Brazil: Cartels

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This country-specific Q&A provides an overview to cartels laws and regulations that may occur in Brazil.

This Q&A is part of the global guide to Cartels. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/cartels/

  1. What is the relevant legislative framework?

    The relevant legislation in Brazil that establishes the punishment of cartel behavior is Law No. 12,529/2011 (the “Antitrust Law”). According to the Antitrust Law, cartels are arrangements between competitors that may be explicit or tacit involving matters such as prices, production quotas or territorial division aiming at limiting, restraining or in any way harming free competition or free enterprise.

    Cartel is also a criminal offense in Brazil, as established mainly by Law No. 8,137/1990, which addresses crimes against the economic order, tax and consumer relations and the respective penalties. Whereas at the administrative level companies, associations and individuals may be condemned for their participation in cartel conduct, at the criminal level only individuals may be convicted. In addition to Law No. 8,137/1990, Law No. 8,666/93 sets forth penalties for bid rigging and Law No. 12,846/2013, which is the anticorruption law, also addresses bid rigging and fraud involving public contracts.

  2. To establish an infringement, does there need to have been an effect on the market?

    At the administrative sphere, effects on the market are not relevant to establish an infringement. It is sufficient that the conduct have the ability to produce the following effects even if they are not achieved: (i) to limit, restrain or in any way harm free competition or free enterprise; (ii) to control the relevant market of goods or services; (iii) to arbitrarily increase profits; and (iv) to exercise a dominant position abusively.

  3. Does the law apply to conduct that occurs outside the jurisdiction?

    Yes, the provisions of the Antitrust Law also apply to conducts that occur outside Brazil, as long as the potentiality of effects in the Brazilian territory is confirmed.

  4. Which authorities can investigate cartels?

    At the administrative sphere, anticompetitive conducts (including cartels) are investigated and judged by two different bodies of the Administrative Council for Economic Defense (CADE), which is an agency within the structure of the Ministry of Justice and has jurisdiction throughout the national territory. CADE is formed by the General Superintendence and the Tribunal (and the Department of Economic Studies which provides economic support for both).

    In cartel matters, the General Superintendence is the investigative body entitled to prepare an opinion recommending to the Tribunal the conviction of the defendants or the dismissal of the case. The Tribunal is the decision-making body, which receives the opinion and provides definitive rulings at the administrative level.

    At the criminal sphere, crimes (including cartels) are, as a rule, investigated by the judicial police (civil police or federal police) and/or the Public Prosecution Office (at the state or federal level).

    As both spheres are independent, investigations may or may not be coordinated and the authorities involved can be more or less cooperative with one another.

  5. What are the key steps in a cartel investigation?

    At the administrative sphere, the General Superintendence is the body responsible to initiate an administrative inquiry, which is a formal investigation procedure. The administrative inquiry may be initiated ex officio or through a grounded representation of any interested party, such as the Public Prosecution Office or any affected governmental body, entity, company or individual.

    The purpose of the administrative inquiry is to collect evidence of the materiality and authorship of the conduct in order to support the initiation of administrative proceedings and, as a rule, it must be closed within 180 days, which can be subject to indefinite extension according to CADE’s current interpretation of the Antitrust Law.

    The General Superintendence may simply dismiss the administrative inquiry or initiate the respective administrative proceeding if it considers that there are sufficient elements to prove the materiality and authorship of the conduct. Once the administrative proceeding is initiated, the defendants are served and shall present defense within 30 days as a general rule.

    The administrative proceedings to impose administrative sanctions for violations against the economic order follow the following main steps: (i) defense presentation; (ii) fact-finding and technical note ending the fact-finding phase; (iii) final arguments of the defendants; (iv) General Superintendence’s opinion dismissing the case or recommending the defendants’ condemnation; (v) at the Tribunal, a Reviewer is chosen; (vi) the Reviewer can complement the fact finding; (vii) defendants shall present another petition and CADE’s Attorney General’s Office and the Federal Prosecution Office also present their opinion; and, finally, (viii) the Tribunal issues the final decision at the administrative level either condemning the defendants or dismissing the case for any or all of them.

    The chart below summarizes the main steps of an administrative proceeding to investigate anticompetitive conducts:

    Marcel Meinhardt

  6. What are the key investigative powers that are available to the relevant authorities?

    At the administrative sphere, the General Superintendence has the following investigative powers: (i) request information and documents from any individual or legal entity, bodies, and authorities, whether public or private; (ii) request oral explanations from any individual or legal entity, body, and authority, whether public or private; (iii) conduct inspection at the head offices, establishment, office, branch or subsidiary of the investigated company, being able to make or require copies of any documents or electronic data; (iv) request to the Judiciary, by means of the Attorney-General’s Office, of dawn raid warrants; (v) request the examination and copy of documents and objects obtained in investigations and administrative proceedings opened by federal agencies or entities; (vi) require the examination and copy of documents and objects from police inquiries, lawsuits of any kind, as well as administrative investigations and proceedings established by other federal entities.

  7. On what grounds can legal privilege be invoked to withhold the production of certain documents in the context of a request by the relevant authorities?

    In Brazil, professional secrecy in the context of attorney-client privilege, whether in-house or external lawyer, is ensured by the legislation. Law No. 8.906/1994 establishes as a right of the lawyer "the inviolability of his office or place of work, as well as his instruments of work, his written, electronic, telephone and telematics correspondence, as long as related to the practice of law." In addition, breach of professional secrecy is also a crime provided by the Brazilian Criminal Code.

    Therefore, there are legal grounds for refusing to produce certain types of evidence requested or determined by the authorities, such as legal advice made by in-house or external lawyers, since they relate to the practice of law.

  8. What are the conditions for a granting of full immunity? What evidence does the applicant need to provide? Is a formal admission required?

    The execution of leniency agreements with CADE, under the terms of the Antitrust Law, results in the extinction of the punitive action by the public administration, granting total immunity or the reduction ranging from 1/3 to 2/3 of the applicable penalty. In order to be eligible to the total immunity, the General Superintendence must not have previous knowledge of the reported infraction when the proposal is filed.

    For this purpose, the following requirements must be observed: (i) the company shall be the first to be qualified in relation to the reported violation; (ii) the company or individual shall completely cease its involvement in the reported conduct; (iii) the General Superintendence must not have sufficient evidence to guarantee the conviction at the time the agreement is proposed; (iv) the proponent shall admit guilt; (v) it shall fully and permanently cooperate with the investigations, appearing, at its own expense, whenever required, at all procedural acts, until the conclusion of the proceeding; and (vi) the cooperation shall result in the identification of other people involved in the violation and in the obtainment of information and documents proving the reported violation.

    The proposal of the leniency agreement begins with a marker request, in which the proponent contacts the General Superintendence to communicate the interest in proposing the agreement and to ensure the first position as proponent in relation to this conduct to be reported. If the marker is available, the proponent will receive formal confirmation that he was the first one to appear before the General Superintendence to report the conduct. The proponent shall assist the General Superintendence in the drafting of the history of conduct and provide all evidence available to prove the anticompetitive conduct.

  9. What level of leniency, if any, is available to subsequent applicants and what are the eligibility conditions?

    After the leniency agreement has been executed, it is no longer available for the same reported conduct. The other representatives that are interested in negotiating an agreement should propose the so-called Cease and Desist Commitment (TCC), which is another type of settlement, as further detailed below.

  10. Are markers available and, if so, in what circumstances?

    As soon as the General Superintendence receives a marker request, it checks its availability internally analyzing (i) whether there has been a previous request for marker, (ii) whether there is already an agreement negotiation in progress, (iii) whether it had prior knowledge of the conduct (if positive, whether there is still the possibility of negotiating a leniency agreement with partial immunity) and (iv) whether a leniency agreement has been executed.

    If the first place is available, the proponent receives a statement of attendance to report information regarding the conduct, the related market and its geographical area and that certifies the proponent meets the requirements to negotiate the settlement. Subsequently, a new meeting is scheduled for the presentation of a first leniency agreement proposal.

  11. What is required of immunity/leniency applicants in terms of ongoing cooperation with the relevant authorities?

    The signatory’s full and permanent cooperation with the investigation and the administrative proceedings is one of the requirements for executing the agreement. This means, among others, that the signatory must attend all procedural acts, at his expense and whenever requested, until the termination of the proceedings.

    With respect to confidentiality, the signatories are also responsible for protecting the confidentiality of the information and documents related to the leniency agreement and, unless expressly agreed otherwise with the General Superintendence, may not make them available to third parties, governmental entities or foreign authorities.

  12. Does the grant of immunity/leniency extend to immunity from criminal prosecution (if any) for current/former employees and directors?

    The execution of the leniency agreement with CADE prevents criminal charge from being offered in relation to individuals who are beneficiaries (whether current or former employees or directors), regarding crimes directly related to cartel practice, as long as the Federal and State Prosecution Offices are also engaged in the negotiation process and sign the leniency agreement.

  13. Is there an ‘amnesty plus’ programme?

    In Brazil, there is a leniency plus programme that consists of a reduction of 1/3 of the applicable penalty for the signatory that provides information related to a new cartel about which the General Superintendent had no previous knowledge when the signatory could not qualify for the leniency agreement in relation to the original conduct, as outlined below.

  14. Does the investigating authority have the ability to enter into a settlement agreement or plea bargain and, if so, what is the process for doing so?

    Yes, as provided in article 85 of the Brazilian Antitrust Law, companies and/or individuals investigated for an anticompetitive conduct that do not qualify for the Leniency Agreement may propose a settlement agreement with CADE (known as Cease and Desist Agreement or “TCC”), under which the authority agrees to stop investigations against the signatory provided that the legal requirements are met.

    While the Leniency Agreement is available only to the first to come forward and report the infringement, granting both administrative and criminal benefits, the TCC is available to any other potential defendant, but generating benefits only at the administrative level. There is no legal limit to the number of TCC that may be executed in a given investigation – this is a case-by-case analysis made by CADE, based on convenience and opportunity.

    The procedure is established at CADE´s Internal Regulation (Article 219). The negotiation is conducted by CADE’s General Superintendence until the case is formally submitted to CADE’s Tribunal (scenario in which it shall be negotiated with the Reviewer Commissioner). Proposals are received through a system of markers to be granted to the proponents (which shall rule applicable discounts). After receiving the marker, the proponent shall formally file a TCC request with the authority declaring the interest in starting negotiations. A Negotiation Commission is then formed and a period for negotiation fixed (60 days as a rule, which can be renewed).

    Proponents shall cooperate with the authority through the presentation of information and documents that help it to identify the conduct and participants. Findings shall be summarized in a report prepared and signed by the authority, known as “History of Conduct”, which is confidential by nature.

    Particularly for conspiracy, the main requirements for the signing of the TCC are (i) cooperation; (ii) pecuniary contribution; (iii) admission of participation in the reported conduct and (iv) commitment to immediately cease the practice.

    If the TCC is signed, proponents may receive a reduction between 15% and 50% of the expected fine depending on the moment in which the proposal is submitted (i.e. second-in system). Finally, following the signature of the TCC, proponents shall continue to cooperate with the authority under penalty of breach of the agreement. The TCC shall be ratified by CADE’s Tribunal but no further court approval is needed.

  15. What are the key pros and cons for a party that is considering entering into settlement?

    The clear benefits of signing a TCC agreement with CADE are both the reduction on the expected fine - between 15% and 50% depending on the moment in which the proposal is submitted – and the suspension of the investigation against the signatory. Possible disadvantages are: (i) proponents must admit wrongdoing, exposing companies for potential damage claims and (ii) contrary to the leniency agreement, there is no criminal immunity for individuals involved.

  16. What is the nature and extent of any cooperation with other investigating authorities, including from other jurisdictions?

    Cartel is both an administrative infringement and a crime in Brazil. Therefore, and locally, a number of cooperation agreements has been executed between CADE and the Public Prosecutor's Office to improve the level of information exchange and cooperation on investigations. Between 2017 and 2018, around 21 cooperation agreements were signed with different Public Prosecutors' Offices across Brazil.

    CADE has also signed cooperation agreements with different international authorities, regarding both mergers and cartel investigations. From 2013 to 2016, CADE engaged in international cooperation for the assessment of 21 anticompetitive conducts. In 2017, there were 11 cooperation activities regarding 7 different conducts. During the investigation phase, the authority relies on ‘pick-up the phone’ cooperation, i.e., informal discussions about practical aspects of the investigation such as difficulties with locating and notifying foreign individuals or companies and overcoming bureaucratic hurdles. Other challenges tackled through international cooperation are the coordination of dawn raids, access to evidence and enforcement of decisions. Most of the international cartel cases are also being investigated in Brazil, when there are local effects, as part of leniency and settlements agreements signed with CADE (and usually involving several jurisdictions).

  17. What are the potential civil and criminal sanctions if cartel activity is established?

    Those responsible for committing a violation to the economic order are subject to fines and other penalties. As per Article 37 of the Brazilian Antitrust Law, CADE may impose the following penalties: (i) in the case of a company, the fine ranges from one tenth percent (0.1%) to twenty percent (20%) of the gross revenues of the company, group or conglomerate, in the last fiscal year before the establishment of the administrative proceeding, in the field of the business activity in which the violation occurred, which will never be less than the advantage obtained, when it is possible to estimate it; (ii) in the case of other individuals or public or private legal entities, as well as any association of entities or persons established in fact or in law, even on a temporary basis, with or without a legal personality, which do not perform business activity, not being possible to use the gross revenues criteria, the fine will be between fifty thousand reais (BRL 50,000.00) to two billion reais (BRL 2,000,000,000.00); (iii) in the case of an administrator, directly or indirectly liable for the violation, when guilt or intent is proved, a fine from one percent (1%) to twenty percent (20%) of that applied to the company or to legal entities.

    CADE may apply other penalties provided in the Brazilian Antitrust Law, such as: (i) publication of the statement of condemnation in a selected newspaper; (ii) behavioural restrictions (e.g. prohibition of acquiring new business); (iii) divestiture, transfer of corporate control, sale of assets or partial interruption of activity; (iv) ineligibility for participation in public biddings for a term of not less than 5 years; (v) ineligibility for official financing for a term of not less than 5 years; (vi) recommendation to the respective public agencies so that a compulsory license over the intellectual property rights held by the wrongdoer be granted; and (vii) prohibition to engage in commercial activities in its own name or as a representative of a legal entity for (5 years).

    At the criminal sphere (individuals), cartel crimes are punishable from 2-5 years’ imprisonment and a fine to be established by the criminal judge, in accordance to Law 8,137/90. Likewise, Law 8,666/1993 establishes as a crime to “frustrate or fraud, through adjustment, combination or any other means, the competitive character of a public bid”, imposing a penalty of detention from 2-4 years and a fine. Cartels can also be framed within Article 288 of the Brazilian Penal Code, which defines the crime of “three or more persons associating with the specific intent to commit crimes”, punishable with imprisonment from 1-3 years.

  18. What factors are taken into account when the fine is set? In practice, what is the maximum level of fines that has been imposed in the case of recent domestic and international cartels?

    According to Article 45 of the Brazilian Antitrust Law, CADE shall take into account for the purposes of imposing the penalties (i) severity of the infringement; (ii) good-faith; (iii) potential advantage; (iv) potential consummation of the infraction; (v) level of damage or harm to competition, consumers or third parties; (vi) economic effects (negative) produced within the market, (vii) financial situation and (viii) recidivism.

    According to recent precedents, CADE has applied to companies condemned in cartel cases fines that have been about 15% of their gross revenues (or the economic group they belong). The table below shows the total major fines imposed by CADE:

    Case

    Fine

    Date of judgement

    Cement Cartel

    BRL 3.1 bi

    May, 2014

    Air Cargo Cartel

    BRL 293 mi

    August, 2013

    Peroxides Cartel

    BRL 150 mi

    May, 2012

    Hospital Gas Cartel

    BRL 2.3 bi

    September, 2010

    Rebar Cartel

    BRL 345 mi

    September, 2005

    *Source: www.cade.gov.br

  19. Are parent companies presumed to be jointly and severally liable with an infringing subsidiary?

    Yes, the Brazilian Antitrust Law provides that the companies and entities of an economic group shall be jointly and severally liable when at least one of them engages in violations of the economic order.

  20. Are private actions and/or class actions available for infringement of the cartel rules?

    Yes, any potential party harmed by cartel infringements in Brazil can rely on Brazilian courts to recover potential damages through individual lawsuits or class actions. Below are excerpts of relevant legislation:

    Law 12,529/11: “Art. 47. The parties harmed (…) may take legal action in defense of their individual interests or shared common interests, so that the practices constituting violations to the economic order cease, and compensation for the losses and damages suffered be received (…).

    Civil Code: “Art. 927. Anyone who, by an unlawful act (…), causes harm to another, is obliged to repair it.

  21. What type of damages can be recovered by claimants and how are they quantified?

    According to Article 47 of the Brazilian Antitrust Law, private claimants may seek compensation for losses and damages suffered, including pecuniary damages –overcharges paid and the loss of profits – and moral damages (non-pecuniary losses).

    Defendants may be considered jointly and severally liable, based on Article 942 of the Brazilian Civil Code. Therefore, a victim could potentially claim full compensation from any of them until fully compensated. Note, however, there is not a final position settled in the courts on this regard.

    According to Article 944 of the Brazilian Civil Code, compensation is measured by the extension of the damages. Consequently, damages must be assessed on a case by case basis and punitive damages are currently not available for antitrust damages actions (there is, however, an ongoing Bill aiming to establish double damages).

    There is lack of case law in Brazilian courts regarding the quantification of damages, which may be an arduous task for claimants and is usually left for liquidation phase of the proceeding. However, economic experts have recommended comparative methods for calculating pecuniary damages, such as the ‘difference-in-differences’ approach. In addition, decisions from CADE may sometimes include estimations of overcharges. The quantification of moral damages, however, is more uncertain.

    Finally, the passing-on defence has been generally admitted by courts in Brazil, at least in the first instance, even though it is not expressly set forth in any legislation in force.

  22. On what grounds can a decision of the relevant authority be appealed?

    At the administrative level, CADE’s Tribunal has the final decision on the administrative proceeding investigating an anticompetitive conduct.

    Any administrative decision in Brazil can be challenged before Brazilian courts. However, courts tend to be limited to formal aspects of the case rather than the merits (since CADE is the specialized antitrust authority in Brazil).

  23. What is the process for filing an appeal?

    Parties may judicially challenge CADE’s final decisions through generally two types of lawsuits: writ of mandamus and/or action for annulment.

    Such lawsuits are usually under jurisdiction of Brazilian Federal Courts and may be filed in any judicial section, depending on different factors, by plaintiff’s preference (i.e. local in which plaintiff is domiciled or the company has headquarters, local in which the act or fact happened, where the object is located or in the Federal District (where CADE is based).

    Both lawsuits admit temporary injunctions aiming to suspend the effects of CADE’s decision, but offering a guarantee in court may be necessary to suspend fines.

  24. What are some recent notable cartel cases (limited to one or two key examples, with a very short summary of the facts, decision and sanctions/level of fine)?

    The so-called ‘cement cartel’ was condemned by CADE on May 2014 and allegedly consisted in price fixing, limitation of supply and allocation of markets and clients. CADE imposed the biggest fine in its history (which totalled around BRL 3.1 billion) and harsh non-pecuniary sanctions, such as the divestment of industrial plants and the prohibition to make mergers and acquisitions in the cement and concrete sector until 2019. The decision is being judicially challenged.

    Other notable investigations are those regarding cartels in the foreign (offshore) exchange rate market and the Brazilian (onshore) exchange market, allegedly involving Brazilian and foreign currencies, as well as attempts to manipulate benchmark rates in the exchange market. CADE’s final decision on such cases is still pending, therefore there are still no sanctions. Investigations involve many of the largest international and Brazilian banks.

  25. What are the key recent trends (e.g. in terms of fines, sectors under investigation, applications for leniency, approach to settlement, number of appeals, etc.)?

    The prosecution of infractions against the economic order was boosted in recent years by the use of Leniency and Settlement (TCC) agreements. In 2017, were executed more than 20 new leniency agreements. In 2018, were signed another 5. In addition, in 2018, were executed 60 TCC agreements, which represented around BRL 1.3 billion in pecuniary contributions, more than double of total fines applied in the period (around BRL 627 thousand). In 2017, contributions from TCC (around BRL 845 thousand) were much higher than total fines (around BRL 95 thousand).

    In the last years, most of CADE’s decisions regarding anticompetitive conducts involved the practice of cartel. For instance, in 2018, there were 20 decisions regarding cartels and only 4 regarding unilateral conduct. However, there is a trend of focusing on the last. In 2018, were opened 35 new cartel investigations and 30 unilateral conduct investigations.

    CADE’s decisions have been mostly upheld by Brazilian courts (73.5%) and the number of decisions judicially challenged fell from 79 in 2017 to 61 in 2018.

    The financial and payment sectors are especially under CADE’s scrutiny. The infrastructure sector shall also be highlighted since CADE is conducting several investigations regarding public bids and especially the Car Wash Operation.

    Finally, there was recently a significant increase on the number of antitrust damage claims in Brazil, which went from 20, in 2011, to more than 120 up till middle 2017. CADE’s role on those claims (such as an active participation, granting access to information and documents, etc.), is currently a hot topic in Brazil.

  26. What are the key expected developments over the next 12 months (e.g. imminent statutory changes, procedural changes, upcoming decisions, etc.)?

    Bill N. 11,275/2018 aims to establish double damages for parties injured by cartels. The new rule will be favourable to Leniency and TCC signatories, since they will not be obliged to pay such double damages neither subject to the joint and several liabilities applicable to other defendants. Bill N. 11,275/2018 also aims to extend the statute of limitation for antitrust damage claims to 5 years, counted from CADE’s final decision. The Bill was approved by the Brazilian Federal Senate and now depends on approval by the Brazilian Chamber of Deputies.

    Also regarding private claims, CADE recently issued the Resolution N. 21/2018, which regulates the access, by third-parties, to documents and information gathered in administrative investigations. In addition, Resolution N. 21/2018 establishes that judicial or extrajudicial compensation for antitrust damages may be considered as a mitigating circumstance in the calculation of pecuniary contributions or application of fines. The mentioned disposition was used for the first time in CADE’s Judgement Session held in November 2018 and may become a trend.

    Bill N. 9238/2017 aims to modify the Brazilian Antitrust Law to establish that fines applied by CADE must necessarily equal the obtained advantages by violators, when such estimation is possible, weighted by detection rates, and that compensation paid by violators to injured parties may be considered as a mitigating circumstance.

    CADE also intends to elaborate guidance regarding the calculation of fines and contributions to be paid in gun jumping cases.

    Besides that, as upcoming decisions, CADE may judge the alleged rail/train big rigging cartel case and have more progress on some of the several cartel cases related to the Car Wash operation. CADE may also decide on investigations regarding alleged anticompetitive conducts by Google, such as ‘scraping’ of third-party content.