Brazilian businesspeople to sue BofA in New York in $1bn case

Companies reportedly facing losses are preparing class action


Brazilian businesspeople from some traditional families that allegedly rented U.S. aircraft through leasing offered by Bank of America (BofA) plan to go to the courts in New York to ask for compensation for losses resulting from the operation. Since they have already lost or are in danger of losing their luxury jets, they are preparing a class action against the bank. The combined loss is estimated at $1 billion.

Lawyers are preparing to convince the U.S. courts that when seeking financing BofA offered them an “off-the-shelf product,” which the businesspeople believed to be lawful and bought without knowing potential tax contingencies.

But such operation has consequences in Brazil. If the Secretariat of Federal Revenue finds out that the aircraft is American but flies more on Brazilian routes than abroad, it can understand that the aircraft was imported, not leased. Brazil’s customs legislation considers imports without payment of taxes as contraband or smuggling, the penalty for which is the loss of the good.

Representatives of these businesspeople call the practice illegal tax shelter. BofA allegedly bought the planes in the United States through a trustee and leased them to businesspeople in Brazil. However, the bank reduced the depreciation resulting from the use of the aircraft from the tax base to be paid in the U.S.

Experts in international taxation, however, highlight another aspect: these businesspeople did not sign a contract directly with BofA, but through a company in a tax haven. Thus, in addition to avoiding the payment of Import Tax and social taxes PIS and Cofins, they also avoided paying withholding income tax (15% or 25%).

The operation led to an investigation by the U.S. authorities, which has already resulted in a first trial by the New York Supreme Court. On that occasion, whose session is available on YouTube, BofA was ordered to disclose the bank records of the aircraft lessors.

The court decision reportedly revealed operations involving 27 aircraft. Sources involved in the case say that 24 families of well-known Brazilian businesspeople are involved. Clans cited in the 2012 Federal Police report on Operation Pouso Forçado (Forced Landing), such as Esteves and Auriemo, are among them.

Based on the U.S. court decision, which determined the disclosure of bank records, a group of businesspeople is preparing to file a mass action in the U.S. This is a class action that allows the individualization of damages of each person involved.

Leonardo Antonelli — Foto: Divulgação

Leonardo Antonelli — Foto: Divulgação

But each case is a case. According to the lawyer Leonardo Antonelli, who represents some of the Brazilian businesspeople involved in the imbroglio, one client took the aircraft to the United States for revision and, the next day, the bank reportedly seized it. “It was worth $20 million and was auctioned for $7 million. The difference is the loss,” he said.

Another four clients, according to Mr. Antonelli, were required to make deposits averaging $4 million to collateralize the transaction. The lawyer says the bank converted the funds into income for itself. “Brazil’s Secretariat of Federal Revenue confiscated the aircraft of another client because it considered the transaction an illegal import,” the lawyer said.

The issue must be discussed in the New York Court because all contracts with BofA were signed there. The New York law allegedly takes such claims based on the theory of unjust enrichment and/or fraud.

“The theory of unjust enrichment, on a first analysis, resembles the institute of unjust enrichment in the Brazilian Civil Code,” Mr. Antonelli says.

The goal is the reimbursement of all tax losses (fines, interest, confiscation of aircraft), in addition to other financial losses (return of the aircraft, retention of deposits, structuring costs) resulting from the operation with the bank.

Bofa declined to comment.

*By Laura Ignacio — São Paulo

Source: Valor International