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BRAZIL

At the end of 2014, GC and The Legal 500 continued our Corporate Counsel Summit series in São PaUlo, where we met to discuss the issues facing in-house lawyers working in Brazil.


C O R P O R A T E   C O U N S E L   S U M M I T

CATHERINE RODGERS

EDITOR AND FEATURES WRITER

With a panel of 12 guests, including representatives from regulated and unregulated industry sectors, the conversation focused on the political environment in Brazil, the challenges facing the growing economy, and how those impact multinational corporations.

Guest speaker Ricardo Sennes from public affairs consultancy Prospectiva began by outlining the pervading political mood, where the ruling PT party [Partidos dos Trabalhadores, or Workers’ Party] leads a broad coalition with other political forces. PT holds five out of 27 states in the country, and so is not in a dominant position. Its focus is on controlling the coalition at a federal level and, because garnering support is key, Sennes said: “Somehow we have structured a political system that tends to encourage corruption”.

Corruption is a major feature of the business landscape in Brazil too. But one of the biggest difficulties inward investors face is the state’s interference in the economy.

Brazil, like many other BRIC countries, still has a huge state apparatus: 47% of the market credit in Brazil is controlled by state banks, for example, and for long-term credit that rises to 100%. State companies take the lead in strategic investment programmes, and there is a “national champion” approach in many industries. In pharmaceuticals, for instance, the government decided to foster five domestic companies, and those increased their size tenfold in the decade from 2002.

Government policies are driving slow growth through consumption rather than investment, with the retail sector expanding particularly rapidly. There are problems in the industrial sector related to employment, investment capacity and competitiveness.

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For general counsel, dealing with PT’s “nationalism” policies is tough. Paulo Fonseca, responsible for legal affairs in Brazil for pharma group Amgen, said: “In the health sector, the government is undertaking so-called PDPs, or ‘partnerships for product development’, that include the state apparatus, or the laboratories owned by the state. They are actually manufacturing products and competing with private companies like ours in the market.”

Andrea Montragio, GC for Teva Pharmaceuticals in Brazil, holds the view that: “For the pharmaceutical world the current political stance has had a great impact. We are seeing new regulations imposed almost every week, from every side, and we have to adapt constantly. You need to come up with very creative ways of, not avoiding complying with the regulations, but of adapting your local business to them.”

Similar issues are alive in the energy and telecoms sectors, plus elsewhere. Technology companies are eligible for tax incentives if they invest in R&D, for example, and research is done in co-operation with public universities. The government has recently said that companies must share their intellectual property rights with the universities, a policy that is scaring away multinationals.

Litigation is a constant challenge. “The lack of confidence in the Brazilian state is so high that even the judicial branch is not trusted,” said Fonseca. Fabiana Siviero, head of legal for Google Brasil, said: “We get sued a lot. Brazil made reforms 20 years ago to improve access to justice, but it created a way of litigating that has resulted in one simply becoming the manager of huge volumes of litigation; volumes that are unparalleled anywhere in the world.”

There are 27 Brazilian courts of appeals making decisions that are frequently contradictory, and often taking many years to do so.

Tax lawsuits are common, as tax authorities constantly create new interpretations of established legislation. Carlos Mahfuz, Latin American legal director at mining company Alcoa, claimed that: “In the US and other developed countries, people respect the state. Here, we do not.”

Brazil is moving into line with international practice in some areas, however, and in 2014 introduced its inaugural anti-corruption law, making companies liable for the first time for corruption, punishable by heavy fines. It remains to be seen how the new law will be implemented and enforced. Corporate investigations are also becoming more common. The most high-profile example concerns an alleged kickback scheme at state-run oil company Petrobras which is ongoing and could become the country’s biggest ever money-laundering probe.

“one of the biggest difficulties inward investors face is the state’s interference in the economy.”

Adriana Ehiar, legal counsel at US juice company Tampico Beverages, concluded: “It is a challenge from the legal perspective to support a long term business plan in Brazil. Why? Because you are not 100% sure of which regulations will govern your business. This is a challenge that we have here that I think is distinct from other countries.”

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