Banks analyze loopholes in Brazilian law to comply with Magnitsky and “circumvent” the Supreme Federal Court

The cancellation of Alexandre de Moraes' credit card , which intensified the debate over the limits of the Magnitsky Act in Brazil, is forcing banks to seek solutions to the legal impasse.

Institutions need to avoid billion-dollar sanctions abroad without, at the same time, entering into direct conflict with the Supreme Federal Court (STF), especially after the recent ruling by Minister Flávio Dino , prohibiting the application of foreign laws that are not supported by international agreements or validation by the Brazilian justice system.

Among the strategies evaluated, a BTG Pactual report circulating in the financial market points out that Brazilian law already allows banks to unilaterally close accounts. This loophole could be used to mitigate the risk of fines and international freezes that threaten Brazilian assets.

"Within the powers of a private company, such as a bank, it can unilaterally cancel an account," a legal source who preferred to remain anonymous told Gazeta do Povo .

"But if this is done solely to circumvent a court ruling, like Dino's, it could raise legal challenges. This strategy serves as a temporary solution, a test case for the industry."

Attorney Massami Uyeda Júnior, of the Arap Nishi Uyeda law firm, states that the unilateral closure of bank accounts is a matter already decided by the Superior Court of Justice and other courts. "It's possible as long as certain provisions of the Consumer Protection Code are respected," he ponders. "In the current case, it may be a pragmatic solution to avoid having to face the discussion about the application of the extraterritoriality of American laws by nationals."

With uncertainty surrounding Magnitsky, banks adopt a preventive stance

Because this is an unprecedented situation in the country, financial institutions have been working hard to seek legal opinions from American law firms, Valor has learned. There are very few international precedents to base their decisions on, making the situation novel and complex for banks.

For Roberto Padovani, chief economist at Banco BV, Magnitsky still lacks clarity in its application. "It's recent, from 2012, amended in 2016, but it lacks consolidated case law or well-defined rules, which makes its application very haphazard," he states. According to him, the first pillar of the law is the so-called US Nexus , which establishes relationships with agents and individuals in the United States—a concept that, in itself, raises questions about how it should be interpreted.

The second pillar is so-called material support: the US government may determine that a company or individual is supporting someone already sanctioned, which would increase restrictions. "This judgment is subjective, and it creates paralysis. Everyone is waiting for more information to know how to act," adds Padovani.

For now, banks appear more willing to adopt a preventative but restrictive stance regarding Magnitsky. This simply means closing accounts of sanctioned individuals in their US subsidiaries and blocking international card brands. In Brazil, these brands include the American Mastercard, Visa, and Amex, as well as the Brazilian Elo, controlled by Banco do Brasil, Bradesco, and Caixa.

Moraes resists alternatives

Moraes's card was canceled precisely because it was American-issued, not because of Banco do Brasil's operations in the United States. The minister was offered an Elo card, which only allows domestic purchases and does not process dollar transactions. In theory, nothing would prevent him from maintaining his Brazilian account at BB, through which he receives his salary.

But there are also differences of opinion. The operator's regulations include a provision that prevents it from having customers sanctioned by the United States government, the United Nations (UN), the European Union, or the United Kingdom.

Moraes was also advised to consider alternatives to traditional banks. Executives of public and private financial institutions reportedly suggested that Supreme Court justices open accounts with credit unions to protect themselves from the implications of the Magnitsky Act. The recommendation, however, was dismissed and would not solve the problem for Alexandre de Moraes or other members of the Court.

"For now, the legal departments don't have a clear position, and this decision can't be made solely within that framework. It's an issue that also needs to involve the boards of directors and institutional relations departments. Ideally, Febraban itself should also participate to ensure coordinated action across the sector," said another source.

Uncertainty must have clarification from the US

This Friday (22), Minister Flávio Dino , of the Federal Supreme Court (STF), defended the decision handed down this week, which seeks to render the Magnitsky Law ineffective in Brazil. The measure caused Brazilian banks to lose R$41 billion in market value due to fears of sanctions from the United States.

Moraes himself had reaffirmed his colleague's attitude on Wednesday (20). "Now, in the same way, if the banks decide to apply the law internally, they cannot. And then they can be penalized internally," he said in an interview with Reuters.

Gazeta do Povo has learned that the State Department and the Treasury Department are discussing how to enforce the sanctions more effectively. This could involve issuing a circular or even directly notifying banks incorporated in the United States, such as BB América and Itaú. However, there is no timetable yet.

The card companies were contacted by Gazeta do Povo, but received no response. The Brazilian banks consulted have reaffirmed that they do not comment on the situation of account holders, citing tax secrecy. Febraban has also stated in a statement that it will not comment.