the implementation and development of compliance programs for companies doing business with the Brazilian government.

The Decree that takes effect on February 7, 2025 – 60 days after its publication, establishes parameters for assessing compliance programs in cases of;

• high-value government contracts;
• tiebreak criteria between two or more proposals;
• reinstatement of sanctioned companies under the Law No. 12,846/2013 (Brazilian Anti-Corruption Law).

The Decree applies to contracts involving the Brazilian federal government and any agreements executed by the Brazilian state and municipal public administrations that use financial resources voluntarily provided by the federal government.

Lack of unified authority

Notably, the Decree does not designate a specific authority to evaluate the corporate compliance programs of companies subject to the criteria of the Brazilian New Procurement Law. Instead, it states that it is up to the federal body to determine the government agency or entity that will be responsible for assessing compliance programs.

This lack of a unified authority raises concerns about the consistent application of compliance guidelines in the context of public bidding. Nevertheless, it is a familiar issue for those operating in Brazil. The Brazilian Anti-Corruption Law, enacted one decade ago, established that the highest competent authority within each agency or entity of the Executive, Legislative, and Judicial branches is responsible for initiating and adjudicating administrative proceedings to hold legal entities accountable for unlawful acts against public administration, whether domestic or foreign.

At least within the Federal Executive branch, the Brazilian General Comptroller’s Office (Controladoria-Geral da União or CGU) is the government entity responsible for evaluating corporate compliance programs. The CGU’s proactive approach to combating corruption has been recognized both within Brazil and from international organizations.

For instance, the OECD Working Group on Bribery in its Phase 4 Report on Brazil, issued in November 2023, officially appraised CGU for its informal ties and contacts with foreign counterparts within its law enforcement network, as well as for its enforcement actions against foreign bribery. (For more information, please see our previous article, Past positives no guarantee of a better future as Brazil battles bribery)

Additionally, CGU kept its proactive approach by issuing new guidance for effective compliance programs last November. This guidance considered significant changes in the Brazilian anti-corruption framework, particularly the enactment of Federal Decree No. 11,129/2022 replacing the former Federal Decree No. 8420/2015 of the Brazilian Anti-Corruption Law.

Compliance programs should incorporate ESG

This new CGU guideline;

• embraced the growing consensus that compliance programs should encompass environmental, social, and governance (ESG) topics;
• imposed a heightened level of compliance scrutiny on non-publicly traded companies in Brazil, and;
• recommended key performance indicators (KPIs) for compliance to support the requirement for continuous monitoring.

(For more information, please see our previous article, Brazilian anti-corruption authority updates its Corporate Compliance Program Guidelines)

Embracing ESG topics is also the key distinguisher factor in the evaluation criteria for corporate compliance programs in the context of public bidding, compared to the established standards set by Federal Decree No. 11,129/2022. The Decree defines as a corporate compliance program as a set of internal mechanisms and procedures designed to prevent corruption, mitigate social and environmental risks associated with the organization’s activities while ensuring the protection of human rights, and foster a culture of compliance.

Among its evaluation parameters, the Decree specifically highlights the importance of mechanisms to protect human rights and labor laws, as well as to preserve the environment. Moreover, it emphasizes the necessity of continuous monitoring of the corporate compliance program to enhance its effectiveness in preventing unlawful acts against public administration – both domestic and foreign – and addressing conduct that violates human and labor rights or harms the environment.

Incorporating ESG requirements into the evaluation criteria for corporate compliance programs increases the scope and risks-factors for organizations seeking to do business with the Brazilian government. While this aligns with the growing demand from consumers and investors for stricter adherence to ESG standards by organizations, the lack of clear regulations for these parameters and the absence of specific authorities to oversee the matter undermine the effectiveness of these evaluation criteria.

Scope of application of the Decree

The Decree’s limited scope of application further challenge its potential positive impact. As previously mentioned, the evaluation requirements apply only in specific cases:

• high-value government contracts, defined as those exceeding BRL 200m (approximately $32m);
• tiebreak scenarios, when one or more bidders submit a declaration confirming the existence of a compliance program;
• the reinstatement of companies sanctioned under the Brazilian Anti-Corruption Law.

Likewise, the lack of objective evaluation criteria and uniformity in the assessment procedure may also affect the effective implementation of compliance program requirements in public bids and government contracts.

In any case, the absence or failure to provide evidence of an effective compliance program in the scenarios mentioned above may result in penalties imposed on the bidding company. These penalties may include:

• a warning;
• a fine ranging from 1% to 5% of the contract value;
• disqualification from bidding and contracting with public administration, or;
• declaration of ineligibility to bid or contract with public administration – which could affect other public contracts as well.

Challenges remain for Brazil

Although these new compliance guidelines may signal progress in Brazil’s fight against corruption, it is uncertain whether these steps will lead to significant improvements in the next Transparency International Corruption Perception Index. Brazil has dropped 25 positions in the last 10 years, and the lack of effective actions that demonstrate substantial progress has been openly criticized by the non-profit organization. (For more information, please see our previous article, Gap between statements and actions on corruption leaves questions after G20 summit )

Furthermore, Brazil is facing economic challenges, with the Brazilian Real depreciating by more than 20% over the past year. While opportunities for foreign investment may exist, the risks related to compliance and the lack of clear, consistent enforcement of anti-corruption measures could discourage potential investors.

It is crucial for the Brazilian government to take concrete actions to effectively fight corruption and ensure long-term improvements in the country’s political and economic landscape.