Top court rules foreign sanctions do not apply automatically in Brazil - Valor International

Justice Flávio Dino of Brazil’s Supreme Court ruled on Monday (18) that foreign laws and judicial orders do not automatically apply in the country, nor can they bind Brazilian companies or affect assets located in Brazil. Although he did not mention it directly, the ruling effectively shields the country from the Magnitsky Act sanctions imposed by the United States in July against Justice Alexandre de Moraes.

Justice Dino said that any law, court decision, administrative act, or executive order is only applicable in Brazil if expressly recognized by domestic legislation or by a competent Brazilian judicial authority.

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The ruling was not issued in a case related to the Magnitsky Act, but rather in proceedings concerning lawsuits brought in the United Kingdom over the 2015 Mariana dam disaster. Still, Justice Dino ruled that his interpretation has binding effect and applies to “the controversy in these records and to all others in which a foreign jurisdiction—or another foreign state authority—seeks to impose unilateral acts on the sovereignty of Brazilian state institutions.”

Hours later, in a statement criticizing Justice Moraes, the U.S. government said that “foreign courts” cannot overturn American sanctions and warned of further penalties against those who aid “human rights violators.”

In his decision, Justice Dino wrote that it constitutes “an offense to national sovereignty, public order, and good morals” to presume the immediate validity of foreign acts in Brazil. “Brazil has been the target of various sanctions and threats aimed at imposing ideas to be merely ‘ratified’ by institutions exercising national sovereignty,” he said.

Given “the risks and possibilities of undue operations, transactions, and impositions involving the National Financial System,” Justice Dino ordered his ruling to be sent to the Central Bank, the National Confederation of Financial Institutions (FIN), the Brazilian Federation of Banks (FEBRABAN), and the National Confederation of Insurance Companies (CNseg). He stressed that asset freezes “in disagreement with the principles of this decision” would require explicit authorization from the Supreme Court.

The ruling caused a ripple effect in financial markets, especially impacting the currency and interest-rate sectors, which are more sensitive to geopolitical tensions and heightened risk perceptions. The exchange rate and long-term bond yields, already on the rise earlier in the day, increased further as investors increasingly linked the decision to the Magnitsky Act. By the end of trading, the exchange rate had gained 0.68%, reaching R$5.4348, while long-term interest rates surged. The stock market response was more muted; the benchmark stock index Ibovespa retreated from intraday highs following Justice Dino’s announcement. Investors worry this move could escalate tensions between Brazil and the United States and lead to new American sanctions.

Justices consulted by Valor diverged over the scope of Justice Dino’s decision. Some argued that even if the case did not involve the Magnitsky Act, Justice Dino could apply his reasoning to foreign laws and acts beyond his docket. “He simply stated the obvious: if foreign countries are not required to follow Brazilian laws, it makes no sense to compel companies operating here to comply with any norm or administrative act from abroad,” one justice said.

Others disagreed, saying that a ruling to block account freezes under the Magnitsky Act should come from Justice Cristiano Zanin, who is handling a related case filed by Congressman Lindbergh Farias, leader of the governing Workers’ Party in the Lower House. Mr. Farias has petitioned the Court to block the application of the U.S. law in Brazil. Mr. Zanin is waiting for an opinion from the Prosecutor-General’s Office before ruling.

One justice criticized Justice Dino’s decision as exceeding the boundaries of the Mariana case, noting that no banks were even party to the lawsuit. In his view, the ruling was “inapplicable,” since institutions operating in the United States or conducting transactions in dollars are subject not only to Brazilian law but also to American regulations. Valor sought comment from the Central Bank, Febraban, FIN, and CNseg, but received no response.

Vladimir Aras, professor at the University of Brasília and former secretary for international cooperation at the Prosecutor-General’s Office, noted that American companies—or banks with U.S. operations or dollar transactions—may be bound by Magnitsky sanctions. “A Brazilian bank with operations in the U.S. could be sanctioned if it received but failed to comply with a U.S. order to freeze accounts of individuals sanctioned under the Magnitsky Act, such as Justice Moraes,” he said.

Mr. Aras noted there is no precedent of sanctions against banks refusing to apply the Magnitsky Act specifically, but there are cases involving other American laws. In 2014, for example, a French bank was fined $8.9 billion after allegedly violating U.S. sanctions on Sudan, Cuba, Iran, Russia, and North Korea. The penalty was the result of a settlement in a criminal case.

“In the U.S., secondary sanctions may take time, but when they arrive, they are severe,” Mr. Aras said. He warned that banks in Brazil might choose to ignore Justice Dino’s ruling for fear of harsher U.S. penalties: “A fine in Brazil could be small, but the risk from the U.S. would be immediate.”

The decision was issued in a case brought by the Brazilian Mining Institute (Ibram), which challenged the involvement of Brazilian municipalities in lawsuits in the UK related to environmental disasters in Brazil. In March, a British court instructed Ibram to dismiss its petition before the Supreme Court. However, Justice Dino determined that the institute is not required to obey foreign rulings.

This article was translated from Valor Econômico using an artificial intelligence tool under the supervision of the Valor International editorial team to ensure accuracy, clarity, and adherence to our editorial standards. Read our Editorial Principles.