LatinFinance - November/December 2015 - 30

INVESTOR
PERCEPTION
STUDY
BRAZILIAN
LAW
As companies come to grips with the Petrobras fallout, their legal advisors
are preoccupied with governance. By Andrew Short

Compliance as a
growth industry

o say that 2015 has been a bad year for Brazil is somewhat of an understatement.
In addition to having the worst performing major currency of the year, consumer spending is in the doldrums. Inflation and interest rates are higher than President Dilma Rousseff's
popularity - now in single digits - and Standard & Poor's cut Brazil's sovereign debt rating to
junk in September.
Shareholders have also been hit. Companies listed on Brazil's stock exchange, the
BM&FBovespa, have lost more than $1 trillion since a 2011 peak, according to data service
Economatica.
Meanwhile, the worst graft case in Brazil's history, surrounding state-run oil company
Petrobras, plays out in the background, continually thrusting the country and its myriad woes
into the global spotlight.
The 2016 TozziniFreire Outlook for Legal Issues in Brazil reflects this complicated political
and economic backdrop. The survey, carried out by Management & Excellence and LatinFinance, and sponsored by Brazilian law firm TozziniFreire, provides a snapshot of the biggest
issues for Brazilian companies next year. The 123 respondents, most working in legal functions
in private companies in Brazil, again ranked compliance as the top priority. The 66.7% increase
in this response over last year's survey reflects the growing significance of compliance.
Companies are taking action, largely in response to the Brazil Clean Companies Act passed
in 2013. The act defines administrative and civil liabilities for actions committed against
national or foreign public entities involving corruption and fraud in government contracts.
It also incentivizes companies to invest in compliance by indicating that the government will
consider the existence of effective programs as a mitigating factor when applying sanctions.
Compliance has become a growth area in Brazil, according to Shin Jae Kim, partner at
TozziniFreire specializing in compliance and investigations. "There is a clear market demand
and an understanding of how compliance can be beneficial," she says. The need for compliance encompasses companies that operate in a diverse spectrum of industries including
construction, logistics and transportation.
Companies face challenges in implementing new compliance measures. "In the shortterm, companies will need to invest heavily in their programs - and not all have funds to do
so," says Donna Fuller, senior manager at Deloitte Financial Advisory Services. "However, on
the positive side, the Brazil Clean Companies Act has been highly publicized and company

30 L ATINFINA NCE.COM - November/December 2015

employees are more receptive to the compliance culture than in the past." She adds
that changing business culture in a country
where corruption is deeply embedded is
difficult, but attitudes are starting to shift
due to the publicity of the Petrobras case
and the related Lava Jato (or "Car Wash")
investigation.
Third-party risk
Petrobras has appointed a governance,
risk and compliance executive director to
enhance its image and implement its own
compliance code. Petrobras is also requesting third parties - some 50,000 companies
according TozziniFreire's Kim - to implement their own compliance regimes.
Renata Muzzi Gomes de Almeida, partner in TozziniFreire's compliance and
investigation practice group, says the recent
Petrobras case confirms that one of the
biggest compliance risks comes from suppliers. "If companies don't take care of their
risks from suppliers, they cannot minimize
the risk of corruption or fraud," she says.
Gomes de Almeida says this is why
compliance is so high on the agenda. "This
preoccupation is happening now because
compliance is something very new for
companies that have never had to worry
about it before. If they want to keep a big
client [such as Petrobras], they need these
measures in place," she says.

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