Whistleblowing legislation: a guide to transparency in Brazil and in the United States

July 2019  | SPECIAL REPORT: WHITE-COLLAR CRIME

Financier Worldwide Magazine

July 2019 Issue

White-collar crimes are generally conducted by complex and well-organised networks, with different hierarchical levels of operation, that challenge the measures in existing legal systems designed to detect and prevent such activities.

Globalisation and the spread of technology have been particularly beneficial to criminal organisations and their illicit activities. Malicious actors are able to conduct criminal activity without attracting the attention of the authorities, posing unprecedented challenges for companies and nations worldwide.

However, the mechanisms through which white-collar crime can be detected and prevented have also improved significantly in recent years. Organisations are implementing increasingly powerful technology and data analytics tools to fight fraud and corruption. A wide range of companies are also adopting formal whistleblowing policies and providing their employees with an internal reporting structure.

The introduction of whistleblower protection legislation has aligned with the importance of ensuring that employees and citizens more actively detect and report misconduct to authorities.

The US has been a pioneer in strengthening its whistleblower protections. It has introduced numerous legislative measures focused on whistleblowing, at both the federal and state level, to establish procedures for confidential and anonymous submissions of information by employees. These measures have also been strengthened by the US Securities and Exchange Commission (SEC). Not only do these measures aim to establish a safe place to report wrongdoing within companies, but they also promote whistleblowing by providing monetary rewards for successful claims.

Among the many statutes created by the US, two stand out. First, the Sarbanes-Oxley Act, also known as the Corporate and Criminal Fraud Accountability Act of 2002, is a federal law that aims to improve corporate governance and restore the confidence of investors by making financial disclosures more reliable and accurate. For instance, the Act establishes that public companies must keep documents free of untrue statements or misleading omissions and must be reviewed and signed by the officers responsible for internal control. The financial statements must include all available material, such as off-balance sheet liabilities, obligations and transactions.

The Sarbanes-Oxley Act protects employees of companies who wish to report violations related to these statements or any provision of federal law. The Act institutes policies and procedures to protect whistleblowers and criminalises any retaliation against informants.

The Dodd-Frank Wall Street Reform and Consumer Protection Act is an equally important piece of legislation that amended the Sarbanes-Oxley Act. The Dodd-Frank Act proposed an increase of regulations regarding financial institutions in the US, and was designed to help restore public confidence in the financial system and avoid a future financial crisis by offering cash rewards to those who offer original information to the SEC.

Through these Acts, the US has consolidated the notion of negotiated justice brought forth by European precedents, establishing the concept of ‘plea bargains’ for wrongdoers. Following the enforcement of these Acts, a number of other countries have used them as a standard when designing their own national laws to combat organised crime. The Acts have enabled countries to guarantee that whistleblowers will be protected and have overcome the challenge of determining, with certainty, the people or organisations responsible for criminal acts.

In Latin America, Brazil is still taking small steps toward adopting similar methods, despite having developed effective anti-corruption mechanisms in recent years. Through Federal Law No. 13,608, which was enacted on 11 January 2018, Brazil included provisions for public and state-owned companies to establish the first guidelines to guarantee confidentiality for whistleblowers and payment of cash rewards for useful information.

This law authorises Brazilian states to establish hotlines to receive anonymous reports, which will hopefully encourage people to come forward with useful information. But the specific aspects of these communication channels are yet to be decided, and will be introduced through future regulation. Despite these measures, there are no established procedures for receiving reports from workers within organisations.

Another important aspect of Brazil’s recent enactment of whistleblower protections is safeguarding the anonymity of the whistleblower, as noted in Article 3 of the law. This ensures that whistleblowers are protected against the many forms of reprisals they may face, such as dismissal, harassment and retaliation.

Furthermore, Article 4 of the law provides rewards for information that assists in the prevention, repression or investigation of crimes and administrative offences. However, the law does not stipulate specific monetary values, but basic rewards on the principle of proportionality. In other words, value parameters are set in proportion to the effectiveness of the information provided.

Brazilian federal law does not extend whistleblower protection beyond personal and monetary gain, unlike other countries such as the UK, which have established precautionary measures against arbitrary layoffs in the case of whistleblowers who are not involved in any criminal activity. In any case, these measures are essential for persuading the general population to come forward and highlight illegal acts that would otherwise never be discovered or resolved by the state. They inspire people to highlight malfeasance to the authorities without fear of retaliation.

In addition, through Federal Law No. 12,846/2013, often referred to as the Clean Companies Act, Brazil introduced strict civil and administrative corporate liability for bribing foreign and domestic public officials. The statute broadly defines acts harmful to the public administration, sets out applicable fines, introduces leniency agreements into Brazilian law, and creates the National Registry of Sanctioned Companies (CEIP) and the National Registry of Disreputable and Suspended Companies (CEIS).

The Clean Companies Act was regulated by Presidential Decree No. 8,420 of 2015, and established the criteria and proceedings for internal compliance programmes to encourage whistleblowing. It also provided guidance on how a company’s compliance programme will be assessed. One of the guidelines is to develop channels for reporting irregularities openly and broadly among employees and third parties, as well as mechanisms to protect whistleblowers.

According to the World Bank Enterprise Survey, corruption is cited as the top concern for doing business by the majority of businesses operating in Brazil. When compared to other economies, Brazil ranks 109th in the 2019 Ease of Doing Business Score of the World Bank report, with the US in 8th position.

Through a comparative analysis, it is clear that Brazil is moving in the right direction, although it has a long way to go before it has as broad a system of whistleblower protection as the US. Similar in procedures, but with different legal systems, both countries have set up resources to allow employees to become anonymous whistleblowers and report criminal activity that may be occurring far beyond the reach of the justice system’s knowledge.

 

Pedro Demori is a lawyer at Sobrosa & Accioly Advocacia and Isabela Alves is a lawyer at Sonia Khoury Advogados Associados. Mr Demori can be contacted on +55(44) 9914 11789 or by email:                   p.demori@sobrosaeaccioly.com. Ms Alves can be contacted on +1(617) 314 2422 or by email: calvesisabela@gmail.com.

© Financier Worldwide

BY

Pedro Demori

Sobrosa & Accioly Advocacia

Isabela Alves

Khoury Advogados Associados

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