domingo, 9 de julho de 2017

EUROPEAN BILLS OF EXCHANGE AND THE BRAZILIAN BANKS


The use of negotiable instruments in Brazil is very different from it use in Europe.

I have a case that illustrates that in an informative and funny fashion.

One of my clients, a European company, performed sales of electronic equipment worth several million dollars to a Brazilian buyer.

We drafter a very good sales contract, according to Brazilian law. It was dully signed and executed. Things were looking good.

However, the bank financing the production of the good (my client`s bank) demanded a very specific kind of security linked to the agreement. It wished for a Bill of Exchange.

That is when the problems began.

Brazilian businessmen are used to 3 kinds of negotiable instruments: CHEQUES, PROMISSORY NOTES and, in case of import/export, LETTERS OF CREDIT.

This is pretty much it. In some specific markets, especially in agribusiness, people may use a special note called Warrant. But, apart from that, one would be hard-pressed to find a template of a Bill of Exchange. Let alone use one.

We tried to explain this to the client`s bank and suggested that it replaced the BoE for a promissory note. But the bank was inflexible.

At the end of the day, the solution was to use a Bill of Exchange in which the drawer drew on himself, payable to his own order. That is to say, we have used the Bill of Exchange as if it were, effectively, a promissory note (since there was no third-party acting as a payee).

This solved the crisis, in theory. However, the template used by my client had a blank field that should be filled in with the information of a Brazilian bank, who would, under ideal conditions, be the payee of the BoE.

The field was filled in with the name of the buyer’s bank, but without many specific details about the account. Most importantly, it didn`t contain the banks written acceptance.

This is a curious fact. Obtaining the acceptance of a Brazilian bank to a Bill of Exchange is almost impossible. It is only practicable in large transaction (such as the construction of a stadium). And, to achieve that, the bank will ask for a great deal of counter guarantees from the drawer. Lawyers will review it for weeks, etc.

This is not something that is available to a regular wholesaler or small-business owner.  “Normal” people, so to speak, will use cheques.

This specific aspect of the Brazilian bank system will play a part in the story soon.

Well, after the BoEs have been signed, the client wished us to mail it to Europe, so that it could keep it in his safe.

But then another aspect of the infamous “Brazilian Cost” (the overall name for the small but persistent setbacks that haunt people who do business here) presented itself: the postal service and the courier services working in Brazil (DHL, FedEx, etc.) refused to transport the bill, unless we hired insurance. The cost of the insurance was about 15 thousand dollars.

So, the client bought a plane ticket and came here to pick them up. And that was it.

A couple months later, when the payment of the Bills was due, the Brazilian buyer asked to redeem the hard copies, so that he could make the payment.

At this point, my client told me not to worry. After all, the Bills of Exchange had been mailed (without insurance) to the client`s bank address in Brazil.

I was truly shocked to hear that.

It seems that someone in my client`s financial department just followed the standard procedure they used with other European clients and maild the Bills to the buyer`s bank, expecting the bank to pay it.

The problem is that this procedure is not even conceivable in Brazil. Mainly because Brazilian banks do not act as payees for Bills of Exchange. But also, because nobody in Brazil uses courier or mail to transfer negotiable instruments. They are always closely watched and transferred hand to hand, accompanied by a receipt of some sort.

Well, the person who signed for the delivery of the notes was a common employee of the bank, maybe a security guard or an intern, who used only his first name (which is usual). We couldn`t identify him.

After several phone calls and visits to the bank, I finally spoke to the person who handled the Bills. They ended up being directed to the foreign exchange desk, since they were written in English and “looked like an international thing”.

The person in the forex desk told me, plainly: “I kept it for a few days, then threw it in the trash bin”.

And, just like that, the BoEs were history.

Luckily, the agreement allowed us to receive payment even without the notes.  But the lawyers of the buyer demanded us to draft a series of documents, voiding the original Bill.  The payment was delayed for months, until we could formally prove that the Bill were destroyed.


The point is: Brazil is just like the rest of the world, but different. Try to adapt your business to the Brazilian system. Things will be easier this way.

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