Banks, Pix face risks from U.S. move against gangs

The U.S. move has raised the alert level at banks and fintechs, which will need to review compliance policies and could face higher costs. It has also raised questions about possible consequences for companies in other sectors of the economy and for individuals, who could become targets of discretionary, or arbitrary, action by Donald Trump’s administration, according to experts interviewed by Valor.

The United States could also use the designation of PCC and CV to tighten the issuance of U.S. visas to Brazilians, although such a move is not expected to become a general rule given the economic nature of immigration decisions, said Fabiano Rocha, a data scientist and immigration specialist who is CEO and founder of Jumpstart.

“Any restrictive measures would not be sustained for very long because of the mutual economic dependence between the two countries. The migration market is very resilient, and the force that drives it is economic,” he said.

The U.S. decision also raises questions about the impact on Brazil-U.S. relations, especially in the exchange of information involving police investigations.

The issue is that the terrorist designation moves the criminal groups out of the strictly police sphere of security and into a more rigorous national defense framework, Lincoln Gakiya, a São Paulo state prosecutor considered Brazil’s leading authority in the fight against PCC, told newspaper O Globo.

Intelligence agencies

From that standpoint, the immediate impact of the U.S. initiative lies in the change in the profile of the U.S. agencies with which Brazil is likely to cooperate, said Thiago Bottino, a law professor at Getulio Vargas Foundation (FGV) in Rio de Janeiro.

Under the new definition, investigations related to PCC and CV would no longer be led by agencies focused on combating drug trafficking, such as the U.S. Drug Enforcement Administration (DEA), or by the Department of Justice (DoJ). Instead, they would involve intelligence and counterterrorism agencies such as the CIA and the FBI’s counterterrorism division.

Gakiya told O Globo that this point worries him, because information-sharing is currently agile and that flow could be impaired. In some cases, U.S. authorities could invoke secrecy and stop sharing information with their Brazilian counterparts.

Bottino, from FGV, considers the new classification inappropriate, since agencies such as the CIA “are focused on understanding and combating a phenomenon that is different from the phenomenon of a criminal organization, which sells drugs and controls territories.”

“A terrorist organization does not want to dominate or invade territories, as PCC and CV do,” he said. Terrorist organizations have political, ideological, or religious motivations, experts say. PCC and CV, by contrast, have an economic purpose: making money from illegal activities.

Analysts also see the classification as having the potential to influence Brazil’s public debate, with possible effects on this year’s elections. The State Department announced on Thursday (28) that PCC and CV would be listed as terrorist organizations, a measure that takes effect on Friday (5).

The designation followed a visit by Senator Flávio Bolsonaro (Liberal Party, Rio de Janeiro), a presidential pre-candidate in the October election, to the White House, where he was received by President Trump on May 26. The new definition of the criminal groups is likely to be used in the campaign.

Compliance risks

In the short term, companies and the financial system in Brazil are trying to understand the effects of the measure. Experts say the designation could broaden the reach of U.S. authorities over activities carried out in Brazil and expose Brazilian companies to investigations, while also forcing them to improve their compliance systems. In that sense, the U.S. decision carries risk and could add costs.

For Leandro Piquet Carneiro, coordinator of Escola de Segurança Multidimensional (School of Multidimensional Security) and professor at the University of São Paulo’s Institute of International Relations, the risk of potential sanctions against companies could have the effect of strengthening compliance rules in Brazil, making the business environment safer and making it harder for “crime as a service” operations that involve hundreds of illegal businesses.

“The classification could also add a new layer to existing [bilateral] cooperation, without excluding traditional channels,” he said.

The measure could, however, affect companies that operate legally but at some point did business with partners linked to criminal activities without necessarily identifying that connection.

Bottino, from FGV, shares that view. “It is very common for these criminal organizations to infiltrate legal business activities so they can launder money from crime. And, many times, companies that do business with other companies, other funds and other managers are not aware of that. It is not that simple or easy, because they are dealing with people who want to hide that origin,” he said.

He continued: “These companies that at some point may have done business with others that could be related to criminal activity are subject to losing their bank accounts [in the U.S.], having their accounts frozen, facing investigations, eventually being placed on lists and being prohibited from doing business in the United States and Europe.”

Pix and banks come under scrutiny

Finance Minister Dario Durigan told Globonews that the U.S. decision could harm Pix. He raised the possibility that U.S. courts could pressure banks operating in Brazil that receive payments through Pix.

Durigan also said costs in the national financial system could rise, since banks will need to review rules and, in some cases, adopt new compliance measures.

The minister also said there is a risk that Brazil could be suspected of being a territory where terrorist activities take place, which would have macroeconomic implications, including an increase in country risk and damage to the attraction of foreign direct investment.

In the market, however, the initial assessment was that the practical effects of the measure on domestic assets in the short term should come more through political repercussions than through an outflow of funds from Brazil or restrictions on investment in the country. Overall, financial market participants see the Trump administration’s action as negative, but not something likely to change the course of domestic markets, at least for now.

The Brazilian Association of Banks (ABBC), however, acknowledged that the measure could affect relationships between Brazilian and U.S. banks. The Brazilian Association of Fintechs (ABFintechs) said the U.S. government’s action has direct and immediate impacts on the sector.

New pressure

Oliver Stuenkel, a senior fellow at the Carnegie Endowment for International Peace in Washington and fellow at the Harvard Kennedy School’s Belfer Center, said the U.S. decision changes how Brazil is perceived and introduces a counterterrorism and Pentagon-related dimension into the bilateral relationship, something that, in his words, “was not part of the relationship between the two countries.”

“This will also require an adjustment in how Brazil deals, from now on, with this issue of combating terrorism. This is an issue the government will have to face,” said Stuenkel, who is also a professor of International Relations at FGV in São Paulo.

Piquet Carneiro, from USP, believes the long-standing bilateral relationship between the two countries may still prevail. He pointed to the Foreign Affairs Ministry’s initial silence as an indication of the careful analysis Brazil is conducting in the face of this new reality.

“Brazil and the U.S. have a long-standing relationship, with established channels of cooperation in defense, security and criminal justice that are crucial for both countries. It is a channel that is open all the time, and Brazil is very important to U.S. strategies,” he said.

But he cautioned that the classification could also be used in a discretionary way, considering President Trump’s nature, and could even lead to controversial actions against politicians or individuals.

Along similar lines, researcher Vitor de Pieri, a professor at UERJ’s Institute of Geography, said the measure is part of a broader strategy to expand the U.S. security agenda in Latin America in a context of global geopolitical dispute and the region’s growing strategic importance.

Looking at precedents, Pieri cited Plan Colombia, implemented in the South American country in the late 1990s under the argument of fighting drug trafficking and armed groups, but which also expanded the U.S. presence in South America through military cooperation, intelligence and financial assistance. In his view, both the war on drugs and the fight against terrorism show how security agendas are linked to broader geopolitical interests.

The risk of diplomatic strain, according to the UERJ professor, grows if the measure is used as an instrument of political pressure on Brazil. In that scenario, issues such as border control, the Amazon, critical infrastructure and mineral resources could be folded into a broader logic of hemispheric security.

“The main debate for Brazil is not only the fight against organized crime, but the preservation of its autonomy to define how to confront this problem,” Pieri said. “Although the measure targets specific criminal organizations, its effects tend to go beyond the sphere of public security and reach the business environment and the financial system.”

Visa policy

The designation of the two criminal factions also allows the United States to tighten the issuance of U.S. visas to Brazilians. However, Rocha, the data scientist and immigration specialist, said the new classification should not lead to broad-based changes. He based his assessment on what he sees as the “economic nature of U.S. immigration decisions.”

According to Rocha, the United States has a growing need for workers, and Brazil is one of the exporters of skilled labor to U.S. territory, surpassing even other Latin American countries such as Mexico. Even in tourist visas, he said, the rejection rate for Brazilians ranges from 15% to 20%, influenced by Brazil’s Human Development Index (HDI) and per capita income.