On November 18, 2025, Brazil’s Central Bank liquidated Banco Master, a small Brazilian bank known to local investors for its bonds with premiums well above market average. The Central Bank’s decision was both an endpoint for a banking fraud and the beginning of a larger investigation into Banco Master’s connections with other financial institutions, politicians, judges, and criminal organizations. In the past three months, the investigation evolved into Brazil’s most significant corruption scandal since the now-famous Operation Car Wash. The scandal and its aftermath could affect foreign investors.
In March 2025, BRB, a bank owned by a Brazilian local government, announced its proposed acquisition of Banco Master, a small, privately-owned Brazilian bank known for its bonds with above-market average premiums, shaky financial situation, and an owner who was known for lavish spending. This announcement was seen with concern by Brazil’s Central Bank and surprise by the public.
A month later, local prosecutors opened an investigation into the matter. In June 2025, at the request of prosecutors, a local court issued an injunction blocking Banco Master’s acquisition by BRB. The injunction was later annulled and the banks proceeded with negotiations for their proposed deal.
In September 2025, the Central Bank finally decided to reject the acquisition. At the same time, Brazil’s Federal Police (“PF”) initiated an investigation into Banco Master based on information the Central Bank shared with federal prosecutors.
Two months later, another financial institution announced its willingness to acquire Banco Master. Before this second deal could proceed, on November 18, PF launched the so-called “Operation Compliance Zero” and arrested the owner of Banco Master based on an alleged fraud of BRL 12 billion (approximately USD 2.3 billion). The Central Bank liquidated Banco Master that same day. This is now Brazil’s largest bank fraud in history.
Following the liquidation of Banco Master, PF launched a second phase of Operation Compliance Zero and cast a significantly wider net, uncovering Banco Master’s connections with other public and private financial institutions, politicians, judges, and criminal organizations. This plunged Brazil into significant political and institutional tension.
The Central Bank and PF findings, coupled with a series of investigative reports by the main Brazilian media outlets, point to a large number of criminal activities. They potentially include: state and local pension funds fraud; carbon credits fraud; market manipulation; corruption; and money laundering, including for Brazil-based First Capital Command (“PCC”), Latin America’s largest criminal organization.
The investigations and press reports also indicate Banco Master’s political connections with former and current members of President Luiz Inácio Lula da Silva’s administration, members of Congress, Supreme Court justices, and several mayors and governors. In particular, a recent PF report shared with the Supreme Court seems to have evidence of potentially illegal payments to the justice who formerly led the case.
It is unclear how the investigations will unfold, but if Operation Car Wash can be used as a reference, it is not unreasonable to expect more phases of Operation Compliance Zero. Moreover, the evidence found so far connects Banco Master with other, parallel PF investigations on Social Security fraud, and on PCC’s infiltration in the Brazilian economy and government. These connections could consolidate into an umbrella investigation with multiple branches, similar to what happened in the years of Operation Car Wash.
The Banco Master scandal and its aftermath could have implications for foreign investors. While there seems to be no immediate and direct impact, aside from the increased perception of corruption and political risk, there might be long-term consequences.
A first possibility is the tightening of financial regulation. There is a growing consensus that Banco Master sustained its fraudulent operation for so long due to a combination of weak regulation, poor oversight, and lack of prompt enforcement. This can lead to a new wave of financial services regulations. It can also lead to new and more stringent regulation of the carbon credits market.
A second possibility is the revision of existing legislation. The investigation and press reports point to Banco Master’s potentially corrupt activities to enact or block legislation in Congress. If PF uncovers more evidence of these activities, there might be a push to revise legislation deemed tainted by corruption.
A third possibility is judicial reform. The fact that two of the 11 Supreme Court (plus one of the former) justices have connections with Banco Master’s owner, including suspicious contracts and payments to the justices’ relatives, can create the political impetus for reforming the Judiciary branch, which could include the adoption of new ethics rules, changes to its watchdog agency, and more public scrutiny of court decisions. It is worth noting that PF also has been conducting a parallel years-long investigation into the selling of court decisions by multiple state and federal courts’ judges.
A fourth possibility is the “contamination” by Banco Master’s assets. At this point in the investigation, it is clear that the bank managed several funds and issued different financial products that touched on a number of other financial institutions and companies. Some of these funds seem to also be connected to PCC money-laundering activities. If the investigations demonstrate a higher level of contamination and/or if President Donald Trump’s administration decides to designate PCC as a foreign terrorist organization, the Banco Master scandal can—similarly to what happened with Operation Car Wash—branch out into a multijurisdictional issue.
Finally, although unclear yet, the scandal might impact the October 2026 presidential election. President Lula will likely run for re-election and is currently leading the polls by a narrow margin, but developments in the investigation related to members of his cabinet and party might result in a higher electoral cost for him.
The combination of two or more of these possibilities can create additional challenges for foreign investors in Brazil, as well as some opportunities, in particular if regulatory changes and reforms result in a lower level of corruption.
If you have any questions concerning the materials discussed in this update, please contact the following members of our Brazil Initiative team.
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