The Brazilian Anti-Corruption Law (Law No. 12,846/13) provides for the administrative and civil liability of legal entities for acts against the public administration, sanctioning not only the entities that commit corruption acts, but also third parties that have some degree of connection with the corrupt conduct or the corrupting entity. In this sense, in certain circumstances, administrative and judicial sanctions may be extended to financial institutions providing financing to the corrupting entity in the context of corruption acts.
Article 5 of the Brazilian Anti-Corruption Law contains a list of acts that are harmful to the public administration and may lead to administrative and civil liability of legal entities. One of these items is subsection II, which deals with the liability of financing agents or sponsors for illicit acts under the Brazilian Anti-Corruption Law. To wit:
"Article 5 - For the purposes of this Law, acts harmful to the public administration, Brazilian or foreign, shall be all acts performed by the legal entities mentioned in the sole paragraph of article 1 that go against foreign or Brazilian public property, against principles of the public administration, or against international commitments assumed by Brazil, defined as follows:
[...]
II - to finance, fund, sponsor, or otherwise subsidize the commission of the illegal acts provided for in this Law.”
In view of this legal provision, some doubts arise for which, save better judgment, there is still no guidance in legal scholarship or case law: is lenders’ liability strict or fault-based? Which acts of financing, funding, or sponsorship are capable of generating the liability provided for in article 5, subsection II? Does the lender liability for corruption acts require its direct participation or knowledge (actual or presumed) of the illicit activity? In environmental matters, there are court decisions that extend the liability for environmental damages to financial institutions, creating the concept of the "indirect polluter". Similarly, in the context of the Brazilian Anti-Corruption Law, could lenders be classified as "indirect corrupters"? We intend to address these questions in this article.
Lender liability for environmental damages
Law No. 6,938/81 created the framework for the National Environmental Policy and created strict civil liability for environmental damages. Since its promulgation in 1981, there has been a remarkable development of scholarly theories and case law on the subject of environmental liability, especially with regard to the indirect causative agent of environmental damages.
The concept of “polluter” encompasses “individuals or legal entities, public or private, directly or indirectly responsible for activity causing environmental degradation” (article 3, subsection III and IV). Hence the concept of an indirect polluter. The concept of an indirect polluter has allowed for extension of civil liability to other agents whose conduct may represent some kind of contribution or incentive to environmental damage, including lenders. According to Herman Benjamin, Justice of the Superior Court of Appeals (STJ):
"Law No. 6,938/1981 defines a polluter as an individual or legal entity, governed by public or private law, responsible, directly or indirectly, for an activity causing environmental degradation. The concept is broad and includes those who directly cause the environmental damage (farmers, industrialists, loggers, miners, speculators), as well as those who indirectly contribute to it, facilitating or making viable the occurrence of the damage (banks, public licensing bodies, engineers, architects, developers, brokers, transporters, to name a few roles."[1]
The 2nd Panel of the STJ, dealing with the State's liability for environmental damages, settled an understanding that civil liability for environmental damages is strict, joint and several, and unlimited in nature. However, it made it clear that joint and several liability for indirect causation only applies when there is an omission in a legal duty to act. Note the opinion of the reporting judge Justice Herman Benjamin:
"In this context, it is necessary to recognize the joint and several liability of the State when, obliged to act in order to prevent environmental damages, it is inactive or acts deficiently or belatedly. Hence it is a case of nonperformance of an obligation to act by a party who had the duty to act. [...] For the purpose of ascertaining a causal link in urban-environmental damage and possible joint and several liability, those who act, those who fail to act when they should act, those who do not care that they do, those who remain silent when it is their duty to speak, those who fund those who act, and those who benefit when others act are all equated.”[2]
Thus, an indirect causal link in environmental law only occurs if there is an omission in a legal duty to act. The law professor Ana Maria Nusdeo summarizes the issue:
"I believe that the establishment of an indirect cause of an environmental damage that is not linked to the damage due to exercise of a risk activity must be linked to the damage by a causal link established: 1) by actual contribution to the damage and 2) by violation of a specific legal duty the fulfillment of which would have prevented the occurrence of the damage or promoted its mitigation."[3]
So, if there was an indirect link of causation for the environmental damage, would the liability of the lender be applicable or not? Would it be strict or fault-based? A majority of the legal scholarship believes that the liability would be fault-based, or strict with the possibility of breaking the causal link by acts of diligence on the part of the lender. Thus, by demonstrating that the institution has fulfilled its legal duties and acted diligently and appropriately to confirm compliance with environmental legislation, as well as to identify and mitigate the environmental risks of its clients, lenders can eliminate their liability.[4]
The strict liability of financial institutions for indirect environmental damage, without the possibility of exclusion of liability for acts of diligence and good social and environmental practices, would create economic inefficiency for the entire financial and credit system and, ultimately, for society as a whole.
Lender liability in the Brazilian Anti-Corruption Law
With regard to the lenders’ liability for acts harmful to the public administration, the Brazilian Anti-Corruption Law represents a legal innovation, since article 5, subsection II, finds no parallel in the Penal Code or the Administrative Misconduct Law as an autonomous infraction.
Subsection II of article 5 deals with the liability of lenders who, in some way, contribute to the commission of illicit acts under the Brazilian Anti-Corruption Law. At first reading, the nuclear verbs "finance", "fund", "sponsor” or "subsidize" suggest that these infractions would depend exclusively on the conduct, without the need to evaluate the result of the infraction. However, in order to establish an unlawful act, it does not suffice simply to grant financing; it would also be necessary to verify the active participation or direct involvement in enabling the act of corruption. Thus, it would be necessary to prove not only the acts of commission attributable to the lender (financing, funding, sponsoring or subsidizing) but also the special intent to commit the illicit acts of article 5, acts committed by a third party (individual or legal entity) financed, sponsored or subsidized by the accomplice in the act of corruption.
Therefore, in order to establish the illicit act of subsection II of article 5 of the Brazilian Anti-Corruption Law, it is necessary to prove two requirements: (i) that the legal entity finances, funds, sponsors or subsidizes the commission of any act of corruption under article 5; and (ii) that these actions have the purpose (specific intent) of contributing to or instigating the commission by another party (individual or legal entity) of the harmful acts provided for in sections I, III, IV, and V of article 5.
In the analysis of the liability of indirect corruptors, a distinction must be made between the granting of loans (credit for general purposes, unrestricted use of proceeds without a specific allocation, such as working capital, line of credit, special check, etc.) and the granting of financing for a specific purpose, which is known, analyzed and approved by the bank in the context of project evaluation (such as infrastructure financing and project finance). In the first case, it would not be possible to assign liability under the Brazilian Anti-Corruption Law, since it would not be possible for the financial institution to know the use of the proceeds.
A case of an indirect corruptor, for example, would be a project financier (for example, a project finance for a large infrastructure construction) who, reviewing the project's cost spreadsheet and learning that one of the items to be financed is a bribe to be paid to environmental authorities for the project's licensing, nevertheless proceeds with the financing in order to make the project viable and, consequently, makes the payment of the bribe possible. Another example would be a bank offering credit to a bidder to finance the payment of a bribe to a public agent so that it can organize a fraudulent bid, knowing the fraudulent nature of the bid.
Having clarified that the liability of the financier arising from article 5, subsection II, depends on the specific intent to finance its client's act of corruption after actual knowledge of the act of corruption, or at least the possibility of knowing it after reasonable diligence, one wonders what the parameters would be for reasonable diligence by the financial institution. It can be argued that the parameters of reasonable diligence to be followed by a financial institution are those arising from banking laws and regulations, including the rules and regulations issued by the Central Bank of Brazil. Since this is a sanctions rule, where the principle of strict legality must be observed at all times, we cannot work with amorphous liability parameters, with broad and vague concepts. In other words, if the financier does not have actual knowledge of the use of the funds for the commission of illicit acts and has fulfilled its legal duties arising from money laundering regulations, identification of suspicious transactions, know your client procedures, risk management policies, implementation of internal control systems, among others, it would not be correct to hold such a financier administratively liable for acts of corruption by its clients as a result of article 5, subsection II, of the Brazilian Anti-Corruption Law.
In conclusion, lenders’ liability for acts of corruption of third parties seems to have a subjective nature, requiring proof of the purpose (specific intent) of contributing to or instigating the commission of the harmful acts provided for in the Brazilian Anti-Corruption Law, or at least disrespect for the duty of diligence imposed by law. The strict liability of financial institutions for acts of corruption would create economic inefficiency for the entire financial and credit system and, ultimately, for society as a whole. Excessive exposure to the legal risk of indirect liability in the Brazilian Anti-Corruption Law would have the potential to drive away institutions willing to finance activities and investments, resulting in increased costs with credit and an economic slowdown.
[1] BENJAMIN, Antonio Herman Vasconcelos. Liability for environmental damages. Revista de Direito Ambiental [“Review of Environmental Law”], No. 9, p. 37, Jan./Mar. 1998.
[2] REsp No. 1.071.741 -SP (2008/0146043-5), opinion drafted by Opinion drafted by Justice Herman Benjamim, decided on December 16, 2010.
[3] MACHADO, Paulo Affonso Leme. Direito ambiental brasileiro [“Brazilian rnvironmental law”]. 19th ed. São Paulo, Malheiros, 2011; NUSDEO, Ana Maria de Oliveira. Financial institutions and environmental damages caused by financed activities. In: YOSHIDA, Consuelo Moromizato et al. (org.). Sustainable finance and the socio-environmental liability of financial institutions. Belo Horizonte: Forum, 2017, p. 36.
[4] FERREIRA, Eduardo de Campos; MADASI, Ana Cecília. The transdisciplinarity of the socio-environmental liability of financial institutions. In: YOSHIDA, Consuelo Moromizato et al. (org.). Sustainable finance and the socio-environmental liability of financial institutions. Belo Horizonte: Forum, 2017, p. 36; YOSHIDA, Consuelo Moromizato. Liability of financial institutions: from reactive to preventive action. In: OLIVEIRA, Carina Costa de (org.). Legal instruments for the implementation of sustainable development. Rio de Janeiro, FGV, 2012.
