Brazil to Rule on Probe Into Banks’ Rejection of Crypto Firms

Brazil’s national competition regulator is poised to rule on whether some of the largest banks in the country wrongly locked the nation’s nascent crypto scene out of financial services.

Lawyers involved in the probe told CoinDesk that a seven-member tribunal with the Administrative Council for Economic Defense (CADE) could decide as soon as Wednesday whether or not to continue a disciplinary inquiry against the six commercial banks: Itaú, Banco do Brasil, Santander, Inter, Bradesco and Sicredi. (The probe did not appear on the official docket for CADE’s tribunal on Wednesday.)

The investigation into their allegedly anti-competitive refusal to serve local crypto brokers had been fizzling in late 2019 when its instigator, CADE, moved to drop the probe. But after an appeal, a refusal and a reversal of course, CADE’s top members will weigh in on the investigation’s fate.

Fernando de Magalhães Furlan, who leads the Brazilian Cryptocurrency and Blockchain Association (ABCB) and issued the first call for a CADE investigation in April 2018, outlined two possibilities for the Tribunal when it meets.

They will either continue the investigation with an eye toward sanctioning the banks, a proposal outlined by CADE Counselor Lenisa Rodrigues Prado in her May 13 order. Or they will uphold a previous decision by the CADE General Superintendent to terminate the proceedings. 

Continuing the investigation would give credence to Prado’s view that these banks failed to give reasonable justification for shutting out crypto brokers. She found “significant evidence” that they had violated Brazilian laws protecting market competition and called upon CADE to initiate a sanctions inquiry.

In doing so, Prado injected hope into the Brazilian crypto business’ multi-year struggle to access local financial infrastructure, and life into the administrative proceeding that had previously looked to be moving in favor of the banks, said three executives at crypto companies, including Furlan.

Shutdowns

Crypto brokers and banks had been at loggerheads before CADE launched its probe in September 2018. Banks, weary of the legal grey zone that cryptocurrency trading inhabits in Brazil (and allegedly fearful cryptocurrency’s success would eat into their own) had begun shutting down crypto brokerage accounts.

Without brokerage accounts, exchanges such as Nox Bitcoin could not easily provide cash on and off ramps to their customers. Founder João Paulo Oliveira said Banco Bradesco closed his brokerage account.

Banco Bradesco declined to comment on CADE proceedings.

It was a pattern rippling across Brazil’s crypto landscape, said Fernando de Magalhães Furlan, who as CEO of the Brazilian Cryptocurrency and Blockchain Association (ABCB) first called for a CADE investigation in April 2018.

A former CADE official, Furlan said the banks would swoop in and close accounts “without any justification whatsoever.” He said their collective cold shoulder was a broadside to Brazil’s growing crypto industry.

“No company, no enterprise can survive in capitalism without access to the financial system,” Furlan said. 

Competition

Itaú Unibanco denied allegations it acted anti-competitively.

Itaú “has always guided its commercial practices based on the defense of free initiative and competition, as well as the understanding that competition is positive not only for the financial system, but for the whole country,” a spokesperson told CoinDesk.

There does not appear to be any evidence the banks coordinated their decisions, Furlan said. A previous CADE official said none of them wielded individual market power, according to Furlan. These are usually two hallmarks of anti-competitive case law. 

Indeed, Furlan said, a different CADE official’s December 2019 attempt to drop the case partly rested on the banks’ individual inability to control the market.

Furlan said it was a distinction without a difference. Four of the banks involved in the inquiry rank among the five-largest in all of Brazil. CADE said that in 2017, a year before its own investigation began, the six banks together held over 80% of Brazilian deposits.

The other argument Furlan said the first CADE ruling drew from was the banks’ stated fear that crypto brokers would expose them to money laundering. 

Members of the crypto business landscape reject that claim.

“We do a better job in checking the legitimacy of the money we touch than banks and government agencies,” said Fabiano Dias, vice president of LATAM operations for the crypto payroll company Bitwage.

“For us crypto businesses, I know I can speak for our partners in Brazil on that too, we are confident in our [know-your-customer] procedures, making sure we are only enabling legit professionals, helping them to add efficiency to their payments and finances,” he said.

Furlan and ABCB appealed the decision. The appeal was denied. But on May 13, Prado said money laundering was not a good enough reason to lock out the crypto brokers in her call to continue the inquiry.

Crypto’s nascency was actually an argument for letting such businesses in, she wrote.

“In order to avoid the risk of pushing independent crypto asset brokers into a ‘limbo’ of the financial system (which could even increase the risks related to money laundering), CADE must exercise its duty to protect competition in this growing market,” she wrote.

Next steps

Both sides think that CADE will rule in favor of their respective viewpoints. 

Itaú, the second-largest bank in Brazil and the only one to respond to CoinDesk’s questions, “remains confident that its conduct will be considered legal and valid.”

Oliviera, the Brazilian exchange founder, thinks the sanctioning argument only failed previously because its proponent, ABAC, “was funded exclusively and controlled by” Atlas Quantum, an alleged crypto ponzi scheme.

(Furlan’s April 2018 letter to CADE highlights that Atlas, an ABAC member, was denied a bank account by Banco do Brasil).

“I do believe that relations between ABCB and Atlas were considered for CADE to have decided that there’s no competition conflict for banks to close bank accounts of crypto business,” Oliviera said. 

Furlan told CoinDesk that ABAC has 39 members but acknowledged that the organization “has not been very active” since its main contributor ran into regulatory trouble with Brazil’s SEC.