Giuseppe Giamundo Neto and Fernanda Leoni

Debates on creating a body to oversee and control public finances in Brazil date back to the imperial era, with the first proposals for institutionalizing such an entity appearing as early as 1826. The idea was formalized in 1890 with the enactment of Decree 966-A, an initiative of the jurist and then Minister of Finance Rui Barbosa, which created the Federal Court of Auditors [1].

With the function of “making the budget an inviolable and sovereign institution” and the mission of “meeting public needs at the least sacrifice to taxpayers”, the TCU emerged with a concern for specialization and the corresponding limitation of its powers, precisely as a way of reinforcing its competence to control public spending [2].

More than a hundred years after its creation, the debate over the TCU’s powers has still not been settled; on the contrary, it has intensified with the proliferation of rules, the emergence of new fields of action for the Executive, the complexity of the budget, new forms of citizen participation in oversight and the development of society as a whole [3].

Examples include the debates on limiting the TCU’s powers in light of whether or not it is characterized as a judicial body ^[4]; whether it may exercise constitutional review ^[5]; the scope of its decisions regarding administrative acts and contracts [6]; and, more recently, its action in spheres not directly related to the accounting, financial, budgetary, operational and asset oversight of federal bodies, entities and funds ^[7].

New fields of action

Among these new fields of action, the fight against corruption became part of the TCU’s agenda, mainly after Operation Car Wash, when an entire integrated network for preventing and repressing this practice was institutionalized. Thus, although the body already investigated acts of corruption or related practices, since the advent of Car Wash there has been a progressive increase in the number of cases involving the issue, whether in incidental analyses, in representations and complaints received from those with standing, or in proceedings opened on its own initiative.

The concern here lies in the boundary between investigating acts generically characterized as “corruption” and matters relating to the protection of competition, since these issues can be very closely related, as in the case of bid rigging carried out through a cartel.

Since the protection of competition is an important pillar of the country’s economic and social development, an entire structure was created for it, including a body empowered, among other functions, to investigate violations of free competition. CADE (the Administrative Council for Economic Defense) is, by law, the main institution responsible for enforcing antitrust legislation, so that although the TCU can certainly contribute to many issues related to competition law, it does not have a primary duty in this area, especially if this ends up granting it a role in regulating the economy itself.

Far from being a merely academic concern, the issue has practical consequences, and Operation Car Wash itself is a reflection of this. In addition to the various measures provided for in antitrust legislation, many of the companies involved in the wrongdoing investigated in that operation were declared ineligible by the TCU for “bid rigging”, an investigation based on the conduct of cartels already being examined by CADE.

Was it necessary?

The TCU does indeed have this sanctioning power and may exercise it [8], but the question remains: was it necessary? If there is a technical, specialized body for which there is no concern about capture risk, the answer seems to us to be no.

By devoting itself to activities that overlap with functions inherent to the protection of competition, the TCU ends up facing two important limitations. The first is that it stops exercising the oversight for which it was designed, even if the situation does not necessarily impose on it a duty of subsidiarity, given the very existence of a well-structured system with that responsibility.

The second is that it performs a merely sanctioning activity, demonstrably ineffective in the context of competition protection, which for that very reason is structured around various educational actions beyond the mere imposition of penalties [9].

In addition, the TCU faces challenges related to its own structure and technical capacity. Analyzing competition issues requires a high degree of specialization and understanding of markets, characteristics not always fully present in the court’s technical staff. Although the TCU has staff with undeniable technical expertise, there is a significant gap compared with the specialization accumulated by bodies such as CADE.

For this reason, it seems to us that the TCU acting alone in the protection of competition goes beyond its powers and does not contribute to the system itself — a very different scenario from one in which it chose to act in conjunction with CADE, adding up rather than pitting the bodies’ powers against each other.

Structured cooperation channels and better institutional coordination between the bodies could avoid both overlaps and gaps in oversight. After all, while CADE benefits from various mechanisms to deter unlawful market practices, the TCU has an unmatched ability to influence the actions of public and private agents, so this complementarity could be better explored.

Thus, given the very challenges facing competition protection in Brazil, coordinated and effective action by multiple institutions seems welcome to us, so that the TCU, as guardian of the probity and efficiency of public spending, can play a strategic role in this scenario — one that does not necessarily involve taking on more functions, but precisely limiting them in favor of collaboration, creating truly transformative instruments of action.

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[1] For a history of the TCU’s origins, we recommend: BARROS, Lucivaldo Vasconcelos. TCU: presença na história nacional. Brasília: TCU. Instituto Serzedello Corrêa, 1999.

[2] This is what can be drawn from the explanatory memorandum for the creation of the body: “It seems, however, that this evolution, as reached in the Italian form, extending the supervision of the Court of Auditors (corte dei Conti) beyond the boundary of acts concerning public finances, strains the nature of the institution, exposing it to criticism to which it would not be susceptible had its functions been limited to the circle of the government’s strictly financial acts. Crossing that boundary, the court could become an obstacle to the administration, fruitlessly hindering ministerial action and nullifying the government’s initiative in acts that have nothing to do with the execution of the budget. In Italy, the judgment of the people entrusted with this office has so far generally avoided this drawback, with the court refraining from conducting its inquiries into matters unrelated to State finances. But it is unwise to introduce into the body of an institution a principle of conflict with others, entrusting the remedy for this organic ill to the accidental prudence of the individuals who happen to represent it. It is better to confine the new authority within the natural limits of the needs that call for it, that is, to reduce the preventive supervision of the Court of Auditors to those acts of government that may relate to the assets or liabilities of the Treasury”. (BARBOSA, Rui. Exposição de Motivos de Rui Barbosa sobre a criação do TCU. Revista do Tribunal de Contas da União, v. 30, no. 82. Brasília, Oct/Dec. 1999, p. 257-258).

Originally published by Conjur (in Portuguese).