811.51632 National City Bank/1: Telegram
The Acting Secretary of State to the Ambassador in Brazil (Morgan)
6. The Department was informed this afternoon by telephone by the National City Bank, New York, that they have received notice that the Government of Brazil will fine the São Paulo branch approximately three million dollars. The fine was recommended by the Inspector General of Banks and two-thirds of the amount goes to the Government and one-third to the Inspector General. The bank states that basis of fine is that their exchange man at São Paulo conspired with a broker without the knowledge of the bank and had been selling sterling exchange in London, Berlin and Buenos Aires to the amount of about one million pounds. The items were not entered on the books and when confirmatory letters came in they were confiscated by him so that managing officer of branch knew nothing of the transaction. On December 30, 1929, the auditor discovered entries in the books not in accordance with the day’s rate and took the matter up first with the exchange man and then with the manager. It appears that if the transactions were successful the exchange manager was to get 25 per cent profit. The transactions were thus disclosed and the bank has since been trying to straighten out the matter with the banks outside of Brazil. These dealings were illegal because made at 120 and 180 days whereas local regulation, although it is not a law, prevents such transactions in excess of 90 days.
Bank states all facts presented by bank to Inspector General and the Minister of Finance and they believe facts are known to President Washington Luis and also to the Ambassador. Local representatives of bank want the matter reported to Washington and state that if the regulations are valid they did not become effective until January 18, or nearly 3 weeks after the facts were disclosed and the transactions terminated. Bank states it is ex post facto legislation or rather regulation of the banking department designed to permit the fine. Wide publicity of the fine has been given in the Brazilian press but no notice has been served on the bank. Fifteen days after notice is served the bank must put up three million dollars in cash or securities before it can appeal to the Minister of Finance. Bank states there is possibility that matter is done for political effect and requests that notice be not presented to the bank for the time being and certainly not until after the elections next Saturday.[Page 465]
Representative of bank will come to Washington early next week to present full facts. In meantime please report briefly by cable and fully by mail regarding the situation and you may, unless you perceive some objection thereto, present to the proper Brazilian authorities the request of the bank regarding delay in notification of the fine.