Financial Crime World

Financial Crime Hotspot: AML Challenges and Criminal Activities in Brazil

In the intricate and continually evolving world of Anti-Money Laundering (AML) compliance, it is imperative for businesses and financial institutions to comprehend the unique risks and responsibilities of various jurisdictions. In this article, we explore the significant AML challenges and relevant laws in Brazil, highlighting the risks that organizations should consider when assessing customer, geographic, or matter risk. To acquire a deeper understanding of AML issues across Latin America and the Caribbean, download our complimentary compliance guide.

Key Risks in Brazil

Brazil is a significant hub for financial crimes, harboring numerous risks, including:

  1. Terrorist Financing

    • Organized crime groups have reported connections to terrorist entities such as FARC and Hezbollah.
    • Proceeds from illicit activities, including drugs, robberies, and kidnappings, have been linked to terrorist activities.

  2. Corruption

    • Brazil’s decentralized public procurement system differs from state to state, creating vulnerabilities in anti-corruption efforts.
    • Political interference and institutional setbacks hinder progress in combating financial crimes.

  3. Information Sharing

    • The quality and coordination of information sharing between different authorities and states in Brazil are often poor, hindering effective investigations.

  4. State-owned Enterprises (SOEs)

    • Critical sectors of Brazil’s economy, such as energy, banking, and construction, are under public ownership.
    • Corruption and bribery in awarding contracts present significant risks.

  5. Drug Trafficking

    • The Tri-Border Area (TBA) between Brazil, Argentina, and Paraguay is a known hotspot for financial crime.
    • Organized crime groups use this region to traffic drugs, minerals, and people with impunity.

Criminal Proceeds in Brazil

An estimated $25.8 billion - $64.4 billion is laundered in Brazil every year. Learn more about AML challenges in Latin America and the Caribbean.

AML Policy Summary

Brazil has made progress in AML legislation but still faces challenges:

  1. Knowledge

    • Obligated entities exhibit a weak understanding of AML requirements.

  2. Prosecution

    • Weak in comparison to prevention and investigation.

Brazil boasts a mature money laundering framework with strong institutional foundations for financial intelligence and cross-agency coordination. However, practical implementation sometimes falls short.

Recent Initiatives

Brazilian authorities, including the Private Insurance Superintendence, have established a working group to draft a National Risk Assessment (NRA).

Key Money Laundering Laws

  1. Law 9.613/1998
  2. Law 13.260/2016
  3. Law 13.170/2015
  4. Law 13.810/2019
  5. Central Bank of Brazil Circular 3.978/2020

Weaknesses

  1. Facilitators

    • Lawyers prominently facilitate financial crime in Brazil.

  2. Conduits

    • Real estate, gas stations, and shell companies are commonly used vehicles for money laundering.

  3. Political Interference and Delays

    • Powerful business interests and politicians can obstruct the justice system and lead to jurisdictional delays.

  4. Low Conviction Rates

    • Despite investigative efforts, Brazil has a very low conviction rate for financial crimes, leaving many issues unresolved.

  5. Lack of Reporting Channels

    • A paucity of independent and neutral reporting mechanisms hinders progress against financial crimes.

  6. Corruption in SOEs

    • State-owned companies continue to serve as hubs for corruption, posing considerable challenges for law enforcement.

Strengths

Brazil has made strides in fortifying its legislation:

  1. Risk-based Approach

    • The country has adopted a risk-based approach for financial entities, enabling comprehensive monitoring and regulation.

  2. Terrorist Asset Freezing

    • New procedures for identifying and freezing terrorist assets have received praise from international authorities.

  3. Accountability

    • The National Strategy for Combat Against Corruption and Money Laundering (ENCCLA) has bolstered accountability requirements for lawyers and accountants not subject to AML obligations.

For more in-depth information and guidance on AML issues in Latin America and the Caribbean, download our free compliance guide.

Click here to download a free copy.