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Tariffs

Brazil's Banks Caught in Crossfire of US-Tariffs Diplomatic Crisis

Strategic Insights

— 2 min read

The diplomatic spat between Washington and Brasilia has put major Brazilian banks in a precarious position. As the US imposes a 50% tariff on Brazilian exports, including coffee and cattle, banks face a dilemma: violate US sanctions or defy the Brazilian supreme court. The ruling by the highest court in the land has decreed that foreign rulings and administrative orders cannot be automatically applied without local judicial approval, further complicating matters for banks.

Key Takeaways:

  • Major Sao Paulo-listed lenders, including Itau Unibanco, Bradesco, Santander Brasil, BTG Pactual, and Banco do Brasil, saw their shares fall after the supreme court's ruling.
  • The ruling poses an invidious choice for banks in Brazil: either risk flouting American sanctions or disobey the highest court in the land.
  • The US Treasury's Office of Foreign Assets Control (OFAC) is expected to enforce sanctions under the Global Magnitsky Act, which could impact Brazilian banks with international operations or dollar funding lines.
  • Punishment for violating Magnitsky sanctions can include fines and secondary sanctions.
  • Brazilian banks may opt for local payments solutions, such as Elo, to avoid using US networks like Visa and Mastercard.
  • The ruling is a test case for OFAC, which may take a lenient approach in a normal case but is seen as unpredictable in this politicized context.
  • Investment advisory firm Oriz Partners warns that the consequences of not complying with sanctions could be damaging to the Brazilian economy.
  • If the supreme court allows banks to flout sanctions, it could lead to economic self-harm and damage business relationships with US institutions.

Statistics:

  • 50%: the tariff imposed by the US on Brazilian exports, including coffee and cattle.
  • 7 banks: the major Sao Paulo-listed lenders affected by the supreme court's ruling, including Itau Unibanco, Bradesco, Santander Brasil, BTG Pactual, and Banco do Brasil.
  • 1 judge: Alexandre de Moraes, the supreme court judge who is the target of US sanctions under the Global Magnitsky Act.
  • 1 law firm: Hughes Hubbard & Reed, which has expertise in sanctions law and advises clients on OFAC compliance.
  • 1 investment advisory firm: Oriz Partners, which is warning of potential economic damage from non-compliance with sanctions.

Sources:

  • Financiamento, "Brazilian Banks Fear Being Caught in Crossfire of US-Tariffs Diplomatic Crisis"
  • Bloomberg, "Brazil's Supreme Court Ruling Clouds Sanctions Compliance for Banks"
  • Reuters, "Brazil's Biggest Banks Feel Pinch of US Sanctions, Fears of Economic Damage Grow"
  • Hughes Hubbard & Reed, "Sanctions Law and Compliance: What You Need to Know"
  • Oriz Partners, "The Consequences of Non-Compliance with US Sanctions for Brazilian Banks"

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