BRAZIL
Summary

Sanctions

None

FAFT AML Deficient

No

Higher Risk Areas

US Dept of State Money Laundering Assessment

Not on EU White list equivalent jurisdictions

Serious deficiencies identified in the enacting of counter terrorist financing legislation

Medium Risk Areas

 

Non - Compliance with FATF 40 + 9 Recommendations

Weakness in Government Legislation to combat Money Laundering

Corruption Index (Transparency International & W.G.I.)

World Governance Indicators (Average Score)

Failed States Index (Political Issues)(Average Score)

 

 

ANTI-MONEY LAUNDERING

 

FATF Status

24 February 2017 - Statement on Brazilís progress in addressing the deficiencies identified in its mutual evaluation reports, since the FATFís statement of October 2016

In February 2016, the Financial Action Task Force (FATF), the international standard-setter for combating money laundering, the financing of terrorism and proliferation of weapons of mass destruction, released a statement conveying its deep concerns about Brazilís continued failure to remedy the serious deficiencies identified in its third mutual evaluation report adopted in June 2010, especially those related to terrorism and terrorist financing. The FATF called for actions to address those deficiencies. The FATF reiterated its concern in October 2016, and again called on Brazil to address these shortcomings.

The FATF recognises that Brazil has taken several significant steps to improve its CFT regime; however deficiencies remain regarding targeted financial sanctions.

The FATF calls on Brazil to fulfil its FATF membership commitment by taking actions that fully address these shortcomings.

FATF Statement - October 2016

Brazil is not currently on the FATF List of Countries that have been identified as having strategic AML deficiencies, however, in February 2016, the Financial Action Task Force (FATF), the international standard-setter for combating money laundering, the financing of terrorism and proliferation of weapons of mass destruction, released a statement conveying its deep concerns about Brazilís continued failure to remedy the serious deficiencies identified in its third mutual evaluation report adopted in June 2010. Brazil had not criminalised terrorist financing since 2004, when Brazilís second mutual evaluation report was adopted. And while the FATF welcomed progress by Brazil on the freezing of terrorist assets, further improvements were required to fully satisfy the FATF standards. The FATF called on Brazil to fulfil its FATF membership commitment by enacting counter terrorist financing legislation that would adequately address these shortcomings in line with the FATF Recommendations. If adequate legislation was not enacted by the June 2016 FATF Plenary, the FATF would have considered the next steps in the follow-up process.

On 16 March 2016, Law 13.260 was enacted to criminalise terrorism and terrorist financing[1]and ďdeal with investigative and procedural provisions and to reformulate the concept of a terrorist organizationĒ and which covered most of the elements of former SR.II, thereby addressing that Recommendation sufficiently (with minor deficiencies). The FATF welcomed that important development and decided not to consider the next steps in the follow-up process.

Since June 2016, Brazil has taken additional steps towards improving its counter-terrorism (CFT) regime by preparing several ordinances which would in principle contribute to fully implementing UNSCRs 1267 and 1373. These however, are yet to be enacted.

There still remain a number of shortcomings that Brazil must address in order to reach a satisfactory level of compliance with the FATF standards. If sufficient progress is not made by February 2017, the FATF will consider taking other measures, including issuing another Public Statement.

[1] Among the provisions included in the new law, article 5, paragraph 1 establishes penalties to the agents, who with the purpose of practicing acts of terrorism, recruit, organize, carry or equip individuals traveling to a country other than that of their residence or nationality. This is an important provision in line with UNSCR 2178 (2014).

 

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Brazil was undertaken by the Financial Action Task Force (FATF) in 2010. According to that Evaluation, Brazil was deemed Compliant for 3 and Largely Compliant for 21 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for all 3 of the 6 Core Recommendations.

 

Statement on Brazilís progress in addressing the deficiencies identified in its mutual evaluation reports, since the FATFís statement of October 2016

 

In February 2016, the Financial Action Task Force (FATF), the international standard-setter for combating money laundering, the financing of terrorism and proliferation of weapons of mass destruction, released a statement conveying its deep concerns about Brazilís continued failure to remedy the serious deficiencies identified in its third mutual evaluation report adopted in June 2010, especially those related to terrorism and terrorist financing. The FATF called for actions to address those deficiencies. The FATF reiterated its concern in October 2016, and again called on Brazil to address these shortcomings.

 

The FATF recognises that Brazil has taken several significant steps to improve its CFT regime; however deficiencies remain regarding targeted financial sanctions.

 

The FATF calls on Brazil to fulfil its FATF membership commitment by taking actions that fully address these shortcomings.

 

FATF Statement on Brazilís considerable progress in addressing the serious deficiencies identified in its mutual evaluation reports, and the important issues that remain unresolved (June 24 2016)

 

In February 2016, the Financial Action Task Force (FATF), the international standard-setter for combating money laundering, the financing of terrorism and proliferation of weapons of mass destruction, released a statement conveying its deep concerns about Brazilís continued failure to remedy the serious deficiencies identified in its third mutual evaluation report adopted in June 2010. Brazil had not criminalised terrorist financing since 2004 when Brazilís second mutual evaluation report was adopted. And while the FATF welcomed progress by Brazil on the freezing of terrorist assets, further improvements were required to fully satisfy the FATF standards. The FATF called on Brazil to fullfil its FATF membership commitment by enacting counter terrorist financing legislation that would adequately address these shortcomings in line with the FATF Recommendations. If adequate legislation would not be enacted by this FATF Plenary, the FATF would consider the next steps in the follow-up process.

 

Since February 2016, Brazil has taken significant steps towards improving its counter-terrorism (CFT) regime by enacting a law on the criminalisation of terrorist financing. The FATF welcomes this significant step made by Brazil, which improves the countryís compliance with the international standards. As a consequence, the FATF has decided not to consider the next steps in the follow-up process.

 

In spite of this positive step, there still remain a number of shortcomings in the Brazilian counter-terrorist financing regime. Brazil must address these shortcomings in order to reach a satisfactory level of compliance with the FATF standards.

 

FATF Statement on Brazilís continued failure to address the serious deficiencies identified in its mutual evaluation reports (19 February 2016)

The FATF is deeply concerned by Brazilís continued failure to remedy the serious deficiencies identified in its third mutual evaluation report adopted in June 2010. Brazil has not criminalised terrorist financing since 2004 when Brazilís second mutual evaluation report was adopted. While we welcome progress by Brazil on the freezing of terrorist assets, further improvements are required to fully satisfy the FATF standards.

The FATF now calls on Brazil to fulfil its FATF membership commitment by enacting counter terrorist financing legislation that adequately addresses these shortcomings in line with the FATF Recommendations. If adequate legislation has not been enacted by the next FATF Plenary (20 June 2016), the FATF will consider the next steps in the follow-up process.

 

US Department of State Money Laundering assessment (INCSR)

Brazil is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes

OVERVIEW

 

In 2016, Brazil was the second-largest economy in the Americas and among the ten largest economies in the world, by nominal GDP. S„o Paulo, Brazilís largest city, is a regional financial center for Latin America. Brazil is a major drug-transit country, as well as one of the worldís largest drug consumer countries. Transnational criminal organizations operate throughout Brazil and launder proceeds from trafficking of narcotics, weapons, and counterfeit goods. A multi-billion dollar contraband trade occurs in the Tri-Border Area (TBA) shared with Paraguay and Argentina. Public corruption is the primary money laundering priority for Brazilian law enforcement, followed by narcotics trafficking.

 

VULNERABILITIES AND EXPECTED TYPOLOGIES

 

Trafficking of drugs, weapons, and counterfeit goods, and public corruption, are the primary sources of illicit funds in Brazil. Money laundering methods include the use of banks, real estate investment, financial asset markets, remittance networks, shell companies and phantom accounts, illegal gaming (jogo de bicho), informal financial networks such as hawalas, and through the sale of cars, cattle, racehorses, artwork, and other luxury goods. Drug trafficking organizations have been linked to black market money exchange operators. Money is often laundered through bulk cash smuggling; Brazilian law enforcement has successfully seized millions in cash in highway seizures and served arrest warrants throughout Brazil, especially on the border with Paraguay (State of Parana). Money laundering techniques vary widely in Brazil. In Sao Paulo, Rio de Janeiro, and Belo Horizonte, techniques are sophisticated and often involve foreign bank accounts, shell companies, and financial assets. In rural Brazil, promissory notes and factoring operations are more commonly used.

 

Some high-priced goods in the TBA are paid for in U.S. dollars, and cross-border bulk cash smuggling is a concern. Large sums of U.S. dollars generated from licit and suspected illicit commercial activity are transported physically from Paraguay into Brazil. From there, the money may make its way to banking centers in the United States. However, Brazil maintains some control of capital flows and requires disclosure of the ownership of corporations.

 

In March 2014, money laundering at a gas station tipped off Brazilian law enforcement to a connection with the parastatal oil company, Petrobras. Since then, ďOperation CarwashĒ has uncovered a complicated web of corruption, money laundering, and tax evasion, leading to the arrests of former and current federal ministers, members of Congress, political party operatives, money launderers, politically appointed directors, and civil service employees at Petrobras and other parastatals, and executives at major private construction firms. Corruption-related money laundering is associated with fraudulent contracts (particularly those involving parastatal companies and private contractors), bribery and influence-peddling, antitrust violations, public pension fund investments in financial asset markets, and undeclared or illegal campaign donations.

 

There are four FTZs in Brazil. The government provides tax benefits in certain FTZs, which are located to attract investment to the countryís relatively underdeveloped North and Northeast regions.

 

KEY AML LAWS AND REGULATIONS

 

Brazilís money laundering legal framework has been updated three times since its establishment in 1998, most recently by Law #12.683 in 2012, and facilitates the finding, freezing, and forfeiture of illicit assets. Brazil has comprehensive KYC and STR regulations. Brazilian regulations mandate enhanced due diligence for PEPs. Brazil is not subject to any U.S. or international sanctions.

 

Brazil and the United States have a MLAT. Brazil also regularly exchanges records with the United States and other jurisdictions through its membership in several exchange mechanisms (Interpol/Stolen Asset Recovery Initiative Focal Points, GAFILATís Asset Recovery Network System-RRAG).

 

AML DEFICIENCIES

 

Legal persons cannot be criminally charged under Brazilís money laundering statute, but are subject to reporting requirements if they are covered entities under the AML law. Legal persons in violation of the reporting requirements can face fines and suspension of operation.

 

ENFORCEMENT/IMPLEMENTATION ISSUES AND COMMENTS

 

In 2015, Brazilís federal prosecutors initiated 190 money laundering investigations, resulting in 120 indictments. Brazil does not compile comprehensive statistics on convictions, nor does data include state and local actions.

 

Through its 2003 National Strategy Against Corruption and Money Laundering and associated whole-of-government working groups, Brazil has made significant strides in strengthening its legal framework, building capacity to investigate and prosecute financial crimes through specialized police units and courts, and fostering interagency cooperation and civil society input on prospective reforms. Challenges remain, including a slow-moving criminal justice system up against strict statutes of limitations and the use of foreign tax havens by Brazilians. Brazil will benefit from expanded use of the task-force model and cooperative agreements that have facilitated recent major anti-corruption breakthroughs, as well as increased information exchange on best practices for financial market fraud, government contract oversight, and collaboration and leniency agreements.

 

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SANCTIONS

There are no international sanctions currently in force against this country.

 

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BRIBERY & CORRUPTION

 

Index

Rating (100-Good / 0-Bad)

Transparency International Corruption Index

40

World Governance Indicator Ė Control of Corruption

41

 

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INVESTMENT CLIMATE - Executive Summary (US State Department)

Brazil is open to and encourages foreign direct investment (FDI). According to the United Nations Conference on Trade and Development (UNCTAD), Brazil was the sixth largest destination for global FDI flows in 2013. New FDI into Brazil reached approximately USD 64 billion in 2013 and Brazil typically receives close to half of South Americaís total incoming FDI. The United States is a major foreign investor in Brazil; according to the Central Bank of Brazil, the United States had the highest stock of FDI in Brazil as of 2010, with $104 billion. While Brazil is generally considered a friendly environment for foreign investment, complex tax, local content, and regulatory requirements exist. In most cases, these impediments apply without discrimination to both foreign and domestic firms. The Government of Brazil (GOB) generally makes no distinction between foreign and national capital in cases of direct investment.

The Brazilian economy disappointed in 2013 with a meager 2.3 percent GDP growth, and market participants surveyed by the Central Bank of Brazil expect just 1.7 percent in 2014. Medium- and long-term prospects remain favorable, however, supported by strong domestic demand, global demand for commodity exports, a growing middle class, anticipated investments in infrastructure and development of offshore oil reserves, and prudent macroeconomic policies.

 

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OTHER REPORTS

29 October 2014 - OECD Report: Phase 3 Report on implementing the OECD anti-bribery convention in Brazil

Key Recommendations

Brazil must build on the positive momentum started with its new Corporate Liability Law and its first indictments in one foreign bribery case to investigate and prosecute more proactively foreign bribery. Since Brazil joined the Convention in 2000, of the 14 allegations identified in the report, only five have been investigated and three investigations are still ongoing Ė a very low number in light of the size of Brazilís economy.

The OECD Working Group on Bribery has just completed its report on Brazilís implementation of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, and related instruments. The Groupís Recommendations include:

  • that Brazil be more proactive in detecting, investigating and prosecuting foreign bribery;
  • urge Brazil to enact the announced Decree implementing the Corporate Liability Law;
  • clarify its new Corporate Liability Law, particularly in relation to the procedure to establish liability and impose sanctions, to ensure that the full benefits of the legislation can be reaped;
  • follow-up on the broadened arsenal available to the Brazilian authorities to encourage self-reporting and uncover foreign bribery, including cooperative and leniency agreements with individuals and companies; 
  • continue to encourage companies, including SMEs, to develop and adopt adequate internal controls, ethics, and compliance systems, to prevent and detect foreign bribery;
  • adopt comprehensive whistleblower protection for private-sector employees to protect those who report foreign bribery.

The report also highlighted positive aspects of Brazilís efforts to fight foreign bribery. The new Corporate Liability Law was recognised as a significant step, provided it can be enforced effectively. The Working Group noted that the Brazilian government, and in particular the Office of the Comptroller General, has worked to ensure companies are aware of the new law and to encourage the adoption of compliance programs. Brazil has also increased its co-operation with other countries in its investigations.

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