Replacing an incorruptible judge: What next for Operation Lava Jato?

2017

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VEIRANO ADVOGADOS’ REVIEW OF ECONOMIC, LEGAL, AND POLITICAL DEVELOPMENTS

nReplacing an incorruptible judge

n Infrastructure issuesnMining & metalsnBanking & financenEconomy in briefnBusiness news

nOil & gas in briefnPetrobras newsnBiofuels in briefnElectricity sectornEnvironmental newsnScience & technology

nPolitics in briefnDefense issuesnLegal issuesnThe prison crisisnSocial issues

nDiplomatic briefsn International trade

nFirm newsnClient alertsnPublications

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Justice Teori Zavascki

JANUARY/FEBRUARY

The Supreme Court (STF) is about to get a new judge. President Michel Temer has nominated Justice Minister Alexandre de Moraes of the Brazilian Social Democracy Party (PSDB). Moraes is a constitutional lawyer and a jurist.

The appointment is particularly significant because Moraes is the putative replacement for Justice Teori Zavascki, who was killed in a plane crash on 19 January. His death threw into turmoil the massive Operation Lava Jato (Car Wash) investigation involving bribery and graft associated with state-owned oil firm Petrobras.

Zavascki was the rapporteur for what are surely the most

important investigation and trial in Brazilian history. Judge Sérgio Moro, who has led the multi-pronged investigation at the operational level for nearly three years, called Zavascki a “Brazilian hero” and President Michel Temer declared three days of national mourning.

The probe involves over US$2.0 billion in bribes for con-tracts with state-run enterprises and has reached deep into the political system. Several of Temer’s ministers have had to resign because of corruption allegations, and the president himself has been named by at least one piece of leaked plea bargain testimony.

Under Supreme Court rules, Zavascki’s case load …

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would normally have fallen to the justice named by Temer to replace him. Article 38 of the court bylaws establishes that the rapporteur of a case will be replaced in situations of retirement, resignation, or death by a justice to be appointed by the president of the Republic.

Temer’s new appointment would thus normally oversee Lava Jato, but the president stated that he would nomi-nate a new justice only after a new rapporteur had been appointed to lead the Lava Jato investigations.

A complicating factor if a Temer nominee had taken over as rapporteur was that his or her confirmation would depend on a Senate hearing. Because dozens of legisla-tors are accused of involvement in corruption, use of slush funds, and money laundering in the Petrobras scheme they have a direct interest in the identity of the new justice.

Exceptions to the rules can be made for urgent matters, however, according to a court representative.

Rocha’s pickIn this case, Chief Justice Carmen Lúcia Rocha could have chosen to appoint a new justice from the other nine who make up court to become the rapporteur of Operation Car Wash cases that are currently being reviewed, or – subject to a request by Prosecutor General Rodrigo Janot –

she could opt to hold an electronic draw to determine the distribution of the Car Wash records.

By early February, she had determined on the latter approach, indicating that she would randomly select a new rapporteur from among the justices on the court’s Second Panel. Justice Edson Fachin was then duly picked by a draw on 2 February.

Fachin had his own law office until 2015, when former president Dilma Rousseff appointed him to the Supreme Court. He is considered to be a non-political figure who conducts his cases with dignity and discretion.

He is also considered to be quick in his decision making. Fachin is expected to give priority to urgent requests related to defendants who have already been arrested and to move pressing petitions from the Attorney General’s Office up on the schedule as well.

Temer’s pickOn 6 February, Temer then nominated Moraes, who is one of his closest allies. According to Folha de São Paulo newspaper a few days earlier, the president had planned to use his choice of justice to emphasize that the executive branch would not interfere in Lava Jato or attempt to make political gains through the court. …

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DisclaimerThis newsletter is intended to provide general information regarding recent events, developments, and trends in Brazil. It is not intended, nor should it be relied on, to provide legal analysis or legal advice on any of the information covered in the newsletter. Veirano Advogados and Blakeley Words+Pictures cannot ensure against or be held responsible for inaccuracies. To the full extent permissible by law Veirano Advogados shall have no liability for any damage or loss (including, without limitation, financial loss, loss of profits, loss of business, or any indirect or consequential loss), however it arises, resulting from the use of any material appearing in this publication or from any action or decision taken as a result of using information presented in the publication.

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Temer was reportedly leaning toward Ives Gandra Filho, president of the Superior Labor Court. Gandra Filho is a small-c conservative but would not have been considered a political pick. Rogério Schietti, Luis Felipe Salomão, and Isabel Gallotti – all members of the Superior Court of Justice – were also said to be in the running.

In the event, however – while Temer asserted that he chose Moraes for his academic and professional credentials – the pick certainly has a political appearance.

The PSDB is part of the president’s governing coalition, and Moraes has been part of Temer’s cabinet since the president replaced Dilma Rousseff as leader.

The nomination must now be ratified by the Senate, and Moraes has asked for a 30-day leave of absence to prepare. With a large Senate majority for the government, Temer’s pick is expected to get a positive reception.

The implications for integrity Although Zavascki’s role in the Lava Jato proceedings has now been filled by Edson Fachin, his death caused delay. Zavascki had been due to accept and formalize a series of significant plea bargain statements, but that process was put back by almost two weeks until Rocha was able to ratify them.

For now, the testimonies are being kept confidential but it is up to the new rapporteur whether to publish them. That prospect, and the potential for selective leaks, will no doubt be worrying more than one public figure. Fachin will also be responsible for authorizing any measures taken in the investigation that could implicate officials with jurisdictional privileges. That includes legislators and cabinet ministers.

Considering that Zavascki was one of the few public figures considered to be absolutely incorruptible, the pressure is on to provide appropriate safeguards for the continued integrity of Operation Lava Jato.

ECONOMY & BUSINESS

Infrastructure issuesCanceling BR-153 concessionGrupo Galvão has a concession to operate a 60 km stretch of federal highway BR-153 but has proven unable to fulfill the terms of its contract, which include expanding the highway, or to obtain the financing it needs from the National Bank for Economic and Social Development (BNDES).

Galvão has attempted to sell the concession, without success.

Now, the National Agency of Ground Transportation (ANTT) has produced a report that will be forwarded in February to the Transportation Ministry, which will then decide on whether to cancel the concession. If it does so, as is expected, the highway will be re-auctioned.

Meanwhile, in a bid to avoid losing the concession alto-gether, Galvão has proposed selling the asset to two European investment funds that have committed them-selves to injecting €225 million to begin the expansion, and to obtaining a possible US$1.5 billion in private financing by the end of 2017.

The deal is reportedly contingent on halting the process of taking back the concession and scrapping a five-year deadline to double the number of lanes.

Zavascki’s role in the Lava Jato proceedings has now been filled by Edson Fachin

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Infrastructure & Projects …

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Reducing payments on GaleãoRioGaleão, the concessionaire of Galeão International Airport in Rio de Janeiro, has asked the National Civil Aviation Agency (ANAC) to reduce its payment obliga-tions. RioGaleão contends that it had to spend US$176 million to return the airport to operating condition after taking over the concession from state-owned operator Infraero in 2013.

Infraero still owns 49 percent of the concession and has not commented. The request is reportedly under review.

Mining & metalsIron exports to ChinaBrazilian exports of iron ore to China jumped sharply in January. At 16.2 million tonnes, shipments increased 36.5 percent year on year by volume, causing a 244 percent increase in revenue.

China has been attempting to shut down old, inefficient, and sometimes illegal mines, and as a result is importing record volumes of iron ore – topping 1 billion tonnes in 2016.

That was a primary factor in making iron ore one of the best-performing commodities globally in 2016 – and it could be good news for the Brazilian government. The Ministry of Mines and Energy is planning an overhaul of the mining sector that will include a flexible royalty rate for iron ore, from the current 2 percent to a 2–4 percent range.

Vale unveils S11DVale on 13 January loaded 26,500 tonnes of iron ore onto three ships at the company’s port of Ponta de Madeira. This represents the first commercial shipment of or from its new mine in the Amazon known as S11D.

The high-quality ore extracted from S11D will be blended with that produced in the south and south-east systems, in Minas Gerais, improving the price and extending the life of the mines in that state.

S11D is Vale’s largest-ever mine. Its D block is expected to reach full output by 2018, enough to fill 225 Valemax ships. Blocks A, B, and C will be exploited later The entire S11 deposit has a mineral potential of 10 billion tonnes of iron ore and is expected to enable Vale to remain the iron ore market leader for at least a century.

Located in Canaã dos Carajás in southeast Pará, the S11D project – which includes the mine, processing plant, railway, and port logistics – has taken 15 years to come to fruition and is the largest private investment made in Brazil in a decade. The mine’s lifespan is expected to be 30 years.

S11D is also, which Vale says will boost the economies of the states of Pará and Maranhão. The company says its operations in Minas Gerais will also benefit from the project, since that ore will be blended with that extracted from S11D.

As part of Vale’s strategy to focus on core businesses such as iron ore and nickel mining, in mid-December it announced that it would sell most of its fertilizer business to US-based Mosaic, the foremost producer of phosphate fertilizer in the world. The sale is expected to close by the end of this year.

Banking & financeCaixa unveils layoff programCaixa Econômica Federal, the government-owned bank, on 7 February announced a massive program of voluntary layoffs. Of the 30,000 current employees, up to a third may sign on for the “incentive retirement program,” known as a PDV. To be eligible, employees must have a minimum 15 years of service with the bank.

Caixa estimates that it will save US$576 million through the plan. Similarly, federally controlled Banco do Brasil hopes to save an annual US$1.2 billion by cutting up to 18,000 employees. PDVs have become a popular way for public companies to improve their finances in the midst of recession.

A new multimarket fundBrazilian pension fund provider SulAmérica Previdência has launched a multimarket fund. In partnership with …

Vale on 13 January loaded 26,500 tonnes of iron ore onto three shipsPH

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JGP Gestão de Recursos, the company launched the JGP SulAmérica Prev FIM fund to complement its portfolio of higher value-added products. multimarket fund.

Managed by JGP and administered by SulAmérica, the new fund is focused on absolute returns and has as its main objective the preservation of invested capital and returns over the long term. It will seek out opportunities in fixed and variable income, foreign exchange, and private and investment credit markets abroad.

Economy in briefA look at the booksAccording to Central Bank data released on 31 January, the consolidated non-financial public sector – federal, state, and municipal governments and state-owned enterprises – posted a record primary deficit of US$49.75 billion in 2016, well surpassing the US$35.5 billion of 2015. The result is equivalent to 2.47 percent of GDP.

Breaking the result down reveals the overwhelming impact of the performance of the so-called central gov-ernment – comprising the federal government, social security, and the Central Bank. Their combined deficit was $49.257 billion last year. Municipal governments had a US$680 million deficit, while state governments man-aged a surplus of $2.167 billion.

Despite being the largest primary deficit in 15 years, the figure was smaller than the US$52 billion target approved

by Congress for 2016. The country’s gross debt reached 69.5 percent of GDP in December, falling 1 percentage point compared with November. Total spending grew 11.6 percent last year in nominal terms.

Interest rate cuts intensifyThe Brazilian Central Bank Monetary Policy Committee (COPOM) made a unanimous and surprise decision on 11 January to reduce the benchmark Selic interest rate by 75 basis points, to 13 percent.

The next COPOM meeting is scheduled for 22 February and, depending on inflation and economic activity, the Central Bank reportedly plans to intensify rate cutting in the months ahead.

Brazilian Finance Minister Henrique Meirelles asserts that the economy is recovering and that accelerating of the reduction of the Selic will boost growth in 2017 by making consumption and investment cheaper. That plan is of course contingent to a considerable extent on the policies of newly elected US president Donald Trump.

Inflation slowing downThe Brazilian Institute of Geography and Statistics (IBGE) published its latest data on inflation on 8 February. The official inflation rate, as measured by the Broad National Consumer Price Index (IPCA), was 0.38 percent in January. That puts the cumulative 12-month rate at 5.35 percent – versus 6.29 percent for the 12 months ending in December 2016.

The rate has slowed more than was expected, making a further interest rate cut by COPOM increasingly likely. Analysts now expect annual inflation to dip below 4.5 percent in 2017Q2, putting it at the center of the target band produced by the Central Bank. That may well induce

the economic policy makers to shift the band lower for upcoming years.

What the stock market saysDespite regularly gloomy reporting on the state of the Brazilian economy, the stock market is ray of sunshine. Stock index returns (as reflected in the MSCI Brazil Index) topped 60 percent in US dollar terms in 2016 – the best-performing of the BRICS emerging markets when dividends are excluded.

Investor appetite, according to most observers, is predi-cated largely on the fiscal reform policies of the current Brazilian administration, so it will be essential to stay the course in that regard. Certainly, there is plenty of room for such reform – with the state pension system and onerous tax structures being obvious candidates.

Growth projectionsFinance Minister Henrique Meirelles admitted on 19 January that the government planned to revise its official forecast for 2017 GDP growth. Its most recent estimate was 1 percent. The International Monetary Fund on that day announced it had cut the Brazilian grown outlook from 0.5 percent to 0.2 percent.

On a brighter note, the minister noted on 2 February that the economy was expected to emerge from recession this quarter and to reach 2 percent growth year on year by the fourth quarter of 2017.

Automotive sector newsAutomotive sales fell 25 percent in January compared the month before, according to National Federation of Automotive Vehicle Distribution (FENEBRAVE) data released on 2 February. All subsectors fell, but January is traditionally a slow month, as end-of-year promotions …

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end and new-year financial commitments commence.

The drop in sales from January 2016 to January 2017 was just over 14 percent. Within that total, however, segment performance varied. Cars and light commercial vehicles experienced a 4.07 percent decline, but sales of light … commercial vehicles alone increased by 20.4 percent.

Business newsBuying Brazilian?Swiss investment bank UBS is reportedly negotiating to purchase up to 51 percent of Brazilian wealth management company Consenso. USB has been trying to

boost the Brazilian segment of its earnings, according to Valor International, but neither firm has commented.

Buying outside BrazilBM&F Bovespa, the São Paulo stock exchange that is the 13th-largest exchange in the world, has acquired an 8.6 percent stake in the Lima Stock Exchange (BVL) for US$15.7 million. The acquisition makes Bovespa the largest shareholder in the Peruvian exchange.

Bovespa began acquiring stakes in the exchanges of neighboring countries in 2014. In addition to BVL, it has purchased part of the Santiago Stock Exchange (10.4 percent), Colombia Stock Exchange (9.9 percent), and the Mexican Stock Exchange (4.1 percent).

Carrefour launches IPOFrench multinational retailer Carrefour will launch an IPO of its Brazilian unit in May, according to Valor International. J.P. Morgan, BofA Merrill Lynch, Itaú BBA and Goldman Sachs will coordinate a transaction that is expected to raise €3–3.5 billion.

Sweet successUS chocolate manufacturer The Hershey Company grew 18 percent in Brazil in 2016 – three times the average growth in its market sector – after ending a distribution arrangement with Brazilian food company Pandurata Alimentos. With plans to triple its revenue by 2020, the company is nonetheless reviewing supply contracts and cutting labor costs.

Conferences

Title Date Place Sponsor Contact

Mergers and Acquisitions in Latin America: 15–17 March 2017 Buenos Aires International Bar Association beatrice.currie@int-bar.orgNew opportunities in a changing scenario Corporate and M&A Law Committee and Latin American Regional Forum

11th Annual Latin American Energy 13–14 March 2017 Miami Euromoney registrations@euromoneyplc.com& Infrastructure Finance Forum

6th Annual Private Wealth Brazil Forum 27 March 2017 Markets Group Markets Group thomas.mallon@marketsgroup.org

9th Annual Real Estate Investments Conference 29–31 March 2017 Rio de Janeiro International Bar Association www.ibanet.org

2017 Brazil Summit 24 April 2017 New York Brazilian-American brazilcham.com/contact-us Chamber of Commerce

15th Brazil Issuers & Investors Forum (BIIF) 27 April 2017 São Paulo LatinFinance aeades@latinfinance.com

6th Annual Latin American Insurance and 4–5 May 2017 Miami Euromoney registrations@euromoneyplc.comReinsurance Forum

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ENERGY & ENVIRONMENT

ENERGY & ENVIRONMENT

Oil & gas in briefGenerating revenueEnergy Minister Fernando Coelho Filho remarked in mid-January that Brazil hopes to generate up to US$1.4 billion from three rounds of oil and gas licensing in 2017. The bulk of the revenue will come from licensing in the pre-salt layer

– at least US$941 million. The minister also hopes to push the pre-salt round up to first half of the year.

Maha buys up Gran TierraMaha Energy has agreed to purchase the Brazilian busi-ness unit of Gran Tierra Energy. Maha will acquire all of Gran Tierra’s assets in Brazil, including a 100 percent working interest in the Tiê field and an interest in explora-tion rights and obligations under concession agreements granted by National Petroleum, Natural Gas, and Biofuels Agency (ANP).

Gran Tierra is focused on oil and gas exploration and production in Colombia.

Biofuels in briefThird plant for CaramuruThe National Petroleum, Natural Gas, and Biofuels Agency (ANP) has given the go-ahead for Caramuru Alimentos to build a biodiesel plant in Sorriso, Mato Grosso. The company is already one of the largest domestic grain processors, and the plant will have the capacity to produce 285,000 liters/day, or about 104 million liters annually. Construction of the unit will have an estimated US$7.5 million price tag.

Petrobras newsChallenging asset divestmentUnions are launching court challenges to the asset divestment plan that Petrobras has been undergoing in order to chip away at its substantial debt load. On 1 February, a federal court in Sergipe blocked the US$385 sale of the company’s Petroquímica Suape and Citepe units to Mexican company Alpek.

A few days earlier, the Superior Court of Justice upheld a decision by a lower court in Sergipe to block the sale of oil field stakes to Australian Karoon. The lawsuits were filed by unions from Alagoas and Sergipe and include other assets within the divestment plan.

Using bonds to buy bondsPetrobras completed a $4 billion bond issuance on 17 January, consisting of due equal tranches – the first with five-year maturity and the second with ten-year

maturity. The order book was oversubscribed almost fivefold, at $19 billion.

The offering it part of the liability management strategy the company adopted last year and will enable it to repurchase its bonds due in 2019–20, prolonging its debt payment term.

Negotiating with the workforceOn 30 January, the Unified Federation of Oil Workers (FUP) announced that its 13 unions had approved the most recent proposal to come from Petrobras.

After struggling to reach an agreement with oil worker unions for three months, Petrobras had put forward an offer of an 8.57 percent wage increase in exchange for more flexible work hours. The state-owned energy giant wants to provide employees with the option of cutting two hours from the workday, with a 25 percent pay reduction. …

Petrobras had put forward an offer of an 8.57 percent wage increase in exchange for more flexible work hours

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The future of cow power?Brazilian researchers set a distance record for a bio-methane-powered vehicle by driving from Montenegro to Montevideo, Uruguay, in early February. The 850 kilometer journey was intended to promote the use of a fuel that adds value to agricultural waste, especially livestock. Biogas may also prove to be an efficient alter-native fuel in agricultural sectors that make intensive use of machinery.

Sugar versus ethanolWith global sugar prices expected to stay elevated through this year due to increasing demand despite declining volumes in some major sugar-producing coun-tries, Fitch Ratings agency is expecting the impact of higher ethanol taxes on the profitability of Brazilian mills to be offset.

Mills are continue to produce more sugar than ethanol in 2017 in response to pricing and demand swings, as hydrous ethanol becomes less competitive against gasoline.

Electricity sectorSolar stats The Center for Strategies in Natural Resources and Energy (CERNE) announced on 7 February that Brazil expects to have 1 GW of installed solar capacity before the end of 2017. Capacity is expected to grow not only through large power plants but also through rooftop solar distributed generation.

Installed micro- and mini-generation capacity has reached 73.57 MW, according to the Ministry of Mines and Energy, of which 57.60 MW come from solar sources.

A blast of windThe Brazilian Power Trading Chamber (CCEE) released data in early February covering the previous month. Wind power output rose by 105 percent year on year in January, to an average 3,779 MW. That pushed its share of the energy matrix to 5.8 percent.

Hydropower and biomass generation also rose, to 53,027 MW and 747 MW, respectively. Total electricity …

The FUP recommended that its members approve the offer, which they duly did, but the unions are still intent on opposing the company’s asset divestment program.

The deal has also not yet been approved by the National Oil Workers Front (FNP), a rival federation of unions, which demands a real wage increase and opposes the idea of conditioning the raise to reduced work hours.

Appealing tender suspensionPetrobras is appealing a court decision to suspend bidding for the lease of the first floating production, storage, and offloading (FPSO) platform for the pre-salt Libra field. Sinaval shipbuilders association had obtained an injunction on the bidding process, arguing that it did not meet local content rules.

Libra has an estimated 8 to 10 billion barrels of oil, and the first production platform is scheduled to start operating in 2020.

The Libra consortium is operated by Petrobras (40 percent), Shell (20 percent), Total (20 percent), China National Petroleum Corporation (10 percent), and

China National Offshore Oil Corporation (10 percent).

Auctioning pre-salt areasTwo pre-salt auctions will be held in 2017, the first to offer areas next to existing discoveries already in devel-opment, and the second to offer new exploration areas.

That prospect of fresh discoveries is expected to attract interest by offshore majors such as Royal Dutch Shell, Total, and Statoil, and Shell is reportedly already studying the terms.

A further three oil auctions are planned for 2018, one of them in the pre-salt layer.

Selling distribution armPetrobras has sold its Chilean fuel distribution company Petrobras Chile Distribiuición (PCD) to the Southern Cross Group. PCD has 279 service stations, a lubricants plant, eight distribution terminals, operations at 11 airports, and shares of two logistics companies.

The transaction includes the licensing of the Petrobras and Lubrax brands for a renewable eight-year term, according to Tank Storage magazine.

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Oil, Gas & Biofuels …

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generation went up by 3.6 percent year on year. Renew-able energy now represents 43.2 percent of the electrical power mix, up by 2 percentage points over 2015.

Itaipu busts its own recordThe 4 GW Itaipu hydropower plant has become the first in the world to surpass 100 TWh of production over a year, eclipsing the much larger Three Gorges project in China. By way of comparison, Three Gorges has 24,000 MW of installed power versus just 14,000 MW for Itaipu, and 32 generating units versus Itaipu’s 20.

The Brazilian plant’s impressive output can be ascribed to the 96 percent operational efficiency level of its turbines.

The hydropower plant, which is located on the Brazil–Paraguay border, accounted for approximately 18 percent of Brazilian domestic consumption and 82 percent of Paraguay’s consumption in 2016 – up 4 and 6 percent, respectively, over 2015.

Itaipu Binacional, the operator of the plant, is reportedly planning a tender for a US$500 million revamp of the facil-ity, with a call for bids expected to be issued by early 2018.

CHESF assets for saleEletrobras subsidiary power generator CHESF expects to sell partial or integral stakes in a variety of hydroelectric, wind, and solar energy plants and transmission lines this year. According to Valor Econômico, the projects were bought in generation and transmission auctions and will require US$0.63 billion in investment in 2017, including on-going work and projects yet to be built.

WEG wins Furnas contractWEG is set to become the leading supplier of wind-power turbines for a complex being built in the northeastern

state of Bahia by Eletrobras subsidiary Furnas, according to Valor International. The company will supply Itaguaçu, a group of 10 wind farms with total capacity of 280 MW. No further details were publicized.

Environmental newsCoral reef seen for the first timeThe Amazon Coral Reef is unusual in a couple of ways. First, although it stretches for 1,125 kilometers, from off the coast of French Guyana to the Brazilian state of Maranhão, it was discovered less then a year ago. Second

– and the reason for its hitherto unknown status – it is located at the mouth of the mighty, muddy Amazon River, rather than in salty water with access to sunlight.

At the end of January, a scientific collaboration with Greenpeace ship Esperanza brought the first photographs

of the massive reef to light. The underwater photos show the beauty of the elaborate system of corals, sponges, and rhodoliths. That record is essential, because the reef is located in an area that the Brazilian government has opened to potential oil exploration.

Drilling would require specific authorization, but environ-mental groups are already watching the situation uneasily.

Another Stonehenge?As reported in the UK Telegraph newspaper, over 400 ancient ditched enclosures have been discovered in Acre state. They prove that prehistoric settlers cleared large wooded areas in the Amazon to create enclosures. The earthworks have been concealed for centuries, but UK and Brazilian scientists flew drones over the area last year and found that deforestation had revealed the structures.

The discovery necessitates a reinterpretation of the long-held idea of pristine rainforest.

The Amazon Coral Reef was discovered less then a year ago

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POLITICS, LAW, SOCIETY

POLITICS, LAW, SOCIETY

Politics in briefNew presidents for CongressA legislative recess ended at the beginning of February, and with the start of the session Congressional represen-tatives chose new presidents for both the Chamber of Deputies and the Senate.

In the Senate, Renan Calheiros stepped down as president and took over as majority leader for the Brazilian Demo-cratic Movement Party (PMDB). He has thus switched places with Senator Eunício Oliveira, the majority party leader who handily won the Senate presidency on 2 February by 61 votes to 10, with 10 abstentions.

Traditionally, the election of a Senate president is guided by the proportionality of party seats, and as the PMDB has the largest number of senators Oliveira’s victory was no surprise.

He has already expressed his commitment to the reform agenda of the Michel Temer administration – again no surprise considering his party allegiance – but has said that his relationship with the executive will be character-ized by “independence, harmony, and dialog,” according to the government news agency Agência Brasil.

Over in the Chamber of Deputies on the same day, interim president Rodrigo Maia won his campaign to formalize his position.

Under Chamber rules, the president is ineligible for re-election, and no fewer than four motions were made to the Supreme Court questioning Maia’s right to run. …

Science & technologyNo more unlimited InternetBrazilian Internet providers are finally being allowed to provide limited Internet packages, despite reassurances last year by the National Telecommunications Agency (ANATEL) that the move would not be permitted because it would discriminate against those with weaker purchasing power.

Science, Technology, and Communications Minister Gilberto Kassab has announced that commercial limited Internet packages will be introduced in the second half of 2017 in an attempt to attract more investment in the sector.

Environmental testing gets a boostLuxembourg-headquartered laboratory group Eurofins Scientific has acquired environmental testing service

provider ASL Análises Ambientais. ASL is based in Rio Claro, São Paulo, and will now have access to the Eurofins portfolio of clients, competencies, and logistics.

With the acquisition, Eurofins expects to become the largest environmental testing service provider in Brazil. The international group of laboratories provides testing and support services to environmental, pharmaceutical, food, and consumer products industries and helps companies to comply with existing and future environmental legislation.

Discovering the dark sideAn international collaboration of researchers from Brazil, Switzerland, the United Kingdom, and Uruguay has built a radio telescope that will help scientists find out more about so-called dark energy. The device measures fluctuations in the distribution of matter in the universe, which are known as baryon acoustic oscillations.

The Brazilian National Institute for Space Research (INPE) leads the project and is responsible for coordi-nation, development, construction, calibration, testing, and data analysis.

The aim is to measure the acoustic oscillations of bary-ons when the universe was still very young. This can inform research into dark energy, which accounts for about 70% of the universe’s composition.

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Environment …

Science, Technology, and Communications Minister Gilberto KassabPH

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As he was filling the seat following the departure of dis-graced former president Eduardo Cunha, however, it was interpreted as a first election.

Like Oliveira in the Senate, Maia counted on the support of the PMDB. He received 293 votes out of a potential 513, followed by Brazilian Labor Party (PTB) candidate Jovair Arantest in second place with 105 votes.

New ministers for cabinetOn 3 February, President Michel Temer swore in four new ministers – among them the first woman in the cabinet.

Luislinda Valois takes over the Ministry of Human Rights and Citizenship; Antônio Imbassahy now heads the presidency’s Government Secretariat to manage the rela-tionship between the executive and legislative branches; Wellington Moreira Franco becomes the head of the Secretariat-General; and Alexandre de Moraes will head the expanded Ministry of Justice and Public Security.

Valois is used to firsts. She was Brazil’s first black judge and the first to have issues a ruling based on the Racism Law. She is one of the United Nations Ambassadors of Peace.

Legal issuesOh, AécioFormer presidential candidate Aécio Neves has been implicated in an alleged bribery scheme to benefit the contractors for a new state government building in Belo Horizonte when he was governor of Minas Gerais.

As reported in national daily Folha de São Paulo, it was revealed in plea bargain testimony to the Lava Jato inves-tigation that Neves had involved himself personally in …

Defense issuesCooperating with ColombiaBrazilian and Colombian defense ministers Raul Jungmann and Luiz Carlos Villegas have agreed to a plan to combat cross-border crime.

At a meeting on 1 February, the ministers revealed a commitment to integrate intelligence from the border station level to the ministerial level in an effort to target illegal immigration and mine laying.

Brazil will step up its cooperation in deactivating and removing land mines planted by guerrilla groups, while Colombian authorities will share data on the delivery of weapons as a result of the peace agreement with the Revolutionary Armed Forces of Colombia (FARC).

The two countries share a 1,500 km border, much of it through water or wooded areas that are impossible to monitor closely.

Sherpas for another continentThe Brazilian Army is evaluating the possibility of acquiring four C-23B Sherpa aircraft from the US Army to boost its fixed-wing aviation group.

The aircraft would be used for humanitarian aid missions in remote areas of the Amazon, as the Sherpa has a substantial cargo capacity, is able to use short runways, and has a ramp that opens on both sides. Ground conditions in the Amazon vary, meaning that a versatile aircraft is indispensable.

Digital military magazine Diálogo reports that the units were decommissioned in early 2014 and are being over-hauled in San Antonio, Texas. A total 11 Sherpa aircraft are for sale, and Brazil may acquire more over time.

The Brazilian Army is evaluating the possibility of acquiring four C-23B Sherpa aircraft from the US Army

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Dispute Resolution …

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the selection of a contractor to build the administrative headquarters. An aide to the governor also apparently established a 2.5–3 percent kickback to the state govern-ment in return for the award of the project.

The daily reported that Neves responded with a repudia-tion of the allegation.

Batista, now boundOnce Brazil’s richest man, with a fortune estimated at US$30 billion, Eike Batista has fallen on hard times. One by one the companies in his oil, mining, and shipbuilding conglomerate fell victim to risky ventures, weak global oil pricing, and the commodities market bust. Now, he is a resident in Bangu prison in Rio.

What happened? With his business empire failing, Batista was accused in 2014 of insider trading. He is still fighting that allegation in court.

Last year, he agreed to cooperate in the Lava Jato investigation, admitting to making undeclared financial donations to the previous Brazilian administration – allegedly at the request of former finance minister Guido Mantega.

His construction firm received a large contract to build an oil platform for state-owned Petrobras, and that deal is under investigation. He has also been charged with paying US$16.5 million in kickbacks to former Rio de Janeiro governor Sérgio Cabral and with laundering the payments through a contract for a phony gold mine.

Cabral was jailed in November for embezzlement between 2007 and 2014 in connection with public contracts.

Batista was arrested on 30 January after voluntarily return-ing to Rio and turning himself in over the allegations. In an ironic twist, he is being held in the same prison as Cabral. Although he initially denied that he would enter a plea bar-gain, Batista has reportedly hired an attorney who special-izes in such arrangements to represent him in negotiations with the Federal Prosecutor’s Office of Rio de Janeiro.

Boulos catch and releaseGuilherme Boulos, a coordinator of the Homeless Workers’ Movement (MTST), was arrested on 17 January as he participated in a protest. He was arrested on charges of contempt of authority and incitement to violence and detained at a São Paulo police station, according to MTST social network reports.

Boulos was part of a protest against the eviction of approximately 700 families that were squatting in an eastern area of São Paulo city. The squatters – among whom were women, children, elderly, and disabled peo-ple – erected burning barricades to prevent the eviction and police responded with tear gas.

MTST is the urban wing of the Landless Workers’ Move-ment (MST), which focuses on rural land occupation and agrarian reform.

Boulos later referred to his arrest as a failed attempt to intimidate him, and asserted that it changed nothing about his militancy.

The prison crisis

Prisons in north and northeastern Brazil have been swept by repeated riots over the past several weeks, as clashes between members of rival drug gangs have left more …

Former presidential candidate Aécio Neves has been implicated in an alleged bribery scheme

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White-Collar Crimes …

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than 140 inmates dead. The violence even spread beyond the prison population, with police stations attacked and buses burned on the streets Rio Grande do Norte capital city Natal.

Defense Minister Raul Jungmann announced on 18 January that the government would send at least 1,000 troops to conduct sweep and security operations. Prison-ers will be removed from the facilities during the opera-tions, and military personnel will enter prisons once local police forces guarantee that they are not at risk.

Relatedly, the government has earmarked US$9.31 for a prisoner education project designed to improve inmates’ opportunities for social reintegration by providing them with professional qualifications.

Desperate overcrowdingThese measures are part of a package to deal with what is effectively a crisis in the entire Brazilian prison system. Gang warfare, while an extremely serious problem, is only one of the issues. The incarcerated population has risen dramatically in recent years as part of a crackdown on violent and drug-related crimes.

The result, according to the BBC, has been a near tripling of prisoner numbers since 2000 and a current average prison occupancy of 157 percent. In some prisons, a single guard must oversee as many as 400 inmates.

On 5 January, Brazilian President Michel Temer announced measures to address the overcrowding by building five new federal prisons, with total capacity for over 1,000 convicts. According to Folha de São Paulo newspaper, that bring down the current deficit in prison beds – over a quarter of a million – by a meager 0.4 percent.

A struggle for resourcesOther resources have also been stretched untenably thin, as inmates must sometimes compete for food and mattresses. Prison authorities lack basic equipment such as cell phone blocking devices and electronic tags, and the recently instituted 20-year federal cap on public spending is not going to make these chronic shortages any easier to solve.

The government will invest a total US$134 million in constructing the new prisons and improving the security systems of state prisons with better equipment, but these resources are already part of the 2017 federal budget.

A commitment by the states Recognizing the scale of the crisis, on 19 January the governors of nine states in north and central-west Brazil signed an agreement with the federal government committing themselves to combatting organized crime and transnational drug trafficking, reducing murders, and making the prison system more efficient.

Justice Minister Alexandre de Moraes said the actions outlined in the plan would be implemented first in Rio Grande do Sul, Sergipe, and Rio Grande do Norte. The nine states represented at the meeting – Acre, Amapá, Amazonas, Mato Grosso, Mato Grosso do Sul, Pará, Rondônia, Roraima, Tocantins – will then receive assistance with drug trafficking and transnational crime.

Asked whether the initiative would in fact exacerbate the problem of prison overcrowding by leading to more arrests, Moraes indicated that efforts to release those who do not belong in jail would also be stepped up.

Reducing the populationA project guided by the Public Defenders’ Office, the National Council of General Public Defenders, and the Min-istry of Justice was launched on 6 February to assess the legal situation of thousands of inmates. Public defenders have begun examining the cases of 5,600 prisoners. The inmates will be provided with legal counseling in an effort to reduce the prison population by 15 percent by 2018.

Justice Minister Alexandre de Moraes indicated that efforts to release those who do not belong in jail would be stepped up

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Social issuesIndigenous land rightsJustice Minister Alexandre de Moraes has announced a decree, or administrative rule, that places authority for the demarcation of Indigenous land under the authority of the Ministry of Justice rather than the National Indian Foundation (FUNAI), which has been subordinated to the ministry.

The ministry has already created a working group to reassess and revise the demarcation process, and then submit proposals to the minister for approval. This replaces the approach of FUNAI, which was based on technical and anthropological research.

The administrative rule also enables groups connected to agribusiness, such as rural producers’ unions, to influence decisions because “other means of participation of the parties with an interest may be created directly or through organizations and legally recognized associations.”

The rule also refers to “Brazil’s Supreme Court jurispru-dence,” opening the possibility that the executive branch will adopt the “time mark” thesis proposed by some Supreme Court justices. This posits that Brazilian Indians are entitled to land only if they were occupying it in Octo-ber 1988, when the Brazilian constitution was approved, or if they received it via a court order after that date.

As the administrative rule refers to the possibility of offering compensation to Indigenous people in case of “loss of territory,” it is not difficult to conclude that the decree will undermine fundamental Indigenous land rights in favor of reparations.

On alert for yellow feverBrazil is experiencing its worst outbreak of yellow fever in decades. In Minas Gerais, more than 100 cases have been detected – 40 of them fatal – and the state has declared a health emergency. Three patients have also died in São Paulo, and one in Espírito Santo.

The state of Rio de Janeiro has been placed on a higher than usual level of vigilance for the disease, in particular in 14 northern municipalities that border Minas Gerais and Espírito Santo.

Yellow fever is an acute viral disease transmitted by infected mosquitoes. It is often fatal but can be prevented by vaccination.

Unfortunately, global vaccine stocks are becoming depleted. And although the state of Minas Gerais falls within the regions recommended for vaccination by the Brazilian Ministry of Health for almost a decade, fully half of the population is unprotected.

Minha Casa … e minha casaThe Brazilian government announced on 6 February that it was raising income limits for its Minha Casa, Minha Vida (My Home, My Life) subsidized mortgage program.

The program helps families to finance new home pur-chases by offering below-market interest rates. It was established as a way to boost home ownership among low-income families, but this latest measure is intended to support the flagging construction industry and expe-dite economic recovery. The goal is to finance 610,000 new homes this year.

The program will now apply to households with monthly incomes as high as US$2,900, in the top 5 percent.

INTERNATIONAL AFFAIRS

Diplomatic briefsMacri pays a visitArgentinian President Mauricio Macri made a state visit to Brazil on 7 February. During the visit, he and Brazilian President Michel Temer discussed deepening bilateral trade ties and various measures to boost the Mercosur regional trade bloc.

Macri and Temer indicated that they would pursue closer ties with Mexico and other Latin American countries. This policy thrust is particularly significant in the wake …

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of President Donald Trump’s aggressively anti-free trade stance and his abandonment of the Trans-Pacific Partner-ship initiative – which includes Mexico, Chile, and Peru.

Macri suggested that Mexico could refocus its outlook to the south in response to Trump’s plan to build a wall to block Mexican migrants and his musings about rene-gotiating the North American Free Trade Agreement, of which Mexico is a key part.

The market-friendly Macri and Temer are both attempting to liberalize economic policies on their home turf as a way to tackle recession and open up their countries to foreign investment. They also signed agreements on diplomatic cooperation, border issues, and consular services, according to Bloomberg news site.

A somewhat open borderIn mid-December, Venezuelan president Nicolás Maduro closed the border with Brazil, officially in an attempt to

stem the tide of smuggling but also managing to reduce the outward flow of Venezuelans seeking to escape the economic and political crisis in their country. The closure had been intended to last 72 hours.

On 3 January, the Venezuelan government partially reopened the border, reactivating imports and exports and some movement of people.

By 9 January, the Brazilian Foreign Ministry announced that the border was fully open again, although Venezuela’s border with Colombia remained closed.

International tradeShoring up the TPPOn 31 January, in the wake of US President Donald Trump’s move to pull the United States out of the Trans-Pacific Partnership, Brazil and Argentina announced plans

to strengthen ties with the nine other countries in the partnership.

Foreign Trade Secretary Abrão Neto indicated that Brazil is currently in advanced negotiations with Mexico and is also negotiating with Chile, Colombia, and Peru on non-tariff issues including services, procurement, and investment.

During a meeting between Minister of Industry, Foreign Trade, and Services Marcos Pereira and his Argentinean counterpart, Francisco Cabrera, the two countries also indicated that existing negotiations with the European Union (EU) and the European Free Trade Association (EFTA) would be a priority.

Argentina is Brazil’s third-largest trading partner, after China and the United States.

Taking it to the WTOBrazil on 8 February opened a formal complaint against Canada at the World Trade Organization (WTO) over subsidies to aircraft manufacturer Bombardier. Brazil argues that that support for Bombardier’s new C Series has distorted the global aerospace industry.

The Canadian government recently offered Bombardier interest-free loans worth US$372.5 million, but Trade Minister François-Philippe Champagne said the loans complied with WTO rules. The Brazilian Foreign Ministry noted that the Canadian company has received at least US$2.5 billion in government support.

US President Donald Trump has pulled the United States out of the Trans-Pacific Partnership

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Verbatim reports on recent developments at Veirano Advogados, offers timely client alerts on new legislation and related information, lists publications authored by members of the Firm’s team of specialists, and provides other current and pertinent content.

Firm newsA new partner for VeiranoWith long experience in capital markets and finance, attorney Daniela Anversa is the new partner of the Firm’s private equity and capital markets practice, based in São Paulo.

Ms Anversa has extensive knowledge advising numerous companies in initial public offerings and follow-ons, and has been recognized by legal directory Chambers Latin America as one of Brazil’s leading capital market lawyers, referring to her as “extremely helpful and always practical … [with] a great command of US and Brazilian law.” Continue reading…

Four promotionsVeirano Advogados began 2017 by promoting four members of its team of associates to partner: Pedro Boueri in Rio de Janeiro; and Renata Fialho, Filipe Richter, and Mateus Carreteiro in São Paulo. Continue reading…

New office in BrasíliaIt’s a new year and Veirano Advogados has a new office in Brasília. To better serve clients and business partners, the Firm has been operating since January from the following address:

SCS Qd. 9 Lt. C – Ed. Parque Cidade Corporate, Torre A – 12º andar sl. 1203, 70308-200 – Brasília DF, Brasil

Annual M&A ranking Based on the total value of transactions announced and completed, Veirano Advogados rose from 11th position in 2015 to 2nd spot in 2016, achieving an impressive 750 percent growth over the period. The Firm took part in the two largest transactions announced last year and advised on a total 27 transactions, valued at R$49 billion. Continue reading…

Healthcare newsletterThe second edition of the Firm’s new Heathcare Newsletter is available on the website. The publication is prepared by our multidisciplinary healthcare industry team, and features articles on clinical trial liability insurance and the importance of data protection in the health sector.Continue reading…

Best law dissertation The Firm is proud to announce that senior associate Vitor Castro has been awarded the Dickson Poon School of Law Prize for best dissertation/writing project on the LLM. The globally recognized Dickson Poon School of Law, part of King’s College London, is one of the oldest law schools in the UK. Continue reading…

IBA Mining Law CommitteePartner Pedro Freitas has been named senior vice-chair of the International Bar Association Mining Law Committee for 2017–18. The committee promotes the exchange of information and opinions, helping to advance knowledge of laws, practices, and procedures related to minerals and mining activities throughout the world. Continue reading…

Client alertsForest origin documentThe Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) has published Ordinance 01/2017 with the goal of improving and unifying the procedures for suspending and/or blocking the access to the Forest Origin Document (FOD).

FOD is the instrument that controls the transportation and storage of forest products, and the new ordinance therefore regulates how IBAMA can carry out inspections on, obtain information about, or sanction companies.Continue reading…

Trading with Japan and South KoreaOrdinance 6/2017 has opened public consultations on possible trade negotiations between Mercosur and South Korea, and between Mercosur and Japan. The deadline to submit comments is 31 March 2017. Continue reading…

Regulating state-owned companiesDecree 8,945/2016 has been published by the federal government to regulate aspects of corporate governance, transparency, and public bids for state-owned companies. The decree brings important new regulations not only for day-to-day activities and but also for relations between these companies and private enterprises. Continue reading…

Amending the IP LawThe Chamber of Deputies is processing several proposed amendments to Industrial Property Law 9,279/1996. Among other innovations, the amendments would limit the duration of patents, add items not currently considered inventions, modify the criteria for patentability.Continue reading…

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National policy on native vegetationDecree 8,972/2017 has instituted the National Policy for the Recovery of Native Vegetation. The goal is to articulate, integrate, and promote programs and activities that foster the recovery of native vegetation.Continue reading…

Foreign investment registrationThe Brazilian Central Bank has amended certain rules related to the registration of foreign investment made through the SISBACEN information system. Registration will no longer be required for some types of transaction.Continue reading…

Tax regularization programProvisional Measure 766/2017 of the federal government has established the Tax Regularization Program (PRT). The PRT allows tax and non-tax debts that were overdue as of 30 November 2016 to be settled under the jurisdiction of the Brazilian IRS (RFB)and the Attorney General’s Office of National Treasury (PGFN), and. Continue reading…

Employment insurance President Michel Temer has issued Provisional Measure 761/2016, implementing the Employment Insurance Program (PSE) with the goal of helping workers to keep their positions in troubled companies.

Companies may join the program for up to 24 months, provided that they can prove financial difficulty, and then negotiate a collective agreement with the relevant union to reduce work shifts and salaries by up to 30 percent. The government will then compensate affected employees by up to 50 percent of the salary cut and up to 65 percent of the maximum unemployment insurance installment. Continue reading…

Espírito Santo environmental rulesThe State Environmental and Water Resources Institute (IEMA) has set out new rules related to activities that are subject to environmental licensing. These govern the procedures related to simplified licensing, waivers, licensing activities with local impact, and the deadlines and requirements to withdraw licenses. Continue reading…

Rio Grande do Sul environmental rulesThe state of Rio Grande do Sul altered rules regarding the expiration dates and renewal of environmental licenses and regulated the disposal and destination of light bulbs and effluent standards. Continue reading…

Rio Grande do Sul property salesGovernor José Ivo Sartori of Rio Grande do Sul state has signed into law the creation of a program for the use and management of state-owned real estate. The purpose of the law is to allow the executive branch to dispose of real estate assets in order to facilitate private-sector

construction of priority buildings such as schools and prisons. Continue reading…

Extending and rebidding concessionsThe federal government has enacted new rules related to the extension and rebidding of concession agreements, especially in the railway, highway and airport sectors.

Concession extensions must be submitted to public consultation and will be analyzed by the Federal Court of Accounts (TCU). Rebidding will be undertaken if contrac-tual provisions are not being fulfilled or if concessionaires are demonstrably unable to comply with future contrac-tual or financial obligations. The new rules also prioritize the use of arbitration to resolve disputes emerging from partnership agreements. Continue reading…

Green patentsAfter four years as a pilot program, the Green Patents priority examination has become a permanent service. The program expedites the examination of patent …

The State Environmental and Water Resources Institute (IEMA) has set out new rules related to activities that are subject to environmental licensing

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applications related to environmentally friendly technolo-gies, and facilitates innovation by quickly identifying new technologies with evident social benefits. Continue reading…

New rule on product labelingThe Brazilian Health Regulatory Agency (ANVISA) has published Resolution 131/2016, regulating the inclusion of a disclaimer in the labeling of personal hygiene products, cosmetics, and perfumes.

The regulation is associated with the Unified Healthcare System (SUS). Continue reading…

PublicationsM&A and the halal industryPartner Fábio Figueira has recently contributed a pair of articles to the Islamic Finance News on investment opportunities in Brazil. In particular, Figueira focuses his research on the halal food industry. Continue reading…

My data, my rules Partner Fábio Pereira contributed an article to the Best Lawyers Global Business Winter 2016 issue. Pereira offers an overview of data protection issues in Brazil. Continue reading…

Anti-corruption and M&APartner Paula Surerus and associate Ana Carolina Zattar contributed an article to Financier Worldwide about the impact of Operation Lava Jato on M&A transactions.

The article discusses the enactment and subsequent influence of the Brazilian Clean Company Act. Continue reading…

VEIRANO ADVOGADOS

VistaBrazil January/February 2017