Rights of individuals compromised in Brazil’s “enforcement tsunami”

21 October 2016

Operation Car Wash gave rise to a new type of investigation that sometimes puts the constitutional rights of individuals at risk, a Brazilian criminal lawyer said at the Anti-Corruption & Investigations conference in São Paulo, hosted by GIR and Latin Lawyer.

Fernando Castelo Branco, of Castelo Advogados in São Paulo, at a panel titled “Brazil’s enforcement tsunami”, spoke of his concerns about Brazilian federal prosecutors’ investigative methods, including using temporary arrests to elicit statements that can later be used as evidence against other individuals and companies. 

Ten years ago, in Brazil’s “Mensalão” investigation, Castelo Branco explained, prosecutors relied on search and seizure actions and intercepted telephone messages to obtain evidence in their investigations. But in Car Wash, federal authorities have switched to new methods that put front and centre the information provided by individuals.

However, Castro Branco said, it isn’t always clear whether or not this information – whether it’s an admission of guilt or evidence on other individuals allegedly involved in corruption – was given under duress. 

He said that while prosecutors are of the view that the ends justify the means, due process is severely weakened when constitutional protections for individuals are disregarded.

Castello Branco said that like the US Attorney’s Office for the Southern District of New York, which is sometimes jokingly referred to as the “Sovereign District of New York”, the federal prosecutor’s office leading the Car Wash investigations from Curitiba now goes by the nickname the “Republic of Curitiba”. 

Offering a US perspective, Francisco Cestero of Cleary Gottlieb Steen & Hamilton in São Paulo said Brazil is actually ahead of the curve when it comes to investigating and prosecuting individuals for corruption. 

He emphasised there is no one perfect way to target individuals. Speaking of the Yates Memo, which was presented in September 2015 and formalised policy that companies should hand over information on potentially culpable individuals in return for cooperation credit, he said it remains to be seen how well it works in practice. “Even in the US, even though there are more FCPA investigations, this is all a global learning process.”

He added that moving from investigating companies to individuals has its benefits, but also its pitfalls. “We’re in the middle of it and lessons are learned as we go along,” he said.

The panel, which was moderated by Shin Jae Kim at TozziniFreire Advogados in São Paulo, also included Marcelo Marchetti, the general counsel at Toyo Setal in Brazil, and Mariana Villela of Veirano Advogados in Rio de Janeiro.

Marchetti, who said that as an in-house lawyer he had experienced two different government investigations from up close, also spoke of how investigators’ methods have changed over the years. He said that in the most recent investigation he experienced, he noticed a “huge improvement in the behaviour of the federal police”.

He said: “In the first operation, some six years ago or so, the federal police were only interested in taking as many documents as they could in a very aggressive way. In the second they were just standing there and asking [for the documents].” 

Marchetti said the police now are “more prepared and more respectful of companies”.

Meanwhile, Villela spoke of the uncertainty companies face in trying to obtain a leniency agreement in Brazil. Companies remain unsure of the value of self-reporting, and, if deciding to disclose, which authority to approach.

Alongside federal prosecutors and the Ministry of Transparency (previously the comptroller general, or the CGU), companies can also expect the Federal Audit Court and the Attorney General’s Office, as well as injured state parties – such as Petrobras in the Car Wash investigation – to have a say in the matter. Their requirements and interests aren’t always aligned.

While the situation has improved somewhat in recent years, the “legal structure is very fragile” Villela said.

The terms of some settlements that have been agreed so far are confidential, Villela said, adding that this makes it even harder to determine the standards for disclosure and cooperation that authorities require. 

“We need more clarity on the benefits and safety of self-reporting,” he said. “If you settle with one but not another, you may be confessing something that will expose you in another sphere – that is the main concern.”