Brazil: handling internal investigations
19 / 09 / 2018
Source: Global Investigations Review (GIR)
Authors: Juliana Sá de Miranda and Ricardo Caiado
The last five years were crucial for Brazil in its fight against cor- ruption. Pressure from the people for more transparency, the enactment of the Clean Companies Act (BCCA) and the Car Wash investigation, also known as the Petrobras investigation, led to an unprecedented enforcement.
The magnitude of the Car Wash investigation made it become a watershed in the anti-corruption enforcement. It was a deep and thorough investigation that had an impact in the political, economic and legal scenarios in Brazil. The investigation targeted a bribery scheme and the financing of political campaigns involving the state-owned oil and gas company, its employees and their con- nection to politicians and private companies.
After Car Wash, the Federal Police also started several investi- gations throughout Brazil to unveil corruption and money launder- ing schemes.
As an example, in September 2016, the Federal Police and the Federal Prosecutors in the capital Brasília launched a very relevant investigation called Greenfield, with the focus of investigating potential schemes in the four largest pension funds of the country. The prosecutors innovated largely by entering into agreements with the companies under investigation and conditioning the release of frozen assets to the conduction of internal investigations and the full disclosure of its findings to the authorities.
In other words, the authorities requested the investigated parties to conduct an internal investigation, its final report was presented in the files and became part of the authorities’ investigation. So, it is not that the parties waived privilege – there was no privilege in the first place, given that the internal investigation was made upon the request of and to be addressed to the prosecutors.
As a conclusion, it is accurate to state that the increment of the enforcement has also had an impact on corporate compliance and internal investigations. If internal investigations were previously considered superfluous or a luxury exclusive for subsidiaries of multinational companies concerned with enforcement in their home countries, nowadays they are a reality not only for multina- tionals but also for Brazilian private and public companies.
Following the international trend, the enforcement authori- ties in Brazil have started to share the duty to investigate with private parties.
A notorious example is the investigation conducted in Petrobras to unveil all sorts of violations, which encompassed major docu- ment review, interviews and reporting to the authorities in Brazil and the United States.
Eletrobrás, the giant state-controlled company from the energy sector, has also conducted a very thorough and long internal inves- tigation and shared its findings with the authorities.
Other companies, most of them with 100 per cent Brazilian capital, have also, for the first time in their history, conducted internal investigations to unveil facts and personnel involved in potential violations in connection with the bribery schemes under investigation by the administrative and criminal authorities.
In exchange for leniency, a Brazilian holding company also agreed to conduct internal investigations in several of their companies and handle the results to the prosecutors, who provide instructions and overview the investigations, and may use its evidence to sue the wrongdoers. The leniency agreement provided the highest fine ever imposed to a company due to corruption practices in the world.
The tough and continuous enforcement led to the impeachment of the former president Dilma Rousseff, and the current president Michel Temer is under investigation and has been charged several times as a consequence of the facts disclosed in various leniency and plea agreements.
In that scenario, fully and dramatically changed by the outstand- ing enforcement, both corporations and the authorities started to pay much more attention to compliance, and internal investigations have become more relevant than ever before.
Great expectation surrounded the BCCA enactment. Huge pressure from the public as well as a constant push from the Organisation for Economic Co-operation and Development (OECD) made the bill of law become a reality on 1 August 2013.
Two innovations brought by the BCCA are noteworthy: the possibility of companies involved in corruption violations to enter into a leniency agreement with the authorities, and the fact that the existence of an integrity programme in place started to be considered as a mitigating factor upon the appliance of the sanctions provided in the anti-corruption legislation.
The parameters of the evaluation of an effective integrity programme were only established in March 2015, when Decree No. 8420 was issued, and later in October 2015, when the Office of the Comptroller General issued the Integrity Program Guidelines for Legal Entities (the Guidelines).
The Guidelines provide directions on reporting channels, disci- plinary and remediation actions. There are some broad and general directions on internal investigations, in the topic that addresses remediation actions, which are focused on the immediate inter- ruption of the wrongdoing, potential solutions and reparation of the effects caused. Ultimately, companies are free to choose how to conduct an internal investigation in Brazil.
Although there are multiple and widespread authorities through- out the country (regulatory, administrative, criminal, civil), none of them have ever issued a detailed guideline on internal investigations, although it has become more usual for the authorities to give instruc- tions or oversee an internal investigation in progress.
Despite the lack of regulation, and, therefore, specific rules on how to conduct an internal investigation in Brazil, there are some best practices that follow the international standards.
This article does not aim to cover all the steps that are usually taken in an internal investigation, but rather touches upon some relevant topics to be taken into consideration when conducting a corporate investigation in Brazil.
Whistle-blowing has not historically been a common practice in Brazil, mostly due to cultural factors and also due to the lack of legal provisions on self-disclosure.
However, the enactment of new legislation, alongside the tough and constant enforcement in the last few years towards both individuals and corporations, has played a very important role in changing the culture of non-reporting. This change is enabling the creation of an environment of good practices and more efficient corporate governance.
As in other countries, blowing the whistle in Brazil may happen in two ways: internal or external disclosure.
Internally reporting means providing the company with infor- mation on any wrongdoing that regards corporate activities. After receiving the information, the company decides whether or not to conduct and internal investigation and disclose its findings to the authorities.
In an external report, the individual discloses a wrongdoing directly to the authorities, who then have to take action, provided that if they do not, they may be subject to criminal liability.
The BCCA lists reporting wrongdoings as one of the mitigating factors to be considered upon sanctioning a company that has committed a violation.
In the same vein, the Guidelines issued by the General Comptroller’s Office set forth that developing irregularity report- ing or detection mechanisms (red flags, reporting channels and whistle-blower protection mechanisms) is one of the pillars of an integrity programme.
There are no legal provisions on benefits for whistle-blowers who make an internal report. Companies may have such a provi- sion in their compliance programmes, although it is not common practice either.
Robust compliance programmes usually spread the ‘do the right thing’ message and, therefore, internally reporting a wrongdoing should not aim at getting benefits, but rather doing the right thing and being part of a clean corporation.
Furthermore, the Guidelines state that reporting chan- nels must provide whistle-blowers with anonymity and non-retaliation guarantees.
Disclosure to the authorities may be performed by an employee of a corporation who reports a wrongdoing in which he or she has not participated or the wrongdoer him or herself.
In Brazil, it is not usual for an individual to report a wrongdo- ing directly to the authorities, when he or she has not taken part in the illegal activity.
However, following the trend of the American legislation, such as the False Claims Act and the IRS Whistleblower Reward Program, Brazil has enacted the Federal Act 13,608/18, which pro- vides the possibility of financial reward in exchange for information ‘useful for the prevention, repression or clarification of crimes and administrative violations’. Such provision is still pending further regulation in the federal, state and municipal levels, but it may be a starting point to change the culture of non-report.
There is a different scenario when it comes to self-disclosure to authorities by the wrongdoers themselves.
An individual who committed a crime and is already under investigation or is being prosecuted may report the wrongdoing to the authorities in exchange for being granted leniency that may range from a penalty reduction to a judicial pardon.
Cooperation with the authorities is not new in Brazil but became a trend after increased enforcement of the law.
The antitrust legislation, for instance, provides full immunity on both administrative and criminal levels for companies (admin- istrative only) and individuals that self-report. This mechanism of rewarding the first offender to self-disclose turned out to be very effective and has become a common practice in the antitrust field, in which the Brazilian authorities – both the regulator and the criminal prosecutors – are, and have been, very active.
When it comes to corruption and other white-collar crimes, the Organised Crime Act, enacted in 2012, enables individuals to cooperate with the authorities and be entitled to negotiate a kind of a plea agreement, also known as ‘rewarded collaboration’.
The same rationale was adopted by the BCCA, which provides that companies are entitled to cooperate with authorities through leniency programmes.
Such mechanisms allow individuals and companies involved in wrongdoings to receive benefits from the authorities in exchange for information of the misconduct. The practice is similar to the plea- bargaining agreements, and requires that the individual or company wishing to enter into an agreement fulfil specific requirements, such as the disclosure of all the details of the wrongdoing, and each individual and company that may have participated in it.
Although it is a new instrument and thus far very controvert- ible, collaborating with the authorities has been used by several individuals targeted by the Brazilian authorities. Brazilian criminal lawyers have criticised the mechanism, saying it is an unethical way of gathering evidence. The authorities, on the other hand, consider it a very effective instrument of investigation and facts elucidation.
The confidentiality of the information is one of the key elements for the success and efficacy of every internal investigation and is crucial in many ways, including the protection of the company from poten- tial claims triggered by individuals involved in the investigation and the negotiation of cooperation agreements with law enforce- ment authorities.
The engagement of a lawyer has historically been an effective way to create and maintain the confidentiality in an internal inves- tigation. In Brazil, having lawyers in charge of the investigation is of essence, considering the specificities of the local legal professional confidentiality treatment.
Definitions and limitations
The professional practice of law is well-regulated in Brazil. Besides the Brazilian Federal Constitution,1 Brazilian lawyers are both pro- tected by and bound to several provisions set forth in the Brazilian Bar Association Statute (BBAS)2 and the Brazilian Bar Association Ethics Code (BBAEC).3 The provisions cover both litigation and advisory legal professional practices, making clear that there is no distinction between them in Brazil.
As opposed to the United States, legal professional protec- tion in Brazil is not treated as a privilege arising from the attorney–client relationship. Neither is there a clear distinction between the attorney–client communication and the ‘work–product doctrine’ in the country. All aspects of client’s legal protection in Brazil are regulated in a rights and duties system.
The BBAS sets forth ‘the inviolability of the lawyer’s office or place of work, as well as his work tools, written, electronic, telephone and telematics correspondence, as long as they relate to the practice of law’ as every lawyer’s right.4
Such right may only be breached in cases in which there is indication that the lawyer took part in a crime5 or keeps physical evidence of a crime in his office.6
This means that Brazilians lawyers have a comprehensive right to the inviolability of their communication, work tools and work products, regardless of the direct involvement of a client and as long as they relate to the licit practice of law.
On the other hand, the BBAEC sets forth the duty for every Brazilian lawyer ‘to keep the facts they become aware of during the practice of his profession confidential’.7 The BBAEC also states that professional secrecy is of public interest, regardless of any request made by the client, and that communications of any kind between a lawyer and their client are presumed to be confidential.8
Such duty may only be breached in case there is threat to the lawyer’s life or honour, or the lawyer’s defence.9 The breach of the duty without cause may subject the lawyer to penalties from formal warnings to disbarment.
The client, therefore, is twice protected by both the Brazilian lawyers right to inviolability and their confidentiality duty.
The protection is effective and it is not common in Brazil for lawyers and law firms to have the legal professional confidential- ity breached out of the exceptions set forth in the applicable law. Most of the cases publicly available involving restriction measures imposed on lawyers relate to at least the indication that the lawyer could have been involved in the wrongdoings under investigation. Furthermore, the Brazilian Bar Association is very active in the defence and preservation of the legal professional guarantees, espe- cially the confidentiality.
The BBAS does not distinguish in-house lawyers from external coun- sel. As previously stated, the first section of the BBAS specifically sets forth the practice of ‘legal management’ as a lawyer’s private activity. Unlike many European countries, therefore, in-house lawyers have the same rights and duties of external counsel, as long as their role exclusively relates to the practice of law. This means that in- house lawyers who perform executive management roles or other activities not related to the practice of law do not have the same legal treatment.
In 2009, the Brazilian Supreme Court declared null and void a dawn raid conducted in a state-controlled bank. One of the grounds of the ruling was that the decision that had granted the measure did not specify the relevance to seize internal correspondence of the legal department for the investigation.10
As a result, Brazilian in-house counsel may conduct internal investigations and the legal professional protection in their com- munications, work tools and work products is preserved.
Despite this fact, it is more common that compliance officers conduct internal investigations than in-house counsel, given that companies have been choosing to segregate the legal from the compliance departments. More complex investigations, especially the ones involving the top management are usually outsourced to external law firms, to guarantee impartiality and independence.
Another related issue is how to preserve the in-house counsel legal professional confidentiality when there is indication that they may be a custodian of relevant information for the investigation. In such a scenario, the investigators must be even more careful with confidentiality and bear in mind that the inclusion of the in- house counsel in the list of custodians does not constitute a general waiver of the company’s legal professional protection. Some specific documents assessed during the review may be of essence for the investigation and, on a case-by-case basis, demand specific waiver of privilege protection. This is a reasonable way to enable a thorough document review and preserve the legal professional confidentiality at the same time.
The treatment of the legal professional confidentiality in the context of cooperation with Brazilian law enforcement authorities
Another relevant and controversial aspect of legal professional confi- dentiality in Brazil relates to its treatment in the context of an entity’s cooperation with law enforcement authorities. Brazilian enforce- ment on corruption practices and corporate wrongdoings has been increasing since 2013, when two relevant Federal Acts were added to the Brazilian anti-corruption legal framework.
Both the BCCA and the Criminal Organisations Act set forth the possibility of cooperation with Brazilian law enforcement authorities in exchange for legal benefits.
The Criminal Organisations Act imposes the waiver of the constitutional guarantee of non-self-incrimination for individuals under a plea bargain agreement. None of the acts, however, impose a duty of waiving a professional confidentiality right, of any kind, for companies and individuals under cooperation proceedings. The BCCA only states that ‘the leniency agreement shall stipulate the necessary conditions to ensure the effectiveness of the collaboration and the useful outcome of the proceeding’.11
It is, therefore, possible for a company to make a self-disclosure and cooperate with Brazilian law enforcement authorities after the conclusion of an internal investigation without automatically waiving the legal professional confidentiality, either of an internal in-house counsel or of an external lawyer retained to conduct the internal investigation.
Labour aspects that may impact internal investigation in Brazil
After learning about a wrongdoing and making the decision to start an investigation, a subject that deserves specific attention by corpora- tions is the Brazilian labour legislation.
As in many other Latin American countries, the Brazilian labour legislation is complex and inclined to protect employees. It is no overstatement that there is a culture of judicial claims by employees against employers in the country, even in cases of weak or lack of proper grounds. As a result, Brazil is one of the countries with the highest number of judicial labour claims in the world.
In attempt to change that scenario, in July 2017 the Congress passed the ‘Labour Reform’ that provided several important changes in the relationship between employer and employee.
Nevertheless, the Labour Reform did not bring much change in terms of impacting the conduction of internal investigations.
Therefore, the risk of the company’s labour exposure remains an important factor to be considered upon conducting corporate investigations in Brazil.
Every step of the investigation, from the definition of the scope to the enforcement of disciplinary measures, should be planned and performed taking the ‘labour aspect’ into consideration and in a way to mitigate such exposure.
We will address four steps that companies should take to prevent liability during and after the internal investigation:
- Consult a labour lawyer to provide guidance in the internal investigation. A specialised professional with knowledge on the company’s internal rules and local labour legislation is crucial to support investigators on the possibilities and the extent of investigative measures.
- Preserve and secure the confidentiality of the investigation as well as the privacy and the intimacy of employees involved. Many labour claims in Brazil involve demands for damages due to allegations of illicit exposure of the employees within the workplace, especially in cases of termination for
- Keep accurate records of all investigative measures conducted, such as relevant corporate emails identified and minutes of inter- views. The proper documentation of the investigation enables a better defence of the company in potential labour claims filed due to or as a consequence of the investigation. Furthermore, the documents may be used as evidence in terminations with or without
- Ensure the enforcement of disciplinary measures in compliance with confidentiality and proportionality. Inconsistency in disci- plinary measures may give grounds for employees to file labour claims seeking indemnification or the return to work.
Termination for cause is the harshest disciplinary measure and must be applied only in extreme situations, as quickly as possible and based on sufficient evidence. Examples of extreme situations are corruption, fraud, unfair competition and breach of corporate secrecy. Brazilian labour courts have been ruling that companies have the burden of proof in terminations for cause.
As a final note, companies in Brazil may impose remunerated leave – also called suspension – on employees while conducting the internal investigation or in cases of risk of evidence destruction, witness coercion and other situations that may harm a corporate investigation. This is a common and efficient practice in Brazil, especially in relation to employees in management positions.
Despite the lack of specific legal provisions, labour counsel recommend that this suspension should not exceed 30 days to avoid allegations of indirect rescission of the employment contract by the employer. It is also recommended that the leave is formally recorded with signatures of the employee on both their departure and their return.
One of the most common, efficient and important investigative measures in Brazil – and generally everywhere else – is the data monitoring and gathering from corporate devices made available for employees, as innumerable amounts of relevant information may be stored in such devices.
Companies have the right to access most of the information stored on servers and corporate electronic devices used by their employees, but this activity cannot be done indiscriminately.
Brazilian labour courts have been ruling that corporate devices, such as emails, computers and cellphones are company property not subject to employees’ privacy and intimacy rights. Companies may hold civil liability for wrongdoings committed by employees through such devices; therefore, employers are allowed to monitor and gather relevant information from such devices for corporate investigation purposes.
Employees should be clearly informed that corporate devices must be used exclusively for professional purposes and are subject to monitoring. Such communication is usually performed through the company’s code of conduct, corporate device policies and specific clauses in the employment contract.
A great deal of controversy surrounds the monitoring of personal data. As a general rule, and in a conservative approach, companies are not allowed to monitor personal emails and communications, even when they are not in compliance with corporate device polices. All personal data casually gathered on corporate devices with no relation with the investigated facts must be excluded from the investigation and have its confidentiality preserved to avoid undue exposure of the employee’s privacy and intimacy.
When it comes to data collection, companies must take all of the necessary precautions to preserve the integrity of the data and of potential evidence gathered when conducting an internal investiga- tion. Digital data is volatile (ie, it can be easily created, modified, damaged or even deleted).
There is no legal provision on the need for prior notification of the employee whose corporate devices will be collected due to an internal investigation. Therefore, there is no need to issue a hold notice, although several companies prefer to do so. Lawyers usually prefer to make the assessment and the recommendation on the hold notice on a case-by-case basis.
Nevertheless, considering that corporate electronic devices may contain information in connection with the employee’s privacy, it is advisable to, whenever possible, obtain a prior and formal consent of the employee before proceeding with the data collection. This measure is also important to avoid allegations of harassment, con- flicts of interest and violation of the privacy laws.
The collection of electronic data must respect specific technical procedures in order to preserve the custody chain of the files. It is recommended to delegate this activity to an independent forensic company specialised in collection in compliance with forensics standards as well as to have the collection procedures monitored and recorded by a public notary.
After the collection, all files extracted from the devices may be analysed, including the employee’s corporate email account.
Despite the fact that corporate investigations cannot reach the employee’s private email accounts, the data analysis may also encompass private emails if they were sent to or received by the employee using his or her corporate email account.
Personal electronic devices (computers, smartphones, tablets, etc) cannot be collected by the company, unless the employee consents.
The interviews are a key stage in any internal investigation and it is no different in Brazil, as it is a very important source of informa- tion gathering.
The first step is to plan the communication of the interview to the employee.
The interviewee has to be previously notified to attend a meeting with the investigation team. If they are an employee, the notifica- tion is usually sent by their immediate supervisor, by the human resources department or by the legal department of the company.
When involving former employees or third parties (business partners, suppliers, competitors, etc) the notification process may become much more challenging. There is no official notification or provision for official notice to be sent to the potential interviewees. Employees, former employees and third parties cannot be compelled to attend an interview.
They may also attend the interview and refuse to answer the questions or request their attorney to be present at the meeting.
Another major difference in Brazil, when compared to other countries, is that employees do not have the duty to cooperate or to tell the investigators the truth. There is no perjury and the National Constitution assures the right not to self-incriminate, even in a judicial claim.
However, the recent experience, especially after the Car Wash investigation, has shown that interviewees usually attend the inter- views without an attorney and answer the questions in an effort to show cooperation.
The interviews are often conducted in the employee’s native language, because Brazilian employees feel much more comfortable participating in an interview that is conducted in Portuguese.
The Upjohn warning is not required under Brazilian legislation,
however its content may be presented to the interviewee as an intro- duction, given that it is usually the first communication between the investigation team and the interviewee, and to settle the grounds of the questions. When the investigation involves multi-jurisdictional issues, it is common for the foreign counsel to conduct the Upjohn warning, although national counsel may also do it in Portuguese.
The interview may be recorded if necessary, but this is not usual. It is controversial whether recording the interview requires the interviewee’s authorisation. The common practice in Brazil has been to take notes during the interview and to prepare a brief summary of the main topics addressed in the interview or a minutes of the meeting afterwards.
The main purpose of the interview is to collect more informa- tion about certain issues, to clarify information collected during the document review and to confirm or review documents and information with individuals involved in the matter. Still, regardless of the existing information and documents, accusations towards the interviewee must be avoided during the interview as to prevent future labour claims on the grounds of harassment.
- Section 133: ‘the lawyer is indispensable to the administration of justice, being inviolable by his acts and manifestations in the practice of the profession, within the limits of the law’.
- Federal Law No. 8906/1994.
- Internal regulation issued by the Federal Council of the Brazilian Bar Association in compliance with an obligation set forth in the
- Section 7,
- Section 7, section 6 of the
- Section 243, section 2 of the Brazilian Code of Criminal
- Section 36 and section
- ‘The professional secrecy of the lawyer is preserved in respect to the essential role that he plays for the administration of justice (Sections 5, XIV and 133 of the Constitution) and the trust deposited by the clients, and the Judge or the Police Authority are prevented from ordering the seizure of documents covered by that confidentiality, meaning, all those that may in any way compromise the client or his defence, whether in the civil sphere or in the criminal sphere, all in tribute to the principle that guarantees the right to a broad defence’ RMS 27.419/SP, Reporting Justice Napoleão Nunes Maia Filho, Fifth Chamber, 04/14/2009.
- Section 16, section 4.
The whole publication is available at https://globalinvestigationsreview.com/edition/1001208/the-investigations-review-of-the-americas-2019
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