Braving Brazil - Operating in the Latin America's Largest Economy in Uncertain Times

(upbeat music) - Hello, and welcome to Fraudied Strategy, a white collar forensic podcast series in which we explore the myriad ways of financial crime, corruption and misconduct can derail strategy and cause havoc. I'm Scott Moritz, president of white collar forensic aware, together with our partners from Integrity Risk International, assist clients in their outside council in managing their response to white collar crime, money laundering and bribery incidents, assist in the pursuit of financial recoveries and help fix the things that were exposed is broken along the way. Thank you for listening. So Brazil is a wild and wondrous country. Other people are passionate, the celebrations are spectacular and the history is rich. There's a reason Brazil is Latin America's largest economy, but investing in doing business in Brazil is fraught with rapidly changing multifaceted risk. Before 2014, there had been zero prosecutions under the country's anti-bribing corruption laws, then the Lava Jato Operation Car Wash investigation exploded on the sea. And eventually 280 people were convicted of having violated the Brazil Clean Companies Act. Amongst the people charged and convicted in Lava Jato were former and now president, Louise Enacio Lula de Silva, along with the presidents of Ecuador, Panama, Paraguay, and Peru, and senior executives of Brazil's two largest state-owned companies, Petrobras, and Otobrecht. It appeared that Brazil was well on its way to corruption reform. But corruption is insidious and political winds shift. Indeed, some of the recent developments in Brazil are nothing short of surreal. After several unsuccessful efforts to be allowed to run again for president, despite his criminal conviction, Lula withdrew his candidacy and dire Bolsonaro was elected president. Then in 2022, Lula was allowed to run again after the Supreme Court to dismiss the charges against him. And he narrowly defeat defeated Bolsonaro in a run off election in October 2022. Bolsonaro then did the logical thing. He allegedly, well, not allegedly any longer because he was convicted, plotted to murder Lula. Former president Bolsonaro has been charged, charged and convicted with planning to stage a coup and poison the president is convicted to trial and sentenced to 27 years. So if you think, investing and expanding your operations into Brazil, and you're still planning on doing so, you're made of tough stuff. You may need some advice to navigate the chaotic risk environment that is Brazil. So joining me today to help with that is FBT Gibbons, LLP partner, and director of White Collar and Investigations and Wardo Amorene. But Wardo joined the firm's White Collar and Investigations practice to support its expansion plans nationally and internationally with a focus in the Latin America market. And Wardo has extensive experience of White Collar defense, internal and government investigations, international arbitration and complex litigation, as well as sports law and privacy and data security. He has represented a wide range of clients, often before the Department of Justice, SEC, a commodity futures trading commission, state regulators as well as class actions, securities and M&A litigation, and international arbitration. And Wardo previously practiced law in his native Brazil. There for over 10 years, he counseled state and municipal governments, national and international corporations, individuals, and sports entities in connection with dispute resolution, regulatory enforcement and litigation matters. He's a member of the sports resolutions international panel of arbitrators and the world athletics disciplinary tribunal in which he hears sports related disputes. He's performed a global corruption risk assessment at any corruption compliance program review in 23 countries for a consumer electronics business, including 90 interviews and global forensic accounting review across jurisdictions in Latin America, Europe and the Middle East, Africa and Asia. He's represented a multinational metals and mining corporation in a government investigation of alleged corruption in Latin America and conducted a wide ranging internal investigation for Brazilian development bank of allegations of corruption relating to its financing of transaction with certain affiliates of a multinational corporation, which is how we know one another. So welcome, Eduardo, and thanks for joining me today. - Thanks, Scott, it's great to be here with you today. - Well, likewise, great having you excited about our conversation. So I think I mentioned this when we're planning this episode, but our audience is kind of varied and it kind of runs the gamut from season law enforcement and private sector investigators, attorneys and compliance officer to that other end of the spectrum of students interested in things like financial crime and corruption and efforts at thwarting it. So at the start of the episode, I talked about the highs and lows of corruption enforcement and what it times seems like a bit of a political circus. In consideration of the wild political swings, the country is taken in the past decade. You might ask, "What country am I talking about?" Yes, and find to Brazil these days, what steps should companies take when considering an investment or expanding their operations in Brazil to avoid being swept up in the next round of chaos? - That's a good opening question, Scott, and I think the background you laid out is essential for our audience to understand in Brazil today. As you mentioned, prior to 2014 ZIL's anti-corruption law dated from 2013, existed largely on paper, and that changed with a Parasal Lavajatu or as known in the United States car wash operation, which exposed systemic bribery involving state-owned enterprises, politicians, financial intermediaries and major operations, most notably construction companies. And while enforcement intensity has fluctuated since then, the underlying risks drivers remain very much alive. And that said, that are several key steps companies should focus on, and I want to discuss some of them here today with you. First, companies must understand the legal and the political framework. Brazil's anti-corruption law, which is law number one, two, eight, four, six from 2013, imposes strict liability on corporations. That means there's no intent requirement for the law to be applicable. So if a corrupt act benefits the company, even indirectly, liability can't attach, and penalties can reach up to 20% of gross gravity of companies, along with a number of reputational harm and restrictions on government contracting. But the second point I wanted to raise is that company must plan for political and regulatory volatility. Brazil's enforcement posture has shifted repeatedly over the past decade. Best practices include scenario planning for political and judicial changes, universally adapting compliance programs, and aligning Brazil, Brazilian compliance with global regimes, like regimes, I'm sorry, like the FCPA in the United States, and the widely known UK bribery act. And the key takeaway here's simple, companies should operate as if today's low enforcement environment in Brazil could become tomorrow's crackdown, right? Third, companies should or must conduct comprehensive and ongoing, and this is very important, ongoing due diligence, right? And this goes well beyond initial market entry. That kind of diligence should include vatting ownership structures, political connections, third party intermediaries, and supply chain partners. Under Brazilian law, companies are directly liable for third party misconduct. And due diligence is not a checkbox only. It is a continuous risk monitoring function. The fourth point is that companies need to build compliance programs that work in practice. Like in the US, authorities increasingly focus on how compliance operates on the ground, not only on paper. So effective programs include risk-based monitoring, clear escalation channels, and power compliance leadership, Brazil focused and specific training, and protected whistleblower mechanism in the native language. In that case, in Brazil would be Portuguese, of course. So your robust tailored compliance program is a recognized mitigating factor under Brazilian law, and companies should treat it as essential and not optional. And sometimes we don't see that happening with international companies operating in Brazil. And finally, companies should engage with a number of integrity and compliance initiatives and use delineancy agreements in the law, use such mechanisms thoughtfully. Brazilian law offers cooperation frameworks that can significantly reduce penalties when companies self-report and remediate any malfeasance immediately. So preparedness is the best defense, not optimism. - Well, that's a great primer that you just gave. A couple of things that I want to follow up on, one is that the notion of outgoing due diligence, I think there's varying levels of comprehension and understanding that when you perform due diligence, whether it's investigative due diligence, legal or accounting due diligence, it's all of those things, right? But they are as of a moment in time. And things can change very quickly. So because just because due diligence, you got like a green light as a result of due diligence to move forward with a relationship or a transaction or some sort of market entry, doesn't mean that there's not gonna be obstacles in your path in the future. And having that ongoing due diligence is kind of like an early warning system to intervene at an early stage if things start to go off the rails. So I think that's really important point. Another point that you made right after that is compliance programs need to be embedded. They need to be operationalized. They need to be proven to be effective and tailored to the specific company, their products, their customer base, their relationships, their unique risk profile. Of course, part of that unique risk profile is the business landscape in Brazil in which they're operating. So those are some really great points that you made. Thank you. So in February of 2025, the future of FCPA enforcement seemed uncertain in the US with the FCPA pause coming out of the White House and from the Attorney General's office. Then in June of this year, the DOJ issued some guidance to federal prosecutors on the factors that she considered determining whether to move forward with an FCPA investigation and aside from signaling that FCPA enforcement isn't quite dead, what should organizations be doing if anything to bring their anti-bribing corruption programs into alignment with the latest DOJ FCPA guidance? I think this is a good point in an interesting one, Scott, especially for those who are practicing law or related activities, including House Council and executives overseas, right? Because there might have been some miscommunication last year when the Donald Trump administration paused the FCPA enforcement for 180 days earlier in that year. But the DOJ's guidance from June makes it clear that enforcement remains active but with a shift in focus, right? Prosecutors are now prioritizing serious intentional misconduct, such as large bribes, sophisticated concealment, heartell or transnational criminal organization, also known as TCOs, those types of organizations involvement and conduct that harms US economic or national security interests, and that's the focus apparently of this current administration. So companies should start by aligning their risk assessment with these priorities. That means identifying exposure to sensitive sectors, strategic industries, and especially regions where organized crime or cartel influence is more likely to occur. Another interesting point and important companies should elevate their focus on detecting those serious misconducts. Red flags should be refined to capture concealment fraud and high-value bribery and not just technical accounting issues that may lead, for example, to a books and record violation per the previous DOJ policies. And internal investigations must be capable of documenting intent and individual accountability. Another point, companies should strengthen third-party controls in internal investigation protocols. So enhanced due diligence in high risk jurisdictions, such as Brazil, stronger contractual audit rights, and updated investigation playbooks are crucial and critical. And finally, companies should ensure that their self-reporting remediation with so blower and training frameworks are effective, trusted, and focused on what's the priority of this government in terms of malfeasance. Trainings should reflect the DOJ priorities based on the 2025 policies and guidelines. And whistleblower channels must function in practice, not just on paper. And that is a similar approach to the Brazilian enforcement scenario, right? Everything that a company does in order to enhance its compliance function, its whistleblower channels need to be in accordance with what regulators expect from companies operating under those jurisdictions. If it's out of them, so no, I'm a bit out of an episodic nature of corruption, enforcement, and Brazil. First, there was nothing. That was a private corruption, enforcement, and Brazil. And then came the Clean Companies Act and Lava Jotto Investigation and Judge Moro. Then Brazil seemed to experience its own pause. So what does the current corruption enforcement landscape look like in Brazil? And how does your company's operating there be conducting themselves given what seems like something that ranges between uncertainty and maybe even looking the other way of corruption? So first, Scott, I think it's important for folks to note that Brazil's anti-corruption laws they remain firmly in place and continues to be enforced, particularly through administrative proceedings and leniency agreements. Our enforcement is the structure in Brazil is active and even though outcomes may fluctuate year-to-year depending on the government or the enforcement agencies focus. At the same time, the corruption perception among the population and even political agents has worsened. Political rhetoric around enforcement has softened. And that this type of scenario creates uncertainty to the extent things keep changing, but that does not create immunity. Companies should remain vigilant throughout the entire time. Companies should also respond by treating compliance, functions, and programs as strategic and non-negotiable strengthening controls around public procurement and government interaction, applying global best practices regardless of local signals and maintaining readiness for audits and investigations. The bottom line enforcement cycles fluctuate, but legal exposure does not. So companies have to be ready to respond and remediate immediately once an issue comes up in terms of governance. Thank you, some great voice you make Eduardo. Thank you. Brazil is a massive economy. It has abundance of national resources, and it's a critically important trading partner globally. Are you a contrarian who favors doubling down in Brazil after lies on the fact that some companies may be hesitant to enter the market or do you advise a more cautious approach? That's a good question and a tricky one as well, especially an answer coming from myself as a Brazilian native, even though I'm also a U.S. citizen, very proud one, despite all those points and situations that have taken place in Brazil over the past 10 years, I remain a Brazil enthusiast. Brazil has such an entrepreneurial population, strong innovation, and particularly, particularly, I would point to the financial services industry. And there's a lot of significant untapped opportunities in the country. But that said, success requires discipline, right? We're dealing with a very unstable country in terms of regulatory and political framework. So companies must be prepared to operate amid political, legal, and regulatory uncertainty, as I mentioned, companies' ambitions towards the country and its industries and its consumers should be matched with documentation, strong controls, and realistic risk management to mitigate any concerns, any risks that may occur under such an unstable environment. Well, yeah, it's a very good job of balancing our Eduardo. Very estatesmen-like. We, this is probably true in your practice as well, we preach to our clients that if you conduct business overseas in a way that is indistinguishable from how you operate in the U.S., you may be in for a rude awakening. And so what in your experience is unique about doing business in Brazil in terms of its people, business practices, and ethnic culture that's important for people to understand and consider before expanding their business into the Brazilian marketplace. I would start with Brazil's diversity as one of our greatest strengths, shaped by centuries of different migration from different types of the world and with a regional variation within Brazil itself. Foreign countries would operate in Brazil. They need to understand several challenges that they may come up across. Like I said earlier, regulatory volatility, shifting judicial interpretations and case law, complex tax regimes, and culture of differences around time, formality, and relationship building. I would say that applies to, if not all, most of the Latin American countries as well. We have a very unique way compared to the U.S. business environment, to do business and how we interact with stakeholders, lawyers, vendors, and the like. So understanding and respecting these dynamics, in my opinion, is essential for long-term success of international companies trying to operate in Brazil. - That's helpful. Another, I think, distinction between the U.S. and Brazil is here in the States. There's a fairly bright line between commercial activity and government recently, but still in other parts of the world including Brazil. Government controls certain business sectors, meaning a range of what it's often referred to as state-owned companies, whose employees and officers come with their own label aren't officials. So what additional steps should organizations take when interacting with state-owned companies and their foreign official employees to avoid running a foul of the FCPA and the Clean Companies Act? - So this is an interesting topic because as you mentioned, this is a very particular characteristic of doing business in Brazil. It's quite common for companies to engage with state-owned enterprises and agents from those companies that are controlled by the government. One important aspect that folks need to understand is that under Brazilian law, state-owned enterprises and their officials and their representatives are considered foreign officials. So companies need to be aware of that and tailor their compliance programs to state-owned enterprise-related risks, strictly control of gifts and hospitality policies, document, in paper, all interactions with government officials or state-owned company officials and rely on independent, experienced council with cross-border expertise. I think that would be a very important factor to consider doing business in Brazil. It's hard once when I started practicing the United States that your council and your accountants in the United States before regulators is basically your insurance policy, right? It provides credibility. It shows that you're taking things seriously. You're dealing with competent professionals and you're interested in doing things the right way. Once you have a trusted council and trusted financial advisors and accountants and the like. And one interesting anecdotal story here for you, Scott. I remember doing business in Brazil, working with a client that was procuring contracts with the government and they were concerned about connecting with such employees from the government and the first advice that we provided to this company was every time you have a meeting schedule with any government official or anyone who might be engaged in public administration, activity or something similar or anything that can be considered somehow as a public administration. Excuse me, activity or relationship, you should have at least two people participating and engaging with those officials in order to avoid any kind of miscommunication or something that may have not taken place during a meeting and then there are allegations that things didn't go as planned or didn't go well. So you have to be prepared and one way to prepare for such occasions is to have at least two individuals representing a company dealing with foreign officials. It's important to engage in such type of activity to avoid miscommunications or miscommunication between what the government said or what you said or vice versa. It's a way to ensure that the activity and everything that has been discussed between a private entity and public entity has no room for misinterpretation that could be in the future considered malfeasance. It was just an interesting anecdote that I wanted to share here that shows a little bit the type of concerns that companies operating in Brazil have when dealing with public officials. Well, it's interesting, you know, I mean, that's a, but it's actually a pretty common practice in law enforcement. You know, you have, you know, when you're having a critical witness interview or a mission seeking interview, you know, I mean, it's not always possible, but whenever possible having two people sit in on that interview, particularly if there isn't a recording of the interview, it's just important because then it becomes less subject to kind of a, he said, she said things, but that's a very interesting anecdote that you shared. So in order you have extensive experience working in Brazil, act to sing in Brazil, advising companies there, what closing advice do you have that everyone should keep in mind when doing business in Brazil? All right, I'm going to try to be short here because I could extend this answer for a long time. So I'm going to provide a few bullets that I think are relevant. And of course, we can expand on that. First of all, enforcement cycles in Brazil specifically fluctuate. However, liability does not, right? So you have to be prepared whether during a time of low enforcement or higher enforcement, right? Your liability will be attached regardless. All-rated conduct is not legal conduct. Basically, within the same subject matter, you may think that certain types of behavior or conduct may be acceptable, whether because you don't see a lot of enforcement relating to that specific matter or because there's a new policy place that provides for a different focus in terms of enforcement. That doesn't mean that in the future, this issue will die and will not be brought back. That will depend a lot on the political scenario and who is in power in Brazil, right? Third parties, they present the greatest risk. Like I mentioned earlier, in Brazil, companies may be liable for third-party vendors' conduct. In that same realm, and we already mentioned that, documentation is key. So you have to keep every step you take, whether through whistleblower channels or any internal investigation, you have to keep a paper trail because in case regulators come to you in the future asking for documentation or evidence of certain actions, you have to have that promptly and provide to the authorities, especially in cases of self-reporting or in cases that your disclosure is required by the government. Legal uncertainty in Brazil is structural and not temporary. So again, back to what we said, you have to know that you're dealing with legal and political framework of uncertainty. Reputation of risks exists even without enforcement. And companies should design their Brazil's strategy for the worst case scenario, not the best case assumption. That's really relevant. Overall, the guiding principle is quite simple. But like I said, I could expand on that for more minutes here. Unfortunately, we don't have the time. But companies operating in Brazil should work as if everything they're doing today will be reviewed five years from now by someone with no interest whatsoever in protecting you. So you have to be aware and always alert. - Oh, I mean, that's a really good point. That last point, too. These things could come to roost years after the fact. I think that's the thing that's not just from Brazil, but everywhere. They sometimes give blindsided. Electronic communications live forever, too. Electronic records live forever. - Correct. I wanted to highlight some of what's going on with you. So you recently took on a new role at what is just recently become known as FBT Gibbons LLP following the merger between Gibbons and for us, Brown and Todd. So tell us about the combined firm and what your role will be going forward. - Of course. - Yeah, I'm very, first of all, I'm very excited to be part of this transformation. Not only in terms of what FBT Gibbons will accomplish with a merger, but also the change that it brings to the mid-market legal service scenario in the United States. As you mentioned, now, FBT Gibbons is a national full service firm. We have nearly a thousand lawyers across 25 different offices in the United States from the East to the West Coast. The firm has a strong international platform that includes a dedicated Latin America capability. I'm honored to be part of the team and one of the co-leads of the Latin America practice of this new firm. And as you said, I joined as a partner in the White Collar Investigations Practice and my main focus going forward is on expanding our Latin America, mostly Brazil-related advisory work. But of course, my work does not only include expanding our capabilities and expanding our practice in White Collar Investigation. Invest, we now are capable, like I said, of providing legal services for a full range of companies from the mid-market up until Fortune 500 companies, which are already part of our portfolio of clients. And like I said, I'm very excited to be here. I'm very excited with what's coming. We have a strong White Collar Practice Group with former state and federal prosecutors as part of the team. And even prior to the merger, Gibbons was nationally known for their White Collar Practice and now with the new team. We're expanding increasing our capabilities with the team of suburb lawyers and colleagues that I'm happy to be working with. And I can't wait to see what's coming in the near future. I can't wait to see either. And I wish you nothing but success to your new role. And I look forward to the prospect of us of us working together again soon. So that's our time. And you shared some really great insights, you know, so cool that you've got so many years of experience on the ground in Brazil and now advising companies on doing business there and elsewhere across Latin America. And I'm sure our listeners are going to get a lot out of this episode. So thanks so much for joining me today Eduardo. Thank you, Scott. It was a pleasure connecting with you again. Thank you to your audience for watching us here today. All right, all right. Well, and then I look forward to talking to you soon. Thanks Eduardo. All right. Thank you. That was FVT Gibbons, LLP partner and Brazilians, business practices and legal expert in Wardo and Marine. This concludes this episode of Friday Strategy. I'm Scott Maritz, the White Collar Forensic. Thanks for listening and stay tuned for the next episode of Friday Strategy. In the meantime, though, if you have an idea about a fraud or corruption case, topic or guest, you'd like to hear about on a future episode, email us through our website at [email protected]. Thanks for listening. (upbeat music)