Brazil: The Punitive Multiplicity In The Capital Markets

Last Updated: 26 September 2017
Article by Pedro Pinho

Unlawful conduct in the financial and capital markets is divided into three types: illicit securities and publicly-held companies; the illicit financial market; and crimes, which are subdivided between those against the Financial System (SFN), provided for in Law No. 7,492, of June 16, 1986, and against the capital market, pursuant to Law no. 6,385, December 7, 1976.

For each species, the legislation determines a body exclusively competent to process and sanction the acts in them framed. Administrative offenses within the securities market are processed and (CVM), pursuant to articles 9 and 11 of Law No. 6,385 / 76. THE competence to punish administrative illicit transactions within the financial market, in turn, was given by article 10, item IX of Law No. 4,595, of December 31, 1964, to the Central Bank of Brazil. Crimes against the System National Court are judged by the Federal Court (article 26 of Law n ° 7,492 / 86).

Despite the clear legal distinction between the competent bodies to judge and deal with each gender, matter generates doubts. This is because there is no ontological difference between administrative and criminal offenses. Nothing prevents, therefore, that conduct is unlawful in more than one sphere among those above. It is enough that the law says so.

Take, for example, a financial institution administrator who practices loan disagreement with the so-called "good banking technique", ie giving credit without regard to "(i) the suitability of the debtor; (ii) its economic capacity; (iii) their sources of income; (iv) the actual or personal guarantees that may be to offer; and (v) the term of the operation ". Such an act violates several rules of the Brazilian legal system.

Firstly, those who practice the conduct incurs fraudulent or reckless institution management crime according to the context. Pursuant to article 4 of Law No. 7,492 / 86, the crime has as a Justice, in all its instances, and its punishment varies from two to 12 years, depending on the circumstances and acts that make up the conduct.

Another description given to the same conduct by Brazilian law is "to carry out operations that do not comply with the of selectivity, guarantee, liquidity and diversification of risks ". Exempted by Council regulation National Monetary Council (CMN) [1], the practice constitutes an administrative offense punishable by the Central Bank and Board of the National Financial System (CRSFN - second instance in sanctioning processes within the scope of the SFN) with the sanctions set forth in article 44 of Law no. 4,595 / 64.

There is also a third point of incidence of the act of reckless lending in protection of the capital market managed by the CVM: violation of the legal duties of the companies (mandatory corporate types of financial institutions). Such obligations are in Articles 153 and 155 of Law 6404 of December 15, 1976 (Brazilian Corporation Law). They are the called duties of diligence and loyalty of the administrators, respectively. The CVM understands that the concession borrowing without observance of good banking practice constitutes a breach of such duties and, pursuant to Article 11 of Law n ° 6385/76, is punishable by the autarchy with the penalties provided for therein. Such an understanding is also CRSFN in the second instance.

It creates an apparent contradiction: if the same act fits the right in three different ways, and all generate punitive consequences distinct from these acts, which one should prevail? The widely accepted answer is: all three.

An act can be punished by a court and also in an administrative court. Such a "double punishment" is very where conduct is both criminal and unlawful. This is the known autonomy of the criminal and administrative spheres, a thesis adopted by the higher courts.

The incidence of the act may also occur in more than one administrative sphere, in addition to the criminal sphere. In this case, the CRSFN considers that the two administrative authorities may apply their respective punishments to the same act. The reason for this phenomenon, according to the collegiate, is the existence of more than one protected legal Central Bank protects the stability of the National Financial System and the creditors of the financial institutions of the CVM protects the securities market and the shareholders of the banks, preventive (reparatory tutelage is in the civil sphere).

Therefore, the complex phenomenon of the incidence of multiple punitive norms in the act of irregular management by the concession of bad loans practiced within the financial system may subject (as it has held) the administrators of financial institutions up to three cumulatively applied sanctions. In a scenario of significant increases in penalties for illicit conduct in the financial and capital markets, it is be aware of this possibility.


iItem IX, that of Resolution No. 1,559 of November 22, 1988, of the National Monetary Council: "It is prohibited to financial institutions: a) to carry out operations that do not comply with the principles of selectivity, guarantee, liquidity and diversification of risks; "

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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