How To Deal With Commercial Secrets In State-Owned Enterprises: Lessons From The Brazilian Experience

BY GUILHERME CARVALHO

TRANSPARENCY INTERNATIONAL

As highlighted by Transparency International’s recent report on Anti-Corruption Principles for State-Owned Enterprises (SOEs), transparency is an indispensable tool for preventing corruption. The disclosure of information concerning SOEs, however, is often hampered by the broad legal protection currently granted to commercial secrets, which are often invoked as a reason for withholding information from the public. A key challenge for SOEs, therefore, lies in designing disclosure rules and procedures in such a way as to not allow improper extension of commercial secrecy.

In this regard, the experience of Brazil’s federal government in implementing the Freedom of Information Law (Lei 12.527/2011), provides valuable lessons. The law, adopted in 2011, establishes minimum standards for proactive disclosure of information while simultaneously entitling any person to request information, which must then be made available within twenty days, unless the information falls within a limited scope of exceptions. Should access to information be denied, requesters have the right to lodge an appeal to the Ministry of Transparency.

The law faced significant resistance from SOEs, which maintained that the rules should only apply to information concerning public monopolies or the exercise of public authority, thus excluding from the scope of the law enterprises that operate in competitive markets. They argued that these should have discretionary power to determine which information ought to be disclosed.

The Ministry of Transparency, however, consistently rebutted such an interpretation, reaffirming the Principle of Maximal Disclosure. Furthermore, the Ministry required that the enterprises demonstrate, in each case, that the disclosure of the requested information would pose a considerable risk to a legitimate commercial interest of the company (the so called ‘harm test’). In doing so, the oversight body contributed to limiting the use of commercial secrecy as a pretext for withholding relevant information.

Unfortunately the Ministry’s decisions were not able to dissipate the fog of uncertainty surrounding the topic. Decisions continue to be made on a case by case basis, often allowing for contradictory results. In this context, some SOEs reviewed their internal procedures, in order to reduce uncertainty. The Empresa Brasileira de Comunicação [Brazilian Broadcasting Company], for example, issued a policy on treatment of corporate information, which contains two important measures. First, the guideline defines who is entitled to impose secrecy on information, which reduces incentives for the unlawful withholding of information, since individual liability greatly increases the costs of illicit behavior. Second, the policy creates a five year time limit for secrecy based on commercial reasons. This is entirely in line with the international standards on Freedom of Information, which refuse the possibility of eternal secrecy, and other SOEs should create similar policies.

This is not to say, of course, that freedom of information in Brazil is flawless; quite on the contrary, transparency is still a great challenge, especially at the subnational level. Nonetheless, valuable lessons can be drawn from the accumulated experience, particularly on:

(i) the role of oversight bodies in limiting improper extension of commercial secrecy

(ii) the importance of applying the ‘harm test’ to the disclosure of commercial information

(iii) the potential of procedures (competence, time limits, motivation, etc) as a means to curtailing abusive use of commercial secrecy

Furthermore, the Brazilian experience seems to support the claims that the risks of transparency for business competitiveness are often exaggerated. The State of São Paulo, for example, took the decision of making available online not only the full content of all contracts signed by state-level SOEs, but also updated information monthly on the remuneration of employees. The initial fear that such comprehensive disclosure would somehow compromise the economic performance of the enterprises remains unsubstantiated, since so far there is no evidence of losses whatsoever.