18 Sep MP 784: Government AMENDS THE RULES FOR ADMINISTRATIVE proceedings WITH the central bank of brazil and the brazilian securities commission
In addition to the new rules brought by Provisional Measure No. 784 of June 8, 2017 (“PM 784”), as outlined in our newsletter [1] regarding new violations, penalties, coercive measures and alternative means of dispute resolutions applicable to institutions under the supervision of the Central Bank of Brazil (“BACEN”) and the Brazilian Securities Commission (“CVM”), we now present the new procedural rules for Disciplinary Administrative Proceedings (“DAP”) with BACEN and the CVM, as well as other relevant changes introduced by PM 784.
Amendments to Procedural Rules in DAP
The procedures related to summons, notices and the effects of appeals filed against decisions from BACEN’s judging body and the CVM’s Collegiate have been improved so as to expedite DAP. The enactment of PM 784 will permit to serve notices and issue summons via electronic means [2]. The decisions issued by BACEN and the CVM will be effective as from the first instance decision, except when expressly authorized by the PM 784, as follows:
- Appeals to challenge decisions applying a penalty of public reprimand or fines; or
- The defendant requests the authorities the production of suspensive effects to appeals in view of other penalties as provided in item (i) above.
PM 784 has expressly reversed the burden of proof in DAP with BACEN and the CVM by assigning to the defendant the burden to prove his allegations as provided in its article 27 [3].
As a general principle of criminal law, the burden of proof rests with the prosecution. The possibility of its reversion can only be applied in extraordinary circumstances such as to matters involving consumer relations, for example, which were brought by the Consumer Protection Code. We understand that the reversion of the burden of proof is a measure of great concern for capital and financial market players since it can restrict the defendant’s right of defense in DAP with BACEN and the CVM. Depending on the conduct under investigation, the defendant might face difficulties to gather documents to prove his innocence.
Precautionary Measures
Before the initiation of or during DAP, and when there is a likelihood that defendants’ allegations are true and danger of delay, BACEN may precautionary:
- Determine the removal of administrators, board members, directors, members of the statutory audit committee and members of other bodies established by the company, which are under the supervision of BACEN, in its corporate documents;
- Prevent the defendant from serving in the positions mentioned above;
- Restrict the activities of defendant’s acting in the positions mentioned in item (i); or
- Determine that a company under its supervision replace the independent auditor or the auditing firm.
The above-mentioned measures will be valid until the first instance decision takes effect, as long as DAP is filed within 120 days (one hundred and twenty) as from the date of service in the precautionary measure. In case, DAP do not commence within this period, the precautionary measure will no longer be valid and will not be applied again if the facts that gave rise to it remain the same.
Without prejudice to the above, the precautionary measures above could be reviewed, at the discretion of the authority, or at the defendant’s request, if the practices that triggered the application of such measures are discontinued.
Other relevant amendments
Private compensation of credits or amounts of any nature in foreign exchange transactions, which are currently subject to a fine equivalent to twice of the value of the transaction, as provided in the Decree No. 23,258 of October 19, 1933, will also be subject to penalties under the MP 784.
According to article 57, II of MP 784, 90 days after its publication, article 34 of Law No. 4,595 of December 31, 1964, will be revoked. Article 57 of MP 784 brings a series of prohibitions to the granting of loans or advance payments by financial institutions to their directors, managers, first and second-degree relatives, controlled and controlling companies. However, article 56 of MP 784 stipulates that engaging in prohibited transactions as per article 34 of Law No. 4,595 of December 31, 1964, subjects the offender to the penalties in effect at the time of the wrongdoing even though the offense ceases to be an administrative offense under a subsequent rule. In other words, despite the revocation of article 34 of Law No. 4,595/64, if such loans or advance payments are confirmed, they will remain subject to penalties. Please note that such practices continue to be an offense according to Law No. 7,492 of July 16, 1986.
MP 784 also amends the rule regarding extrajudicial liquidation of financial institutions. With the changes in article 19 of Law No. 6,024 of March 13, 1974, an extrajudicial liquidation can only be concluded upon the company’s insolvency, as previously provided, or by a decision from BACEN in cases such as full payment of creditors, or transfer of the company’s corporate control.
Finally, the types of conduct below are also subject to MP 784:
- Violations of foreign exchange transactions as defined in Decree No. 23,258/33, such as the execution of illegal foreign exchange transactions or evasion of export amounts that occurred up to August 3, 2006;
- Violations of foreign investment transactions and transfers of amounts abroad as defined in Law No. 4,131 of September 3, 1962, such as the use of false identity in BACEN’s application forms;
- Failure to invest in rural credit under Law No. 4,829 of November 5, 1965;
- Failure to make mandatory payments by financial institutions according to the terms of Law No. 9,069 of June 29, 1995; and
- Violations of Law No. 11,795 of October 8, 2008 that govern rules concerning consortium systems.
Capital Markets team – VBSO Advogados
[1] http://www.vbso.com.br/mp-784-novos-parametros-punitivos-e-o-acordo-de-leniencia-no-mercado-financeiro-e-de-capitais/
[2] PM 784 does not specify the electronic means to be used; this definition will be found in additional rules to be enacted by the government. However, in cases of summons, for example, PM 784 establishes that it may occur via BACEN’s website.
[3] Art. 27. The offender has the burden of proving the alleged facts.
Sole paragraph: The Central Bank of Brazil will reject illicit, irrelevant and unnecessary evidence, as well as evidence that may cause delays; it will only provide information in its possession.
Art. 35. The terms provided in § 3º of art. 21, and in articles 23, 24, 26, 27, 29 and article 30 through article 33 will be applied to disciplinary administrative proceedings with the Brazilian Securities Commission as it may be fit, observing the rules enacted by the Commission.