Banks start blocking transactions of Justice Moraes

The unprecedented step, combined with the law’s vague wording, has led banks to seek multiple legal opinions. For now, financial institutions are taking a narrow approach, complying with the act strictly as written. That means closing accounts of sanctioned individuals in U.S. subsidiaries and blocking cards with international networks. In Brazil, Mastercard, Visa, and Amex — all American brands — operate alongside Elo, controlled by BB, Bradesco, and Caixa.

In Mr. Moraes’ case, his card was canceled because it carried an American brand, not because BB has significant operations in the United States. He was offered an Elo card as a replacement, but it can only be used for domestic purchases, not dollar transactions. The justice does not hold accounts abroad, and banks have interpreted that nothing prevents him from maintaining his domestic BB account, through which he receives his salary.

Although this is the first time the Magnitsky Act has been applied to a Brazilian citizen, banks with U.S. operations are not entirely unfamiliar with the measure. Around 700 people worldwide are subject to sanctions, and financial institutions routinely cross-check that list against their client base.

An industry executive with decades of experience said the concern lies in the Trump administration’s “distorted use” of the law, originally designed to target terrorists and combat money laundering. “International sanctions of that kind, the ones that go onto OFAC’s [U.S. Treasury’s Office of Foreign Assets Control] list, are truly broad — no American company could have a relationship with a Brazilian bank holding an account for Moraes. But this law is not applicable to him, so Brazil should just stay put, wait for things to calm down, and this might all amount to nothing,” he said.

Another industry source noted that restrictions on Mr. Moraes are not as severe as those imposed on terrorists. “Banks are trying to do the minimum, within the law, with the options available, and then wait. If the U.S. government presses them, claiming the rules aren’t being enforced, they’ll adjust,” said another sector leader.

Much of the industry believes further sanctions can be avoided if the STF and the Brazilian and U.S. governments refrain from escalating tensions.

Even so, the climate is tense, partly because this is a technical application of a politically charged issue. The situation grew more complex after Justice Flávio Dino ruled that foreign laws must be ratified by local authorities before being enforced in Brazil.

On Wednesday (21), Mr. Moraes himself backed Mr. Dino’s view. “If banks decide to apply the law internally, they cannot. And then they could be penalized domestically,” he told Reuters.

Mr. Dino’s decision has prompted banking representatives to make the rounds in Brasília, seeking to prevent the crisis from worsening. Some interlocutors believe the restrictions adopted so far do not defy the minister’s ruling.

Similarly, a BTG Pactual report circulated this week suggested that banks could close or segregate accounts as an internal policy, avoiding direct confrontation with the STF.

Some industry voices argue Brazil could find support among American companies. Local banks are major consumers of U.S. card networks, technology providers, and service firms. “Brazil is among the top three markets for a major card network. Will it want to lose that?” asked a representative of a large bank.

Although not considered the base case, banking executives see risks of more radical measures if the dispute between Brazil and the United States worsens. “If Trump decides to push this to the limit, the consequences could be drastic,” one source said. “We’ve been consulting with many lawyers. For now, that’s not the expected scenario, but the list of sanctioned individuals could grow, penalties could deepen. In the extreme, an entire bank could be sanctioned, or even Brazil as a country,” said another.

BB declined to comment, as did other financial institutions, citing banking secrecy in Mr. Moraes’ case. The bank has been the target of social media rumors, and its shares are down 15.58% this year.

On Wednesday, BB president Tarciana Medeiros, without naming names, criticized those who undermine the institution. “It is highly irresponsible when a Brazilian calls into question the soundness and integrity of a company like Banco do Brasil,” she said. Her remarks echoed the rhetoric of government officials who have criticized Congressman Eduardo Bolsonaro (Liberal Party, PL, São Paulo) for lobbying in the U.S. for sanctions against Brazil.