How compliance can save your company
Companies today need to worry about more than just profit. Nowadays, there is concern about the company’s image in the eyes of the public and investors. This is where the importance of compliance comes from.
There was a time when companies were only concerned with perfecting and improving their products, reducing productivity time, scaling production and investing in new techniques and new equipment.
All the practices focus on productivity and profit, with little regard for the company’s image and its relationship with its consumers, suppliers and environmental policies.
Times have changed and so have trends. The corporate world has gradually realized the need to readjust business values and implement new measures, new internal regulations and new practices.
Companies have aligned themselves with international best practice policies, prioritizing values and principles in internal regulations and encouraging ethical behavior through the implementation of Compliance Programs.
The term Compliance comes from the English verb to comply and means to fulfill, to obey, to be in conformity.
Complying with standards of ethical behavior, obeying rules, regulations and practicing a culture of combating bad practices in compliance with the law in the business environment.
It means regulating practices within companies and public and private institutions, with the aim of spreading the culture of fighting corruption, bringing greater transparency into companies.
In short, Compliance is the set of practices aimed at establishing ethical behavior and greater transparency in relations within companies and in their relations with public authorities.
It is the duty to comply with, conform to and enforce internal and external regulations imposed on the institution’s activities.
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Corporate governance scandals
Over the last two decades, corporate governance scandals have made their way into newspapers and websites, and have left their mark on history. Two of them stood out worldwide: Enron Corporation, an American energy company, and the Tyco International joint venture.
Enron Corporation caused a loss of more than 70 billion dollars to its shareholders in tax fraud, through manipulation of accounting books, intentional accounting errors, omission of tax information and other acts.
Tyco International embezzled more than 600 million dollars through loans and the fraudulent sale of shares. The money left the company’s cash in the form of bonuses or benefits to executives.
Scandals of this nature have led to the creation of anti-corruption and anti-bribery laws all over the world, and the promotion of compliance programs to combat acts of corruption such as these within corporations.
Advantages of Compliance
The implementation of Compliance and Integrity Programs is not restricted to the fight against corruption, but has gradually been adapted to other sectors. Their purpose is to implement good practices and provide a return for companies.
Adopting a compliance program brings benefits to the company, from preserving its public image to increasing efficiency and productivity, with strong repercussions on its market valuation.
- Improves and preserves the company’s image;
- Reduces the risk of negative exposure;
- It removes judicial and criminal liability;
- Increases efficiency and productivity;
- Mitigates complaints against the corporation;
- Reduces operating costs;
- It encourages a healthier working environment for managers and employees.
In addition to the benefits mentioned above, compliance is an efficient tool for attracting investment and encouraging competitiveness, driven by changes in customer consumption behavior and environmental preservation.
An increase in the level of ethical business behavior spreads throughout the production chain, promoting greater employee performance and increasing customer and supplier satisfaction and loyalty.
A structured ethical culture in companies creates a better working environment, more satisfied employees, lower turnover, higher work performance, more loyal consumers and a better relationship with public authorities.
It is therefore essential for companies to have a good internal compliance policy. A specialized lawyer can make the difference in these cases, helping to avoid many situations that are detrimental to the company.
One firm of reference is Monteiro Verdasca Advogados, with expertise in compliance operations in large companies and the knowledge in the area to identify the risks of undertakings and mitigate or eliminate them completely.
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Compliance around the world
Compliance emerged in the US in 1887 with the creation of the Interstate Commerce Act. This Act created the Federal Regulatory Agency Interstate Commerce Commission ‘ICC’ (Interstate Commerce Commission).
Its purpose was to act as a regulatory agency for rail transport, supervising and regulating its commercial activities, due to numerous complaints of abuse and monopoly.
Years later, in 1906, the Pure Food and Drugs Act was created, beginning a sequence of actions aimed at consumer protection.
In 1913, with the creation of the American Central Bank, the aim was to create a more reliable, flexible and secure financial system and in 1950 the Prudential Securities Act was created.
Prudential Securities obliged companies to hire lawyers to monitor compliance with standards of conduct within companies. In the 1960s, Compliance Officers were required.
Indeed, in 1977, the US plunged into the “Age of Compliance” with the creation of the Foreign Corrupt Practices Act (FCPA).
In the United Kingdom, in 2010, the UK Bribery Act or The Bribery Act was enacted, an anti-corruption and anti-bribery law considered by experts to be the strictest in the world on the subject.
This wave of compliance arrived in Brazil at a time when North American companies began to demand that their Brazilian subsidiaries adopt anti-corruption and anti-bribery standards.
Compliance in Brazil
From 1992 onwards in Brazil, with the policy of opening up international trade, which sought to align the country with the World Market, rules were implemented to improve commercial competitiveness and the image of institutions.
Measures such as the “Internal Controls Policy” and the “Code of Ethics and Standards of Conduct” were created, considered “embryonic” of what we now call a compliance program.
Law 9.613 was created in 1998 to combat the crimes of laundering and concealing assets. Since then, others have followed, standardizing and regulating compliance in our financial and corporate system.
The advent of Law 12.846/2013 (the anti-corruption law) effectively “inaugurated” in Brazil the increasingly frequent practice of Compliance in various sectors in corporate, institutional, trade union and even party circles.
Companies are seeking to integrate the compliance movement into the corporate environment in order to promote actions and practices aimed at spreading the fight against corruption in a more natural and habitual way.
Brazil ranks among the worst countries in terms of compliance standards in corporate governance policies, but in recent years the government has been trying to change this.
It is therefore essential to have the advice of a group of specialized lawyers to implement a set of good business practices and keep the company in compliance.
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Law 12.846/2013 – Anti-Corruption Law
Law 12.846/2013, known as the Anti-Corruption Law, establishes rules on the civil and administrative liability of legal entities that commit acts against the public administration in Brazil or abroad.
The most notable advantage brought about by the enactment of this new law was that it also made it possible to hold the corrupting agent responsible, reaching both ends of the corruption spectrum, the private legal entity on the one hand and the public agent on the other.
Law 12.846/2013 sets out a list of illicit conduct and civil and administrative punishments, making companies that commit acts of corruption objectively liable, an innovation in the legal system from then on.
Also known as the Clean Company Act, it was designed to crack down on acts of corruption practiced by private companies that have dealings with the public administration in bids, tenders and service contracts.
Among the acts considered harmful to the public administration, whether national or foreign, provided for in Article 5, only a few examples are listed below:
I – promising, offering or giving, directly or indirectly, an undue advantage to a public official or a third party related to them;
II – demonstrably finance, fund, sponsor or in any way subsidize the practice of the illegal acts provided for in this Law;
III – demonstrably using a natural or legal person as an intermediary to conceal or disguise their real interests or the identity of the beneficiaries of the acts carried out;
IV – with regard to tenders and contracts:
a) to frustrate or defraud, by means of an arrangement, combination or any other expedient, the competitive nature of a public bidding procedure;
b) prevent, disturb or defraud the performance of any act of a public bidding procedure;
c) remove or seek to remove a bidder by means of fraud or by offering an advantage of any kind;
d) defrauding public tenders or contracts arising from them;
Despite its innovation in the Brazilian legal system, Law 12.846 was enacted late, considering that the country had been participating in global anti-corruption debates for more than two decades, seeking to align itself with other countries.
Decree 8.420/2015
Federal Decree 8.420/2015 provides for the administrative liability of legal entities in acts committed against the public administration, whether national or foreign, regulating Law 12.846/2013, the Anti-Corruption Law.
It provides rules for entering into leniency agreements, defining criteria for calculating fines and parameters for evaluating compliance agreements, through an Administrative Accountability Process.
The leniency agreement is the agreement that allows the offender to voluntarily participate in the investigation process, in order to prevent or repair damages of diffuse and collective interest, earning them benefits.
When it comes to calculating the fine, the amount of the punishment will never be less than the value of the advantage obtained. The limits range from 0.1% to 20% of the gross revenue of the last financial year before the PAR was set up, or up to a maximum of R$60 million.
Article 41 of Decree 8.420 establishes, within the scope of a legal entity, the mechanisms and procedures for integrity, auditing and encouraging whistleblowing.
It also establishes the effective application of codes of ethics and conduct, policies and guidelines with the aim of detecting and remedying deviations, fraud, irregularities and illegal acts committed against the public administration, whether national or foreign.
The Office of the Comptroller General (CGU) manages the National Register of Punished Companies (CNEP) and the National Register of Suspended and Discredited Companies (CEIS), which collect data on companies punished under anti-corruption legislation.
The CEIS and CNEP are regulated by Decree 8.420 and contain the administrative sanctions imposed on individuals or legal entities that restrict the right to bid and enter into contracts with the public administration at any level.
How to Apply Compliance
As mentioned above, since the enactment of the Anti-Corruption Law, companies have intensified the creation of compliance programs, disseminating good corporate practices and establishing a transparent relationship with public authorities.
However, it is not restricted to cases of corruption. It can apply to labor relations, tax obligations, public competition, internal and external regulatory actions between companies, suppliers and consumers.
Any company can set up a compliance program, regardless of its size and turnover, starting by drawing up a simple and easy-to-understand Code of Conduct.
- Disseminate among employees the importance of complying with the rules set out in this Code of Conduct.
- Create communication channels within the company for notifications about non-compliance with these rules.
- Commitment from everyone in the company, following a logical hierarchical order, as it is essential that compliance practices are applied from the top down. From the top to the bottom of the company.
- Clearly conveying to society that the company does not condone inadequate, inappropriate or questionable moral practices, transmitting transparency to the public and strengthening the culture of compliance.
- Constantly monitor the compliance program by frequently reviewing the analysis of legal and socio-environmental risks, as well as the training and actions applied, as an effective measure to maintain the compliance program.
The process may seem complex, but with specialized advice, everything becomes simpler. Monteiro Verdasca Advogados can greatly facilitate the work of an entrepreneur looking to keep up with the best market practices.
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Compliance and Integrity Program
Compliance and Integrity Programs are responsible for the implementation of a new conduct in companies over the last 30 years in Brazil, based on various events that occurred during this period.
As mentioned earlier, compliance emerged in Brazil as a result of the demands of companies with American subsidiaries in the country, which led to the alignment of conduct with international financial policies.
It resulted in the creation of a regulation with the purpose of standardizing its application in the fight against corruption and adjusting the conduct of companies in various fields, not just restricted to corruption.
Decree 8.420/2015 regulated the Anti-Corruption Law and established in its article 41 the creation of the Integrity Program, which is part of the Compliance Program.
Compliance programs and integrity programs are often confused in the minds of those who read about the subject, but the difference can be understood as follows: although the two complement each other, integrity is embedded in compliance.
The universe of the compliance program encompasses the integrity program, since the former is a set of measures for compliance with general rules, while the latter has the specific purpose of ensuring the integrity practiced within the company.
The Integrity Program consists of an internal integrity body, observing compliance with its rules, carrying out audits and encouraging the reporting of irregularities within the corporate sphere.
It acts in the effective application of codes of ethics and conduct, policies and guidelines with the aim of detecting and remedying deviations, fraud, irregularities and illegal acts committed against the public administration, whether national or foreign.
In short, the Integrity Program combats corruption and misconduct within the corporate environment so as not to compromise relations with public institutions, avoiding corruption of public agents, bid-rigging, embarrassment and legal obstructions.
Labor Compliance
Labor Compliance is the alignment of the company’s conduct and its suitability inside and outside its work environment to all the actors of labor justice.
The company adopts measures, stipulated in an Integrity Program made up of rules and policies with the aim of minimizing risks and losses, avoiding being held accountable for illegal conduct, adapting to legislation, agreements and labor conventions.
A labor compliance policy makes it possible for a company to comply with the law at all stages of its relationship with employees, from recruitment to dismissal.
Labor relations are made up of a series of procedures that can lead to labor conflicts and liabilities, and labor compliance works continuously to ensure compliance with the rules in these relations.
Labor disputes and liabilities affect the finances and strategic planning of companies and possible mergers and acquisitions. Many of these operations are abandoned or suspended due to pending labor lawsuits.
An efficient Labor Compliance Program not only improves the company’s image, but also reduces labor lawsuits and makes a decisive contribution to financial results and growth, making it essential to implement it in your company.
Types of Compliance
As compliance developed in the corporate environment, it was realized that it wasn’t necessary to apply it only in the financial area. Today it is essential in other areas, such as the labor compliance mentioned above.
Compliance initially arose out of a concern to regulate the rail transportation sector and promote greater transparency for US banking institutions, with the creation of the ICA, the ICC regulatory agency and the Federal Reserve.
Here in Brazil, measures such as the “Internal Controls Policy” and the “Code of Ethics and Standards of Conduct” were considered the “embryos” of what we now call compliance.
Gradually, new demands from society meant that Corporate Governance had to keep up with this evolution and compliance began to be applied in new areas, having a positive impact on management and the company’s image.
There are at least six types of compliance listed below.
Corporate Compliance
The most traditional of them all, because it operates in several fields, it covers the company’s operations and decisions, notably on the expansion of its operations, new products, relationships with customers and suppliers, M&A;
Labor Compliance
It applies to all stages of the employment relationship, from recruitment onwards, and its relationship with labor legislation. With the aim of freeing the company from legal issues that compromise its image and operations;
Tax Compliance
Focused on the company’s finances and accounting activities, information on the balance sheet, payroll, compliance with the relevant legislation and the Internal Revenue Service and prevention of money laundering, corruption, among other probable illicit activities;
Tax Compliance
It attends to the payment of taxes, keeping the company’s obligations up to date in the municipal, state and federal spheres, on tax collection, to keep its operations legal and a transparent relationship with the public authorities;
Environmental Compliance
It is compliance with the legal, regulatory and ethical requirements of social and environmental policies. Compliance with recycling rules, responsible disposal of materials, saving and preservation of natural resources, with the aim of minimizing environmental impact, in the interests of the common good;
IT Compliance
It includes good practices in terms of national and international standards for data processing and collection, digital security, protection of user information, the company itself and its partners and clients.
This last type of compliance can be understood as the most recent among the others, showing the dynamics of corporate governance in keeping up with the evolution of technology in the business environment.
Entrepreneurs and Business Managers
Brazil is considered one of the worst countries when it comes to implementing, maintaining and enforcing Compliance and Integrity Programs. It’s a challenging mission for entrepreneurs and company managers.
Entrepreneurs find it difficult to adapt to complex legislation, bureaucracy, filling in applications and forms that vary from region to region, confusing tax and accounting rules, and excessively long deadlines.
The time it takes to start a business in Brazil is one of the longest in the world. This discourages domestic investors from starting new ventures and scares international investors from investing in the country.
In each federal entity, the country has a regionalized, variable structure, which hampers import and export procedures, the release of environmental licenses, operating licenses, inspection and tax collection.
Confusing rules on accounting procedures and tax collection make it difficult for companies to comply with the dozens of tax regimes distributed at federal, state and municipal level.
It is a Herculean task to adapt compliance policies in this hostile corporate environment, full of rules and regulations, in which managers need to circumvent the enormous risk of corruption in order to combine good ethical practices within companies.
Therefore, the specialized support of a prepared and competent law firm with extensive knowledge of the legal system, such as Monteiro Verdasca Advogados, is essential.
