(Provisional Translation)

December 16, 2004
Financial Services Agency
The Government of Japan

Administrative Actions on Banco do Brasil S.A. Japan Branch Office

I. Reasons for the Administrative Actions

Based on an inspection of the Tokyo Branch of Banco do Brasil S.A and each of the business offices (Hamamatsu, Nagoya, Gunma, Ibaraki, Nagano, and Gifu, totaling 6 offices) that report to the branch (hereinafter collectively referred to as the ''Japan Branch Office'') by the Financial Services Agency [hereinafter referred to as the ''FSA''] (notification dated September 8, 2004), and a report submitted by the Tokyo Branch pursuant to the provisions of Article 24-1 and 48 of the Banking Law, the following fundamental problems were recognized in the compliance and governance systems of the Japan Branch Office in connection with sound and proper management of operations:

1. Violations of Laws and Regulations

(1)	The Japan Branch Office was, in its day-to-day operations control, found to have committed a number of acts in violation of laws in connection with its duty to identify customers pursuant to Article 3 of the Law on Customer Identification and Retention of Records on Transactions by Financial Institutions (hereinafter referred to as the ''Customer Identification Law''), and the duty to create records of customer identification pursuant to Article 4 of the law, and the duty to report suspicious transactions pursuant to Article 54 of the Law for Punishment of Organized Crimes, Control of Crime Proceeds and Other Matters (hereinafter referred to as the ''Anti-Organized Crime Law'').
(2)	In particular, the Japan Branch Office repeatedly and continuously over a number of years accommodated large-value transactions that were brought in by several operators of remittance services (so-called underground banks that operate without a license in violation of the Banking Law) that put together remittance requests of a large number of foreigners residing in Japan, convert Japanese yen to foreign currencies and arrange remittances through legitimate banks to offshore recipients who are designated in advance by their clients. In spite of being aware of the nature of the business of these operators and the presence of their numerous clients, the Japan Branch Office was found to have failed to perform properly its duty of customer identification and to report suspicious transactions. Furthermore, the Japan Branch Office did not file any reports with the FSA even after questions were raised within the bank about the legality of the operators' business, and continued to do business with some of these operators. Later, one of these operators was arrested by the law enforcement authorities and convicted.
(3)	In addition, violations of the reporting duty pursuant to by Article 53-1-8 of the Banking Law and to Article 35-1-25 of the enforcement regulations of the same law are noted as the Japan Branch Office failed to file a report with the FSA in spite of the fact that some bank employees had committed misconducts as the embezzlement of deposits and cash withdrawals with a falsified signature.

2. Problems relating to the Governance and Internal Control

(1)	The management at the Tokyo Branch, as well as the department and the individuals in charge of operations control at the head office of Banco do Brasil S.A. (hereinafter referred to as the ''Bank Headquarters''), which summarily control the operations of the Japan Branch Office, were found to lack fundamental knowledge of Japan's Banking Law, as well as other laws and regulations. Such problems as the incompleteness of the system of proper supervision and controls over operations, and the absence of proper self-inspection and audits in compliance with various laws and regulations have been identified.
(2)	Furthermore, a number of bank employees in the supervisory departments of the Japan Branch Office were found to lack proper or adequate knowledge of or experience in banking operations. Additionally, workers sent in by outsourcing companies were not given proper supervision, control or training in spite of the fact that they were assigned to important routine duties to a large extent.
(3)	Violations of laws and misconducts at the Japan Branch Office were overlooked for a number of years, mainly for the reasons that are described in (1) and (2) above. Supervision- and control-related problems are thus identified in that neither the Bank Headquarters nor the Japan Branch Office implemented actions in a timely or proper manner in the early stages of the incidents, investigated or analyzed the cause of the incidents, examined ways to prevent their recurrence, or filed required reports.

II. Description of the Administrative Actions

1. Suspension Order based on Article 47-2 and Article 27 of the Banking Law

Operations being associated with foreign exchange and remittance transactions with new corporate customers (with the exception of operations that relates to transactions with existing corporate customers) are suspended, starting on December 24, 2004.

After December 26, 2005, the FSA may review the suspension order in light of the progress made by the Japan Branch Office with respect to the implementation of the Corrective Action and Business Improvement Plan ordered to be submitted by the FSA as stipulated in (2) below, when the Japan Branch Office requests to the FSA for resumption of the business suspended.

2. Business Improvement Order based on the provisions of Article 9 of the Customer Identification Law, and Articles 47-2 and -3, and Article 26-1 of the Banking Law

(1)	In order to ensure thorough compliance with laws and regulations, proper governance and internal control systems to supervise and control Japan Branch Office must be established (and include staffing and the construction of a system) with due emphasis on the following points: A fundamental reexamination of the organizational and operational facets of the customer control system for the purpose of rectifying the violations of the duty of customer identification pursuant to Article 3 of the Customer Identification Law and the duty to create records of customer identification pursuant to Article 4 of the law. A fundamental reexamination of the organization and operation for the proper execution of operations for the purpose of ensuring the performance of the duty to report suspicious transactions pursuant to Article 54 of the Anti-Organized Crime Law. Construction of governance and internal control systems to continuously, accurately and properly supervise and control the operations of multiple sales locations in Japan (the branch and the business offices), predicated upon a fundamental reevaluation of the role of the Bank Headquarters in the management of the Japan Branch Office, and clarification of the system of responsibilities. Thorough understanding of and compliance with laws, regulations, and rules by officers and employees, as well as fostering and enhancement of awareness regarding the need for compliance with laws and regulations. A fundamental review of the system and methods to audit the operations of the Japan Branch Office to ensure sound business operations and controls in conformity with the laws and regulations; responsible implementation of audits, and the implementation and strengthening of follow-up on audits.
(2)	Responsibilities of the officers and employees that gave rise to the problems described in '' I. Reasons for the Administrative Actions '' hereunder, including violations of laws and regulations must be clarified.
(3)	A plan to improve business operations pertaining to (1) and (2) described above, as well as matters that are described in the notice of inspection results and the report ordered based on Article 24-1 of the Banking Law, must be submitted by January 17, 2005, and implemented promptly. (The improvement plan must encompass the development and establishment of a governance system to ensure the implementation of the plan, as well as a clear assignment of responsibilities to ensure the execution of the plan.)
(4)	Subsequent to the implementation of (3) described above and until the plan to improve such operations is fully carried out, a summary outlining the progress and implementation of the plan, etc. and the status of improvement must be prepared every three months, starting with the end of March 2005, and submitted by the 15th day of the following month.