Smith International Legal Consultants, P.A.

Although arbitration has increasing acceptance for commercial matters in Brazil, there is significant opposition in other areas of the law. One of the strongest sources of disapproval has historically been labor law. But a recent decision from the labor courts of São Paulo marks a continuing trend in favor of arbitration.

Labor law in Brazil normally falls into a completely different set of rules and decisions. The substantive law tilts in favor of the employee, and the labor courts exercise their jurisdiction jealously. The labor courts have high case loads, and there is little in the form of binding precedent, as the common law system recognizes. Further, it is not uncommon for two nearly identical cases to have completely contrary results. And for years, these courts have refused to recognize arbitration clauses, even in contracts with high-level executives. It appears that trend is changing.

Valor Economico is reporting that the one of the labor courts in São Paulo recently refused to enforce an arbitration clause between a high-level executive and his former employer, BTG Pactual, a highly renowned Brazilian investment bank. Labor courts routinely seek to protect workers from arbitration using the theory that the labor contract is a contract of adhesion. In other words, the employer foists the contract on the employee, so the court should not enforce a one-sided negotiation. In Valor article, the labor court rejected the application of this reasoning because the executive had sufficient bargaining power to allow the court to enforce the arbitration clause.

Although this decision is not binding on other courts, it shows a continuing trend in the Brazilian judiciary. Where contracts with high-level employees call for arbitration, courts increasingly enforce the arbitration clause.

It seems like Brazil is in the news constantly these days, and for good reason--its economy is growing, unemployment is dropping, and apparently there are 19 new millionaires per day. But the picture of international trade is increasingly complex. No longer is growth based solely on foreign direct investment from the United States and Europe. Instead, Brazilian investment abroad is increasing, trade ties are expanding in different directions, and the Brazilian government is embarking on new ventures all over the world. A few articles sum up these changes.

Recently, the magazine Florida Trend named Brazil the "Floridian of the Year." For those living in Florida, especially South Florida, this should come as little surprise. The full article is worth reading, including some points:

"Indeed, 2011 became the year that cemented Brazil's importance to Florida. For the first time, Brazil surpassed the United Kingdom as the top source for overseas tourists. Brazilians played a key role in soaking up Miami's distressed real estate to the point that developers began new condo projects . . . Brazil, as it has been since 1998, was again Florida's top trade partner. Florida captures 22% of all U.S.-Brazil trade and runs a surplus, exporting $13.8 billion to Brazil while importing just $2.2 billion."

The article also noted the investments by Brazilian companies in Florida, including a new plant by Embraer and the international expansion of the restraurant franchisor, Giraffas. For Florida, international trade with Brazil defies the common notion of a one way street going south.

Another development has been the growth and reliance on ties with China. The Economist has followed this story closely, noting an estimated 19 billion USD in investment slated for 2012. But the relationship is increasingly complex, with the Brazilian government moving to protect its industry from Chinese competition:

"The prominence of the location is appropriate: imported Chinese cars have suddenly become a visible presence on Brazil’s roads. This has alarmed Brazil’s car industry and President Dilma Rousseff’s government. Last month a 30-percentage-point tax increase on cars with less than 65% local content took effect, taking the tax on some imported models to a punitive 55%—on top of import tariffs."

Again, this change in the trade dynamic is putting pressure on other areas long thought moribund. In the same article, former minister Sergio Amaral calls on Brazil to galvanize the internal market in South America to meet the challenge of competing with the Chinese.

Finally, Brazilian investment lead by the government has reached to all corners of the world. This week, President Dilma Rousseff visited Cuba on the occasion of releasing the last piece of a multi-million dollar loan to redevelop the Puerto de Mariel, near Havana. The national Brazilian development bank, BNDES, financed the project, which includes a large development zone near the port for the export of Cuban goods. BNDES loaned over 600 million dollars to help develop the port, and Brazilian company Odebrecht had lead the construction efforts. In addition to investments in Africa and other parts of South America, it is apparent international trade with Brazil will increasingly include all areas around the globe.

In an article recently published in Valor Economico (registration required), Mauricio Gomm and I looked at the Foreign Corrupt Practices Act (FCPA) and its effect on Brazilian companies. More and more, Brazilian companies find themselves potentially liable under the FCPA, especially as Brazilian companies increasingly grow and expand. As Brazilian companies increasingly worry about the FCPA, how will that change their business practices and the features of doing business in Brazil? A round up of news articles provides an interesting overview.

As confirmed in theory and practice, the FCPA can impact the compliance programs that companies implement. In an article from the online journal sponsored by BOVESPA, a recent interview confirms both the application of the FCPA and the concern of Brazilian companies to adapt their compliance programs:

Mas esta legislação pode se aplicar a empresas de origem brasileira?
- Sim, um exemplo são as grandes multinacionais brasileiras listadas na bolsa americana. Elas estão sujeitas ao FCPA, mas ainda não há registro de nenhum caso de violação e sanção. Há, no entanto, uma percepção de que é uma questão de tempo para que isso ocorra. Isso porque as autoridades americanas têm focado nos países emergentes e em suas empresas para verificar o cumprimento desta legislação.  Há interesse de que haja uma situação envolvendo uma empresa com este perfil, para o estabelecimento de um caso importante que sirva de exemplo. O monitoramento por parte das autoridades americanas é percebido como cada vez mais intenso.

For those not versed in Portuguese, the speaker being interviewed, Mr. Bruno Maeda, states affirmatively that Brazilian companies are subject to the FCPA and that Brazilian companies are following more closely the activities of the US authorities. This article follows on the heels of a recent announcement by Brazilian airline company Embraer of an investigation launched by the US government regarding potential violations of the FCPA.

When it comes to disputes, the FCPA can also play a role. Although the FCPA does not provide a private right of action, the criminal conduct that forms the basis of an FCPA violation can help build a case for damages. We have seen this occur in a number of circumstances, including potentially criminal conduct by one shareholder in a closely held company. In the event of a dispute, the potential for an FCPA investigation can influence settlement discussions and create liability for the other shareholders who did not participate in the allegedly illegal activity. This is something we mentioned in the context of a potential arbitration:

"Para o advogado contencioso, existem alguns riscos e oportunidades. Ainda que o FCPA, dentro de seu texto, não confira direito a uma ação cível, o escopo criminal do referido diploma legal pode servir de base para um contencioso cível judicial ou arbitral. A guisa de exemplo, a falta de conhecimento sobre o alcance do FCPA, ou a ausência de controle e política interna, pode gerar perdas substanciais. Considerando que tais perdas surgem de uma falha da empresa, nasce para os respectivos acionistas um direito de processar a diretoria ou aqueles que por ação ou omissão contribuíram para a prática do ato corrupto."

The concern for both criminal and civil liability is pushing Brazilian lawmakers to act. The Brazilian Congress is currently considering its own anti-bribery statute. If enacted, it would be interesting to see the interaction between the US and Brazilian laws. Where Brazilian companies now worry about the FCPA, it would be quite interesting to see US companies worry about Brazilian ant-bribery and corruption legislation in the future.

There's something about top ten lists that engages the reader but still provides helpful information. As part of the Association of Corporate Counsel's ongoing "top ten" series, Mauricio and I teamed up with Christiana Abbade do Couto, General Counsel for Iron Mountain do Brasil, to create our own list of Top Ten Tips when Negotiating Contracts in Brazil.

Our top ten list contains a range of helpful nuggests, with something for the novice as well as seasoned investor. One of the most interesting topics from recent news events is the influence of FCPA and SOX. From the article, our guide was the following:

"If you have to comply with FCPA and SOX and will contract with Brazilian company, it is best to research and learn about the company quite deeply before contracting with it. Not all Brazilian companies are in compliance with this legislation, and most of Brazilian companies have not heard about these laws. It is important to train your Brazilian counterparty and audit prior contracting."

This is just the tip of the iceberg, but there is much more lurking underneath. In the coming days, we are going to look a bit more deeply at this issue, including how it can impact both the dispute resolution and transactional spheres of lawyering. What would you include in a top ten list that we failed to mention? Did we miss something?

Editor’s Note: This is a continuation of Olavo Bernardes’ work.

In our previous post, we had the opportunity to study how foreign capital enters the country. In this current article we will discuss the types of foreign investments and more importantly how foreign capital can leave the national territory.

1. Indirect/Market Investments

Foreign investments in Brazil can be divided in two types: direct and indirect (also known as market investments). We will not discuss this second type of investment in this essay, except to note it is not welcome under the current system. Indirect or market investment (investimento indireto ou de mercado) is the so-called (and criticized) speculative capital (capital especulativo). It is known for entering and leaving the country fast, normally by a mere matter of rumors on the particularities of the given country. Some call “hot money” or “smart money,” and government authorities perceive, especially given the recent prominence of the country, as something to be tolerated, but never fully accepted. Its existence can come in many forms as it is defined by the National Monetary Council (Conselho Monetário Nacional – CMN)’s Resolution nº 2.689/2000, which defines indirect investments among others as companies’ debentures, shares, bonuses and stocks owned by foreigners not residing in Brazil and obtained by operations in the financial and/or stock market.

2. Direct investments

Direct investments (investimentos diretos) are, in the definition of José Eduardo Carneiro Queiroz, “investments as direct foreign participation in certain types of national businesses and exposition to highly identifiable risks, as long as not made through the stock market.” Those are the kind of investments the country wants, since they are perceived to generate jobs.

a) Remittance of Profits

Until 1996, profits gained in Brazil and remitted abroad were subject to withholding taxation of 15% (the same rate that applies to corporations, in general). Currently, the profits or dividends calculated using as basis the results generated starting in January, 1996, paid or credited by legal entities taxed under the real, presumed or arbitrated profit, are not subject any longer to the withholding of income tax and are not part of the basis of calculation of the beneficiary’s income tax, residing in the country or abroad (Lei nº 9.249/95, art. 10).

As mentioned before, companies established with foreigner capital or foreigners residing in Brazil are subject to the same taxes as anyone else. If a company wants to remit money abroad, it may do so, at the end of its fiscal year, after paying the proper contributions and taxes to the government.

Nevertheless, those remittances can be made beforehand, along with the anticipated distribution of profits and dividends, as long as authorized in the company’s statute or by-laws (which can happen by end of a trimester, quarter, semester, etc.).

Remittances in currency do not depend on any previous authorization by governmental authorities (both in and out of the country). All the investor has to do is remit its investment through a banking establishment and operate using the official rate.

b) Reinvestment of Profits

Reinvestments of profits are the profits generated by national companies that are reinvested in the same company that generated them or in other sector of the economy (Art. 7º, Lei 4.131/1962). To reinvest profits, the foreigner investor must register those profits as foreign capital. In other words, it must act in the same way when it performed the initial investment, increasing the company’s basis of calculation for tax purposes (including for future repatriations).

c) Repatriation of foreign capital

According to Article 690, II, of the 1999 Income Tax Regulation Rules (Regulamento do Imposto de Renda de 1999 – RIR/99), the repatriation of foreign capital can be made at any time back to the country of origin, however it has to be duly registered before the Brazilian Central Bank (Banco Central do Brasil – Bacen). If the capital to be repatriated is larger than the capital initially registered, such difference shall be considered capital gain, being subject to the 15% withholding income rate.

d) Particularities of Sending Money Abroad

Different taxation treaties among Brazil and foreign countries may permit for the income tax to be taxed only once and restituted if taxed twice. Given the withholding rule, the payer/sender located in national territory is responsible for deducting the income tax, not the receiver of the income located abroad. According to latest income tax rules, brackets may vary from 15% to 25%, depending on the purpose of remittance (payment for services, capital gain, etc.) In general the rule goes the opposite way – the provider of services is responsible for deducting and paying income taxes. Another exception is for employees; the employer is responsible for deducting all taxes and social contributions due to the employee at the time of payment.

Regarding remittance of profits, given the double taxation rule, profits remitted abroad are not taxed, since they had been taxed before, when there is a distribution of profits and dividends. They have to be, however, declared in the legal entity’s annual income tax declaration. Also given recent rules by the Central Bank, all companies retaining foreign capital must declare the exact amount before that institution, until November 1, 2011 (Circular 3,559 of 19 September 2011).

Finally, it is worth mentioning that the remittance of foreign currency abroad for the purposes of investments by Brazilian entities is totally tax free (Articles 8, 9 and 10, Resolution nº 3.568/2008, part of the International Exchange and Capital Market Regulation – Regulamento do Mercado de Câmbio e Capitais Internacionais - RMCCI). Under the previous rules, transactions above US$ 5,000,000.00 (five million US dollars) required previous approval by the Bacen.

After this article, we will look at the particularities of dealing with investments inside the country.

- Ed. Note: Continuing series from Olavo Bernardes.

In 2010 Brazil received 48.4 billion US dollars in direct foreign direct investment, placing the country in fifth place in terms of direct foreign investment, after the United States, China, Hong Kong and Belgium. That was a growth of 84.6% compared to the previous year, accordingly to a study by the United Nations Conference on Trade and Development ("UNCTAD").

A number of factors have contributed to this massive amount of investment. Some of those factors include the economic stability achieved, growth of the middle class, rating of Brazilian government bonds as “investment grade,” planning and construction of large infrastructure projects (largely due to the upcoming World Cup and Olympics). Also, the volume of remittances has never been higher, reaching US$ 18.768 billion according to statistics from the Brazilian Central Bank.

But what does “foreign capital” mean in the eyes of the Brazilian legal and regulatory regime? And how should foreign investors register their capital when investing in Brazil? Both of these questions are crucial to foreign investment in Brazil.

a) Definition of Foreign Capital

Law 4.131, from September 3, 1962, and its regulatory decree, Decree 55.762, from February 17, 1965, define as foreign capital, “the goods, machinery and equipment entering in the country, without an initial relocation of assets, destined to the production of assets and services, as well as financial or monetary resources entered to be applied to such activities, belonging to individuals or legal entities, residing or headquartered abroad.” These laws pre-date the 1988 Brazilian Constitution, which accepted the above definition.

As mentioned in a previous post, Article 172 of the Brazilian Federal Constitution states that “[t]he law shall regulate, based on national interests, foreign capital investments, shall encourage reinvestments and shall regulate the remittance of profits.” Article 5 of the Constitution further applies to foreign capital by guaranteeing particular rights. Article 5 established the principle of equality, providing equal protection and equal rights to all citizens and foreigners residing inside Brazilian territory; there is no discrimination between foreign and national capital, treating both equally.

This definition and guarantee of treatment is important. Especially concerning laws regarding taxation, any tax that treats foreign capital differently is per se unconstitutional because it violates principles of equal protection under the laws and equality of treatment.

b) Registration of Foreign Capital

All foreign capital in the form of foreign direct investment (investimento estrangeiro direto) must be registered before the Brazilian Central Bank. In order to regulate the capital that enters the country, Law 4.131 of 1962 attributed such function to the Credit and Currency Bureau (Superintendência da Moeda e do Crédito or "SUMOC") until March 31, 1965, when the then recently created Brazilian Central Bank (Banco Central do Brasil or "BACEN") took over such role. The BACEN issues a certificate of registration, reflecting the amount invested in foreign currency and its equivalent in national currency. Such certificate is necessary and obligatory for future remittances of profit abroad, repatriation of capital invested and registration of reinvestment of profits, as we shall see in future works.

Registration includes the following: a) foreign capital that enters the country under the form of direct investment or loans, whether in regular currency, or assets; b) remittance made abroad as capital gain, profits, dividends, interests, as well as royalties for the payment of technical assistance, or of any other title that implies transfer of profits abroad; c) reinvestment of foreign capital profits; e) changes in capital of monetary gain of companies proceeding of agreement with the legislation at stake; and the foreign capital and respective reinvestment of profits already existing in the country on September 27, 1962.

Registration is a simple procedure that can be done electronically using a BACEN registration program (Registro Declaratório Eletrônico or RDE). Given the nature of the registration, the person registering is legally responsible for any incorrect or incomplete information. Non-residents can register through representatives, which is normally the company receiving the foreign investment.

The registration of foreign capital must be in the currency of the country of origin, and when reinvesting the profits from the initial investment of foreign capital, the investor must carry out the same registration process. This registration must be in the Brazilian national currency and in the currency of the country to which it would be remitted. The reinvestment is subject to the exchange rates at the time of the registration of the reinvestment.

If the capital is represented by an asset, registration must use the price of the country of origin, and in the lack of satisfactory proof, according to values estimated based on market price by the recipient company.

c) Exchange rates and Additional Information

In terms of exchange rates (US Dollar-Real/Euro-Real),there are two authorized rates by the BACEN: the commercial/financial rate (câmbio comercial/financeiro) and the tourist rate (câmbio turistico). For foreign investments, the commercial rate normally applies.

Finally, it is important to observe that investments can be made in two ways, either by foreign exchange contracts or by international transfers in the Brazilian national currency (Transferências Internacionais em Moeda Nacional or "TIMN").

The registration process is a fairly easy process that foreign investors should not forget. Failure to register (or register incorrectly) foreign capital and reinvestment can lead to heavy fines and taxes assessed by the relevant agencies. In future posts, we will discuss the remittance and repatriation of foreign investment, equally important topics when investing in Brazil.

Sometimes on the blog, we like to dig deeper into cases or issues that illustrate the legal principles important for doing business in Brazil. Think of it as a case study that helps us all understand a little better doing business in and with Brazil. This week, we return to the Zynga v. Vostu case, a copyright infringement litigation currently playing out in the courts of California and São Paulo. For a little background on the case, check out our first post when Zynga filed suit against Vostu in California.

In the initial article, we mentioned the prospect of Brazilian litigation and how it may be necessary to really get effective relief from Zynga's position. We later mentioned the benefits of a parallel litigation approach, noting Zynga's success in getting an injunction quickly in Brazil. As the case has continued in both courts, Vostu has now responded with a request in the California court to enjoin, or stop, Zynga from enforcing the Brazilian injunction. The court initially complied, directing Zynga to not enforce the injunction on a temporary basis. The California court further directed Zynga to "show cause," or say why, the California court should not prohibit Zynga from continuing with its litigation in Brazil in all respects.

As one can imagine, this set off a flurry of motions and responses, and a week ago, the California court held a hearing to decide if it should require Zynga to stop any further litigation in Brazil. On August 26, the court issued a short order dissolving the temporary injunction and denying Vostu's request for a permanent injunction. In other words, the California court has decided it will not prohibit Zynga from continuing its lawsuit in Brazil. So what is going on and what can this case show us?

• Wording is important. Looking at the decisions of the California court, it is exerting its power over Zynga because Zynga is located in California. The California court is not directing the Brazilian court to stop. The California court does not have this power, but it does have power over Zynga.
• Dual-track litigation is complex. There are numerous filings from both sides, and the parties have relied on Brazilian professors and attorneys to explain Brazilian law to the US court. This is common and necessary when dealing with a foreign legal issue, and it adds a layer of complexity to the case. Both parties have done a good job getting into the meaning of the Brazilian law and then explaining that to the judge, another potentially tricky issue.
• Corporate structure is key. One of the interesting things to note are the different names of the parties in the two litigations. For example, in the Brazilian lawsuit, Zynga targeted Google Brasil and Vostu Brasil, but in the US lawsuit, Zynga sued Vostu USA and Vostu LLC, both companies resident of the US. This distinction in the naming of parties may explain why Zynga is more willing to sue Google Brasil, even though Google is also an investor of Zynga in the US. Suing Google Brasil is one thing and quite often different than the US company.

Brazilians are a tech-savvy society, and with the announcement that Brazil is now the fifth largest market for Facebook with over 25 million users, technology issues continue to bubble up in the courts. Google has recently made news with a judgment against it for failing to reveal the identity of three bloggers in the northern state of Ceará, and a number of Brazilian courts have wrestled with the rights of internet search engines and hosting companies with individuals' rights to sue for defamation. So when it comes to issues like defamation and freedom of speech, what can tech companies expect when doing business with Brazil?

• Pro-active judiciary. Whether it is a fine for copyright infringement in Rio Grande do Sul, a judgment to pay damages for failure to remove copyright infringing materail in Minas Gerais, or fines for not removing defamatory material in Mato Grosso, courts have been quick to hit Google, Yahoo, and other internet companies with fines for not adequately policing the blogs and videos they host.
• Different damages. Brazilian law allows plaintiffs to seek "moral damages" (danos morais in Portuguese) for harm done to one's reputation or mental suffering. Courts are more willing to assess this type of damages, including in commercial cases. While the numbers are not as large as U.S. punitive damages, they are more frequent.
• Stricter scrutiny. While some courts have chosen not to hold email providers responsible for damages arising from defamatory emails, the protection of companies hosting blogs is reduced. In a recent ruling, Brazil's highest commercial court (the STJ) decided that Google is liable for damages from defamatory material posted on blogs and social networks from the moment the judiciary finds Google should remove the material. There is some safe harbor because the judge must first issue a ruling, but the courts are not agreeing that Google's Terms of Service protect Google. Specifically, Google has argued that it should not be responsible for damages stemming from defamatory material posted on websites it hosts because users agree to not hold Google responsible. To this point, it appears the courts have turned a deaf ear to this argument.

The demand for digital televisions and cellular phones with 3G and 4G capabilities in Latin American is increasing rapidly. Meeting the demand requires the use of commercial satellites. With the help of China, many Latin American countries have answered the call by contracting for the construction of their very own commercial satellite. And while the purpose or the funding for these satellites is grabbing international attention, the issue hovering over Latin America is how to avoid a space jam.

First, a background on the past helps. Historically the cost to construct a satellite was astronomical and the ability to launch it was non-existent. In response, industry giants like Comsat and Intelsat were able to fill many orbital slots with their satellites. Countries without their own satellites bought or borrowed satellite capacity from these operators. Inevitably small companies and university research groups designed the technology to build smaller and cheaper satellites accessible to everyone for the right price. And with that came the boom in the private sector for satellite construction. Now Venezuela, Colombia, and Bolivia have started funding and constructing their own satellites.

Placing a satellite into orbit requires an orbital slot. The International Telecommunication Union (ITU) is an agency of the United Nations responsible for assigning orbital and electromagnetic positions (or slots) worldwide. When a satellite operator wants to develop a communications system, it reaches out to the ITU to request assignment of a certain frequency or geostationary orbital position. Requests are generally handled on a “first-come, first-served” basis. Presently, the orbital positions above Latin America are occupied. But the private commercial launch industry maintains there is ample capacity and space in the market to support existing satellites and projected demand

It appears Venezuela and Colombia have not secured orbital positions over their respective countries. Venezuela is borrowing Uruguay’s satellite position and Colombia is still negotiating its own space. Bolivia has been told by the ITU that the position it wants is overcrowded. But China (planning to launch 100 of its own satellites soon) and the private sector remain undeterred in their willingness to fund and build because even without assurance of an approved orbital position the demand is sky high.

If you are imagining rogue satellites colliding into each other in outer space, you are correct. The most common problem with satellites is launching them. According to the Space Liability Convention, when an object is launched from a country’s territory, that country is absolutely liable to pay “compensation for damage caused by its space object on the surface of the earth or to aircraft in flight," where fault is established. Even if the launch is private, the government is held liable for damages caused by any launched object that collides into another or causes damage by way of disruption to other satellites. This might explain why governments elect to jockey for position rather than defy the norm by launching a satellite without the rights to the orbital position.

So what’s next for Latin American satellites? Demand is going to grow, more private companies will fight for space, and the potential for a vibrant sector is on the horizon.

For this week's edition of Friday Follies, we look at some other popular ideas about Brazil and offer some contrasting views, focusing on environmental laws, the recent struggles in global stock markets, and poker in Brazil.

When many people think of regulation in developing countries, the assumption can often be that it does not really exist. In fact, some companies choose the developing world because of the lack of environmental regulation. In recent years, we have noticed increasing regulation by the Brazilian authorities, and for the souther port of Paranagua, it resulted in a pretty big fine of millions of reais.

With stock markets around the world losing ground, Brazil's market has also pulled back from recent highs. Some observers may assume this would reflect negatively on the Brazilian economy and spur serious concern in the Brazilian government. For the president of the national development bank, BNDES, there is no need to change current policy, and the drop in the stock market does not reflect the continued growth of the Brazilian economy.

Finally, many tourists have the image of Carnival in their heads and imagine some sort of Las Vegas on steroids. While Carnival is real, gambling is much more limited. For years, there has been no casino gambling in Brazil, and authorities typically give a pretty chilly reception to gaming in general, prohibiting advertisements for online poker company Full Tilt Poker.

Anything else this week?

One of the features of doing business in Brazil is adapting to a new set of laws. In Brazil, many things are similar, but there are a few sets of laws that stand out as quite different and surprising: consumer protection, tax, and labor. Today, we look briefly at labor law, describing some of the features of labor law and what to expect when doing business in Brazil.

In Brazil, labor law falls under a separate set of regulations, and many labor cases are resolved by specific, labor law tribunals. Many companies have a high number of labor law cases, and lots of law firms have labor law departments. So what can a multinational company expanding to Brazil expect?

• Lawsuits. Try as hard as one wants, labor lawsuits are a feature of business. Some companies react by keeping employees instead of firing them, and other companies try to rely on short-term employment contracts to avoid liability. But labor lawsuits are a fact of life.
• Interesting decisions. As a country with a civil law tradition, the concept of binding "precedent" does not exist in the same form as it does in common law country. The judge will decide each on its merits, and two cases with similar facts can render different results. There are also "moral damages" that compensate the employee for damage to reputation. For a glimpse of this, check out a recent opinion from a court in Goias (in the interior of the country) condemning a Siemens subsidiary to pay 4,000 reais in moral damages for revoking a promise to work. The court also found the defendant litigated in bad faith, adding to the award in favor of the employee.
• Potential trouble. According to leading news journal Exame, the owner of the brand Zara recently had to deal with a third-party manufacturer who was keeping immigrant employees in "slave-like" conditions. It appears the company is responding to the allegations and trying to keep greater control of its contractors, but this is an important issue to keep in mind from a legal and public relations perspective.

If one travels much in Brazil or Latin America, there is always a story of someone who was arrested by the police and then was able to win release with an offer of 20 or 30 dollars to the arresting officer. Normally, this story gets rolled into the "typical experiences" category and viewed as something necessary to get by. But just like we advise businesses to never consider a bribe, the same applies to individuals.

Late last week, the STJ (Superior Tribunal of Justice or court of last resort for all non-constitutional matters) confirmed the ruling of the appellate court for the State of Rio de Janeiro imprisoning a French national for attempting to bribe the police to get of jail. From the article, it appears the sentence was upheld even though the prosecution had not established the defendant was in police custody for a valid reason. The court found there was no concern, ruling that an attempt to bribe a public official is grounds for imprisonment, even if there are no grounds for the underlying offense.

So what is the lesson to be learned? Despite stories to the contrary, bribing a public official in Brazil still is not a good idea. Like an arrest in many other parts of the world, the best thing to do is still call your attorney.