[1]The following guest post is from Davi Tangerino and Filipe Batich. They are, respectively, partner and associate in the Corporate Criminal Law group of Trench, Rossi e Watanabe Advogados [2] in São Paulo, Brazil.
Brazil’s anti-money laundering (AML) legislation was amended in July 2012, incorporating significant changes from the former law (see an earlier post about these changes here [3]). This post highlights some of the main developments in the AML arena since then to gauge, as Brazilians often say, if “the new law has caught on” (has it become fully observed and enforced).
According to the statistics [4] from COAF – Brazil’s Financial Intelligence Unit [5], there was a 19% decrease in the number of reports of suspicious transactions between 2012 and 2013 – 1,587,427 in 2012 and 1,286,233 in 2013 – despite the fact that the 2012 amendments broadened the list of individuals and legal entities bound to report suspicious transactions (the so-called gatekeepers).
In 2013, the financial sector had the highest number of reports (75%), followed by lotteries and raffles (12%), insurance and pensions (9%) and transactions involving real estate (2%). The number of reports filed by the new gatekeepers – such as those that sell luxury goods, promote or mediate transactions involving professional athletes, public notaries and trade associations etc. – were insignificant.
What could be the causes of these results?
The answer may be linked to common problems in Brazil: (i) the State has been unable to provide the structure and obligations demanded by the new law immediately or in a suitable time; and (ii) it has taken too long to draft ordinances to regulate implementation of the new law. For example, the Intelligence Unit has not yet issued ordinances binding those who deal with high-value agricultural or cattle goods nor those who deal with transactions involving professional athletes, two important sectors of the Brazilian economy.
In particular, COAF has revoked a series of ordinances enacted before the 2012 amendments, but has not yet replaced them. This hold up could be connected to the development of a risk-based approach for each sector bound by AML obligations, as recommended by Financial Action Task Force – FAFT [6]. To speed up the process, the Intelligence Unit should increase the number of professionals responsible for such developments. It should open new offices in Brazil’s major capitals to facilitate the contact and communication between it and financial institutions or designated non-financial businesses and professions. These changes would also aid the inspection and enforcement of the law.
Moreover, with the amendment of the law in 2012, certain older ordinances enacted by COAF must now be replaced by rules from professional or regulatory agencies that apply to the new gatekeepers. But many agencies are resisting any update to the current rules, especially to conform with the FAFT 40 recommendations, establish controls over Politically Exposed Persons (PEP); and bind their members (e.g., Brazilian Bar Association – OAB) with AML duties.
A significant portion of the new persons obligated to report suspicious activities are not aware of their new obligations, especially the designated non-financial business and other professions like those that sell luxury goods and provide consulting services. For example, the new ordinance requires persons in the “luxury goods” industry to implement a Know Your Client (KYC) policy and register any transaction above ten thousand Brazilian Reais (approximately US$ 4,500). But it is still hard to find entities within this sector that fulfill such obligations.
Given the above, it seems that improvement and enforcement of new rules in the battle against money laundering and terrorism financing in Brazil will depend ultimately on: (i) the expansion of the structure of Brazil’s Financial Intelligence Unit; (ii) a faster updating of the ordinances regarding AML duties following the recommendations of FAFT and according to the Law; and, especially, (iii) implementation of AML controls and policy by new professionals and companies required to report suspicious activities. The public and private sectors will both need to embrace the AML law for it to finally catch on.
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