Banks in the crosshairs of Operation Car Wash

Banks in the crosshairs of Operation Car Wash

Many analysts of Operation Car Wash wondered when the anti-corruption probe would hit the banking system. That moment seems to have arrived. Yesterday, federal marshals carried out operations to arrest the managers of two Bradesco bank branches in Rio—accused of helping to launder almost BRL 1bn through operations using shell companies.

Investigators say that another three banks were used, but none to the extent of Bradesco: Itaú (in which BRL 94m were laundered), Santander (BRL 19m), and Caixa (BRL 4m). Bradesco said it has opened an internal investigation. Yesterday’s operation was a follow-up of one carried out a year ago, which arrested 50 professional money launderers.

Close observers of Operation Car Wash say that the thread exposed by yesterday’s operation is only the beginning of what could be a probe as explosive to the banking system as Operation Car Wash initially was to the construction sector. The accounts scrutinized at this stage belonged to one corrupt businessman—many others are still being analyzed.

Meanwhile, executives at Odebrecht have listed 11 banks (2 Brazilian and 9 foreign) which helped the company handle money used to bribe politicians.

• Go deeper: The new face of Brazil’s Operation Car Wash

How long will Bolsonaro’s pact with Congress last?

Following sizeable—but not overwhelming—protests in his favor, President Jair Bolsonaro decided to extend an olive branch to Congress. He celebrated a “pact” with Speaker Rodrigo Maia, Senate President Davi Alcolumbre, and Chief Justice Dias Toffoli in favor of the pension reform bill. It remains to be seen whether the pact is for real.

This kind of truce is a good photo-op that should give investors some optimism today. However, for it to translate into real change in the rocky relationship between the branches of government, it will take genuine action from President Bolsonaro. In practical terms, Congress tries to show it will not operate as a roadblock to the government—which will have, in turn, to whip the necessary votes to approve the pension reform (which it has so far been unable to do).

A small win for the administration

Last night, senators approved the decree establishing the current outlook of the cabinet—confirming a few tweaks proposed by the House. Money laundering enforcement agency Coaf leaves the scope of Justice Minister Sérgio Moro—who wanted to use it in anti-corruption probes—and is now part of the Economy Ministry. Moreover, the Agriculture Ministry lost control over the demarcation of indigenous lands.

Avoiding having the decree expire on June 3 is a win for the administration, but the changes proposed by Congress shows that the playing field is equal.

Brazil’s slight improvement in competitiveness

Brazil has climbed one position in the International Institute for Management Development’s World Competitiveness Ranking—but remains in the bottom 5 among the 63 economies that were analyzed for the study.

Brazil’s improvement was connected to its recent economic growth—which has been slow, but steady. Analysts also see Brazil as a more transparent country—after many companies invested heavily in compliance—a little less bureaucratic, and, according to the analysts, facing a lower risk of political instability.

As usual, Brazil’s complex and heavy tax system was pointed out as a deterrent to business. The government’s failures in making the country more business-ready and the lack of highly-qualified professionals is also a major problem in Latin America’s largest economy. Among the region’s main countries, Brazil only ranked better than Venezuela (which is undergoing the worst humanitarian crisis in the Western Hemisphere) and Argentina (facing a severe financial crisis, with inflation rates expected to finish the year at 37%).

Also noteworthy

Corruption. Described as a ring leader of a corruption scheme by federal prosecutors, Senator Flávio Bolsonaro has tried—for a 3rd time—to block the investigation against him and his aides. Mr. Bolsonaro has filed for habeas corpus in his case, which remains sealed. Rio de Janeiro prosecutors say there is robust evidence that the senator ran a corruption scheme within his office as a state lawmaker—and recently lifted the bank secrecy of 95 persons and companies connected to him.

Digital. According to Santander’s global CEO Ana Botín, the bank will invest BRL 2.7bn to strengthen its digitization process. The sum is 30% of the total global investments in the bank’s strategic plan for 2019. Santander has also decided to embrace open banking—the use of open application programming interfaces (APIs) containing customers’ banking data, which can then be used by third-party developers. In Brazil, Santander has 25m clients.

2020 Census. The Brazilian Institute of Geography and Statistics announced it has come to a decision about reducing the questionnaire in next year’s census. The basic survey will have 25 questions, instead of 37—and the more complete one (submitted to 8-10% of households) will have 76 questions, instead of 112. The move aims at making surveys quicker—and more cost-effective. Some experts, however, believe the sudden change could skew the data—which is paramount for policymaking.

Real estate. Despite a high unemployment rate and a stalling economy, Q1 2019 saw a 10% bump in real estate purchases (from 2018). However, the sector was expecting an even more promising start for the year—banking on a more positive political climate. Demand for real estate assets had been repressed for 5 years already.

Markets. BTG Pactual, Brazil’s largest investment bank, said its controlling shareholder is preparing to sell BRL 2bn in company shares. The bank will also partially transfer its shares in Swiss private bank EFG International to its holding company, to increase the capital ratio.

Massacres. After 55 inmates were murdered in two state prisons of Amazonas, the Justice Ministry decided to transfer gang leaders to federal facilities. The government’s spokesman said there are no signs that the deadly prison violence could spread to other areas of the country—as it did in 2017, when riots erupted in several states following massacres in Amazonas.

The post Banks in the crosshairs of Operation Car Wash appeared first on The Brazilian Report.