Possible Cartel Scheme in Sao Paulo

Public bidding on government jobs has long been a favorite plot of large and small screen corporate dramas. Now, one is playing out in real life.

Prosecutors in Sao Paulo, Brazil, have been granted the right to launch a criminal investigation into proposed price-rigging during bidding for Sao Paulo’s metro rail systems. This could lead to the uncovering of a cartel scheme.

“Based on documents from CADE (the Brazilian antitrust authority), there are strong indications of criminal cartel formation in bids called by the Sao Paulo commuter rail company CPTM and the Sao Paulo Metro company from 1999 to 2009,” prosecutor Marcelo Mendroni told news sources. “The (price-rigging) scheme involved millions of dollars, maybe billions of dollars.”

There are several international companies reported to be apart of the investigation including France’s Alstom, Spain’s CAF, Canada’s Bombardier and Japan’s Mitsui. The companies participated in public bids organized by the Municipal Government, which would grant the right to operate the subway and train lines. The allegations are that the organizations colluded and there was no real competition when selecting the winner.

The details about the price-fixing come from Siemens executives who are cooperating with authorities to avoid criminal proceedings. This goes along with the CADE internal procedure to verify if these allegations are plausible. On top of that, last week, the Municipal Government was granted access to the procedure on the grounds of expediting the investigation.

Field investigation is being conducted in order to gather relevant information to ensure nothing is overlooked. The nature of crime, however, is making the search difficult as the companies are slow to disclose confidential information.

Brazil’s New Anti-Corruption Law

Last week, Brazil President Dilma Rousseff signed the highly anticipated anti-corruption bill into law. It will take effect in 180 days from August 2, when it was officially added to Brazil’s journal. Recently Lexology—an online law review forum—broke down the law.

“The anti-corruption law represents a significant development, as for the first time, corporate entities in their own right, including foreign companies with operations and branches in Brazil, will be subject to rigorous judicial and administrative sanctions for corruption,” the article reads. “Previously, only public officials, employees, and corporate officers were subject to criminal sanctions for corruption in their personal capacity.”

There are several significant changes that the new legislation puts into place. First off, it better identifies the offenses which include bribery, illegal sponsoring, concealment, public procurement and extra-territorial application. It also lays out that prosecutors will simply need to prove that one or more of the previous actions took place and not what the intentions behind the act were. So if a company offers a service to a public official with good intentions behind it, it is still considered bribery.

There is also a wide array of sanctions that can be levied, which include administrative penalties, being barred from public tenders, judicial sanctions, banishment from economic activities and the possibility the company could be dissolved. Successors and affiliates to a company in question could also be subject to penalties.

This bill dates back to the ratification of the OECD Anti-Bribery Convention in 2000, but this is a significant step to stopping corruption at all levels.

New Commercial Code

As times goes on, many laws from the past need to be revisited to make sure they still have a purpose and that the meaning can not be improperly construed in anyway. We have all seen outdated legislation like the fact that bullets may not be used as currency in Massachusetts or it being illegal for a mustachioed man to kiss a woman in public in Iowa. Some of these laws have been on the books for over a century, which means reform could be a good plan.

Something similar is happening in Brazil right now as a bill is being discussed on the floor of Congress that would enact a new Commercial Code. The current version has been in place since 1850, but several articles were suspended by Brazil’s Civil Code in 2002. This gap now has a handful of jurists believing it is time to create a new code altogether instead of revamping the existing one.

The new bill (PL 1572/11) was presented by Vicente Cândido, a representative from Sao Paulo and member of Labor Party.

While creating a new code could be a crucial step, it is important to make sure patterns and statutes already established are not affected. This includes things like the “Lei das S.As,” which regulates proceedings encompassing issuance of shares, internal regulation of companies and more. It is also unclear how changing the laws would affect the capital markets.

This is something that any company that does business in Brazil will need to stay on top of as an update to these laws could directly affect investment potential in the country.

Special Corporate Law Courts

Anyone who is familiar with the countless police procedurals on television knows that there are specific ways to investigate certain types of crimes. Expertise in a particular field can be crucial for better handling the criminal element that focuses on white-collar or corporate crime for example. However, this idea is not only for the screen. as real courts are doing the same thing.

Officials in Sao Paulo, Brazil, are considering setting up a series of specialized courts that would deal with corporate law and commercial disputes. This is following positive feedback from a move made in 2011 which saw an appellate court to adjudicate commercial disputes. The idea is to speed up the settlement process and ensure proper remedies are prescribed accordingly.

While there is excitement about this move, there is also trepidation from some legal practitioners. One thought is that this would decrease the number of companies going to arbitration and increase the number of lawsuits handled by judges.

However, as most arbitration only takes place under specific circumstances and in sophisticated cases, it is unlikely arbitration would be become redundant. On top of that, others advocate that the possibility of setting precedents would be limited to just a handful of judges that specialized in commercial law.

Although there is some skepticism surrounding this idea in the legal would, the results from the appellate courts that handle commercial disputes show that this move would make precedents more coherent and straightforward. There should be more enthusiasm for the possibility of having specialty courts to handle corporate law in the Brazilian jurisdiction.

Farm Land Dispute

In 1988, Brazil’s constitution was adopted and a period of five years was put in place to decide the outcome of Amerindian tribal lands. Now, 25 years later, those disputes are still going on, but solutions could finally be in sight.

Over the last three months, a series of meetings have been held by a Commission led by the National Council of Justice to examine the land dispute and come up with suggestions to rectify it once and for all. This week, it presented its findings in a report with suggestions that would appeal to both the Americans and the farmers in Mato Grosso do Sul. The suggestions are still preliminary and will need to be revised before being sent to Brazilia, but are reported to include remedies that range from the foreclosure of land to indemnification.

The reason for the dispute of land is the value that it holds for the country’s export marketplace. Highly sought-after commodities such as soybeans, oranges, and coffee are grown and shipped from rural regions like Mato Grosso do Sul. This means that problems in these areas can lead to local and national issues with agriculture and the economy.

While this is just a list of suggestions and could lead to no ultimate solution, there are some quality minds behind it. Sérgio Fernandes Martins, the leader of the Commission, knows that resolving this matter is the Executive’s responsibility. On top of that, Gustavo Passarelli, a lawyer acting on behalf of the Federation of Farming of Mato Grosso do Sul, claims that the focus should be on indemnifying the farmers.