The future of leniency agreements in the Lava-Jato corruption scandal is currently hanging in the balance as construction companies involved in the negotiations have formally rejected the government’s proposal for a new agreement. However, this rejection does not mark the end of discussions. The Controladoria-Geral da União (CGU) has called for another round of talks with the companies in a last-ditch effort to reach a consensus. The meeting is scheduled for next Tuesday morning.
Some companies interpreted the CGU’s invitation to accept the new agreement as a sign of the government’s intention to terminate the leniency agreements. The CGU and the Advocacia-Geral da União (AGU) aim to formulate a new offer before the deadline set by the Supreme Federal Court (STF) for a resolution expires. Minister André Mendonça has given until June 26 for the negotiations between the government and companies to proceed.
There is a sense of apprehension among the construction companies as the deadline for discussions approaches. Disagreements among the lawyers representing the companies have also intensified behind the scenes. Some argue for the need to pressure the government and warn of the risk of legal action. Others suggest that a more collaborative approach would be more beneficial.
Government negotiators are increasingly distrustful and dissatisfied with the positions taken by the companies. In addition to rejecting the offer of a new agreement, the companies were also planning to ask Minister André Mendonça to intervene in the negotiations.
The latest proposal put forth by the government was deemed insufficient by the construction companies. The CGU and AGU offered reductions of up to 30% on the outstanding balance of fines using the so-called “fiscal loss” calculation. The companies argue that the law allows for a reduction of up to 70% and request that the percentage be applied to the total agreed fine – not just the remaining balance.
Some leniency companies have already paid significant sums of the agreed amount, while others have been in default for years and have paid little to nothing. Therefore, the companies argue that applying the reduction only to the outstanding amount instead of the total amount would benefit those who have paid nothing so far.
The limitation has frustrated the construction companies and stalled the renegotiation of the leniency agreements. Collectively, the companies still owe approximately R$8 billion to the government, a sum they promised to pay after confessing to a series of irregularities such as collusion and bribery to manipulate bids.
When negotiations began, the CGU stated that they were open to facilitating the companies’ payments but refused to reduce the fines. However, the use of the fiscal loss mechanism allows for a practical discount. It is a way for the company to decrease its remaining debt.
The possibility of using the fiscal loss to reduce debts that are not yet in the active debt registry came into effect in 2022 after the approval of a new law allowing for such transactions. Companies calculate the amount of tax owed after offsetting losses from previous years. In the case of the Lava-Jato construction companies, as they have been in the red for a long time, they have accumulated a kind of credit against the government.
However, this is not the only request from the companies. They argue that it is necessary to harmonize the rules used in more recent agreements signed by the CGU and to deduct amounts that were charged to them multiple times by different agencies.
