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Brazil: Punitive administrative proceedings

On June 8 2017, the Brazilian Federal Government issued Provisional Measure 784/2017 (PM 784), which establishes new rules applicable to punitive administrative proceedings taking place at Bacen (the Brazilian Central Bank) and the CVM (the Brazilian Securities and Exchange Commission).

One of the most debated innovations introduced by PM 784 relates to the new limits on pecuniary penalties which the CVM and Bacen may apply to entities in the scope of their sanctioning procedures.

Accordingly, the CVM can now apply fines of up to: (i) BRL500 million ($155.7 million), as opposed to the previous limit of BRL500,000; (ii) twice the amount of the issue or irregular transaction (instead of the previous limit of 50%); (iii) three times the amount of the economic advantage obtained or the loss avoided as a result of the wrongful act; or (iv) 20% of the total or individual consolidated turnover of the economic group, obtained in the year before the initiation of the sanctioning process, in the case of a legal entity (the latter is an alternative introduced by PM 784). In the case of recidivism, the limits may triple.

Similarly, Bacen may now fine regulated entities up to (i) 0.5% of revenues from services and financial products calculated in the year before the consummation of the infringement or, in the case of a continued wrongful action, of the consummation of the last infringement; or (ii) BRL2 billion (as opposed to the previous BRL250,000 limit).

In regard to non-pecuniary penalties, MP 784 introduced the possibility for CVM to sanction regulated entities by preventing them from (i) engaging in contracts with state-owned financial institutions; or (ii) participating in public bids, for up to five years.

PM 784 states that the application of the incremented system of penalties should take into account certain elements. These include the advantage received or intended by the violator, their economic capacity, the severity of the violation and the degree of damage caused to the national financial system, to the Brazilian payment system, to the infringing institution itself or to third parties.

The new fine limits under PM 784 will only be applicable to events occurring after the publication of PM 784. Thus, acts that occurred before July 7 2017, remain subject to the applicable limits then in effect.

Another novelty introduced by PM 784 relates to leniency agreements. Bacen and the CVM are now allowed to enter into agreements with either individuals or legal entities, to obtain information on violations of legal or regulatory norms in exchange for lighter sentences or full acquittal. Leniency agreements entered into by Cade (the Brazilian antitrust authority) have shown that these instruments may be effective in revealing accomplices and additional information during investigations, and now the tool has been extended to the purview of Bacen and the CVM.

Given that leniency is a procedural matter, leniency agreements may be proposed and concluded in administrative proceedings that were in course before the enactment of PM 784, including cases that were already actually in progress.

PM 784 also allows both the CVM and Bacen to cumulate penalties applied to regulated entities found guilty in sanctioning proceedings. Thus, under the new rule, CVM and Bacen may apply pecuniary penalties along with a suspension, for instance, to entities found simultaneously guilty under competences of both regulators.

Congress has 60 days to approve the provisional measure into law, after which it loses its validity.

Carlos Augusto JunqueiraFernanda MontorfanoRafael Nogueira

Souza Cescon Barrieu & Flesch
Praia de Botafogo, 228 - 15º andar - Ala A
22250-040 - Rio de Janeiro - RJ - Brazil
T: +55 21 2196-9200

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