AML Compliance Guidelines: Brazil

Brazil, the biggest economic power in Latin America and the Southern Hemisphere, is also home to a large banking and diverse financial system in the region. Scale and diversity of the Brazilian economy and complexity of its financial system makes it vulnerable to laundering proceeds of crimes and various cross-border threats further aggravated by porous borders.

The Financial Action Task Force’s Mutual Evaluation Report of Brazil determined that major sources of crime proceeds are generated by corruption and crimes against its financial system including drug trafficking, organized crimes and tax crimes. Brazil has implemented a robust and coherent regulatory framework to prevent money laundering across financial and non-financial sectors.

Being a member of FATF/GAFILAT, Brazil has recently made notable changes to align its regulatory landscape with international standards.

This guide seeks to provide an in-depth review of Brazilian regulatory framework to understand regulatory obligations and industry best practices to meet regulatory expectations and safeguard their operation from the money laundering and terrorist financing risks.

Overview of Anti Money Laundering Laws and Sanctions Regulations in Brazil

What is a Money Laundering offense in Brazil?

Money laundering is an illegal activity which aims to enable the use of illegally obtained funds in the legitimate financial system without detection of the criminal activities which produced them.

What are Economic Sanctions?

Economic sanctions or embargoes are a way of exerting pressure on a country, individual or entity to change their behavior in order to achieve specific goals of foreign policy, ensure compliance with international laws or punish human rights violations etc.

Key Laws governing AML and Sanctions

Following Federal Laws set out general requirements for the regulated entities in Brazil. Moreover, the AML framework is further shaped by Resolutions, Instructions and Circulars issued by each regulatory body which sets AML/CTF requirements specific to the entities supervised by them.

Law No.  9,613/1998 (the ‘AML Law’)

This is the primary federal law which criminalizes money laundering in Brazil and defines respective penalties such as  fines, imprisonments and asset forfeitures. It establishes the Council for Financial Activities Control (COAF) — financial intelligence unit of Brazil.

Additionally, it contains general requirements of the AML software in Brazil such as customer identification, record keeping, and suspicious transaction reporting. This law was further amended by Law No. 12,683/2012 to effectively prosecute money laundering offenses.

Law No. 13,810/2019 (the ‘Sanctions Law’)

This federal law establishes compliance with United Nations Security Council’s Resolutions and national designation of persons investigated or accused of terrorism, its financing or related acts.

It also provides for resulting measures such as asset freezing, travel bans and import and export embargoes. In addition, this law empowers regulatory bodies to promulgate rules, regulations and administrative penalties to enforce compliance with UN imposed sanctions.

Law No. 14,478/2022 (the ‘Cryptocurrency Law’)

This federal law defines virtual assets and activities which constitute a Virtual Asset Service Provider (VASP) in Brazil. It designates the Central Bank of Brazil as the authority to license and supervise VASPs. Additionally, it amended article 1 of the Law No. 9.613/1998 to prescribe enhanced penalties for money laundering offenses through the use of virtual assets.

Law No. 12,846/2013 (the ‘Clean Company Act’)

The Clean Company Act (CCA) of Brazil supports the country’s efforts to strengthen its AML/CTF regulatory framework as it helps combat corruption and other financial crimes which give rise to money laundering and terrorism financing.

Under CCA, not only individuals but corporations can also be held liable for the corrupt practices such as concealing or disguising real interests or beneficiaries of acts, bribing the public officials and fraud in public tenders and contracts. CCA also assists AML/CFT efforts by promoting transparency in corporate operations by obligating thorough documentation of financial transactions.

AML Regulated Entities in Brazil

Financial Institutions

The Central Bank of Brazil (BCB), an independent entity, authorizes, regulates and supervises operations of financial institutions in the National Financial System (SFN). Any institution subject to obtaining a license from BCB is subject to AML requirements of Central Bank Circular No. 3,978/2020.

The BCB is also responsible to ensure compliance of the supervised entities to Law No. 9,613/1998, which establishes regulations for prevention of money laundering and terrorist financing in the financial system and to Law No. 13,810/2019, which establishes compliance with sanctions imposed by United Nations Security Council resolutions.

Some Examples of the institutions regulated by BCB are payment service providers, banks, money exchanges and virtual assets service providers (VASPs).

Securities Sector

The Securities and Exchange Commision of Brazil (CVM) is a governmental entity linked to the ministry of finance and entrusted with supervision and regulation of the securities market. CVM promulgates and enforces rules to curb money laundering risks in the securities market.

It includes custody, issuance, underwriting, settlement, trading, intermediation or management of securities. Resolution 50/2021 provides for obligations of the entities regulated and supervised by CVM.

Insurance Sector

The Superintendence of Private Insurance (SUSEP) is a governmental body linked to the ministry of finance and entrusted with supervision and regulation of insurance companies and brokerage firms, private pension funds, or special savings institutions known as empresas de capitalização. SUSEP Circular 612/2020 provides for obligations of the regulated entities.

Closed Supplementary Pension Funds

The National Superintendence of Supplementary Pension (PREVIC) is a governmental body linked to the Ministry of Finance and entrusted with the regulation and supervision of closed supplementary pension funds. PREVIC Resolution 23/2023 provides for obligations of entities regulated by PREVIC and procedures to carry out those obligations.

Financial Intelligence Unit of Brazil

Council for Financial Activities Control (COAF)

COAF, administratively linked to BCB, is at the center stage of Brazil’s fight against money laundering. As the financial intelligence unit of the country, it receives suspicious activity reports and cash transaction reports from all the AML obliged entities. COAF is also a regulatory authority for entities which are not supervised by any other body. Currently, COAF regulates:

• Mercantile Foment (Factoring Companies)
• Precious Metals and Jewelry
• Trading in high value or luxury goods
• Sports and Entertainment Transfer Market

Non Financial Businesses and Professions

Miners and Extractors of Precious Metals and Stones

The National Mining Agency (ANM) is a governmental body which monitors AML compliance programs of companies involved in mining and extraction of precious metals and precious stones. These mining and extraction companies are supervised by the regulations contained in the Resolution No. 129/2023.

This resolution, among other requirements, set out obligations to apply customer due diligence measures, identify PEPs, screen individuals and entities sanctioned by the UN Resolutions.

Health Insurance Sector

The Brazilian National Agency of Supplementary Health (ANS) is a national agency which supervises and monitors AML compliance of the healthcare operators in Brazil. ANS Resolution No. 529/2022 regulates anti-money laundering and counter terrorism financing duties of the healthcare operators and mandates application of a risk based approach.

Some of these requirements include maintaining certain records for up to 5 years pertaining to customer identification and transactions amounting to R$10,000.00, or more, and reporting to COAF within 24 hours of identifying a suspicious transaction.

This resolution also contains a comprehensive list of situations which may indicate the occurrence of money laundering, including transactions involving jurisdiction determined by FATF as high risk or jurisdiction deemed to have favored taxation (tax havens) by Brazilian Federal Revenue (RFB).

Real Estate Sector

The Federal Council of Real Estate Brokers- COFECI is a federal body which supervises and regulates the real estate professionals – brokers, and legal entities engaged in activities of promotion, sale or purchase of real estate. Irrespective of whether such activities are carried permanently or on occasion basis, in a primary or ancillary way.

These entities must register themselves with the COFECI/CRECI System. In addition to obligations mentioned in Law No.  9,613/1998, real estate agencies and brokers are required to identify politically exposed persons (PEPs) when executing any transaction which is equal to R$100,000 or more as prescribed by Resolution No. 1,336/2014.

Additionally, COFECI regulated entities are required to maintain certain records related to transactions which equals to R$100,000 for a minimum of five years and report such transactions to COAF within 24 hours.

Accounting Sector

Independent accounting professionals and accounting organizations are subject to AML supervision and regulation by the Federal Accounting Council (CFC). CFC Resolution 1721/2024 provides specific obligations for entities subject to supervision of CFC.

In addition to general obligations mandated by the federal laws, regulated entities are required to identify their clients and beneficial owners including their classification as politically exposed persons (PEPs).

Resolution also annexes a guide which provides the use of a risk based approach (RBA) in developing policies, procedures and controls to prevent money laundering and safeguard their operations. CFC regulated entities are obliged to make suspicious transaction reports and cash transaction reports (exceeding R$100,000) to COAF within 24 hours.

Economists and Finance Professionals

Individuals and legal entities providing services of economy and finance are required to register with the Federal Council of Economics- COFECON, which is also responsible to supervise their compliance with AML obligations.

COFECON Resolution 1902/2013 provides a list of AML requirements for economists and finance professionals which includes among other duties to identify and apply enhanced due diligence measures for politically exposed persons (PEPs).

Cash in Transit Companies

Federal Police (PF) regulates and supervises cash-in-transit companies to ensure their compliance with AML/CTF obligations set out in Normative Instruction 196-DG/PF/2021.

Some of the requirements mentioned in this instrument are related to procedures for client and beneficial owner identification, PEP classification, assessing and reporting suspicious transactions, reporting large transactions (R$100,000) and record keeping.

Sellers of Antiques and Work of Art

The Institute of National Historical and Artistic Heritage (IPHAN)is the AML regulator and supervisor for all the companies and individuals that sell antiques or works of art of any kind.

IPHAN Ordinance No. 396/2016 provides procedures and rules required to be followed by these regulated entities. Some of these obligations include identification of clients and beneficial owners, identification of PEPs, procedures for reporting suspicious and large cash transactions (R$10,000) to COAF, and record-keeping for a minimum of 5 years.

Notaries and Registrars

Notaries and registrars are regulated and supervised by the National Council of Justice (CNJ), which ensures that notaries and registrars prevent money laundering and terrorist financing while carrying out their notarial or registration services (such as titles and civil documents of legal entities).

CNJ Provimento no. 161/2024 contains among other obligations, provisions for identification of clients and beneficial owners, classification of PEPs, record-keeping, reporting of certain large cash transactions (R$100,000) and suspicious transactions to COAF.

AML Compliance in Brazil

Federal Law No. 9.613 of 1998 mandates that the regulated entities

• Shall identify their customers including beneficial owners and representatives of legal entities, in accordance with instructions of respective regulatory authorities
• Shall keep record of all transactions which meets the thresholds set by respective regulatory authorities for a minimum period of five years
• Must adopt a risk based approach to policies, procedures and controls to achieve compliance with customer identification, record keeping and reporting obligations
• Must register with a regulatory or supervisory body in accordance to their business activity, or with COAF, in case there’s no such authority
• Applying enhanced due diligence in situations determined by the respective regulatory authority indicative of high money laundering risks
• Shall report to COAF suspicious activity reports and threshold transactions within a period of 24 hours

Additional Obligation mandated by regulatory authorities

• Effective Governance Structure (clearly defined roles and responsibilities)
• Conducting Internal Risk Assessment (risks of operations and customers)
• Implementing a Risk Based Approach (RBA) to AML Compliance
• Simplified or Enhanced Due Diligence based on RBA
• Identification of Politically Exposed Persons (PEPs) and RCAs
• Employee Training and Awareness Programs
• Internal Audit of compliance activities

Politically Exposed Person (PEP) in Brazil

COAF Resolution No. 40, of 2021 and BCB Circular No. 3,978 of 2020, both establish a comprehensive framework for regulated entities to identify, monitor and manage politically exposed persons (PEPs). These regulations aim to strengthen AML/CTF efforts by outlining obligations of the regulated entities, defining PEPs and specifying penalties for non compliance.

Obligations in relation to PEPs

• Regulated entities must implement procedures to identify PEPs and apply enhanced due diligence measures including:
• Management approval to establish business relationship
• Take due diligence measures to determine source of funds
• Enhanced and ongoing monitoring of the business relationship

In order to identify Brazilian (local) PEPs, regulated entities must consult with the PEP lists maintained by the Comptroller General of the Union – CGU on the Transparency Portal, also made available by the Financial Activities Control System – Siscoaf.

Moreover, to identify and classify foreign PEPs and International Organization PEPs, regulated entities must use open source information and consult public or private databases.

Penalties for Non Compliance:

A regulated entity who fails to fulfill their obligations in relation to PEPs will be subject to administrative penalties mentioned in Article 12 of Federal Law No.  9,613/1998, by their respective regulatory authorities.

Definition of PEPs As Per Brazilian AML Laws

Local PEP: Senior officials in any three branches of the government (executive, judicial and military) including heads and senior officials of political parties, and of states, federal and municipal governments are considered PEPs in Brazil.

Foreign PEP: A senior government official (executive, judicial or military branch), high rank politicians, heads of political parties and senior executives of government owned enterprises in a foreign country are considered foreign PEPs.

International Organization PEP: Senior officials or management of international public or private organizations are considered international organization PEPs.

The definition of a politically exposed person also includes close associates, family members and legal entities established for the benefit of a PEP. A person will remain a PEP for five years after leaving such a position which qualifies them as a PEP.

Although Brazil maintains a centralized database for local PEPs, the challenge remains with the identification of relatives and close associates (RCAs), in addition to the foreign PEPs and international organization PEPs.

Risk Based Approach (RBA)

Recent legislative and regulatory changes, among other things, introduced the application of a risk based approach to AML screening compliance to align Brazil’s regulatory framework with international standards set by FATF. Risk based approach allows the optimal use of resources by focusing them to higher risk activities. But, this approach also brings complexities that require subtle decision making and a sophisticated system for dynamic risk assessment.

The Brazil’s Mutual Evaluation Report (MER) by FATF identified that corruption, organized crime and drug trafficking are significant issues in Brazil. When applying a risk based approach, regulated entities must consider these risks across their customer profiles, especially PEPs. The RBA needs to address these risks, but identifying them requires access to vast amounts of data that is all-inclusive and up to date.

This can be achieved by manually checking through criminal records or browsing through publicly available information including news platforms, social media, tabloids, blogs etc to identify any potential risks associated with prospective or existing customers. However, this can be a very laborious task consuming a large amount of resources and time.

A smart approach would be subscribing to an adverse media screening tool from a trusted AML compliance software provider that can readily identify risks of corruption, organized crime or drug trafficking related to a customer including those covered in local language (such as Portuguese in Brazil).

Penalties for Non-Compliance

Administrative Penalties (Article 12 of Law No. 9,613/1998)

Regulatory authorities can impose administrative penalties on regulated entities and their management, if they fail to comply with their AML obligations, such as warnings, fines, license cancellations, or temporary disqualification to act as management of a regulated entity for up to 10 years. Regulatory authorities can implement civil monetary penalties up to twice the value of a transaction made in contravention of regulations, or twice the benefit obtained from such transaction, or up to a maximum of R$20,000,000.00

Criminal Penalties

A person convicted for a money laundering offense can face a monetary fine plus an imprisonment for a period of 3 to 10 years, subject to increase or decrease in certain circumstances. Moreover, once conviction is established, the government will have power to confiscate assets involved in money laundering and will disqualify such a person from acting as a management or director of the regulated entity twice the period of imprisonment.

Sanctions Compliance Requirement In Brazil

International Sanctions in Brazil are administered by the Federal Law No. 13,810 of 2019 which obligates all persons in Brazil whether natural or legal including the regulated sector to implement sanctions imposed by United Nations Security Council Resolutions. In addition to the UN sanctions, businesses with operations spanning in other countries should also be mindful of the sanctions applicable on those jurisdictions, especially sanctions enforced by OFAC in the USA, EU Sanction in Europe and OFSI in the UK.

If a regulated entity discovers that an asset or a transaction whether executed or attempted is linked to an entity designated by the UNSC Resolution, it should immediately freeze such assets and report to the competent regulatory authority and COAF, without informing the designated entity or individual. Failure to comply with these regulations may result in administrative penalties by the competent authorities mentioned in Article 12 of Law No. 9,613/1998.

To effectively reduce the risk of non-compliance with sanctions in Brazil, regulated entities should have robust policies, procedures and controls in place to screen all their customers, counterparties and beneficial owners against UN Sanctions lists as well as any other applicable sanctions based on jurisdictions connected to their business operations. Brazilian laws and regulation obligates prompt and immediate implementation of sanctions, calling for continuous screening of existing customers to account for any new additions or updates to sanctions lists.

1.  FATF Mutual Evaluation Report of Brazil
2.  The AML Law
3.  Amendment of AML Law
4.  The Sanction Law
5.  The Crypto Law
6.  Circular No. 3,978/2020
7.  CVM Resolution 50/2021
8.  SUSEP Circular 612/2020
9.  Resolution 23/2023
10.  Resolution No. 129/2023
11.  RN No. 529/2022
12. Resolution No. 1,336 of 2014
13. CFC Resolution 1721/2024
14.  COFECON Resolution 1902/2013
15. Normative Instruction 196-DG/PF/2021
16.  IPHAN Ordinance No. 396/2016
17.  CNJ Provimento no. 161/2024