Anti-Money Laundering (AML) Regulations in Brazil: An Overview

• November 13, 2023
• Rachna Pandya

The Background: Anti-Money Laundering (AML) Regulations in Brazil

Anti-Money Laundering (AML) Regulations in Brazil: Money laundering remains the most prevalent financial crime in Brazil, followed by corruption and Trade-Based Money Laundering (TBML). According to the Basel Anti-Money Laundering Index, which assesses the risk level for Money Laundering (ML) and Terrorism Financing (TF) across various countries, Brazil experienced a slight decrease in its risk score in 2021. This marked the first reduction in the country’s risk level since 2018, suggesting some progress in combating these financial crimes. However, the country continues to face significant challenges. Notably, political interference with Anti-Money Laundering institutions and law enforcement agencies has been a major obstacle, hindering the effective implementation of AML standards.

Additionally, the Tri-Border Area, where Brazil intersects with Argentina and Paraguay, remains a critical region for financial crimes, including narcotics trafficking and smuggling operations. In this context, the criminal organization Primeiro Comando da Capital (PCC), known for its connections with FARC and Hezbollah, plays a significant role. The PCC is actively involved in a range of illicit activities such as drug shipments, kidnappings, and robberies. This situation underscores the complexity and severity of the AML-CFT regulatory environment in Brazil. The ongoing efforts to curb these activities are pivotal in reducing Brazil’s overall risk and enhancing the integrity of its financial systems.

The Backbone: Council for Financial Activities Control (COAF)

Established in 1998 under the milestone Brazilian AML-CFT Law 9613, COAF serves as the Financial Intelligence Unit (FIU) of Brazil, operating under the Ministry of Finance. COAF’s role is multifaceted, encompassing the regulation of the financial sector, enforcement of sanctions, investigation of Suspicious Transaction Reports (STRs) and Suspicious Activity Reports (SARs), and examining other activities posing threats to the nation’s financial health. Its technical and operational independence, combined with administrative ties to the Brazilian Central Bank (BCB), empowers COAF to act as a central figure in Brazil’s AML-CFT landscape.

Compliance with COAF: A Multi-Dimensional Approach

Entities under COAF’s purview are mandated to adhere to a set of compliance measures. These include:

Identity Verification: Institutions must maintain records and confidentiality on Know Your Customer (KYC) and Know Your Business (KYB) processes, ensuring accurate identity verification.

Sanctions Screening: This involves verifying individuals or entities against international sanctions, with particular focus on Politically Exposed Persons (PEPs) and Adverse Media.

Transaction Monitoring: Monitoring cash transactions and those involving foreign currencies or monetary instruments, especially those exceeding certain thresholds.

Risk Assessment and Training: Establishing risk profiles and conducting comprehensive staff training for effective compliance.

Role of the Brazilian Central Bank (BCB)

The Brazilian Central Bank (BCB), also known as BACEN, is instrumental in overseeing and ensuring compliance with anti-money laundering (AML) regulations in Brazil. It actively responds to evaluations made by the Financial Action Task Force (FATF), making timely and relevant amendments to its AML policies. Central to its operation is the AML unit (DECIF) and the National Strategy Against Corruption and Money Laundering (ENCCLA). Within these frameworks, the BCB focuses on implementing robust strategies that include comprehensive staff training and enhanced data access. These initiatives are vital for safeguarding the Brazilian Financial System (SFN) against the risks of being exploited for money laundering and terrorism financing activities. Through these concerted efforts, the BCB plays a pivotal role in strengthening Brazil’s financial integrity and resilience against financial crimes.

Anti Money Laundering (AML) Regulations in Brazil: An Overview

The Council for Financial Activities Control (COAF), serving as Brazil’s financial intelligence unit, holds a key position in regulating financial firms. It effectively implements sanction policies, rigorously analyzes suspicious transactions, and closely monitors customers or accounts that may pose significant risks to the country’s financial industry.

Brazil’s AML framework is underpinned by a comprehensive set of laws, each addressing different aspects of money laundering and terrorist financing:

Law 9613/1998: This foundational law criminalizes money laundering and the concealment of assets related to various crimes, establishing the legal basis for AML activities in Brazil.

Law 10701/2003: It expands the scope of the AML framework by focusing on criminalizing the financing of terrorism and offenses committed abroad.

Law 12683/2012: This law takes a broader approach, addressing ‘harmful acts’ that could lead to serious money laundering crimes, thus strengthening the legal framework against complex laundering schemes.

Laws 13170/2015 & 13260/2016: These laws jointly contribute to the prohibition of terrorism activities and their financing, reinforcing Brazil’s commitment to combating terrorism.

Law 13810/2019: Aligns Brazilian regulations with United Nations Security Council (UNSC) sanctions related to terrorism, specifically focusing on implementing standards for freezing terrorist assets.

Law 13974/2020: A significant advancement, this law establishes COAF as an independent authority specifically for AML oversight, enhancing its operational autonomy and effectiveness.

BCB Circular No. 3978/2020: This circular introduces additional regulations for financial institutions, further bolstering the AML-CFT measures within the Brazilian financial sector.

Collectively, these laws and regulations form a robust and evolving legal structure that underpins Brazil’s efforts to combat money laundering and terrorist financing, reflecting its commitment to maintaining a secure and transparent financial environment.

AML-CFT in Healthcare

In Brazil, the healthcare sector is not immune to the risks of money laundering and terrorism financing. Recognizing this, the Brazilian National Agency of Supplementary Health (ANS) has introduced Resolution No. 529/2022, a critical regulatory measure specifically designed to regulate healthcare operations. This resolution mandates several key practices to mitigate the risk of financial crimes within the healthcare industry:

Reporting of Suspicious Transactions to COAF: Healthcare entities are required to promptly report any transactions or activities that raise suspicions of money laundering or terrorism financing to COAF, ensuring timely intervention and investigation.

Record-keeping for Transactions Above BRL 10,000: There is an obligation to maintain detailed records of transactions exceeding BRL 10,000. This threshold-based approach helps in identifying and tracking large and potentially suspicious financial movements.

Close Observation of Regions Declared High-Risk by FATF: Healthcare providers are directed to exercise heightened vigilance in regions that have been identified as high-risk by the Financial Action Task Force (FATF). This ensures that areas more susceptible to financial crimes receive adequate scrutiny.

Maintaining KYC and Know Your Partner (KYP) Records: Compliance with Know Your Customer (KYC) and Know Your Partner (KYP) protocols is emphasized. These practices involve verifying the identity of customers and understanding the nature of their business relationships, which is crucial for preventing illicit activities.

Through these measures, Resolution No. 529/2022 significantly contributes to strengthening the AML-CFT framework in Brazil’s healthcare sector, aligning it with the country’s broader efforts to combat financial crimes.

• Compliance with COAF

• Role of the Brazilian Bank

• AML-CFT in Healthcare

• International Cooperation

• Crypto Regulations 

• Recent FATF Evaluations

• 2023 Outcomes of the FATF Plenary 

International Cooperation and Cryptocurrency Regulations

Brazil demonstrates a strong commitment to international cooperation in combating money laundering and terrorist financing. This commitment is evident through its active participation in the Financial Action Task Force (FATF) and its involvement in regional bodies such as GAFILAT and CPLDFT. These engagements signify Brazil’s alignment with global standards and collaborative efforts in addressing financial crimes.

Anticipated Cryptocurrency Law: The expected passage of the cryptocurrency law by the end of 2022 marks a pivotal moment. This law aims to introduce comprehensive regulations specifically for Virtual Asset Service Providers (VASPs) and crypto exchanges, thereby addressing AML-CFT concerns within the emerging digital currency sector.

Publication of the Crypto Assets Act: In December 2022, Brazil published Law No. 14478, known as the Legal Framework for Virtual Assets in Brazil (Crypto Assets Act), which became effective on June 20, 2023. This act represents a significant step in establishing clear guidelines for the operation of virtual asset services.

Roles and Responsibilities under the Act: The Brazilian Central Bank (BCB) is granted authority to regulate and supervise the provision of virtual asset services, ensuring uniform application of rules to all Virtual Asset Service Providers (VASPs). The Securities and Exchange Commission of Brazil (CVM) is responsible for providing guidance on rules applicable to crypto assets that are classified as securities.

Continuity and Oversight: The Crypto Assets Act maintains the existing powers of the CVM and does not alter the framework of Consumer Protection. It also continues to focus on the prevention and repression of fraud, money laundering, and terrorist financing, thereby ensuring a balanced approach to regulating the dynamic and complex domain of cryptocurrencies.

Recent FATF Evaluations and Recommendations for Brazil

The Financial Action Task Force (FATF) has been closely monitoring Brazil’s progress in Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) and Countering the Financing of Proliferation (CPF). The evaluations and recommendations from recent years can be summarized as follows:

Concerns from 2016 to 2019: Between 2016 and 2019, the FATF raised concerns regarding Brazil’s delayed actions in addressing deficiencies identified in the June 2010 mutual evaluation report. These concerns were particularly focused on issues related to terrorism and terrorist financing.

Positive Developments in 2019: In 2019, Brazil made significant strides by adopting a new framework aimed at identifying and freezing terrorist assets. This move was seen as a substantial effort to address previously noted deficiencies.

Outcomes of the FATF Plenary (October 2023):

Acknowledgment of Improvements: The FATF acknowledged that Brazil has enhanced its AML/CFT/CPF regime since the 2010 assessment, achieving notable positive results.

Areas of Strength: Brazil demonstrated strengths in international cooperation, risk assessment, and policy coordination.

Need for Enhanced Cooperation and Coordination: The FATF recommended that Brazil strengthen cooperation and coordination between specific authorities, particularly for the prosecution of money laundering cases.

Financial Sector Supervision: While most of the financial sector is under intense supervision, gaps in oversight remain, especially in the non-financial sector, including lawyers and company service providers.

Asset Recovery Focus: The FATF advised Brazil to concentrate more on the recovery of assets linked to crime and terrorism. The current confiscation results are not fully aligned with the country’s risk profile, especially considering prevalent crimes such as drug trafficking, environmental crime, and criminal organizations.

Combating the Financing of Terrorism: Despite improvements in recent years, Brazil’s measures against terrorism financing need significant enhancements to be effectively aligned with international standards.

Overall, these evaluations and recommendations from the FATF highlight both the progress and the areas requiring further attention in Brazil’s AML/CFT/CPF efforts, guiding the country in its ongoing commitment to combating financial crimes.

Wrapping Up on Anti-Money Laundering (AML) Regulations in Brazil

Brazil’s AML-CFT regulations represent a complex and comprehensive network of laws, guidelines, and international partnerships. These regulations are strategically designed to protect its financial systems from corruption, fraud, and terrorism. As Brazil continues to refine and enhance its regulatory frameworks, with a particular focus on emerging sectors like cryptocurrencies, it strongly reaffirms its commitment to upholding financial integrity and combating illicit financial activities.

This evolving regulatory landscape not only ensures Brazil’s compliance with international standards but also strengthens its role as a responsible and proactive player in the global financial community. By consistently updating and improving its AML-CFT regulations, Brazil demonstrates a dedication to safeguarding its financial sector and contributing to the broader efforts to maintain a secure and transparent international financial system.