Developments in Tri-Border Area Post New Risk to Correspondent Banking

Money LaunderingIt is no secret that U.S. correspondent banking relationships are indispensable to global commerce.  Indeed, access to the U.S. financial system through correspondent banking is integral to foreign banks and to their customers, who often depend on the U.S. dollar as the anchor currency for their deals.  At the same time, U.S. banks are under intense pressure (more than ever before) by regulators and law enforcement to quickly detect and report suspicious activity, and ensure that they are not conduits for illicit funds originating in foreign jurisdictions, and passing through correspondent accounts held for foreign banks.

To that end, in what is certainly not a new phenomenon, U.S. banks are keeping a close watch over their correspondent banking relationships, and quickly moving to exit relationships at the hint of impropriety.  Moreover, it is well documented that some U.S. banks are “de-risking” not because of a specific event but because of the overall financial crime risk a foreign-located bank might pose.  U.S. banks in some instances may not be interested in managing that risk, and would rather avoid the risk altogether by exiting the relationship.  This process led some U.S. banks to terminate correspondent relationships with Latin and South American banks.  While there has been significant discussion around the negative impacts of de-risking by U.S. government officials, it is still prevalent.

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Section 301: Risk in Latin America?

US TradeWhen it comes to trade, President Donald Trump and U.S. Trade Representative Robert Lighthizer are not scared to chart an uncommon path.  The Trump Administration’s use of Section 301 of the Trade Act of 1974 demonstrates this fact.

Section 301 is a tool that grants the president the authority to impose tariffs and/or other trade-related remedies on countries whose trade practices (1) violate, or are inconsistent with, the provisions of, or otherwise deny benefits to the United States under, any trade agreement, or (2) are unjustifiable and burden or restrict United States commerce.  While Section 301 laid mostly dormant for almost two decades, President Trump utilized the authority to  initiate high-profile trade actions against China’s intellectual property (“IP”) practices his high-profile trade actions against China’s intellectual property (“IP”) practices (which has resulted in 25 percent tariffs on approximately $250 billion worth of Chinese products); he is using the statute to take action against India again to potentially take action against France for its digital services tax; and he is reportedly considering using the authority to take action against India.

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Brazil Mid-Year Outlook: The Bolsonaro Administration Scorecard

On June 6, Squire Patton Boggs’ Miami office hosted the Brazil-Florida Business Council and its members for a discussion titled “Brazil Mid-Year Outlook: The Bolsonaro Administration Scorecard.”

The program featured two prominent speakers, Paulo Leme, former CEO and Chairman of Goldman Sachs Brazil and Professor of Finance at the University of Miami Business School, and John Price, Managing Director of Americas Market Intelligence and Professor at Florida International University. Dr. Susan K. Purcell, the former Director of the Center for Hemisphere Policy, University of Miami, moderated the discussion. The program discussed Brazil’s enormous upside potential and the challenges President Jair Bolsonaro faces in his efforts to improve Brazil’s economy. The program also explored the mechanisms by which Mr. Bolsonaro could put into effect his plan to implement promised budget-tightening reforms and help expand the private sector. Mr. Bolsonaro was elected President of Brazil last October with 55.1% of the total votes. No stranger to government, he served as a Federal Deputy for Rio de Janeiro for 27 years. He is known for his strong support of liberal and pro-market economic policies and conservative social policies.

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Sergey Treshchev Speaks on Cryptocurrency, Blockchain and Insolvency at IBA Global Insolvency and Restructuring Conference

Last month Squire Patton Boggs Moscow Office Managing Partner Sergey Treshchev spoke at the 25th Annual IBA Global Insolvency and Restructuring Conference in São Paulo, Brazil.  Sergey, who is also Co-Chair of the Legislation and Policy Subcommittee, IBA Insolvency Section, was a participant in the roundtable discussion on ‘The Impact of technology on insolvency: cryptocurrency and blockchain’.

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New Tariffs: Impact on US-Mexico Trade Industry

On May 30, United States President Donald Trump announced plans to impose new tariffs on all products imported from Mexico to the United States. Such an act would significantly impact binational trade and especially those sectors that have integrated supply chains, such as the automotive, agriculture, clothing, alcohol, electronic devices, and oil and gas industries.

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Section 232 Steel and Aluminum Tariffs Exemptions

On Friday, May 17, 2019, the United States opted to reduce trade tensions with its immediate neighbors – Mexico and Canada – by eliminating Section 232 tariffs on steel and aluminum on imports from those countries, helping to pave the road for congressional approval of the U.S.-Mexico-Canada (USMCA) Agreement. While global trade tensions remain, for the time being President Trump has also postponed the imposition of tariffs on automobiles from Europe and Japan. At the same time as this truce with the North American neighbors, President Trump is seeking to toughen measures on China, which has been accused of unfair trade practices and flooding global markets with subsidized steel and aluminum products.

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Brazil announces next rounds of bids for the pre-salt in 2019

Brazilian FlagOn April 15, the Brazilian National Petroleum Agency (ANP) scheduled the 6th bidding round for the pre-salt under the partnership agreement to be held on November 7. The hearing to discuss pre-notice and drafts of the production sharing agreements will be held on May 6. Companies interested in participating in the bidding must communicate their intention in the bidding round until September 19.

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Despite a Gloomy Outlook, Argentina issues a Public Tender for a 487 Km, 500kV Transmission Line

Electricity Construction WorkerEarlier this month, the Argentine government published a public tender for the construction and operation of a 487 kilometer, high-voltage electricity network, five substations, and ancillary 132 kV infrastructure, ultimately involving five provinces.  This project aims to relieve current transmission congestion and increase the capacity of the country’s existing transmission network through a 15 year term public-private partnership (PPP) contract.  According to the current tender calendar, proposals are due May 2019 and the award of the contract is expected in July 2019, with construction scheduled to last 36 months.

This public tender for large-scale energy infrastructure was published by the Argentine government despite months of negative economic news and events.  Most notably, the country has suffered a gross depreciation of its currency, a 60% interest rate (the highest in the world), brutally high-inflation (48%) and a downgrading of its credit rating, this couple with the fact that it is in the thick of a two-year recession with the economy shrinking 2.5% in 2018 (its worst performance since 2014 the year the previous government defaulted on its debt).

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An Uncertain Future for Foreign Investment in Mexico?

On October 31, Fitch Ratings lowered its long-term outlook for Mexico from stable to negative, while keeping the country’s sovereign credit rating at investment grade.  This, largely in reaction to Mexico President-Elect Andres Manuel Lopez Obrador’s (also known as AMLO) statement on October 29 that once in office he plans to cancel the continued development of the US$13.3 Billion partially-constructed New International Airport of Mexico City (NAIM).  The NAIM, sited on the outskirts of Mexico City in Texcoco, is considered the largest airport under construction in the world.   Such move comes as a result of AMLO’s presidential campaign promise to combat alleged corruption and overspending on such project, and to hold a referendum for the public to determine whether to shut down its continued construction.  Bolstered by the results of such referendum held on October 29,  AMLO has announced that instead of continuing with the NAIM, he will support a plan to revitalize and expand an existing military airport to supplement the capacity of the Benito Juarez International Airport that currently receives 44 million passengers per year, but was originally only designed to handle 32 million annual passengers.

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President Macri’s Reforms

Argentina Financial CrisisDuring a recent visit to Washington, DC, Argentina’s Minister of Production and Labor, Miguel Braun, stated that Argentina’s government continues to strengthen its economy by focusing on increasing foreign direct investment to the country.

Minister Braun also stated that, while preparing for presidential elections in October 2019, President Mauricio Macri will continue to implement economic and fiscal reforms and work on simplifying institutional bureaucracy in order to improve the business environment in Argentina.  For example, Macri’s administration is reforming ministries, such as the Ministry of Agriculture and Foreign Affairs, in order to streamline processes and create a more competitive market that further facilitates exports. A new digital trade system is expected to expedite exports in various sectors and make foreign investment easier.

Minister Braun further reinforced that President Macri is committed to strengthening economic growth, tightening fiscal policies and developing national infrastructure. In an effort to restore investor confidence and boost Argentina’s economy, President Macri agreed on a lending package from the International Monetary Fund for $57 billion. Argentina has already received $15 billion and will have access to another $35 billion by the end of 2019.

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