May 13, 2011 Anti-Corruption Legislation in Brazil

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 PRESENTATION OUTLINE

BRAZILs SCENARIO Latin Americas worst tax climate – bureaucratic and burdensome system Very protective employment and social security systems Rigid control and enforcement of tax, employment and regulatory norms create an environment of inspection and bribery Public procurement is a large part of Brazils economy and fertile ground for bribes and bid rigging (oil & gas, mining, ports and infrastructure in general) System of government with huge number of officials giving ample space for corruption

Examples of Cases in Brazil __________________________________________________________________________________________________________________ Baker Hughes: grease payment to the Rio de Janeiro Board of Commerce Tyco: payment of bribes, through lobbyists, to workers at a water treatment company Bridgestone: payment of bribes to state owned companies Natures Sunshine Products: payments to despachantes at customs to import products not registered in Brazil Pride: payment of bribes to resolve difficulties at customs Sitel: payment of bribes to resolve tax issues Gtech: payments to government officials as incentive to extend lottery contract with Caixa Econômica Federal Universal Leaf Tabaco: SEC action (civil) in the US for paying bribes in Thailand - ordered to pay appx. US$ 9 million in fines and penalties.

Sparse legislation governing the subject of Ethics & Compliance and Corporate Hospitality Main Brazilian legislation applicable to Government Officials (GOs): LEGISLATION IN BRAZIL

Brazilian Criminal Code 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 Applicable to all GOs of the Federal Executive Power

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 DEFINITION OF GOVERNMENT OFFICIAL (GO)

FORMS OF CORRUPTION Graft ("Concussão) Art 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 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 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 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

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

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

GIFTS CEP Resolution # 3/00 Gifts shall not: be offered by a party (i) subject to regulatory jurisdiction of GOs 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

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

Koury Lopes Advogados Thank You! Isabel C. Franco (55-11)