Brazil: Whistleblowers, rewards and legal certainty

Over the past ten years, the incentives for whistleblowers have been increasing in Brazil. This has been the result of certain factors like the recognition of the award-winning denunciation process (delação premiada in Portuguese) – contemplated under the Law N° 12,850 -becomes effective in 2013- and the beginning of the Lavajato case (Operation Car Wash) in 2014, the largest investigation for corruption in Brazilian history.

In addition, the regulatory framework established with the approval of Law N° 13.608, of January 10th 2018 (which consider the implementation of an ethics line for complaints and a reward for all useful and reliable information provided in an investigation) and the amendments to the same law contained in Law N° 13.964, of December 24th 2019 (an innovative law to combat “white collar” crimes, which introduces the figure of the whistleblower and improves the law and criminal procedure) constitute the tripod on which the real incentive for whistleblowers is based, namely:  

(i) the use of an appropriate reporting channel (Ethics line).

(ii) the preservation of the whistleblower identity and comprehensive protection -necessary to avoid retaliations-.

(iii) the possibility to receive a reward -an economic incentive established by law- in favor of the whistleblower.

The reward established by law is conditional on the recovery of public funds that have been diverted from criminal behavior. This is one of the most significant advances experienced by Brazil in the fight against corruption and other related crimes. 

The regulation can be considered an unprecedented advance in the region. In practice, however, it cannot yet be said that real changes have been seen in the fight against corruption in Brazil.

Basically, the Brazilian society, in general, has no knowledge about any reward received by a whistleblower. In addition, citizens tend to delegate to the proper government the mechanisms available to confront and/or prevent possible acts of corruption. Another reason is the mistrust of the procedures adopted in order to avoid possible retaliations. In addition, the law does not guarantee the payment of the reward since the lack of public resources -in the current economic situation- making the fact of that payment unpredictable.

In 2020, the National Strategy to Combat Corruption and Money Laundering (acronym in Portuguese, ENCCLA) has also recommended the implementation of effective reporting channels “with the purpose of getting a culture of trust based on the efficiency and integrity of public institutions“.

Unlike the informant (the accused party in an award-winning denunciation agreement), the whistleblower is not considered a participant in an illegal act, but is usually someone who has a position within the organization, which provides information about unlawful acts committed by others. While a reduced or brief penal sentence is the incentive for an informant to report on other criminals, the whistleblower incentive is to receive a monetary reward. While the informant probably won’t get the punishment he deserves, the whistleblower should get what he deserves for incurring the risks associated with providing information that may be useful for an investigation.

Some bills dealing with whistleblower agreements are pending to be approved in the Brazilian Congress. These bills were based on a document prepared by Transparency International (TI) that propose the implementation of a whistleblower complaint channel – Ethics Line – in the private sector (” Whistleblower Incentive Measures”).

However, neither the reward determined by the current legislation nor those provided for in the bills constitute a sufficient incentive for whistleblower reporting. The law provides for a whistleblower reward of “up to 5 percent of the amount recovered for the alleged crime committed,” while one of the bills would provide for 10 percent. By comparison, rewards in the U.S. under the Dodd-Frank Act range from 10 to 30 percent of total monetary penalties, collected through covert SEC action.

Secrecy is necessary to protect the whistleblower from possible harm and retaliation. And the reward should be proportional to the financial risk that has been incurred. Therefore, in order for a whistleblower complaint procedure to be an effective instrument for combating fraud and corruption, it should provide the whistleblower with adequate financial incentives and legal certainty, with regard to the use of an ethics line and the formal compliance with the agreements established for that purpose.

G5 Integritas has highly trained professionals who can assist you in the design of the best Integrity Programs, and tailored to your needs; as well as to define the most appropriate management model for your complaint channels. If you are interested in optimizing the ethical and integrity environment of your organization, we invite you to contact us at: [email protected]. Or visiting our website: www.g5integritas.com

Equipo G5 Integritas Latam

Equipo G5 Integritas Latam

Equipo G5 Integritas Latam

G5 Integritas is a consulting and strategic advisory firm for corporate clients, financial institutions, law firms, entrepreneurs and investors, specialized in: RISK AND COMPLIANCE DUE DILIGENCE AND BACKGROUND CHECK INVESTIGATIONS AND BUSINESS INTELLIGENCE SECURITY CONSULTING FORENSIC INFORMATION AND DATA RECOVERY

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