Anti-Corruption Legislation in Brazil

1. Anti-Corruption Legislation in Brazil May 13, 2011

2. PRESENTATION OUTLINE • Cases in Brazil • Main norms • Definition of Government Official (“GO”) • Forms of Corruption • The Commission of Public Ethic (“CPE”) • Application of HFACode and Resolutions • Higher Federal Administration Code of Conduct • Gifts • Recommendations

3. BRAZIL’sSCENARIO • Latin America’s worst tax climate – bureaucratic and burdensome system • Veryprotectiveemploymentand social security systems • Rigidcontrolandenforcementoftax, employment and regulatory norms create an environment ofinspectionandbribery • Publicprocurement is a largepartofBrazil’seconomyandfertileground for bribesandbidrigging (oil & gas, mining, ports and infrastructure in general) • System of government with huge number of officialsgivingamplespace for corruption

4. Examplesof Cases in Brazil __________________________________________________________________________________________________________________ Baker Hughes: greasepayment to the Rio de Janeiro BoardofCommerce Tyco: paymentofbribes, throughlobbyists, to workersat a watertreatmentcompany Bridgestone: paymentofbribes to stateownedcompanies Nature’sSunshineProducts: payments to “despachantes” atcustoms to importproductsnotregistered in Brazil Pride: paymentofbribes to resolve difficultiesatcustoms Sitel: paymentofbribes to resolve taxissues Gtech: payments to governmentofficials as “incentive” to extendlotterycontractwith Caixa Econômica Federal Universal Leaf Tabaco:SECaction (civil) in the US for payingbribes in Thailand - ordered to payappx. US$ 9 million in fines andpenalties.

5. LEGISLATION IN BRAZIL • Sparse legislation governing the subject of Ethics & Compliance and Corporate Hospitality • Main Brazilian legislation applicable to Government Officials (“GO”s):

6. Brazilian Criminal Code - 1940 Applicable to all citizens and foreigners in Brazil Statute of the Federal Civil Public Servant– 1990 Applicable to all Gos Administrative Improbity Law – 1992 Applicable to all Gos Professional Code of Ethics for Civil Servants of the Federal Executive Power - 1994 Applicable to all GOs of the Federal Executive Power

7. DEFINITION OF GOVERNMENT OFFICIAL (“GO”) • Criminal Code – art. 327 • Law 8027/90 – art. 1 • Law 8429/92 – art. 2 • Decree 6029/07 – art. 11, sole § • Any person who directly or indirectly, even if temporarily and without compensation, holds a public position, job or duty in a state entity or works for a contracted service provider or a party to an agreement for performance of activities typically related to the public administration

8. FORMS OF CORRUPTION • Graft ("Concussão“) • Art. 316 - to demand, for himself or herself , or for a third party, directly or indirectly, even if not in the exercise of his or her functions or prior to taking office, an undue advantage • Passive Corruption • Art. 317 - to solicit or receive, for himself or herself, or for a third party, directly or indirectly, even if not in the exercise of his or her functions or prior to taking office, but as a result of such a position, an undue advantage or to accept a promise for such advantage • Traffic of Influence • Art. 332 - To solicit, demand, charge or obtain, for himself or herself, or for a third party, an advantage or promise of advantage under the pretext of influencing an act of a GO in the exercise of his or her functions • Active corruption (bribery) • Art. 333 - to offer or give an undue advantage to a GO in order to induce him or her to practice, omit or delay an act pertaining to his or her functions or in breach of his or her duty

9. Higher Federal Administration Code of Conduct (“HFACode”) - 2000 Applicable to Ministers, Executive-Secretaries, Officers of state-owned or controlled companies and regulatory entities, with decision-making power. CEP Resolution # 2 - 2000 Regulates the participation of GOs covered by the HFACode in seminars and other events CEP Resolution # 3 - 2000 Regulates presents and gifts applicable to GOs covered by the HFACode

10. COMMISSION OF PUBLIC ETHICS (“CPE”) • Main duties: • manage the application of the HFACode • settle doubts of interpretation among several rules • coordinate, evaluate and supervise the Management System of Public Ethics of the Federal Executive Power • Authority: • provide recommendations and suggestions to the proper judicial or administrative body that may indict the violator or investigate the case • no power to punish misconducts

11. GIFTS • CEP Resolution # 3/00 • Gifts shall not: • be offered by a party (i) subject to regulatory jurisdiction of GO’s entity, (ii) have an interest in a decision that may be taken by the GO or his entity, (iii) have a commercial relationship with the entity to which the GO belongs • Gifts (“brindes”) may be given if they: • are given as a courtesy, as marketing tool, in events or dates of historical or cultural character • have a commercial value or price of less than R$100 (± USD 55) • be offered in periods shorter than 12 months; and • are not destined to award only a particular authority

12. Recommendations to minimize risks • refrain from directly inviting the GOs • direct the invitations to the governmental entity allowing them to select the guest to the event and also informing the CPE about the invitation • forward copies of the invitations and transparency letters to the CPE • refrain from offering air tickets, lodging and meals with a value higher than that which would be offered to them by the governmental entities • make payments directly to the vendors • refrain from inviting the GOs for extravagant events • insert a clause on the agreements executed with public entities providing for an obligation to such entities to appoint GOs to attend events

13. Thank You! Isabel C. Franco (55-11) 3799-8189 ifranco@klalaw.com.br