Brazilian Prosecutors Can Influence Global Commodity Markets

RIO DE JANEIRO, BRAZIL – Brazilian prosecutors have joined the list of factors that should significantly affect commodity markets in coming months.

While the pandemic is restricting supply, judges in Brazil have usually granted prosecutors’ petitions to shut down large slaughterhouses and mining operations over the past weeks.

This contrasts with the US, where authorities take steps to keep companies running while implementing measures to contain the virus.

There are technical and cultural reasons behind the aggressive legal tactics. The civil code system in Brazil restricts the judges’ ability to decide matters that have no statutory guidance, which limits their scope for rejecting lawsuits brought by prosecutors.

Unlike district attorneys in the US, Brazilian prosecutors are not elected. They often structure their pleadings in an extreme fashion, which are then reviewed in judicial proceedings. In a famous 2011 case, prosecutors demanded almost US$20 billion (R$100 billion) in fines from Chevron after a minor oil spill in waters far offshore Brazil. The company ultimately paid a fraction of the amount sought by the prosecutors.

Brazil is unique in having a specific Public Prosecutor branch that oversees labor and employment issues, notes Priscila Schvarcz, a prosecutor who brought four lawsuits against meatpacking giant JBS for alleged shortcomings in implementing measures to prevent the spread of Covid-19 in slaughterhouses in Rio Grande do Sul. It was a more rigorous supervision than in other countries that led to the plants’ shutdown, according to her.

“In the USA, companies are very fearful of the judiciary. They avoid litigation because it is extremely costly,” Casagrande said, adding they seek solutions to administrative issues. “In Brazil, companies don’t suffer as many economic sanctions for breaking the law. There is a higher degree of judicialization because companies put things off as long as possible.”

Future iron ore contracts passed the US$100 per ton mark this week, after a labor court forced Vale to suspend operations representing one-tenth of its total production because workers were being infected with Covid-19.

“What we are experiencing in Brazil, even more so in this pandemic, is the rise of judicial activism, both by the courts and by prosecutors,” said Leonardo Theon de Moraes, a corporate attorney involved in transnational litigation.

In April, the Federal Supreme Court increased uncertainty by granting municipalities authority over social isolation measures.

Cities in the state of São Paulo blocked state measures to reopen economic activity. Municipal authorities in mining regions are more inclined to pressure the population to get back to work.

The competing priorities of federal, state and municipal authorities hinder any predictions of when companies like Vale will be free of stoppages related to Covid-19. “Slaughterhouses were shut down for a lack of workers to keep them running when the number of infections reached hundreds,” said Schvarcz. “It may seem strange abroad when Brazil freezes operations with 25 coronavirus cases. This happens because we have an ongoing investigation and continuous monitoring of labor conditions to prevent major outbreaks”.

Cultural differences

Labor prosecutors typically receive complaints and reports from local workers and trade unions about environmental and safety violations, after which they can launch a formal investigation that may include inspections. Should irregularities be found, they can request more stringent measures from a labor court judge – including shutting down the plant or reducing production. This is what has been happening in Brazil in recent months.

In the US, the federal agency for occupational safety and health (known by the acronym OSHA) is in charge of inspecting labor conditions, similar to the Public Prosecutor (MPT), according to Cassio Casagrande, professor of constitutional law at the Fluminense Federal University. The main difference between Brazil and the US is a cultural one, he said.

Source: Bloomberg