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Paraguay Imposes Record $9.64 Million Fine on Brazilian Bank for Anti-Money Laundering Violations

In a landmark move, Paraguay’s Central Bank (Banco Central del Paraguay - BCP) has slapped Brazil’s Banco Itaú with a record-breaking fine of $9.64 million for failing to report suspicious transactions and violating anti-money laundering regulations.

Failure to Report Suspicious Transactions

The bank allegedly failed to notify the Secretariat for the Prevention of Money or Property Laundering (Secretaría de Prevención de Lavado de Dinero o Bienes - SEPRELED) about suspicious transactions, contravening Article 19 of Paraguay’s Law No. 1015 on money laundering.

Systemic Lack of Adherence to Regulations

This is the largest fine related to money laundering in Paraguayan history, according to Diego Marcet, general director of SEPRELED’s legal department. The lack of adherence to anti-money laundering regulations is systemic, he added.

Banco Itaú’s Recent Scandals

Banco Itaú has faced numerous scandals recently. In October 2019, Brazil’s Operation Car Wash (Lava Jato) anti-corruption probe found the bank had enabled $16.4 million worth of illegal transactions used for bribes. The city of São Paolo subsequently fined Itaú a staggering $662 million for evading state taxes.

Significant Step in Cracking Down on Financial Institutions

The Paraguayan authorities’ move is seen as a significant step in cracking down on financial institutions that fail to comply with anti-money laundering regulations. Big banks in Latin America have historically ignored anti-money laundering controls while profiting from illicit flows, but the surprise sanctioning of Banco Itaú may signal an end to impunity.

Paraguay’s Vulnerability to Money Laundering

Paraguay’s role as South America’s main provider of marijuana and counterfeit goods means there is a significant amount of dirty money circulating. However, the country’s vulnerability to money laundering has decreased since 2017, indicating tentative progress in addressing this issue.

Importance of International Cooperation

The case also highlights the importance of international cooperation, as Paraguayan law enforcement rely heavily on Brazilian intelligence for raids. Investigating money laundering within an international bank is a complex matter, but the fining of Banco Itaú by Paraguayan authorities may set a precedent for other countries to follow suit.

Brazil’s Banking Scandals

Brazilian banks have faced numerous scandals in recent years, including the infamous Lava Jato investigation, which discovered that five major banks, including Itaú, had allowed the laundering of $325 million used to pay bribes. Paraguayan financial institutions have also been implicated in money laundering schemes, particularly currency exchanges.

HSBC Scandal

The most notable example is the 2012 scandal involving HSBC, which was fined $1.9 billion in the United States and $27.5 million in Mexico for negligently laundering over $881 million for Mexican and Colombian cartels. However, hopes that record sanctions would lead to substantive change never materialized, with a former HSBC official who enabled corrupt clients to maintain their bank accounts now serving as a senior anti-money laundering official in the Mexican government.