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Brazil’s new rules to curb money laundering

. Jan 27, 2020
Brazil's new rules to curb money laundering Photo: C Levers/Shutterstock

Brazil’s fight against money laundering hit the headlines at multiple points in 2019, first and foremost when the president’s son, Flávio Bolsonaro, became the subject of a report from the national money laundering enforcement agency (Coaf) suggesting he was involved in corruption schemes during his time as a state lawmaker in Rio de Janeiro.

The pressure on Coaf from above became

significant, with the agency being handed around between cabinet ministries—from <a href="https://brazilian.report/power/2019/09/08/sergio-moro-bolsonaro-enemy-federal-police/">Sergio Moro&#8217;s Justice Ministry</a>, to the Economy Ministry, and then to the Central Bank. A public consultation was launched to brainstorm new rules for the agency, with a suggestion that Coaf would no longer employ increased scrutiny on the banking transactions of &#8220;politically exposed persons&#8221; (PEPs), which involves the holders of public office and their close relatives.</p> <p>Now, however, the Central Bank has officialized its <a href="http://www.in.gov.br/web/dou/-/circular-n-3.978-de-23-de-janeiro-de-2020-239631175">new rules for money laundering control</a>, which all accredited banks must adhere to as of July 1. At first glance, controls have become tighter—though this depends on the disposition of banks to carry out this oversight and report suspicious behavior to the Coaf.</p> <p>Brazil&#8217;s banks don&#8217;t exactly have an impressive track record in this respect. In October, Operation Car Wash investigations reported that the country&#8217;s five biggest banks were used to <a href="https://brazilian.report/power/2019/10/03/major-brazilian-banks-car-wash/">launder a combined total of BRL 1.3 billion</a>, and prosecutors were examining whether failures in these institutions&#8217; control systems could leave the banks criminally liable for corruption.</p> <h2>Cracking down on money laundering: widening the net</h2> <p>While the initial fear was for the pressure on PEPs to be decreased, the new rules issued by the Central Bank have actually made it harder—in theory—for public figures to conceal unlawful transactions. With current regulations applying the &#8220;special treatment&#8221; for PEPs to their close relatives (parents and children), as of July, this scrutiny will extend to siblings, grandparents, and grandchildren, as well as others &#8220;known for having any form of close relationship&#8221; with the PEP in question.</p> <p>However, the problem here is the same as was explained above: this oversight requires hands-on cooperation from financial institutions. Upon encountering a suspicious transaction, banks have 45 days to examine the case before reporting it to the Coaf. Ascertaining links between clients and public figures may require a certain level of research and investigation, which don&#8217;t appear to be the banks&#8217; strong point.</p> <h2>Flagging suspicious transactions</h2> <p>Coaf also has its own mechanisms for the automatic detection of fraud and suspicious activity. Since 2017, all deposits, payments, or withdrawals above BRL 50,000 are automatically reported to the agency. Now, however, banks will have to ramp up their control of clients&#8217; transactions.</p> <p>For all withdrawals over BRL 2,000, the individual collecting the money at the bank will have their name and taxpayer ID recorded. For withdrawals over BRL 50,000, as well as the automatic flagging to the Coaf, banks must demand the taxpayer ID of the recipient, the name and taxpayer ID of the individual collecting the money, and the reason for the withdrawal. If the individual refuses to provide a reason, this is to be recorded by the bank to be used in &#8220;procedures of monitoring, selection, and analysis.&#8221; Similar controls will be enforced for deposits over BRL 50,000, with the individual asked to detail the origin of the funds.</p> <p>While these provisions appear to tighten the screw on money laundering practices in Brazil, the big caveat remains: the effective monitoring and reporting of suspicious transactions now depends all the more on the cooperation of the country&#8217;s banks, putting the ball firmly in their court.

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Euan Marshall

Originally from Scotland, Euan Marshall is a journalist who ditched his kilt and bagpipes for a caipirinha and a football in 2011, when he traded Glasgow for São Paulo. Specializing in Brazilian soccer, politics and the connection between the two, he authored a comprehensive history of Brazilian soccer entitled “A to Zico: An Alphabet of Brazilian Football.”

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