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In an Effort to Curb Corruption, U.S. and Brazil Update Trade Agreement by Strengthening Whistleblower Protections

Posted  November 5, 2020
By Alicja Dijakiewicz-Kocon

On October 19, 2020, the U.S. and Brazil signed a Protocol on trade rules and transparency, updating their 2011 Agreement on Trade and Economic Cooperation (ATEC). The Protocol includes three annexes – one of which comprises cutting-edge provisions that are at the very forefront of recent developments in the area of whistleblower protection.

Article 3 of Annex III provides specific obligations in line with both countries’ commitments to protect whistleblowers who report bribery or corruption. When compared to the whistleblower protections contained in the recently approved US-Mexico-Canada Agreement (USMCA), which entered into force earlier this year, Article 3 goes several steps further by (i) including the possibility of external reporting to identifiable competent authorities and (ii) availability of procedures to report corruption which need to protect the whistleblowers’ anonymity, as well as protect whistleblowers from retaliation and discrimination. Article 3 further provides certain assurance obligations with respect to the duty of external auditors to report internally and externally corrupt conduct disguised through creative accounting practices.

Inclusion of whistleblower protections in trade deals is a recognition of the essential role whistleblowers play in helping authorities detect complex transnational corrupt schemes otherwise difficult to uncover. In the U.S., for instance, the U.S. Securities and Exchange Commission (SEC) provides for mandatory rewards for whistleblowers – regardless of their citizenship or residency – who provide information about possible violations of securities laws, including violations of the U.S. anti-corruption law, the Foreign Corrupt Practices Act (FCPA). Whistleblowers may receive between 10% and 30% of the sanctions if their information helps the SEC bring a successful enforcement action where over $1 million is recovered. The program also offers confidentiality and anti-retaliation protections having paid over $676 million to whistleblowers since the program started in 2011.

Since then, the SEC has received over 33,300 whistleblower tips out of which over 10% have been from individuals in 123 countries. Last year, the SEC received around 200 tips on potential FCPA violations. When it comes to Latin America, Brazil is one of the leading countries in whistleblower tips having provided nearly 74 tips to the SEC since 2012. This comes as no surprise given the recent corruption scandals involving major Brazilian multinationals. In 2018, Brazilian oil giant Petrobras agreed to pay the SEC, the U.S. Department of Justice (DOJ) and Brazilian authorities over $1.8 billion for violations of the FCPA.

Overall, Annex III of the Protocol constitutes a significant step in the right direction by recognizing corruption as a pernicious barrier to free trade and the need towards promoting greater governance transparency. However, any good anticorruption policy must be paired with effective and resolute enforcement tools. Whistleblowers ensure that corrupt deals do not get swept under the rug.

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Tagged in: Anonymity, FCPA, Importance of Whistleblowers, International Whistleblowers, SEC Whistleblower Reward Program, Securities Fraud,