Court Refuses Confirmation of Award, Agreeing with Expert Mauricio Gomm

Recently, the Southern District of New York refused the petition of Brazilian airline VRG to confirm an arbitration award. SILC professional Mauricio Gomm appeared as an expert on Brazilian law and practice, supporting the position of Matlin Patterson that the arbitration tribunal had no jurisdiction to tie it to the award. The ruling received coverage by Global Arbitration Review, which reported on the ruling on January 30.

The FCPA, Brazil, and Arbitration

In an article recently published in Valor Economico (registration required), Mauricio Gomm and I looked at the Foreign Corrupt Practices Act (FCPA) and its effect on Brazilian companies. More and more, Brazilian companies find themselves potentially liable under the FCPA, especially as Brazilian companies increasingly grow and expand. As Brazilian companies increasingly worry about the FCPA, how will that change their business practices and the features of doing business in Brazil? A round up of news articles provides an interesting overview.

As confirmed in theory and practice, the FCPA can impact the compliance programs that companies implement. In an article from the online journal sponsored by BOVESPA, a recent interview confirms both the application of the FCPA and the concern of Brazilian companies to adapt their compliance programs:

Mas esta legislação pode se aplicar a empresas de origem brasileira?
- Sim, um exemplo são as grandes multinacionais brasileiras listadas na bolsa americana. Elas estão sujeitas ao FCPA, mas ainda não há registro de nenhum caso de violação e sanção. Há, no entanto, uma percepção de que é uma questão de tempo para que isso ocorra. Isso porque as autoridades americanas têm focado nos países emergentes e em suas empresas para verificar o cumprimento desta legislação.  Há interesse de que haja uma situação envolvendo uma empresa com este perfil, para o estabelecimento de um caso importante que sirva de exemplo. O monitoramento por parte das autoridades americanas é percebido como cada vez mais intenso.

For those not versed in Portuguese, the speaker being interviewed, Mr. Bruno Maeda, states affirmatively that Brazilian companies are subject to the FCPA and that Brazilian companies are following more closely the activities of the US authorities. This article follows on the heels of a recent announcement by Brazilian airline company Embraer of an investigation launched by the US government regarding potential violations of the FCPA.

When it comes to disputes, the FCPA can also play a role. Although the FCPA does not provide a private right of action, the criminal conduct that forms the basis of an FCPA violation can help build a case for damages. We have seen this occur in a number of circumstances, including potentially criminal conduct by one shareholder in a closely held company. In the event of a dispute, the potential for an FCPA investigation can influence settlement discussions and create liability for the other shareholders who did not participate in the allegedly illegal activity. This is something we mentioned in the context of a potential arbitration:

“Para o advogado contencioso, existem alguns riscos e oportunidades. Ainda que o FCPA, dentro de seu texto, não confira direito a uma ação cível, o escopo criminal do referido diploma legal pode servir de base para um contencioso cível judicial ou arbitral. A guisa de exemplo, a falta de conhecimento sobre o alcance do FCPA, ou a ausência de controle e política interna, pode gerar perdas substanciais. Considerando que tais perdas surgem de uma falha da empresa, nasce para os respectivos acionistas um direito de processar a diretoria ou aqueles que por ação ou omissão contribuíram para a prática do ato corrupto.”

The concern for both criminal and civil liability is pushing Brazilian lawmakers to act. The Brazilian Congress is currently considering its own anti-bribery statute. If enacted, it would be interesting to see the interaction between the US and Brazilian laws. Where Brazilian companies now worry about the FCPA, it would be quite interesting to see US companies worry about Brazilian ant-bribery and corruption legislation in the future.