Millions in U.S. Dollars Stolen in Exchange Fraud, Brazil Says

A criminal gang siphoned hundreds of millions of U.S. dollars from Brazil’s foreign exchange reserves in fraudulent financial operations that used 20 commercial banks, including five in New York, to falsify documents for fictitious imports, Brazilian authorities say.

Federal police investigating the case have officially opened dozens of inquiries, including several Friday in Rio. Federal Police Chief Romeu Tuma said he will send a team of federal police officers to the United States next week for further investigations there.

Justice Minister Saulo Ramos said in a Thursday news conference that the scam was “the biggest exchange fraud in the history of Brazil” and served as a way to launder money from drug trafficking. Ramos told reporters that the gang also may have helped companies in Brazil illegally remit profits from the country.

He admitted a possibility of “involvement by high public officials in the operation.” No government officials have been charged in the case, but Tuma said seven people indicted so far include an employee of the Banco do Estado de Paraiba, a commercial bank owned by a northeastern Brazilian state.

Tupy Caldas de Moura, a Central Bank official, said the fictitious imports were documented under the names of corporations that existed only on paper. Investigators have found nearly 600 fraudulent import contracts, dating from 1987, that drew an estimated $360 million from Brazilian dollar reserves.

Investigators believe that all of the frauds were committed by the same gang, Moura said. “The irregularities found in the various operations are very similar,” he said.

New York banks named by Justice Minister Ramos were Manufacturers Hanover, Bank of New England, First New York Bank for Business, First Woman’s Bank and a U.S. office of the Brazilian bank Bamerindus. Ramos also named 15 banks in Brazil and six brokerages.

“The bankers will have to help in the investigations since they all have responsibility, at least for lack of vigilance,” Ramos said.

Leo Wallace Cochrane Jr., president of the Federation of Bank Assns. of Brazil, said the fraudulent operations began with falsified government documents that cannot be blamed on banks.

“The involvement of the banks is zero,” he said.

Here is how officials say the scheme worked:

A “drone” working for the gang filled out a form requesting an import permit from the government bureau of foreign trade, known as Cacex. Once the permit was approved, the gang altered figures on it to increase the value of the import.

With the permit, the gang obtained a document called a “declaration of importation” from another government office. A financial broker delivered the permit and the declaration to the exchange department of a commercial bank.

Meanwhile, someone claiming to represent a fictitious exporting company in the United States had a bank in New York send a false invoice and bill of lading to the bank in Brazil. With the documents from both ends of the false transaction, the bank in Brazil accepted a check in Brazilian cruzados from the “importer” and completed an exchange contract, telexing an order of payment in dollars to the U.S. “exporter.”

Officials say the payment in cruzados by the gang violated Central Bank regulations requiring such payments to be made from an account in the importing company’s name. Instead, the gang used cashiers checks, checks payable to the bearer and even cash.

Because the dollars were purportedly for authorized imports, they were drawn at the official exchange rate from the Central Bank, as required for all international transactions. Later, the gang brought some of the same dollar funds back to Brazil and traded them on the black market at a premium rate that sometimes is more than double the official rate.