Foreign lenders and investors who finance Brazilian companies via export prepayment, direct loan, equity, among others, must observe, provide in contracts and comply with regulations on ‘international sanctions’ to avoid relevant legal and financial charges, both in Brazil, the United States, and other countries.
See below 4 key aspects about ‘International sanctions’ in foreign credit transactions with Brazilian companies:
1. What are International Sanctions? International sanctions are comprehensive or selective measures aimed at the unavailability, blocking and restrictions on assets or transactions involving certain countries, companies or persons.
2. Who Applies International Sanctions? International sanctions can be imposed by the United Nations Security Council, and also by specific countries, notably the United States, through OFAC (Office of Foreign Assets Control).
Brazilian Federal Law 13.810/2019 provides that sanctions imposed by resolutions of the United Nations Security Council and also by a foreign central authority must be complied with in Brazil, which includes international transactions involving Brazilian parties.
3. Lenders and Investors Must Due Diligence and Surveil Compliance With International Sanctions: Foreign lenders and investors must carry out due diligence on the Brazilian companies they finance to confirm that such companies do not carry out commercial, financial and other transactions with countries, organizations and persons subject to international sanctions.
After the funding transaction has been signed, foreign financiers must obtain periodic certification from financed Brazilian companies to reassure that they continue to comply with international sanctions provisions.
4. Contracts Must Provide for Representation and Obligations Regarding Compliance With International Sanctions: The main contracts for international credit and investment transactions, including export prepayments, direct loans, bonds, and others, must contain (i) in the Representations and Warrants section, a declaration by the borrower that it complies with the rules involving international sanctions and that it does not carry out commercial, financial and other transactions with countries, organizations and people subject to international sanctions and (ii) in the Negative Covenants section, an obligation that, until the outstanding balance is fully paid, it will not carry out commercial, financial or other transactions with countries, organizations and people subject to international sanctions.
Compliance with international sanctions is essential for both the foreign lenders and investors, and Brazilian borrrowersas non-compliance may result in penalties, including financial ones, with a material negative impact.
