Overview
Brazil is embroiled in its most significant fraud investigation since the 2014 Lava Jato probe, following the largest bank fraud in the country’s history. The current crisis has upended the 2026 presidential race, boosting support for incumbent President Luiz Inácio Lula da Silva (Lula) and throwing a wrench in the campaign of Flávio Bolsonaro, the son of former President Jair Bolsonaro. Lula, who was previously jailed in the aftermath of Lava Jato, is running for his fourth term in office. Flávio Bolsonaro is running in lieu of his father, who is currently serving a prison sentence following a 2023 coup attempt.
The fraud scandal began with the liquidation of Banco Master after Brazil’s Central Bank blocked its acquisition. A subsequent investigation by the Federal Police has ensnared two supreme court justices, a senator, a former governor, bank regulators, and more recently, Flávio Bolsonaro himself. While powerful figures on both sides of the political spectrum have been implicated, the investigation is increasingly exposing ties between the former head of Banco Master, Daniel Vorcaro, and the Bolsonaros’ allies. As the investigation continues to expose corruption across the Brazilian establishment, emerging risks include institutional instability amid regulatory overhauls, financial volatility, political uncertainty in a key election year, and ripple effects across multiple economic sectors.
The Wolf of São Paulo
The Banco Master scandal erupted in 2025 after two failed acquisitions of the bank prompted an investigation. The net worth of Banco Master had soared under the management of Daniel Vorcaro, who acquired it in 2018. The bank’s credit portfolio grew from R$1.4 billion (~$274 million) to R$40 billion (~$7.8 billion) from 2019 to 2024, largely fueled by the high-risk strategy of selling fixed-term deposits with interest rates far above competitors. These deposits were insured by the Brazilian deposit insurance fund, but the money was funneled into high-risk operations and fictitious credit portfolios. The bank simulated solidity through transactions with nonexistent assets, selling fake credits to Bank of Brasília (BRB), without ensuring it would have the liquidity to pay back its 1.6 million investors.
Warning signs had already emerged in 2025, when BRB sought to acquire Banco Master. The bank, then valued at $16 billion, was in a liquidity crisis, and critics of the acquisition deal described it as a public bailout of a private bank that was allowed to take on too much risk. Brazil’s Central Bank blocked the purchase in September 2025. Vorcaro sought another buyer to rescue Banco Master, announcing its sale to Fictor Holding Financiera on November 17, 2025. Just hours after the announcement, Vorcaro was arrested at São Paulo’s Guarulhos airport, and Banco Master’s liquidation was ordered the following day. The bank held only 10% of what it needed to cover immediate deposit maturities, and 1.6 million creditors needed to be compensated for a total of more than R$50 billion (~$9.8 billion) by the Credit Guarantee Fund – the largest bailout in Brazil’s history.
Operation Compliance Zero
Following Vorcaro’s arrest, Brazilian authorities launched further phases of the Banco Master investigation – Operation Compliance Zero – to uncover Vorcaro’s extensive networks in Brasília and the country’s top echelons of power. Authorities issued dozens of search and seizure warrants and froze billions of reais in assets, implicating powerful officials including Supreme Court Justice José Antonio Dias Toffoli and Supreme Court Justice Alexandre de Moraes. Toffoli initially led the investigation of Vorcaro at the Supreme Court but recused himself following the discovery of alleged financial transactions linking the judge to the disgraced banker, and a private flight with a lawyer for Banco Master.
The Supreme Court’s reputational crisis deepened after reports emerged of a R$129 million (~$25 million) legal contract between Banco Master and a law firm run by the wife of Moraes. Moraes gained notoriety as the judge who led the five-member panel that sentenced former President Jair Bolsonaro to 27 years and three months in prison for attempting a coup in January 2023. Before the Banco Master scandal, Viviane Barci de Moraes’s law firm signed a contract to represent Banco Master for $24 million until 2027. A journalist from O Globo reported that Alexandre de Moraes personally reached out to Central Bank Chair Gabriel Galípolo to express approval of the sale of Banco Master to BRB.
A new phase of the investigation revealed that Moraes messaged Vorcaro the morning of his November arrest, leading the Senate’s organized crime committee to invite both Moraes and Toffoli to testify. Vorcaro was arrested again on March 4 after the Federal Police found messages on his cell phone discussing the possibility of violent actions against former employees and journalists. This phase of the investigation, led by Supreme Court Justice André Mendonça, uncovered details of Vorcaro’s private militia led by Luiz Phillipi Machado de Moraes Mourão, also known as Sicário. After being detained by the Federal Police under Operation Compliance Zero, Mourão committed suicide in his cell.
In April, the Federal Police arrested BRB President Paulo Henrique Costa. Investigators alleged that Costa had agreed to receive R$146.5 million (~$28.7 million) in bribes from Vorcaro through real estate transactions, R$74 million (~$14.5 million) of which was allegedly paid. The investigation also targeted Senator Ciro Nogueira, who served as chief of staff to Jair Bolsonaro from August 2021 to December 2022 and allegedly received monthly bribes from Vorcaro. Investigators revealed that Banco Master advisors drafted a failed constitutional amendment supported by Nogueira in 2024 that would have increased the Credit Guarantee Fund’s ordinary guarantee by a factor of four. Recent phases of the investigation have targeted Vorcaro’s father, Henrique Vorcaro, who allegedly managed the family’s ties to organized crime, and Cláudio Castro, the former governor of Rio de Janeiro state, over irregular investments of state funds including public pensions.
Bolsonaro and the Dark Horse Leak
On May 13, the investigative outlet Intercept Brasil published a bombshell leak linking Vorcaro and Flávio Bolsonaro, who had asked Vorcaro for up to R$134 million (~$26 million) to fund a movie titled Dark Horse about his father. Allegedly, R$61 million (~$12 million) of the Dark Horse funds had been paid to the Bolsonaro family between February and May 2025.
Flávio Bolsonaro had previously denied having any connections to Vorcaro, describing such allegations as a false narrative. After the leak, he described his communication with Vorcaro as purely an attempt to raise private fundraising for the film. However, the revelation shed light on the Bolsonaros’ ties to the very establishment that the film sought to rally against. Jair Bolsonaro rose to victory in 2018 on an anti-establishment right-wing platform that denounced corruption amid the country’s elites, which Flávio Bolsonaro’s 2026 campaign sought to emulate.
Political Implications and Risks
The fallout is already having an immense impact on the country’s domestic politics. Vorcaro has become radioactive, with parties on both sides of the political spectrum seeking to implicate their rivals. At the beginning of the year, the public associated the scandal with the governing Workers’ Party, which has long faced allegations of state graft. However, as the investigation went on, figures on the right have increasingly been exposed, and President Lula has enjoyed a surge in the polls. A survey by AtlasIntel in May found that 43% of respondents believed that Bolsonaro allies were more involved in the fraud, while 33% blamed allies of Lula. According to a June 2026 poll by Quaest, Flávio Bolsonaro now trails Lula by six points in a potential presidential runoff, an eight-point drop for Flávio Bolsonaro from April.
With his campaign now in crisis, Flávio Bolsonaro paid a visit to the White House on May 26, just 19 days after Lula met with President Trump in Washington. At Flávio Bolsonaro’s request, the United States officially designated two of Brazil’s largest criminal organizations, Comando Vermelho (CV) and Primeiro Comando da Capital (PCC), as terrorist organizations. President Trump has supported the Bolsonaros in the past. He responded to Jair Bolsonaro’s prosecution in Brazil with tariffs on Brazilian imports and sanctions on Alexandre de Moraes. The 2025 tariffs were later reversed, but trade tensions resurfaced when the US Trade Representative proposed new 25% tariffs on Brazil under Section 301.
The new designations of CV and PCC, which Lula quickly condemned, have been leveraged by the Bolsonaro campaign, which blames the current government for failing to contain gang violence. However, the move also has wider implications for businesses operating in Latin America. The designations create risks of secondary sanctions to the extent that the CV and PCC have infiltrated other sectors of the economy or local supply chains. Companies that engage with designated entities at any point in the supply chain can face penalties.
In addition to Banco Master’s impact on the upcoming presidential elections, the scandal has led the Supreme Court into its deepest crisis in years. In response to the entanglement of two sitting justices, calls for judicial reform have intensified. Justices Flávio Dino and Edson Fachin have backed reforms to crack down on corruption. Fachin, the president of the court, recently created an expert working group to formulate proposals for reform by the end of 2026.
For foreign investors in Brazil, the scandal adds a new level of institutional risk to the equation. The Central Bank has responded aggressively to the scandal with new regulations on how banks distribute digital products. However, the Central Bank itself lost much of its credibility after evidence emerged that two senior regulators secretly advised Vorcaro and allegedly accepted bribes. Critics argue that, while the Central Bank did eventually act, the dissent of these directors prevented regulatory decisions that could have come sooner.
As the crisis continues to unfold, it appears that these revelations are only the tip of the iceberg. Vorcaro is pursuing a plea deal, which was rejected for the second time this week. The Federal Police maintained that such an arrangement would only be viable if Vorcaro provided new information implicating additional authorities in the fraud. A US bankruptcy court in Florida recognized the liquidation proceedings of Banco Master, freezing Vorcaro’s assets in the United States. The Brazilian liquidator has sued for the return of US assets. Meanwhile, Flávio Bolsonaro’s campaign is focused on damage control while coming to terms with its weakened position in the 2026 race.
