The Brazilian Administrative Council for Economic Defense (“CADE”) has recently decided to investigate Banco do Brasil, the second largest Brazilian bank which is a Brazilian state-owned with a dominant position over the payroll of all civil servants. The bank was accused of forcefully imposing exclusivity agreements for the provision of payroll loans to civil servants.
The conduct was denounced by the Interstate Federation for State and Municipal Civil Servants (Federação Interestadual dos Servidores Públicos Municipais e Estaduais), to the Secretariat of Economic Law (“SDE”), which is the investigative body of the Brazilian antitrust authorities. However, the SDE declined to investigate this accusation due to the fact that it is bound to a legal opinion issued by the Union’s Lawyering Office.
In a preliminary assessment of the market, the CADE noted that payroll loan is the fastest growing and most profitable line of credit in Brazil. As the loan does not require any collateral or specific destination, it is the best line of credit for those with a non-variable income. Not only do the the Brazilian civil servants have a non-variable, monthlyincome, but have they have greater stability in their professions, which reduces the risk of default to nearly zero. As payroll loans are so profitable, they have been considered the most important product offered by Banco do Brasil. The bank has publicly announced it would focus its efforts into providing payroll loans to civil servants and has secured its advantage over the other banks by imposing exclusivity agreements through the entities employing civil servants (especially municipalities).
The first relevant aspect of the case is that the CADE is clearly challenging a state-owned company for its anticompetitive behaviour. To the best of my knowledge, this is the first time something so blatantly against a state-owned company happens – in the past, just some mergers were partially blocked due to the the high resulting market shares. Now, the CADE is challenging a commercial conduct of Banco do Brasil.
Another interesting aspect of the case regards the fight for jurisdiction over the financial system between the CADE and the Brazilian Central Bank. Normally, the antitrust investigations would be conducted by the SDE. However, the SDE declined to investigate this accusation due to the fact that it is bound to a legal opinion issued by the General Attorney (Advocacia-Geral da União), which determined that the Brazilian Central Bank has exclusive jurisdiction over competition matters in the financial system. The legal opinion was issued after a long debate over who was legally allowed to monitor the competition in the banking and financial markets.
The Brazilian Antitrust Law grants the CADE with great independence and allows it to conduct further investigations whenever it deems necessary. For this reason, the CADE has decided to investigate and prosecute the bank and has requested the Brazilian Central Bank to issue its opinion about the case and Banco do Brasil to present its defense.
The case will once more test the limits of CADE’s independence and may set a milestone for the Brazilian antitrust enforcement, specially when it comes to anticompetitive conducts. Further development on this controversey is expected to happen in the next months. I will keep you posted as the case evolves. For the full content of CADE’s decision, click here.