Major Brazilian banks sued for loans linked to deforestation

April 03, 2011

Brazilian prosecutors have filed suit against the state-run Banco do Brasil and Banco da Amazonia for providing loans to companies that illegally cleared Amazon rainforest and used slave-like labor, reports Reuters.

The Federal Prosecutor (Ministerio Publico Federal) in the Amazon state of Pará sued the banks for breaching "the Constitution, environmental laws and regulations of the Central Bank and the National Monetary Council, as well as international agreements to which Brazil is a signatory," according to a statement released by the prosecutor's office. INCRA, Brazil's agrarian land reform agency, was also named in the suit for failing to control illegal deforestationn.

The prosecutor said their investigation shows that Brazilian taxpayer money directly financed deforestation in the Amazon because of lack of sufficient oversight by INCRA and financial institutions. Banco do Brazil approved at least 55 suspect loans worth nearly $5 million, while Banco da Amazonia gave 37 loans worth $11.2 million. The loans broke a 2008 law that prohibits the lending of public funds to companies that break environmental laws.

If the charges are upheld by courts, the prosecutors say the institutions will need to "pay reparations for damages to the community" and implement "substantial changes" in their policies for financing activities in the Amazon.

"The discovery of this irregular financing demonstrates that the problem is widespread," said a statement released by the Ministerio Publico Federal. It added that the findings are consistent with independent research that established "a direct relationship between public credit and growth in Amazon deforestation."

The prosecutor cited a study by the Environment Ministry which found that a 70 percent rise in the deforestation in Pará from 1999 to 2004 was accompanied by a surge in public lending in the region.

The prosecutor said that financial institutions lent more than $90 billion for rural activities in the Amazon between 1995 and 2009—92 percent of which came from state-run banks.

The Banco do Brasil told the BBC it will look into the charges on a case-by-case basis. The Banco da Amazonia said it will withhold comment until it has investigated the legal documents.

Brazil's deforestation rate most recently peaked in 2004 when 27,772 square kilometers (10,722 sq miles) of Amazon rainforest were cleared. Since then rate has dropped on nearly an annual basis, reaching 6,451 square kilometers for 2010. Analysts attribute the decline to macroeconomic factors — including interest rates and a strengthening Brazilian real — as well as private sector initiatives like the soy and cattle moratoriums and government action, including better enforcement of environmental laws and establishment of protected areas in key frontier regions.

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Major Brazilian banks sued for loans linked to deforestation.