Prof. Ligia Maura Costa, FGV-EAESP, Director of the FGVethics Research Center and Senior Researcher Roberto Di Cillo, explore how ethics & compliance within a medical firm led to exposing misconduct and settling Brazil’s first leniency agreement.

São Paulo’s First Leniency Agreement Reached in Landmark Case by Ligia Costa and Roberto Di Cillo.

São Paulo, the most populous and richest city in South America, has reached its first leniency deal against corruption. In entering into a leniency agreement, a company provides information and documents to authorities, helping then reach other entities involved in the wrongdoings.  

Switzerland’s Medartis AG, the global innovation leader in implants for osteosynthesis in the fields of cranio-maxillofacial surgery, knocked on the door of City of Sao Paulo Comptroller General, known by the acronym CGM/SP in Portuguese. The leniency deal was signed from one side by the CGM/SP and the Attorney General’s Office (AGO/SP) of the city of São Paulo and the other side Medartis’ subsidiary in Brazil, Medartis Importaçao e Exportaçao Ltda.

Brazil: A history of tackling corporate (ir)responsibility

Brazil has long struggled with corruption making headlines, with high-profile scandals involving politicians, businesses, and public officials. Leniency agreements are essentially plea deals, in which a company admits the wrongdoing and agrees to cooperate with authorities in exchange for a reduction in penalties.

They have been used in several high-profile corruption cases, including the “Car Wash investigation” (“Lava Jato” in Portuguese), which uncovered a vast corruption scheme involving state control oil company Petrobras and quite a lot of politicians and business executives.

Despite concerns about transparency and lack of accountability of some people involved in the deals’ negotiation and signature, and a recent challenge related to leniency agreements before the Brazil’s Supreme Court on the motion of some political parties rather than individual parties, this sort of agreement seems to remain a key tool in Brazil’s long battle against corruption and asset recovery.

Ethics & Compliance in action

The Medartis settlement puts an end to several years of investigation (2011-2017) of a scheme to bribe medical doctors from public hospitals to speak favorably about Medartis acquired business’ equipment and materials and bid riggings.

Back in 2016, Brazilian authorities became aware of this scheme due to a whistleblower report together with an audit performed by the CGM/SP office that found a contract for the sale of products above market prices, when compared to another company’s prices in the bidding process.

In 2017, Medartis AG acquired the Brazilian company Extera Importaçao e Exportaçao Ltda., currently Medartis subsidiary. Announcements show that Medartis compliance department found out during an internal investigation that former Extera company had an administrative proceeding pending for violation of the Brazilian Clean Companies Act, related to bribes and bid rigging in the city of Sao Paulo.

Leniency doesn’t mean an end to investigation

As per Brazilian law, Medartis succeeds Extera in the liability for unlawful acts. Medartis Brazil voluntarily self-reports to CGM/SP and proposed a leniency agreement, disclosed on May 5, 2023, by Sao Paulo’s city authorities.

As per the signed settlement, Medartis agreed to pay more than BRL 10 million (around US$ 2 million), corresponding to fines, loss of earnings and compensation for the city of São Paulo. It is not yet public how exactly the BRL 10 million agreed payment breaks down.

However, under Brazilian law fines may have been reduced to up to one third when a leniency agreement is signed. Also, Medartis cooperation through a leniency agreement may have reduced the amount of the fine by up to 1.5% of the original amount, as per the law.

But the leniency settlement which Medartis and CGM-AGO/SP signed may not put an end to liability under criminal, administrative or civil laws of individuals and legal entities not covered by the settlement – and such party or parties may still need to look for its own agreements.

Useful links:

• Link up with Prof. Ligia Maura Costa and Roberto Di Cillo on LinkedIn
• Read a related article: Why companies need robust whistleblowing procedures
• Browse the FGVethics research portal
• Discover FGV-EAESP and apply for the International Master in Management degree.  

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