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On September 19, 2007, the Administrative Council for
Economic Defence (CADE) in full session concluded that various
security services companies were guilty of acting as a cartel
in their participation in public bidding procedures for
government contracts. Not only did CADE impose fines of up to
20% of the security companies' revenues, it also fined the
individuals involved. Without going into the merits of
CADE's decision, the case is particularly interesting for
two reasons.
CADE's decision in the security services cartel case is
the first in an investigation initiated by means of the
Leniency Agreements provided for under the Competition Defence
Law. When CADE determined that the Leniency Agreement had been
fulfilled, it declared that the cooperating company and its
officer were no longer subject to punishment, releasing them
from criminal and administrative liability, and thus conferring
a certain degree of legal security on Leniency Agreements. The
second reason the case attracts the interest of those who
follow CADE's decisions is that it reflects a significant
change in the council's position on the liability of
individuals for corporate offences.
In previous cases, Brazilian antitrust authorities would
only impose penalties on individuals who had personal
involvement in anticompetitive practices (ranging from cartels
to exclusivity contracts), regardless of whether the
individuals were formally occupied the position of officer or
director of the company found guilty of anticompetitive
conduct. Thus, directors, officers and legal representatives
would find themselves implicated in investigations and subject
to administrative sanctions only if the authorities were able
to prove (unusually beyond doubt) that they were personally
involved in the anticompetitive conduct.
In this case, however, upon finding that the participation
of certain companies in a cartel to defraud government
contracting procedures, CADE imposed penalties on both the
entities and their officers, even though the administrative
proceeding did not produce any evidence that the officers had
been personally involved in the illegal practices. The main
argument put forward to support this new position is that a
company is a legal fiction and as such could not have committed
an illegal act except through a natural person, and accordingly
the natural person must be held liable.
This decision, together with the debate among the
councillors at the session, marks a change in direction for
CADE: it appears that corporate officers and legal
representatives will now be held personally liable for the
illegal acts of their companies, even in the absence of proof
of their involvement in the anticompetitive practice. The
decision reverses the burden of proof, and officers face having
to prove that they were not involved in the conduct in order to
escape liability.
The Competition Defence Law does not contain any specific
provision that could furnish a definitive answer to the
question of executives' liability, and the silence of the
legislation on this point is likely to feed continuing debate
and challenges of administrative decisions imposing liability
on executives in the absence of proof of their direct
involvement, especially given the presumption of innocence
contained in the Federal Constitution and the principle of due
legal process.
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