Brazil: Breaking the Crime Backbone with a New Anti-Money Laundering Act

KYC360º 24/01/2013

Before the new Anti-money Laundering Act, criminal minds could create many schemes to launder money without being caught by the justice system.

 

(Jersey) On July 9^th 2012, the Brazilian President, Dilma Housseff approved the new Anti-Money Laundering Act entitled Law 12.683 (the 'AML Act') following its approval by the Brazilian Congress that amends the previous AML Law number 9.613 approved on March 3^rd, 1998. The objective of the new Act is to strengthen the mechanism of combating financial crimes, such as money laundering, hiding assets, rights and values, as well as combating the financing of terrorism in Brazil.

The changes took place in a year which saw the most important judgment in recent Brazilian history in the trial known as Mensalão, in which a former minister of the Lula government, José Dirceu, and other members of the Government, as well as entrepreneurs of marketing companies and high ranking members of the Brazilian bank called Banco Rural were found guilty by the Supreme Court for a massive scheme of corruption, money laundering, and bribery amongst other charges, which involved the use of campaign funding for their own benefit and the buying of Congressmen’s votes to approve projects which directly benefited the allied government.

One of the main changes of the new Brazil AML Act applies to the re-classification of crimes that before only related to eight predicate offenses: drug dealing, terrorism, kidnapping, financial crimes, traffic of weapons, and corruption of national and foreign officials, which was present in the first article of Act 9.613. The new Act, now includes all money and resources arising from any criminal offenses included in the Penal Code .

Before the new Anti-money Laundering Act, criminal minds could create many schemes to launder money without being caught by the justice system. Many cases where there was consistent proof of money laundering could not be taken to trial because of the existence of gaps in the 9.613 Act, as the previous piece of legislation did not cover a range of predicate crimes. The old Act could even be used as a defense by guilty parties; They could argue the fact that money laundering could only be considered and sentenced as a crime if the existence of the crime that gave rise to the suspicion was proven. In other words, the prosecutors had to prove that the suspect money came from crimes listed in the first article of the 9.613 Act. It meant that, many cases of money laundering deriving from fraud in political activities such as bribery or corruption were virtually impossible to prosecute.

In Brazil the majority of money laundering schemes arise from crimes against public order such as fraud, bribery and corruption as opposed to Mexico, for example where the majority of cases arise from narcotics, drug smuggling and arms trafficking. To launder the funds derived from corruption the perpetrators and fraud-sters often send their illicit funds offshore, “structuring” the proceeds, and then reinvesting the money as foreign investment represented by attorneys or the fraud-sters and the corrupt themselves. This hampers the investigative procedures because once the money is integrated as investment in Brazilian companies or into in the financial system, it falls under the protection of the Brazilian Secrecy Act. Once this happens, it is impossibly hard to prove the origin of the funds.

Another important change brought in by the new Brazilian AML Act is that the law now covers different industry sectors, which were not encompassed by the previous AML Law. The new AML Law now classifies and holds accountable a wider range of industries with the requirement to control suspect activities with due diligence procedures. This means that a wider range of companies and business activities that involve large transactions must report suspicious activities to the Brazilian FIU (Financial Intelligence Unit), the COAF, using SARS (Suspect Activity Reports) about their customers and partners.

The new Brazilian AML Act now includes different kinds of businesses that could be used by criminals for Money Laundering, such as industry sectors where activities involve a considerable amount of money in their transactions, in luxury goods such as jewelry or high value goods such as cattle breeding [editor's note: cattle is an important industry in Brazil], lotteries, real estate agencies, art dealers, attorneys, soccer players and those involved in their transfers etc. police officers and others. According to the new Act, all of them must report suspect activities to the Brazilian Financial Intelligence Unit within 24 hours.

With the new 12.683 AML Act, Brazil has significantly strengthened its regime to combat money laundering and the financing of terrorism by promoting a strong task force that involves the co-operation of new sectors in the fight to break the crime back bone. Companies will need to prepare and comply with the new law by March 2013. 

 

About the Author:

Fabio de Freitas runs Lumturo Strigo Compliance Consultinghttp://lumturo.blogspot.com/in Brazil. He majored in economics from PUC-SP. He has extensive experience in AML Compliance, KYC procedures, enhanced due diligence, corporate governance and the prevention of fraud and money laundering.

Source: KYC360º