🥩 The Return of the (Beef) Kings

Good morning! Today, we talk about the return of the Batista brothers to the JBS board. What’s wrong with the new bankruptcy bill the House has just passed? And a new cyber threat.

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Brazil’s beef kings return to JBS board

In a securities filing, meat-processing giant JBS told regulators it is expanding its board from nine to 11 seats to make room for brothers Joesley and Wesley Batista. Their return is expected to be approved at the upcoming April 26 shareholder meeting.

• The brothers, sons of JBS founder José Batista Sobrinho, are credited with modernizing the company and transforming it from a small meatpacking operation into the world’s largest food company — with more than 500 production units and sales to 180 countries.

 Why it matters. In addition to their undeniable prowess in beef, the Batista brothers are also notorious for their corruption and business scandals. 

Joesley Day. On May 17, 2017, the Brazilian press revealed that Joesley Batista had secretly taped then-President Michel Temer. The recording itself was leaked soon after, showing Mr. Temer apparently approving the payment of hush money to former House Speaker Eduardo Cunha, who was in prison at the time. 

• The revelation sent the Brazilian stock exchange into one of its worst market routs in history, with the benchmark Ibovespa index tanking 8.8 percent and the Brazilian real hitting its lowest level in 14 years in what became known as “Joesley Day.”

Politics. After cultivating close ties with politicians of all stripes, the JBS brothers decided to turn on them, showing prosecutors a network of bribes encompassing more than 1,800 politicians who allegedly eased access to public banks and pension funds. 

• At the time, the Brazilian government was pouring cheap money into several companies in the hopes of creating “national champions,” a strategy that ended up being more a case of crony capitalism than successful development policy.

• In 2020, J&F Investimentos, JBS’s parent company, agreed to pay a criminal monetary penalty of BRL 256 million to resolve a U.S. Department of Justice investigation into violations of the Foreign Corrupt Practices Act.

Insider trading? While the scandal nearly brought down the Temer administration, federal prosecutors suspected that the Batista brothers used their knowledge of the impending market chaos to cash in on the stock market, selling shares in JBS and buying them back after their value plummeted.

• The brothers were briefly detained on insider trading charges, but were exonerated in 2023. According to JBS, the Batistas no longer face criminal charges.

Results. JBS reported its underwhelming Q4 2023 results on Tuesday. The company’s EBITDA (earnings before interest, taxes, depreciation, and amortization) grew 11.6 percent year on year to BRL 5.1 billion (USD 1.02 billion), which fell short of expectations. 

• In addition, JBS’s Q4 bottom line was well below expectations. At BRL 83 million, it represented a drop of 96 percent from a year earlier. 

• Virtually all of JBS’s businesses ended 2023 with worse operating results than in 2022. Speaking to investors, CEO Gilberto Tomazoni admitted that JBS Beef North America had underperformed.

NYSE. JBS wants to be listed on the New York Exchange. British and U.S. politicians have urged against the listing, due to JBS’s massive carbon footprint. Reports suggest that about 80 percent of deforestation in the Amazon is connected to the beef industry. 

• An anti-JBS group called “Ban The Batistas” has recently registered to lobby in the U.S. It claims the brothers “are known for their criminal convictions, unchecked power, and massive corporate corruption scandals.”

New bankruptcy law clears House

It took the House floor 17 minutes to pass a new bankruptcy bill by a landslide vote of 378-25. The bill strips business courts of the power to choose the administrator who will oversee the process, instead creating the position of a “fiduciary manager,” who will be picked by creditors to perform the same role.

• The bill’s progress in the House raised concerns for being fast-tracked. Lawyers and prosecutors complained that there wasn’t enough time for debate, which they hope the Senate will allow. 

 Why it matters. Some experts have deemed the bill “disastrous.” They claim the new rules will heavily favor large creditors, reducing transparency and impartiality in the criteria used to pick which creditors will be paid first by struggling companies. Unions fear that labor liabilities will fall to the bottom of the priority list.

Scarcity. The bill limits the terms of administrators to six years, after which they must be replaced. Experts say this could expose the system’s bottlenecks. In São Paulo alone, there are more than 6,000 bankruptcy processes and only 177 enrolled professionals.

State of play. According to Serasa Experian, there were 169 bankruptcy protection filings in February (up 64 percent from a year prior), and 80 bankruptcy filings (down 7 percent year on year). The company mentions that there are 6.7 million companies in default, the byproduct of high interest rates and a tighter credit market.

• One of the main reasons companies struggle to pay their debts is because their own customers default on their dues. Also according to Serasa Experian, 44 percent of Brazilian adults were in default by January 2024.

Hacker group threatens to attack Brazilian infrastructure

Dark Storm Team, a hacker group, issued a threat this week to attack Brazilian infrastructure. “The group will target internet networks, airports, hospitals, government sites, and services,” it wrote on X (formerly Twitter).

But why? The group has gained notoriety for claiming authorship of high-profile attacks such as those against Egypt’s central bank, an Israeli hospital, the Los Angeles airport, and Snapchat. Its recent activity has been politically motivated, targeting nations allied with Israel. More recently, Dark Storm Team has issued threats against NATO countries.

• Brazil, on the other hand, has traded barbs with Tel Aviv over its military operations in Gaza — which President Luiz Inácio Lula da Silva compared to the Holocaust.

 Why it matters. Brazil has proven to be particularly vulnerable to cyberattacks. In recent years, hackers have breached servers of Brazil’s public health system and the country’s second-highest court — not to mention an attempt to disrupt the 2020 electoral system (though in the latter case, defenses held up).

Porous shields. Massive data breaches are nothing new in Brazil. In 2014, hackers used a phishing attack to infiltrate the Foreign Affairs Ministry’s internal communications system, stealing cables, email lists, passwords, and other data from authorities in Brazil and abroad.

• Three years earlier, more than 200 official websites — including those of the federal revenue service, Petrobras, the official statistics agency IBGE, the Federal Police, and the presidency — were attacked, resulting in the theft of IBGE data and the online publication of the passwords to the Sports Ministry’s servers.

• The authorities’ nonchalance is particularly worrying in light of the government’s plans to consolidate databases. After all, if even one part of the system is compromised, several types of sensitive data could be exposed. 

Worldwide plague. Of course, this is not just a Brazilian problem. U.S. technology consultancy Gartner predicts that 30 percent of critical infrastructure organizations will experience a security breach by 2025.

Yes, but … In 2008, Brazil approved its National Defense Strategy, which included cybersecurity as a priority. Since then, little has been done. In 2019, the country created the National School of Cyber Defense — but investment in cyberwarfare preparedness remains low.

Quick catch-up

Today is the deadline for Jair Bolsonaro to provide the Supreme Court with a plausible explanation for the days he spent holed up in the Hungarian embassy in Brasília, days after his passport was seized by federal authorities investigating a coup plot allegedly orchestrated by Mr. Bolsonaro. The former president could be placed in preventive detention if the court deems him a flight risk. 

President Lula plans to travel to Colombia, Chile, and Bolivia in the coming weeks. He plans to discuss infrastructure work to implement his government’s plan to integrate Brazil with neighboring countries and the Pacific coast.

On Tuesday, Presidents Lula of Brazil and Emmanuel Macron of France announced a plan to invest USD 1.1 billion in the Amazon. The two countries said in a joint statement that the money will be spread over the next four years to protect the rainforest.

Brazilian diplomats expressed “concern” over the upcoming elections in Venezuela after an opposition candidate was denied access to the ballot. It was the first time that the Lula administration has wavered in its stance on the neighboring country, which has otherwise been characterized by utmost support for its authoritarian leader, Nicolás Maduro.

The House postponed a vote to decide whether to confirm the arrest of Congressman Chiquinho Brazão, one of the alleged masterminds of the 2018 murder of Marielle Franco. Mr. Brazão was arrested for trying to tamper with the investigation.

E-commerce giant Mercado Libre announced plans to invest BRL 23 billion in Brazil this year, a 21 percent increase from 2023. Brazil accounts for more than half of the company’s global revenue.

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