Review of Leniency Agreements – A New Perspective.

After the PSOL and PCdoB parties filed a lawsuit with the Federal Supreme Court (STF) requesting the annulment of fines from all leniency agreements already signed in Brazil, the Brazilian press published articles opposing the annulment of these agreements, arguing that this would be an attack on democracy and support for corruption. They maintain that the businessmen confessed to corruption and that, therefore, nothing could be reviewed. It is claimed that the leniency agreements did not bankrupt the companies. This claim is based solely on the fines imposed and does not take into account other factors that led to the collapse of the companies.

The argument used in the initial filing of the action for Unconstitutional State of Affairs is that all agreements were made under coercion of the businessmen by the Federal Public Prosecutor's Office, under the coordination of the Curitiba Court. And, according to item II of Article 171 of the Civil Code, a legal transaction is voidable due to a defect resulting from error, fraud, coercion, danger, injury, or fraud against creditors. The facts revealed later, through access to the messages of public officials, give us the certainty that there was illegal coordination of legal actions against companies and their businessmen, clandestine wiretapping, enormous abuse of authority, manipulation of facts, illegal and excessive arrests, as well as illegal wiretapping of public officials, lawyers, and threats to the defendants' families. Informants were forced to confess to things they did not do, and reports such as campaign donations from slush funds were deliberately transformed into active corruption, which carries a heavier criminal penalty and is more widely understood by the public. All these facts, which are public and well known, would already be sufficient for a more detailed and critical analysis by the judiciary of everything that was done in these agreements. However, I believe that there is still another aspect to be analyzed. I am referring to the conduct of the State after the leniency agreement.

The leniency agreement is a bilateral contract with reciprocal obligations for the parties - signed by the legal entity and the representative of the State, whose purpose is to enable the company, given its social function, established in item II of Article 170 of the Federal Constitution, to survive on an equal footing with other companies in the sector, through confession and cessation of illegal practices, assurance that such practices will not recur, establishment of internal controls, payment of fines, and compensation for damages. The social function of the company translates into job creation, tax payment, wealth generation, contribution to the economic, social, and cultural development of where it operates, respect for consumer rights, among others. In return, the company is guaranteed that it will not be restricted from contracting with the State again and is protected from retaliation by other public entities, whether mixed economy, national, or international. The State's relationship with the lenient company should be the same as that applied to other companies in the sector.

The Brazilian Civil Code establishes that one cannot demand the fulfillment of an obligation from someone who has not fulfilled their obligation under the contract. In other words, if the company has not ceased its illegal practices, it cannot reapply for contracts with the State. Similarly, if the State has not reestablished normal market conditions for the company to operate, it cannot demand payment of the fine. Based on the principles of good faith, the social function of contracts, and the prohibition of abuse of rights and unjust enrichment, the parties are required to behave ethically, based on trust and loyalty. Article 422 of the Civil Code establishes that "the contracting parties are obliged to uphold, both in the conclusion of the contract and in its execution, the principles of probity and good faith." Therefore, once the leniency agreement has been signed, the parties will be obliged to comply with what has been agreed. If one of them fails to do so, the other party may not fulfill its part, due to the fact that the performance of its obligation is related to the obligation of the other party. In law, this is known as "exceptio nom adimpleti contractus," which in English means "exception of non-performance of contract."

Article 476 of the Civil Code also establishes that "In bilateral contracts, neither party may demand the other party fulfill its obligation before fulfilling its own." Thus, the State must fulfill its obligations in order to demand the payment of fines from companies. However, it is well known that the State has not been fulfilling its part of the agreement. Several companies remain unable to contract with public companies or Petrobras. The blacklist of some companies that have signed leniency agreements persists. The BNDES has extinguished export credit, the main source of financing for Brazilian companies abroad.

The BNDES itself failed to honor the financing already contracted for highway concession works and made the release of financing conditional on the sale of shares in the concessions. The government halted public works in progress with lenient companies and did not initiate any new works, which made heavy construction companies in Brazil unviable. New requirements were demanded from other national and international public entities, incurring more costs for companies. Just to give one example of the absurdity, in addition to the original agreements with the Brazilian government, companies were required to comply with requirements imposed by state and municipal public prosecutors, the Federal Court of Accounts (TCU), the Securities and Exchange Commission (CVM), the Central Bank, the Inter-American Development Bank (IDB), the Administrative Council for Economic Defense (CADE), and the Office of the Comptroller General (CGU). Petrobras, a state-owned company, did not adhere to the leniency agreements and filed lawsuits and arbitration proceedings against the companies and their controllers. The Federal Prosecutor's Office in Curitiba continued to pursue and prosecute other executives of the lenient companies, even if they were not involved in the reports. The confidentiality of the agreements signed was not respected, and videos were posted on the internet exposing individuals, even to the detriment of their safety. The reports were illegally leaked to the press by the Federal Prosecutor's Office in Brasília. The companies still face restrictions from the TCU.

The leniency agreement itself provides for cases of termination of the agreement, without prejudice to the acquired rights of the party that did not cause the termination. Therefore, we may soon see companies withdrawing from the agreements they have signed, seeking refuge in the courts on the grounds that the State has not honored its part of the bargain.

It is common practice in the legal world for contracts signed at a given time and in a given scenario to be reviewed later to adapt them to the new factual reality of the signatories. Articles 317 and 478 of the Brazilian Civil Code expressly provide for the possibility of correcting obligations, ensuring balance and fairness in the obligations contracted. The companies went bankrupt after the agreements were signed, and the current economic reality does not indicate any short-term progress in Brazil's economic recovery. Thus, to avoid further legal entanglements arising from this situation, it would be better if the leniency agreements signed were renegotiated with full transparency to adapt them to the current legal and economic reality of the lenient companies and the country.