Brazil’s War on Financial Crime: Regulatory Bodies and Reporting Requirements

In the ongoing efforts to combat money laundering, terrorist financing, and other financial crimes, Brazil maintains a robust regulatory framework. Here are the key regulatory entities, reporting requirements, and relevant laws in Brazil that contribute to this comprehensive anti-money laundering (AML) system.

Regulatory Bodies in Brazil

Two significant entities play essential roles in the enforcement of AML regulations and the prevention of financial crime in Brazil:

The Financial Activities Control Council (COAF)

As the central authority, COAF plays a crucial role in:

Receiving, analyzing, and disseminating information about suspicious transactions and activities.
Collaborating with various sectors to implement AML regulations.
Preventing money laundering and terrorist financing.

Central Bank of Brazil (Banco Central do Brasil)

The Central Bank is responsible for:

Regulating and supervising financial institutions, including banks, credit unions, and other entities under its jurisdiction.
Setting AML compliance standards.
Conducting inspections to ensure financial institutions comply with AML regulations.

Legislative Framework: Law 9.613/98 & Law 12,683/12

Brazil’s AML efforts take inspiration from the Financial Action Task Force on Money Laundering (FATF) guidelines. These laws primarily focus on addressing money laundering and establishing mechanisms for reporting suspicious transactions:

Law 9.613/98: Initially established in 1998, this law outlines mandatory AML requirements and penalties for non-compliance.
Law 12,683/12: In 2012, this amendment expanded the scope and stringency of AML rules, covering a wide range of financial and payment-related activities.

AML Regulations from the Central Bank & CVM

Additional AML regulations come from the Central Bank and the Securities and Exchange Commission (CVM):

Central Bank: Circular 3,461/09 and Circular 3,978/2020 were issued for AML compliance. Circular 3,978/2020 permits a risk-based approach to AML.
CVM: In the Brazilian capital market, CVM Ruling No 617 requires adopting robust AML policies and procedures and implementing KYC processes and ongoing monitoring.

Risk-Based Approach to AML

Circular 3,978/2020 allows institutions to assess their own risks and allocate resources accordingly:

Comprehensive KYC processes: Institutions re-evaluate their KYC processes, gathering comprehensive data during customer onboarding.
Transaction recording and traceability: All transactions must be recorded and traceable.
Politically exposed individuals (PEPs): PEPs are identified using FATF guidelines.
Global financial groups: Global financial groups can now manage group-wide AML programs.

AML in the Brazilian Capital Market: ICVM 617

In the Brazilian capital market, institutions are required to:

Adopt robust AML policies and procedures: CVM Ruling No 617 enforces stringent AML policies and procedures.
Implement KYC processes and ongoing monitoring: Institutions must implement KYC processes and ongoing monitoring within the capital market.

Penalties and Sanctions

Entities and individuals failing to comply with AML/CTF obligations face significant penalties, including:

Fines: Financial institutions risk substantial financial penalties.
Suspension of activities: Non-compliance may result in temporary or permanent suspension of activities.
Imprisonment: Individuals may face prison sentences for non-compliance.
Reputational damage: Failure to meet AML obligations can significantly harm a financial institution’s reputation.

Additional AML Regulations from BACEN & the Federal Revenue Service

Additional AML regulations come from the Brazilian Central Bank (BACEN) and the Federal Revenue Service:

BACEN’s Resolution No. 23/2013: Guidelines for implementing sanctions in the financial sector.
Normative Instruction No. 1,634/2016: Instructions from the Federal Revenue Service on sanctions related to money laundering and tax evasion.