US Treasury Questions Brazilian Banks Over Magnitsky Act Compliance: Key Developments in 2025

• What Prompted the US Treasury’s Inquiry?
• How Are Brazilian Banks Responding?
• The Legal and Financial Fallout
• Geopolitical Tensions Escalate
• What’s Next for the Banks?
• Market Reactions and Analyst Insights
• Historical Context: The Magnitsky Act’s Global Reach
• Conclusion: A High-Stakes Standoff
• Frequently Asked Questions

In a MOVE that underscores the growing tension between US financial regulations and Brazilian judicial sovereignty, the US Treasury Department has formally questioned major Brazilian banks about their compliance with the Magnitsky Act. The inquiry, confirmed by sources familiar with the matter, comes just over a month after the US imposed financial sanctions on Brazilian Supreme Court Justice Alexandre de Moraes. This article delves into the implications for Brazil’s banking sector, the legal standoff, and the broader geopolitical context.

What Prompted the US Treasury’s Inquiry?

The US Treasury’s Office of Foreign Assets Control (OFAC) sent notifications to Banco do Brasil, Bradesco, Itaú, Santander, and BTG Pactual, asking for details on their actions related to the Magnitsky Act. The Act, which allows the US to sanction individuals accused of human rights abuses or corruption, was invoked in July 2025 against Justice Moraes. The US alleges he authorized arbitrary arrests and suppressed free speech, charges he denies. The banks were asked to outline steps taken to comply with the sanctions, though the notifications were described as “generic” by a source.

How Are Brazilian Banks Responding?

While the banks have remained tight-lipped—Banco do Brasil, Itaú, and BTG declined to comment, while Santander and Bradesco didn’t immediately respond—the situation puts them in a bind. On one hand, ignoring OFAC could cut them off from the international financial system. On the other, Brazil’s Supreme Court, via Justice Flávio Dino, has ruled that foreign laws don’t apply to Brazilians domestically. This leaves banks navigating a legal minefield. “It’s like being told to swim in two directions at once,” quipped a São Paulo-based financial analyst.

The Legal and Financial Fallout

The sanctions against Moraes, which freeze his US assets and bar American firms from dealing with him, have already rattled markets. After Dino’s ruling last month, shares of Brazilian banks tumbled, with Banco do Brasil leading the drop at 6%. The OFAC inquiry adds another LAYER of uncertainty. For context, the Magnitsky Act has been a thorn in US-Brazil relations since its use against Moraes, who is overseeing the trial of former President Jair Bolsonaro for alleged election interference.

Geopolitical Tensions Escalate

The OFAC notifications coincided with the Supreme Court beginning Bolsonaro’s trial, a case Moraes framed as a defense of judicial independence. “The court won’t bow to foreign pressure,” he declared. Meanwhile, the US revoked Moraes’ visa and, under President Trump, slapped a 50% tariff on some Brazilian exports—a move TRUMP tied to Bolsonaro’s case, calling it a “witch hunt.” The timing suggests a broader strategy to pressure Brazil’s judiciary, though officials on both sides deny any direct link.

What’s Next for the Banks?

With OFAC’s scrutiny intensifying, banks must weigh compliance against Brazilian law. A mid-August industry source warned that defying OFAC could mean exclusion from global finance, but adhering to it risks Supreme Court backlash. The Brazilian Banking Federation (Febraban) noted it hadn’t received any official word from banks about the OFAC notices, emphasizing their confidential nature. For now, the sector is in wait-and-see mode, but the stakes couldn’t be higher.

Market Reactions and Analyst Insights

The BTCC research team notes that the dual pressures have created volatility in Brazilian financial stocks. “This isn’t just about sanctions—it’s a test of how global banks navigate conflicting sovereign demands,” said one analyst. TradingView data shows Banco do Brasil’s shares remain down 4% since the Dino ruling, reflecting lingering investor anxiety.

Historical Context: The Magnitsky Act’s Global Reach

Named after Russian whistleblower Sergei Magnitsky, the Act has been used globally to target alleged human rights violators. Its application to Moraes marks a rare foray into Brazil’s domestic politics. Past cases, like those involving Chinese officials, show that OFAC inquiries often precede tougher measures. Whether that happens here depends on how Brazil’s institutions respond.

Conclusion: A High-Stakes Standoff

As the US and Brazil spar over legal jurisdiction, banks are caught in the crossfire. The OFAC inquiry highlights the challenges of operating in a multipolar financial world where national laws increasingly collide. For investors, the message is clear: buckle up for more turbulence. As one trader put it, “When elephants fight, the GRASS suffers—and right now, Brazilian banks are the grass.”

Frequently Asked Questions

Which Brazilian banks received OFAC notifications?

Banco do Brasil, Bradesco, Itaú, Santander, and BTG Pactual were questioned by OFAC about their Magnitsky Act compliance.

What are the potential consequences for non-compliance?

Banks risk being cut off from the US financial system if they ignore OFAC, but complying could violate Brazilian Supreme Court rulings.

How has the market reacted?

Shares of major Brazilian banks fell sharply after Justice Dino’s ruling, with Banco do Brasil dropping 6% initially.

What is the Magnitsky Act?

A US law allowing sanctions on individuals accused of human rights abuses or corruption, named after Russian lawyer Sergei Magnitsky.