Last October 17, Law 7,753/17 (“State Law”) was signed by the governor of Rio de Janeiro, imposing the implementation of Compliance Programs by companies that enter into contracts, consortia, common goal arrangements, concessions or public-private partnerships with members of the direct and indirect public administration, including foundations, of the State of Rio de Janeiro.

Important to note that Federal Law 12,846/2013, known as the Brazilian Anticorruption Law or the Clean Company’s Act, does not impose such obligation on the companies. However, companies that adopt Compliance Programs may have sanctions reduced.

However, the State Law established that the requirement will only be applicable to contractual arrangements involving amounts that are higher to those applicable to contracting through a bidding process, i.e. R$1,500,000.00 for engineering works and services and R$650,000.00 for purchases and services, for contractual terms equal to or greater than 180 days.

The State Law was inspired by Federal Decree 8,420 of March 18, 2015 (“Decree”), which regulated the Brazilian Anticorruption Law. The definition of Compliance Program of Article 3 of the State Law is almost identical to that contained in Article 41 of the Decree, but applicable at the state level[1]. In addition, the parameters for the evaluation of the effectiveness of the Compliance Program contained in Article 4 of the State Law also closely resemble the parameters in Article 42 of the Decree. The novelty is the addition as a parameter of “proven actions to promote ethical culture and integrity through presentations, seminars, workshops, debates and events of the same nature.”

The State Law determines that the implementation of the Compliance Program shall occur within 180 days from the date of execution of the contract. It does not provide, however, for the implementation of the Compliance Program for companies whose contracts are already in force. However, companies that already have a Compliance Program implemented shall present, at the time of the execution of the contract, a statement declaring its existence, observing the parameters set out in Article 4.

Failure to comply with the provisions of the State Law during the contractual term shall imply the impossibility of the company contracting with the government of the State of Rio de Janeiro until the program is duly regularized.

The State Law also provides for the application of a fine of 0.02% of the contract value, per day, for noncompliance with the law requirements, limited to 10% of the contract value.

The supervision of the implementation of the Compliance Program will be incumbent upon the Contact Manager (and in his/her absence, the Contract Auditor), who shall also inform the Disbursement Authority of any noncompliance with what is required by law or of late compliance. Therefore, the company must present documental evidence regarding compliance with the parameters established by Article 4 of the State Law.

We emphasize the importance of implementing an effective Compliance Program that complies with the parameters set out in the Decree and in the new State Law, especially by companies that intend to enter into agreements with the public administration of the state of Rio de Janeiro.

The State Law will come into force on November 17, 2017.

[1] Art. 3 “The Compliance Program consists, within a legal entity, of internal mechanisms and procedures for integrity, auditing and incentive to report irregularities and the effective application of codes of ethics and conduct, policies and guidelines, with the objective of detecting and mitigating deviations, frauds, irregularities and unlawful acts against the public administration of the State of Rio de Janeiro.”