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Legal Update

Changes in the Rules Applicable to Leniency Agreements May Change the Mergers and Acquisitions Landscape in Brazil

11 January 2016
Tauil & Chequer Legal Update

The Federal Government published Provisional Measure 703/2015, amending Law 12.846/2013, the Clean Companies Act.

This provisional measure changes the articles concerning Leniency Agreements in the Clean Companies Act making it easier for companies to apply. Amongst the proposed changes, the leniency agreements now allow applicants to be fully exempt from fines. Previously, the maximum reduction was 2/3 of the applicable fine.

Corporations will also be exempt from debarment under Law 8.666/1993 and other norms applicable to public bids. The Provisional Measure has also revoked Article 17, paragraph 1st of Law 8.429/1992, which expressly prohibited settlements with respect to improbity lawsuits, a matter which was considered to be the largest hurdle for companies to apply for a leniency agreement.

Article 16, paragraph 1 of Law 12.846/2013, which only authorized leniency agreements to the first companies to apply for leniency, has also been repealed. In addition, according to the provisional measure, corporations can enter into leniency agreements even after lawsuits against them have begun.

Finally, the Provisional Measure included a requirement that the corporations must commit to implement or improve their internal compliance, audit and reporting mechanisms, as well as effectively apply their code of ethics and conduct.

In several jurisdictions, companies entering into mergers and acquisitions processes perform anti-corruption due diligence. In Brazil as well, such practice is recommended and even incentivized by the existing law. However, unlike other jurisdictions, it was not possible to fully eliminate the liability associated with acquired assets at the administrative level in Brazil. With the new rules applicable to leniency agreements, it is possible for the purchaser of a company facing liability to request a leniency agreement with respect to the acquired assets. By doing so, one can limit their exposure through the implementation of a solution that is advantageous to both the companies-that can now assess their liability- and to the State, who will incentivize the change of management in companies that are found to violate anti-corruption laws.

Provisional measures are decrees issued by the Executive Branch with the force of law, and they must be ratified by Congress. Provisional Measure 703/2015 is still pending ratification by Congress.

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