Magnitsky Act's Unintended Consequences: Financial Institutions Face Uncertainty in Brazil

Strategic Insights -

The recent cancellation of a credit card issued by Banco do Brasil (BB) marked the first known consequence of applying the Magnitsky Act to Federal Supreme Court Justice Alexandre de Moraes. The move has reignited debate over the scope of the measure and the risks it poses for financial institutions. As banks take a narrow approach, complying with the act strictly as written, they are seeking multiple legal opinions to avoid further complications.

Key Takeaways:

  • The cancellation of Justice Moraes' credit card was the first known consequence of applying the Magnitsky Act in Brazil.
  • Around 700 people worldwide are subject to sanctions under the Magnitsky Act, and financial institutions regularly cross-check the list against their client base.
  • Industry executives believe the Trump administration's "distorted use" of the law has led to concerns over its application.
  • Restrictions on Justice Moraes are not as severe as those imposed on terrorists, but banks are still trying to do the minimum within the law.
  • Much of the industry believes further sanctions can be avoided if the STF and the Brazilian and U.S. governments refrain from escalating tensions.
  • The situation has become more complex after Justice Flávio Dino ruled that foreign laws must be ratified by local authorities before being enforced in Brazil.
  • Banking representatives are making the rounds in Brasília to prevent the crisis from worsening, and some interlocutors believe the restrictions adopted so far do not defy the minister's ruling.
  • A BTG Pactual report suggests that banks could close or segregate accounts as an internal policy, avoiding direct confrontation with the STF.
  • Local banks are major consumers of U.S. card networks, technology providers, and service firms, and some industry voices argue Brazil could find support among American companies.

Statistics:

  • Around 700 people worldwide are subject to sanctions under the Magnitsky Act.
  • The credit card cancellation marked a 15.58% drop in BB's shares this year.
  • Brazil is among the top three markets for a major card network.
  • BB has been the target of social media rumors, which led to its president, Tarciana Medeiros, criticizing those who undermine the institution.
  • The U.S. Treasury's Office of Foreign Assets Control (OFAC) list has a broad range of international sanctions.

Sources:

  • "Não podemos aplicar lei de outro país fora de nosso território", afirma presidente do STF
  • https://www.reuters.com/world/americas/brazil-court-rules-foreign-laws-not-valid
  • Valor: "Lei Magnitsky e seu desafio ao BB"
  • BTG Pactual report: "A Magnitsky Act e o mercado de cartões no Brasil"