International Law Office: Courts consider illegality of fines imposed on banks by police

Litigation – Brazil

Courts consider illegality of fines imposed on banks by police

Contributed by Leite Tosto E Barros Advogados
July 12 2011

The Federal Police Department – a body of the Ministry of Justice – stipulates, among its major institutional actions, the monitoring of financial institutions and private security companies, particularly in regard to security services provided in bank branches.

In accordance with Law 7.102/83, in order to operate, every bank branch is required to obtain approval of its security plan by the department. The plan must include minimum security requirements for the bank, such as:

electronic equipment (security cameras and alarms);
bullet proof cabins; and
other tools that will protect the financial institution from the actions of criminals.
Although the requirements are specified in the above-mentioned law, the monitoring of banks’ security has largely been conducted on the basis of the department’s Decree 387/06, which sets out penalties for a large number of situations not provided for by the law.

Financial institutions have a legal obligation to work only with approved security plans and the department has imposed penalties in several instances – such as for submitting plans after the statutory deadline has passed or for not obtaining the department’s approval, even in cases where the establishment is not operational – even though these penalties are not provided for by law.

Moreover, due to the demographic growth of these financial institutions throughout the country, official notifications issued by the federal police have multiplied, resulting in significant pecuniary liabilities for financial institutions, with fines ranging from R10,000 to R20,000 per notification.

Facts

On June 17 2011, in HSBC Bank Brasil v Federal Police Department (292/2011-B), the First Region Federal Court considered whether the enforcement of such penalties by the federal police went beyond the power established by law. The police had imposed penalties on the bank based on Decree 387/2006 and not by Law 7.102/83. The bank had requested a stay, by means of an injunction, of all effects of the sanctions, including the immediate payment of fines.

Decision

The court ruled in favour of HSBC, based on what it considered to be a violation of the principle of strict legality – that is, any action arising from police power must be provided for specifically by law – as the above penalties did not meet this requirement.

The judge also noted that the courts have already ruled against several similar administrative rulings that exceed the regulatory powers of the police by establishing penalties that are not detailed in the law. The judge granted a temporary stay of the sanctions, pending a final decision.

Comment

This case and similar rulings may prompt a legal battle between private corporate bodies and the federal government. Ultimately, the Supreme Court is likely to be charged with deciding the legality of these notifications and their proportionality in relation to the principles of freedom of enterprise and public safety.

For further information on this topic please contact Eduardo Maffia Queiroz Nobre or Patrícia Rios at Leite Tosto E Barros Advogados by telephone (+55 11 3847 3939), fax (+55 11 3847 3800) or email (eduardomqn@tostoadv.com or patriciacr@tostoadv.com).

Comment or question for author

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