TIAA and a major sugar producer have found themselves embroiled in a probe into possible breaches of land-purchase rules in agricultural superpower Brazil.
Incra, the Brazilian agency that demarcates farming land, concluded in a preliminary report that the indirect involvement of Teachers Insurance and Annuity Association of America in property acquisitions represents an infringement of foreign ownership restrictions.
Though TIAA and its local partner said they're compliant and are fighting the allegations, the case may set off alarm bells among several foreign investors who have found ways to bypass ownership restrictions to buy or lease agricultural property in Brazil, the largest exporter of soybeans, sugar, coffee and beef.
At the center of the investigation is Tellus Brasil Participacoes, which is owned by sugar giant Cosan and a subsidiary of TIAA. According to Incra's report, to which Bloomberg had access, several Tellus acquisitions breach Brazilian law, meaning it doesn't have full rights over farms covering 32,000 hectares (79,000 acres) in the states of Mato Grosso, Maranhao, Piaui and Sao Paulo.
Incra said Tellus is part of a group that has foreign companies as major shareholders, which makes the venture equivalent to a foreign company. TIAA and Cosan Ltd., which is based in Bermuda and controls Cosan SA, appear as shareholders in a chain of companies behind Tellus.
Among members of the group being assessed are Cosan and Radar SA, a firm owned by Cosan and TIAA that specializes in land deals. In November 2012, Radar owned 392 farms covering 151,468 hectares, of which 43,285 hectares were bought that year, another Incra report shows.
While the regulation has constrained land purchases by foreigners over the past decade, some investors have found ways to buy or lease rural properties. TIAA has a majority of Radar's preferred stock but only 49% of its ordinary shares with voting rights, giving control of Radar to Brazil's Cosan.
"The partners have created a cloudy chain of Brazilian companies with the purpose to buy land," according to a report from GRAIN, an organization based in Spain that tracks global land purchases, Brazil's Social Network for Justice and Human Rights and AATR, a group of lawyers representing Brazilian rural workers.
Worker representatives say Incra's report has implications for other similar cases being looked at by the agency.
TIAA said it maintains a thorough due diligence processes and that its business structures are compliant with Brazilian laws. "We remain transparent, accountable and responsible in our farmland investments," the fund said in an email.
In an emailed response to Bloomberg, Incra confirmed the report and the investigation, which dates back to 2016 and has progressed slowly. The agency is waiting for legal opinion from the Brazilian Attorney General's Office to continue the administrative process after an appeal presented by the companies in July. Under Brazilian regulation, possible measures include nullifying land titles.
The Attorney General's Office said by email that a judicial analysis of the case hasn't started because it is waiting on a review from a technical department at Incra in light of the companies' defense.
Cosan said Incra has only undertaken a preliminary analysis of the issue rather than offering a conclusive opinion. The group also said it outlined its position in the administrative procedure, presenting a list of companies involved in the land acquisitions and their respective investment structures, showing that "its controller is a native Brazilian, therefore, all acquisitions are in compliance with the 2010 regulation."