Criminal Liability of Companies BRAZIL Demarest e Almeida CONTACT INFORMATION Luís Carlos Dias Torres Demarest e Almeida Av. Pedroso de Moraes 1201 05419-001 São Paulo, SP Brazil Tel: 55.11.2245.1538/ Fax: 55.11.2245.1700 ltorres@demarest.com.br www.demarest.com.br 1. General 1.1. Can a company be prosecuted in your jurisdiction in a similar way as an individual offender? Please explain the main differences, if any. Article 3 of Law 9.605/98 provides for the legal entity's criminal liability, as follows: "Legal entities will incur administrative, civil and criminal liability as provided for herein in the event of violation committed as a result of a decision by its legal or contractual representative, its management board, either in the interest, or for the benefit, of the entity." 1
Under article 21 of the Environmental Criminal Law (9.605/98), the penalties imposed on legal entities, applicable only in case of environmental offenses, are fine, restriction on rights, or provision of services to the community. The penalties of restriction on rights are partial or total suspension of the activities, temporary discontinuance of the establishment, work or activity, and prohibition against entering into contracts with the public authorities as well as seeking any subsidies, subventions or donations from those authorities. The penalties of provision of services to the community are funding of environmental programs and projects, execution of works for recovery of degraded areas, upkeep of public spaces and contributions to environmental or cultural public entities. In addition, the liability of legal entities does not exclude the liability of individuals, perpetrators, co-perpetrators or persons taking part in the same event. 1.2. Can other types of sanctions under criminal law been imposed on companies? Describe the major types of sanctions and their legal prerequisites. As mentioned in the answer above, legal entities can only be held liable for environmental criminal offenses. Under article 21 of the Environmental Criminal Law (9.605/98), the penalties imposed on legal entities, applicable only in case of environmental offenses, are fine, restriction on rights, or provision of services to the community. The penalties of restriction on rights are partial or total suspension of the activities, temporary discontinuance of the establishment, work or activity, and prohibition against entering into contracts with the public authorities as well as seeking any subsidies, subventions or donations from those authorities. The penalties of provision of services to the community are funding of environmental programs and projects, execution of works for recovery of degraded areas, upkeep of public spaces and contributions to environmental or cultural public entities. 1.3. Are there any other kinds of sanctions in other fields of law which can be imposed on companies following the commission of an offence by its directors, managers or employees (e.g. fines, dissolution of a company, etc.)? Please describe the relevant sanctions and summarize the legal prerequisites. It is important to understand from the criminal standpoint the general rule provided by the Brazilian law. Directors, officers and administrators of a legal entity cannot be held criminally liable for acts committed by other people. On the contrary, directors, officers and administrators can be held criminally liable for acts performed by themselves. However, it is necessary to prove that directors or officers have performed acts in contravention of the Brazilian Criminal Code. 2
And the reason is that under the Brazilian legal system, the criminal liability has a subjective nature (personal) and falls upon the individual who manages the company and performs (directly) an act which represents a crime under the Brazilian Criminal Code or any other criminal law. It is impossible to attribute criminal liability only based on someone's position or functions in a company. This is considered liability of objective nature, which is not allowed by the Brazilian legal system, from a criminal point of view. The only exception we deem relevant is related to environmental crimes. In such cases it is possible to attribute criminal liability to those who, despite of not having committed the offense directly by themselves, had the opportunity of preventing the environmental damages, provided that they had knowledge of the facts. Article 2 of Law of the Environmental Crimes (Law 9605/98) provides as follows: "Those who in any way concur to the commission of the crimes provided for herein, will incur the penalties imposed thereon to the extent of their culpability, as well as the officer, administrator, member of the board and technical board, the accountant, manager, assign or attorney in fact of a legal entity who, when knowing another party's criminal conduct, fails to prevent it, when they could do so". Hence, the criminal liability will apply only to those people who, through their conduct, have effectively contributed to the criminal offense, and the attribution of the liability will further depend on proof of the person's willful misconduct or fault. From the environmental standpoint, however, this liability may reach the administrators, in case of proof that they could have prevented the criminal act and failed to do so. As a consequence, theoretically speaking, officers and directors could be held liable provided that it is proved that they failed to prevent the crime, in view of their (i) previous knowledge/awareness and (ii) authority/capacity to do so. In case of an environmental damage, had the officers and managers the power to prevent the damages and failed to do so, they could be held criminally liable as well. Consequently, the legal entity can only be held criminally liable for cases of environmental offenses. And according to the jurisprudence of the Superior Court of Justice legal entities can only be held criminally liable if the officers, director, managers are liable for the commission of a environmental criminal infraction or have failed to prevent the offense, as explained above. 3
2. Criminal Liability of Companies 2.1. What types of sanctions can be imposed on a company? What is the minimum/maximum punishment for each sanction? If the sanctions distinguish between certain types of offences please describe the sanctions for the most relevant offences or groups of offences. Under article 21 of the Environmental Criminal Law (9.605/98), the penalties imposed on legal entities, applicable only in case of environmental offenses, are pecuniary fine, restriction on rights, or provision of services to the community. The penalties of restriction on rights are partial or total suspension of the activities, temporary discontinuance of the establishment, work or activity and prohibition against entering into contracts with the public authorities as well as seeking any subsidies, subventions or donations from those authorities. The penalties of provision of services to the community are funding of environmental programs and projects, execution of works for recovery of degraded areas, upkeep of public spaces and contributions to environmental or cultural public entities. Since the environmental criminal law does not provide for the minimum and the maximum penalty of pecuniary fine, we follow the general rule of the criminal code to calculate these patterns. The pecuniary fine is not a civil penalty. It is also a criminal penalty, calculated based on article 49 of the Criminal Code. The pecuniary fine can vary from 1 to 360 "units". Each unit is determined by the judge, ranging from a minimum of 1/30th of the minimum wage to a maximum of 5 times the minimum wage (currently, the minimum wage in Brazil is R$ 415.00 -- approximately US$ 259.00). The amount of the pecuniary fine is calculated based on the economic situation of the defendant. Hence, article 60 of the Criminal Code authorizes the judge to increase 3 times the amount of the pecuniary fine if the maximum fine is not sufficient to punish the defendant. 4
Although legal mechanisms are available for the judge to perform a deeper evaluation of the economic situation of each defendant, in practical terms, this evaluation is quite superficial. In the great majority of the cases, during the interrogatory the judge asks the defendant how much is his salary. An exception to this procedure is when the judge determines that an official letter should be issued to the banks and the IRS, enquiring about the economic and financial condition of the defendant. Based on our experience, the pecuniary penalties applied are usually low, probably as a result of such poor analysis of each defendant's economic condition, and we cannot estimate how much it would be in the present case, due to its complexity. Regarding the penalty of restriction on rights and provision of services to the community, the environmental criminal law does not provide for the minimum or the maximum time of restriction. The period of the restrictions is determined by the judge. 2.2. What are the legal requirements for each type of sanction? 2.3. Is the prosecution of a company confined to certain types of offences or to offences committed by certain hierarchy of company staff? If yes, please explain in more detail. 2.4. How will acts (or omissions) of individuals (directors, managers, employees) be attributed to a company? Can acts or omissions been attributed if the individual violated only internal (but not statutory) rules or regulations?. For a criminal offense to be established, it is mandatory that it is committed in contravention of the Federal Law. Violations of internal rules or regulations can only be considered a criminal offense if they go against the Federal Law that defines such conduct as a crime and imposes a criminal penalty. 2.5. How will mens rea of the company be established? 2.6. Is there a strict liability of a company for certain kinds of offences for which mens rea is not required? Please describe for which kind of offences mens rea is necessary and for which not. 2.7. Is it necessary to identify and/or convict the individual offender in order to prosecute a company? 5
2.8. What additional defenses (except of lack of offence) can a company raise? The defense of the company is directly connected to the defense of the individual. Normally, two lines of defense are used. The first is to deny the direct participation in the criminal infraction or deny the failure to prevent the criminal infraction. The second line of defense is challenging the cause/effect relation between the damage and the conduct. 2.9. Can a company avoid punishment if it is sufficiently organized, has duly instructed its directors, managers or employees and has taken reasonable care to exert control on its directors, managers or employees? What extent or organizational requirements and control are necessary to avoid conviction? The evidence that the company is sufficiently organized, has duly instructed its directors, managers or employees and has taken care to exert control on its directors, managers or employees are not sufficient to avoid a criminal conviction, but for sure the judge will take it into consideration when convicting such persons. 2.10. Can certain kinds of sanctions been executed during the investigative phase of a criminal proceedings (e.g. preliminary seizure of bank accounts, attachment of claims)? No. According to the Brazilian Constitution all defendants are presumed innocent. Criminal penalties can only be imposed after the sentence of conviction has been pronounced. 2.11. Can both the individual offender and the company been convicted for the same offence? As mentioned in answer 1.3, the jurisprudence of the Superior Court of Justice establishes that the legal entity can only be prosecuted together with the individual that have performed the offense. As a logical consequence the conviction of the individual will result in the conviction of the company. The individual may not be convicted, but the company will be convicted should it be proved the criminal infraction was perpetrated by another individual within the organization and not by the defendant. 2.12. Can a parent/group company been prosecuted for offences being committed within a subsidiary? No.. 3. Criminal Sanctions on a Company 6
3.1. What other types of sanctions but a criminal punishment can be imposed on a company? Please describe the types of sanctions and their legal requirements. See 2.1 above. 3.2. Is the imposition of these sanctions confined to certain types of offences? Describe the most relevant sanctions and types of offences? See 1.1 and 1.3 above 3.2. What defenses can a company raise against these offences? See 2.8 above 3.3. Can such sanctions been executed during the investigative phase of a criminal proceedings? No. See 2.10 above 4. Procedural Issues in Cases of Corporate Liability 4.1. Does the prosecution have discretion to prosecute or not a company? Which aspects will the prosecution take into account? Yes. The prosecution has discretion to prosecute or not a company. The prosecution will take into account the fact that the company is sufficiently organized, has duly instructed its directors, managers or employees and has taken care to exert control on its directors, managers or employees. In this case, if the individual has violated the internal rules, the prosecution may take into account these aspects and prosecute only the individual. 4.2. At what stage during an investigation/proceeding does a company have the status as a suspect or similar status? The criminal procedure in Brazil comprises two separate phases: the investigation and the prosecution. The investigation is conducted by the police. During it, the policeman in charge can order the indictment of the individual and the company. As of this moment the company and the individual are formally considered suspects. At the end of the investigation, the police will issue a final report, submitting the case to a public prosecutor. The public prosecutor can commence the prosecution, pressing charges against the company and the individual. After this moment, the company and the individual are considered Defendants. 4.3. Does a company have the rights to remain silent (nemo tenetur se ipsum accusare), to refuse production of documents, to deny access to company site 7
without search warrant, to refuse testimony, to answer questions or to any other suspects rights? Who exerts these rights if investigations are made against the company s directors? According to the Brazilian Constitution, all defendants have the right to remain silent, and to refuse to produce evidence against its interests. 4.4. When will a company be informed that it is or can become prosecuted? The company or the individual will be informed that they are being or will be prosecuted at the moment the police performs the indictment as mentioned at 4.2 above. 4.5. Can the directors, managers or employees be witness in proceedings against a company? Does this also apply if the directors, managers or employees are suspects themselves? The directors, managers or employees can be appointed by the police or the prosecution as witnesses. This does not apply if the directors, managers or employees are defendants, because, as mentioned in item 4.3 above, all defendants have the right to remain silent and to refuse to produce any kind of evidence against them, which obviously includes to be appointed witnesses. 4.6. Will there be a joint proceeding against the company and the individual offender? Yes. According to the jurisprudence of the Superior Court of Justice the legal entities can only be held criminally liable if the officers, director, managers are responsible for a criminal environmental infraction or have failed to prevent the offense, as explained above. 4.7. Does the proceeding against a company differ from that against an individual suspect? If yes, describe the elemental differences. No. It is the same proceeding. 5. Procedural Issues on Other Criminal Sanctions 5.1. Does the prosecution have discretion to impose or not a sanction on a company? Which aspects will the prosecution or court take into consideration? 8
No, because it is the judge who imposes the sanction. The prosecution has discretion to request the judge not to impose the sanction. In this case the prosecution will take into account if the fact that the company is sufficiently organized, has duly instructed its directors, managers or employees and has taken care to exert control on its directors, managers or employees and if the individual has violated the internal rules, acting independently. 5.2. Does the company, have the status of a suspect or a similar status and at what stage in proceedings? See 4.2 above 5.3. When will the company been informed that the prosecution is considering to impose sanctions or have sanctions imposed? See 4.4 above 5.4. Which procedural rights does a company have when it is at risk that sanctions might be imposed? Based on the Law 9099/95, as to crimes for which the maximum penalty is two years ' imprisonment is possible to make a settlement with the prosecution in order to avoid the criminal sanctions. Based on the same law, as to the crimes for which the maximum penalties is over two years' imprisonment, but the minimum penalties are not less than one year's imprisonment it is possible to have the proceeding suspended for two to four years under certain conditions imposed by the judge. 5.5. Will there be joint proceedings against the company and the individual offender? See 4.6 above 5.6. Does the proceeding against a company differ from that against an individual suspect? If yes, describe the elemental differences. No. 6. Criminal Liability of Directors or Managers 6.1. Can directors or managers be criminally held liable for offences committed by other individual directors, managers or employees? Which legal concepts apply in your jurisdiction? No. 6.2. What are the legal requirements for a criminal liability of directors and managers for offences committed by others? 9
6.3. Does a criminal liability arise only from the fact that another director, manager or employee was not adequately selected, instructed, supervised or the company not adequately organized? 6.4. What recommendations do you have to exclude or minimize criminal liability risks of directors of a company? The company should be sufficiently organized, duly instruct its directors, managers or employees and take care to exert control on its directors, managers or employees by providing regular training to them. 10